UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-21774
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First Trust Exchange-Traded Fund
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(Exact name of registrant as specified in charter)
Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 765-8000
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 2016
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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 Equity Opportunities ETF (FPX) (formerly known as First Trust US
IPO Index Fund)
First Trust NYSE Arca Biotechnology Index Fund (FBT)
First Trust Dow Jones Internet Index Fund (FDN)
First Trust Capital Strength ETF (FTCS)
First Trust Value Line(R) Dividend Index Fund (FVD)
First Trust Value Line(R) 100 Exchange-Traded Fund (FVL)
Annual Report
December 31, 2016
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TABLE OF CONTENTS
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FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2016
Shareholder Letter.......................................................... 2
Market Overview............................................................. 3
Fund Performance Overview
First Trust Dow Jones Select MicroCap Index Fund (FDM)................... 4
First Trust Morningstar Dividend Leaders Index Fund (FDL)................ 6
First Trust US Equity Opportunities ETF (FPX)............................ 8
First Trust NYSE Arca Biotechnology Index Fund (FBT)..................... 10
First Trust Dow Jones Internet Index Fund (FDN).......................... 12
First Trust Capital Strength ETF (FTCS).................................. 14
First Trust Value Line(R) Dividend Index Fund (FVD)...................... 16
First Trust Value Line(R) 100 Exchange-Traded Fund (FVL)................. 18
Notes to Fund Performance Overview.......................................... 20
Understanding Your Fund Expenses............................................ 21
Portfolio of Investments
First Trust Dow Jones Select MicroCap Index Fund (FDM)................... 23
First Trust Morningstar Dividend Leaders Index Fund (FDL)................ 28
First Trust US Equity Opportunities ETF (FPX)............................ 30
First Trust NYSE Arca Biotechnology Index Fund (FBT)..................... 33
First Trust Dow Jones Internet Index Fund (FDN).......................... 35
First Trust Capital Strength ETF (FTCS).................................. 37
First Trust Value Line(R) Dividend Index Fund (FVD)...................... 39
First Trust Value Line(R) 100 Exchange-Traded Fund (FVL)................. 43
Statements of Assets and Liabilities........................................ 46
Statements of Operations.................................................... 48
Statements of Changes in Net Assets......................................... 50
Financial Highlights........................................................ 54
Notes to Financial Statements............................................... 58
Report of Independent Registered Public Accounting Firm..................... 68
Additional Information...................................................... 69
Board of Trustees and Officers.............................................. 73
Privacy Policy.............................................................. 75
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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 by investing in a Fund. See "Risk
Considerations" in the Additional Information Section of this report for a
discussion of other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and share price will fluctuate and Fund shares, when
sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on each Fund's webpage at http://www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about each Fund's portfolio and presents data and analysis that
provide insight into each Fund's performance and investment approach.
By reading the market overview by Robert F. Carey, Chief Market Strategist of
the Advisor, you may obtain an understanding of how the market environment
affected the performance of each Fund. The statistical information that follows
may help you understand each Fund's performance compared to that of relevant
market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in each
Fund are spelled out in its prospectus, statement of additional information,
this report and other Fund regulatory filings.
Page 1
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SHAREHOLDER LETTER
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FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
DECEMBER 31, 2016
Dear Shareholders:
Now that 2016 is over, many will remember some of the historic events that
occurred during the year: from the Brexit vote in the UK to leave the European
Union, to the results of the U.S. Presidential Election which seemed unlikely at
the beginning of the year, to the first World Series Championship for the
Chicago Cubs in 108 years!
First Trust Advisors L.P. ("First Trust") is pleased to provide you with this
annual report which contains detailed information about your investment for the
12 months ended December 31, 2016, including a market overview and a performance
analysis for the period. Additionally, First Trust has compiled the Funds'
financial statements for you to review. We encourage you to read this report and
discuss it with your financial advisor.
On November 8, Donald J. Trump was elected to become the 45th president in our
country's history. While no one has a crystal ball and the ability to predict
how his presidency will shape the United States (and the world), there is no
doubt that his populist message resonated for many Americans. And his message of
improving lives for the "average" American, while reducing the size and scope of
the federal government, also won him millions of votes. Many of his supporters
believe that with his background in business, President Trump will make policy
changes that will continue to grow the economy and spur stock markets even
higher. Many analysts predicted the Dow Jones Industrial Average would hit a new
benchmark, 20,000, in the first days of the New Year. As with all change and a
new administration, only time will tell.
As of December 31, 2016, the S&P 500(R) Index was up 11.96% calendar
year-to-date, on a total return basis, as measured by Bloomberg. The current
bull market (measuring from March 9, 2009 through December 31, 2016) is the
second longest in history. We remain bullish on the economy, but continue to
have a long-term perspective. We believe investors should think long-term as
well, since no one can predict volatility and the inevitable ups and downs that
occur in the market.
Thank you for your investment in First Trust Exchange-Traded Fund and for giving
First Trust the opportunity to be a part of your investment plan. We value our
relationship with you and will continue our relentless focus on bringing the
types of investments that we believe could help you reach your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 2
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MARKET OVERVIEW
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FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2016 (UNAUDITED)
ROBERT F. CAREY, CFA
SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST
FIRST TRUST ADVISORS L.P.
Mr. Carey is responsible for the overall management of research and analysis of
the First Trust product line. Mr. Carey has over 25 years of experience as an
Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial
Analyst ("CFA") designation. He is a graduate of the University of Illinois at
Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment
Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a
guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been
quoted by several publications, including The Wall Street Journal, The Wall
Street Reporter, Bloomberg News Service, and Registered Rep.
STATE OF THE ECONOMY/INVESTING
For the second consecutive year, at its December Federal Open Market Committee
meeting, the Federal Reserve (the "Fed") initiated a 25 basis point increase to
the federal funds target rate trading range, which now stands at 0.50% to 0.75%.
The Fed commented in December that inflation expectations have increased
"considerably" and noted that the labor market is tightening, according to
Bloomberg. The Fed is forecasting three quarter-point increases in 2017. For the
30-year period ended December 31, 2016, the federal funds target rate (upper
bound) averaged 3.54%, according to Bloomberg.
Consumer confidence levels continued to rise in 2016. The Conference Board's
Consumer Confidence Index reading stood at 113.70 in December, up from 96.30 in
December 2015, according to Bloomberg. The index reached as low as 25.30 in
February 2009, just prior to the end of the last bear market in stocks in March
2009. While confidence levels are higher than at any point since 2001, the index
has room to run. The highest reading so far in this millennium was 144.71, set
in January 2000. Confidence levels have been bolstered by gains in the labor
force, in our opinion. U.S. nonfarm payrolls expanded by an average of 180,000
per month in 2016, above the 159,000 per month average posted so far in the
current economic recovery (July 2009-December 2016), according to data from the
Bureau of Labor Statistics.
ETFGI, an industry research group, reported that total assets invested in
exchange-traded funds ("ETFs") and other exchange-traded products ("ETPs")
reached a record high of $3.55 trillion globally in 2016, according to its own
release. Total assets invested in U.S. ETFs/ETPs reached a record high $2.59
trillion in 2016.
U.S. STOCKS AND BONDS
In 2016, three of the major U.S. stock indices posted double-digit returns. The
S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index posted
total returns of 11.96%, 20.74%, and 26.56%, respectively, according to
Bloomberg. Ten of the 11 major S&P 500(R) Index sectors (Real Estate was added
in September 2016) posted positive total returns. The top-performing sectors
were Energy, Telecommunication Services and Financials, up 27.36%, 23.49% and
22.75%, respectively, on a total return basis. The only sector that posted a
loss was Health Care, down 2.69%. Health Care stocks, particularly the drug
makers, came under increased scrutiny during the election cycle from some of the
political candidates, including Hillary Clinton. It is not unusual for
candidates to use rising prescription drug prices as a wedge issue in an effort
to garner votes, in our opinion.
The S&P 500(R) Index closed 1.45% below its all-time closing high (2,271.72 on
December 13, 2016) on December 31, 2016, according to Bloomberg. The consensus
estimated earnings growth rates for 2017 for the S&P 500(R) Index, S&P MidCap
400(R) Index and S&P SmallCap 600(R) Index were 12.02%, 11.49% and 17.64%,
respectively, as of December 31, 2016 according to Bloomberg. The consensus
estimated earnings growth rates for 2018 for the S&P 500(R) Index, S&P MidCap
400(R) Index and S&P SmallCap 600(R) Index were 11.20%, 12.00% and 15.95%,
respectively. We are encouraged by level of those earnings growth rate estimates
at this stage of the bull market.
In the U.S. bond market, the top-performing major debt group was high yield
corporate bonds. The Bloomberg Barclays U.S. Corporate High Yield Index posted a
total return of 17.13%. The worst-performing debt group that we track was
municipal bonds, though the group still generated a positive return. The
Bloomberg Barclays Municipal Bond: Long Bond (22+) Index posted a total return
of 0.88%. The yield on the benchmark 10-Year Treasury note (T-note) increased by
18 basis points in 2016, from 2.27% on December 31, 2015 to 2.45% on December
31, 2016. A yield of 2.45% is low by historical standards. For the 30-year
period ended December 31, 2016, the average yield on the 10-year T-note was
5.11%, according to Bloomberg.
FOREIGN STOCKS AND BONDS
The U.S. dollar appreciated by 3.63% against a basket of major currencies in
2016, as measured by the U.S. Dollar Index. With respect to U.S. investors, a
stronger U.S. dollar can negatively impact returns on foreign securities.
The Bloomberg Barclays EM Hard Currency Aggregate Index of emerging markets debt
posted a total return of 9.00% in U.S. dollar ("USD") terms, while the Bloomberg
Barclays Global Aggregate Index of higher quality debt rose 2.09% (USD) for the
same period. The MSCI Emerging Markets Index of stocks posted a total return of
11.19% (USD), while the MSCI Net World Index (excluding the U.S.) posted a total
return of 2.75% (USD).
Page 3
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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 80% of
its net assets (including investment borrowings) in common stocks of U.S.
micro-capitalization companies which are publicly traded in the United States.
The Fund will normally invest at least 90% of its assets in common stocks that
comprise the Index. The Index measures the performance of selected U.S.
micro-capitalization companies chosen from all common stocks traded on the New
York Stock Exchange ("NYSE"), NYSE MKT and The Nasdaq Stock Market LLC
("Nasdaq") that are comparatively liquid and have strong fundamentals relative
to the micro-capitalization segment as a whole. The Fund's shares are listed for
trading on the NYSE Arca, Inc. ("NYSE Arca"). The first day of secondary market
trading in shares of the Fund was September 30, 2005.
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PERFORMANCE
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AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (9/27/05) Ended Ended (9/27/05)
12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 35.45% 18.44% 7.32% 8.22% 133.12% 102.72% 143.28%
Market Value 35.87% 18.65% 7.33% 8.23% 135.14% 102.89% 143.69%
INDEX PERFORMANCE
Dow Jones Select MicroCap Index(SM) 36.19% 19.19% 8.03% 8.94% 140.52% 116.55% 162.35%
Russell 2000(R) Index 21.31% 14.46% 7.07% 8.09% 96.45% 97.93% 140.18%
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(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a net asset value ("NAV") return of 35.45% during the
12-month period covered by this report. During the same period, the Russell
2000(R) Index ("benchmark") generated a return of 21.31%. The Financials sector
was given the heaviest weighting in the Fund over the period at 39% and
contributed 19.2% to the Fund's performance due to the sector having a 47.4%
return over the period. The Banking industry in particular was the highest
allocated industry among the Financial industries, with a 48.3% return. The
Health Care sector was the worst performing sector in the Fund over the period
with a 1.0% return. The contribution was minimized to 0.2% as the sector was
only given a 4.0% allocation. On a relative basis, the Fund outperformed the
benchmark. The outperformance is mainly attributable to the Financials sector
where the Fund over allocated the benchmark by 21.5% and outperformed the
benchmark by 12.7%, leading to 8.1% of relative outperformance. The Information
Technology sector, which returned 28.9%, slightly tempered the relative
outperformance by -0.47% due to the Fund under allocating by 9.0%.
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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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% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
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Financials 48.49%
Consumer Discretionary 17.24
Industrials 15.17
Materials 4.99
Information Technology 4.67
Consumer Staples 2.80
Health Care 2.77
Energy 1.09
Telecommunication Services 1.09
Utilities 1.02
Real Estate 0.67
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Total 100.00%
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% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
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Piper Jaffray Cos. 0.99%
United Financial Bancorp, Inc. 0.88
Meta Financial Group, Inc. 0.88
Enterprise Financial Services Corp. 0.83
OceanFirst Financial Corp. 0.82
TrustCo Bank Corp. NY 0.80
Winnebago Industries, Inc. 0.80
Washington Trust Bancorp, Inc. 0.79
Community Trust Bancorp, Inc. 0.79
Univest Corp. of Pennsylvania 0.79
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Total 8.37%
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PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2006 - DECEMBER 31, 2016
First Trust Dow Jones Dow Jones
Select MicroCap Select MicroCap Russell 2000(R)
Index Fund Index(SM) Index
12/06 $10,000 $10,000 $10,000
06/07 10,621 10,656 10,645
12/07 9,397 9,471 9,843
06/08 8,246 8,336 8,921
12/08 6,266 6,362 6,518
06/09 6,134 6,247 6,690
12/09 7,571 7,754 8,289
06/10 7,360 7,555 8,127
12/10 9,522 9,803 10,515
06/11 9,842 1,0169 11,168
12/11 8,695 9,004 10,077
06/12 9,255 9,615 10,937
12/12 10,075 10,506 11,724
06/13 11,711 12,249 13,583
12/13 14,438 15,154 16,275
06/14 14,341 15,099 16,794
12/14 14,882 15,709 17,071
06/15 15,656 16,573 17,882
12/15 14,966 15,898 16,317
06/16 15,340 16,340 16,679
12/16 20,272 21,651 19,795
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
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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%
01/01/12 - 12/31/12 70 0 0 0
01/01/13 - 12/31/13 151 1 0 0
01/01/14 - 12/31/14 93 1 0 0
01/01/15 - 12/31/15 112 0 0 0
01/01/16 - 12/31/16 133 0 0 0
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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%
01/01/12 - 12/31/12 179 1 0 0
01/01/13 - 12/31/13 98 2 0 0
01/01/14 - 12/31/14 158 0 0 0
01/01/15 - 12/31/15 140 0 0 0
01/01/16 - 12/31/16 119 0 0 0
Page 5
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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 MKT or Nasdaq) that have been selected through the application of
Morningstar, Inc.'s proprietary multi-step screening process. The Index is
rebalanced four times annually in March, June, September and December. The
Fund's shares are listed for trading on the NYSE Arca. The first day of
secondary market trading in shares of the Fund was March 15, 2006.
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PERFORMANCE
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AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (3/9/06) Ended Ended (3/9/06)
12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 20.72% 13.41% 5.68% 7.09% 87.62% 73.71% 109.79%
Market Value 20.85% 13.43% 5.69% 7.10% 85.75% 73.86% 109.88%
INDEX PERFORMANCE
Morningstar(R) Dividend Leaders
Index(SM) 21.34% 13.99% 6.21% 7.62% 92.48% 82.71% 121.27%
S&P 500(R) Index 11.96% 14.66% 6.95% 7.63% 98.18% 95.72% 121.49%
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(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 20.72% during the 12-month period covered by
this report. During the same period, the S&P 500(R) Index ("benchmark")
generated a return of 11.96%. The Telecommunication Services sector was the top
contributing sector over the period in the Fund. The Fund's holdings in the
sector comprised an average weighting of 17.7%, returned 25.7%, and contributed
4.6% to the Fund's return. The top performing sector in the Fund was the Energy
sector with a 58.4% return. The sector's contribution was limited to 2.4% due to
the sector having a low allocation of 5.9% over the period. The Health Care
sector was the worst contributing and performing sector in the Fund with a 0.6%
contribution and 9.2% return. On a relative basis, the Fund outperformed the
benchmark. The Telecommunication Services sector created 2.1% of outperformance
relative to the benchmark as the Fund had a 15.1% greater allocation to the
well-performing sector. The Financials sector was the only sector that created
relative underperformance due to the Fund under allocating compared to the
benchmark by -8.4%. The Financials sector was the second highest returning
sector over the period at 31.5%, leading to -0.2% of drag on performance.
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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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% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Telecommunication Services 19.20%
Consumer Staples 18.40
Information Technology 17.39
Utilities 13.76
Health Care 11.28
Industrials 6.50
Financials 4.64
Materials 4.51
Consumer Discretionary 3.12
Energy 1.20
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Total 100.00%
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% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
AT&T, Inc. 10.41%
Verizon Communications, Inc. 8.79
Pfizer, Inc. 6.81
Procter & Gamble (The) Co. 6.43
Philip Morris International, Inc. 5.90
Cisco Systems, Inc. 4.73
Intel Corp. 4.53
Merck & Co., Inc. 4.47
Altria Group, Inc. 4.42
International Business Machines Corp. 4.39
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Total 60.88%
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PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2006 - DECEMBER 31, 2016
First Trust Morningstar Morningstar(R)
Dividend Leaders Dividend Leaders S&P 500(R)
Index Fund Index(SM) Index
12/06 $10,000 $10,000 $10,000
06/07 10,261 10,291 10,695
12/07 8,937 8,976 10,550
06/08 6,621 6,663 9,291
12/08 6,103 6,162 6,647
06/09 5,763 5,835 6,857
12/09 6,971 7,074 8,405
06/10 6,655 6,768 7,846
12/10 8,089 8,252 9,672
06/11 8,722 8,921 10,253
12/11 9,258 9,492 9,875
06/12 10,024 10,312 10,812
12/12 10,104 10,418 11,455
06/13 11,515 11,905 13,038
12/13 12,401 12,853 15,164
06/14 13,677 14,217 16,247
12/14 14,008 14,595 17,241
06/15 13,584 14,183 17,453
12/15 14,391 15,058 17,479
06/16 16,509 17,326 18,150
12/16 17,372 18,270 19,572
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 171 0 0 0
01/01/13 - 12/31/13 171 0 0 0
01/01/14 - 12/31/14 190 0 0 0
01/01/15 - 12/31/15 151 0 0 0
01/01/16 - 12/31/16 161 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 79 0 0 0
01/01/13 - 12/31/13 81 0 0 0
01/01/14 - 12/31/14 62 0 0 0
01/01/15 - 12/31/15 101 0 0 0
01/01/16 - 12/31/16 91 0 0 0
Page 7
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX)
The First Trust US Equity Opportunities ETF (the "Fund"), formerly First Trust
US IPO Index Fund, seeks investment results that correspond generally to the
price and yield (before the Fund's fees and expenses) of an equity index called
the IPOX(R)-100 U.S. Index (the "Index"). The Fund will normally invest at least
90% of its assets in common stocks that comprise the Index. The Index is a
modified value-weighted price index measuring the performance of the top 100
U.S. companies ranked quarterly by market capitalization in the IPOX(R) Global
Composite Index. The Index utilizes a 10% capping on all constituents and
includes the 100 largest, typically best performing and most liquid initial
public offerings ("IPOs") of the U.S. companies in the IPOX(R) Global Composite
Index. The IPOX(R) Global Composite Index is reconstituted regularly with IPOs
being added to the IPOX(R) Global Composite Index at their seventh trading day
upon "going public" and automatically exiting after 1,000 trading days or
approximately four years thereafter. The Index is reconstituted quarterly to
reflect changes in the stock market values of the IPOX(R) Global Composite Index
constituents and IPO activity during the past quarter, with potential new
companies entering the Index while other companies reaching 1,000 days in the
Index automatically drop out. The Fund's shares are listed for trading on the
NYSE Arca. The first day of secondary market trading in shares of the Fund was
April 13, 2006.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (4/12/06) Ended Ended (4/12/06)
12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 6.70% 18.61% 10.31% 10.65% 134.75% 166.68% 196.01%
Market Value 6.86% 18.65% 10.33% 10.67% 135.15% 167.27% 196.40%
INDEX PERFORMANCE
IPOX(R)-100 U.S. Index 7.24% 19.30% 10.97% 11.32% 141.66% 183.16% 215.84%
S&P 500(R) Index 11.96% 14.66% 6.95% 7.56% 98.18% 95.72% 118.47%
Russell 3000(R) Index 12.74% 14.67% 7.07% 7.59% 98.23% 98.10% 119.18%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 6.70% during the 12-month period covered by
this report. During the same period, the Russell 3000(R) Index ("benchmark")
generated a return of 12.74%. The Fund generated 2.3% of its relative over
performance through Consumer Staples sector securities, which were given an
average weighting of 12.1% and had a 19.4% return. The Food Products industry
made up 10.5% of the Consumer Staples sector and had a 24.6% return. The
Consumer Discretionary sector was the only detracting sector from the Fund's
performance over the period. This sector was given a 16.1% allocation and
returned -0.6% over the period, leading to a -0.8% contribution. On a relative
basis, the Fund underperformed the benchmark. The Information Technology sector,
which was the sector with the highest allocation in the Fund at 30.4%, created
-2.6% of the relative underperformance as the Fund over allocated (+10.5%) and
underperformed (-9.9%). Due to the Fund outperforming the benchmark by 13.4%
within the Consumer Staples sector, 1.0% of drag was reversed.
-----------------------------
The Fund is not sponsored, endorsed, sold or promoted by IPOX(R). IPOX(R) makes
no representation or warranty, express or implied, to the owners of the Fund or
any member of the public regarding the advisability of trading in the Fund.
Page 8
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 22.89%
Health Care 21.32
Consumer Discretionary 15.83
Consumer Staples 14.16
Financials 8.80
Industrials 7.84
Energy 3.21
Materials 2.72
Real Estate 2.14
Telecommunication Services 0.77
Utilities 0.32
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Kraft Heinz (The) Co. 10.19%
AbbVie, Inc. 9.76
Shire PLC, ADR 4.92
PayPal Holdings, Inc. 4.57
Hewlett Packard Enterprise Co. 3.70
Facebook, Inc., Class A 3.25
Synchrony Financial 2.87
Hilton Worldwide Holdings, Inc. 2.58
Zoetis, Inc. 2.54
Restaurant Brands International, Inc. 2.11
-------
Total 46.49%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2006 - DECEMBER 31, 2016
First Trust
US Equity IPOX(R)-100 S&P 500(R) Russell 3000(R)
Opportunities ETF U.S. Index Index Index
12/06 $10,000 $10,000 $10,000 $10,000
06/07 11,158 11,190 11,939 10,711
12/07 11,452 11,515 11,776 10,513
06/08 10,616 10,705 10,373 9,351
12/08 6,427 6,496 7,419 6,591
06/09 7,286 7,396 7,654 6,868
12/09 9,315 9,482 9,382 8,459
06/10 8,763 8,948 8,758 7,947
12/10 11,018 11,291 10,796 9,891
06/11 12,109 12,452 11,446 10,519
12/11 11,359 11,719 11,023 9,992
06/12 12,897 13,346 12,069 10,923
12/12 14,768 15,325 12,788 11,632
06/13 17,248 17,943 14,555 13,267
12/13 21,855 22,816 16,929 15,534
06/14 23,300 24,402 18,137 16,612
12/14 24,458 25,690 19,247 17,484
06/15 26,571 27,992 19,484 17,823
12/15 24,993 26,408 19,513 17,568
06/16 24,831 26,297 20,262 18,204
12/16 26,668 28,319 19,572 19,810
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 149 2 0 0
01/01/13 - 12/31/13 220 0 0 0
01/01/14 - 12/31/14 158 0 0 0
01/01/15 - 12/31/15 172 0 0 0
01/01/16 - 12/31/16 118 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 97 2 0 0
01/01/13 - 12/31/13 32 0 0 0
01/01/14 - 12/31/14 94 0 0 0
01/01/15 - 12/31/15 80 0 0 0
01/01/16 - 12/31/16 134 0 0 0
Page 9
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT)
The First Trust NYSE Arca Biotechnology Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the NYSE Arca Biotechnology Index(SM)
(the "Index"). The Fund will normally invest at least 90% of its assets in
common stocks that comprise the Index. The Index is an equal dollar-weighted
index designed to measure the performance of a cross section of companies in the
biotechnology industry that are primarily involved in the use of biological
processes to develop products or provide services. Such processes include, but
are not limited to, recombinant DNA technology, molecular biology, genetic
engineering, monoclonal antibody-based technology, lipid/liposome technology and
genomics. This Index is rebalanced quarterly based on closing prices on the
third Friday in January, April, July and October to ensure that each component
stock continues to represent approximately equal weight in the Index. The Fund's
shares are listed for trading on the NYSE Arca. The first day of secondary
market trading in shares of the Fund was June 23, 2006.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (6/19/06) Ended Ended (6/19/06)
12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV -19.60% 22.74% 14.61% 15.60% 178.58% 291.20% 360.64%
Market Value -19.51% 22.77% 14.61% 15.61% 178.88% 291.00% 360.99%
INDEX PERFORMANCE
NYSE Arca Biotechnology Index(SM) -19.15% 23.30% 15.23% 16.23% 185.03% 312.67% 387.57%
S&P Composite 1500(R) Health Care Index -2.05% 17.18% 9.97% 10.62% 120.94% 158.60% 189.49%
NASDAQ(R) Biotechnology Index -21.35% 21.00% 13.51% 13.92% 159.41% 255.15% 294.72%
S&P 500(R) Index 11.96% 14.66% 6.95% 8.05% 98.18% 95.72% 126.13%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of -19.60% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500(R) Health Care Index
("benchmark") generated a return of -2.05%. Biotechnology companies were hit
hard during January and February of 2016 and continued to be very volatile
throughout the year. The worst contributing securities within the Fund were
Celldex Therapeutics, Inc. (-70.4%), Myriad Genetics, Inc. (-61.4%), and Alnylam
Pharmaceuticals, Inc. (-60.2%), which contributed a combined -8.3% to the Fund's
return. The top contributing securities within the Fund were Medivation, Inc.
(+68.5%), Cepheid (+45.2%), and Seattle Genetics, Inc. (+17.6%), which
contributed a combined 4.5% to the Fund's return. On a relative basis, the Fund
underperformed the benchmark. The primary cause of the underperformance was the
Fund's over allocation of 59.1% to pure play biotechnology companies (-22.3%
return), which led to -14.0% of underperformance. The benchmark was mostly
comprised of Pharmaceutical companies, which had a more neutral return of -1.9%.
Medivation, Inc. (as mentioned above) alone reversed 2.1% of the Fund's
underperformance as the Fund held this well-performing security at an average
2.8% weighting versus the benchmark's 0% weighting.
-----------------------------
The NYSE Arca Biotechnology Index(SM) is a trademark of NYSE Euronext or its
affiliates ("NYSE Euronext") and is licensed for use by First Trust on behalf of
the Fund. The Fund is not sponsored or endorsed by NYSE Euronext. NYSE Euronext
makes no representation or warranty, express or implied, to the owners of the
Fund or any member of the public regarding the advisability of investing in the
Fund or the ability of the Fund to track the performance of the various sectors
represented in the stock market.
Page 10
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
INDUSTRY CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Biotechnology 80.62%
Life Sciences Tools & Services 16.33
Pharmaceuticals 3.05
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Ionis Pharmaceuticals, Inc. 5.65%
United Therapeutics Corp. 4.26
Celgene Corp. 3.88
Incyte Corp. 3.79
ACADIA Pharmaceuticals, Inc. 3.77
QIAGEN N.V. 3.60
Grifols S.A., ADR 3.52
Ultragenyx Pharmaceutical, Inc. 3.51
Seattle Genetics, Inc. 3.44
Quintiles IMS Holdings, Inc. 3.41
-------
Total 38.83%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2006 - DECEMBER 31, 2016
First Trust NYSE NYSE Arca NASDAQ(R) S&P Composite
Arca Biotechnology Biotechnology Biotechnology S&P 500(R) 1500(R) Health
Index Fund Index(SM) Index Index Care Index
12/06 $10,000 $10,000 $10,000 $10,000 $10,000
06/07 10,280 10,308 10,056 10,696 10,648
12/07 10,365 10,428 10,464 10,549 10,802
06/08 9,690 9,781 9,947 9,292 9,463
12/08 8,465 8,580 9,150 6,646 8,235
06/09 9,105 9,243 9,411 6,856 8,312
12/09 12,264 12,491 10,600 8,405 9,944
06/10 13,273 13,564 10,061 7,846 9,222
12/10 16,788 17,205 12,216 9,672 10,461
06/11 18,838 19,366 13,968 10,254 11,945
12/11 14,042 14,470 13,692 9,876 11,704
06/12 18,842 19,478 17,090 10,813 13,049
12/12 19,788 20,510 18,113 11,456 13,853
06/13 24,978 25,947 22,982 13,039 16,708
12/13 29,701 30,929 30,063 15,166 19,697
06/14 35,374 36,877 34,125 16,249 21,706
12/14 43,850 45,750 40,406 17,243 24,580
06/15 53,357 55,760 49,211 17,455 27,087
12/15 48,656 50,959 45,160 17,481 26,402
06/16 38,526 40,472 34,435 18,152 26,555
12/16 39,120 41,267 35,515 19,572 25,860
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 121 0 0 0
01/01/13 - 12/31/13 204 0 0 0
01/01/14 - 12/31/14 183 0 0 0
01/01/15 - 12/31/15 159 0 0 0
01/01/16 - 12/31/16 129 1 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 128 1 0 0
01/01/13 - 12/31/13 48 0 0 0
01/01/14 - 12/31/14 69 0 0 0
01/01/15 - 12/31/15 93 0 0 0
01/01/16 - 12/31/16 122 0 0 0
Page 11
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
The First Trust Dow Jones Internet Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the Dow Jones Internet Composite
Index(SM) (the "Index"). The Fund will normally invest at least 90% of its
assets in common stocks that comprise the Index. The Index represents companies
that generate the majority of their revenues via the Internet. The Index was
designed and is maintained according to a set of rules that were devised with
the goal of providing clear and accurate views of the growing Internet market
segment. The Index aims to consistently represent 80% of the float-adjusted
Internet equity universe. For its stock to be eligible for the "universe," a
company must generate at least 50% of annual sales/revenues from the Internet,
and be currently included in the Dow Jones U.S. Index. The Fund's shares are
listed for trading on the NYSE Arca. The first day of secondary market trading
in shares of the Fund was June 23, 2006.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (6/19/06) Ended Ended (6/19/06)
12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 6.91% 19.84% 13.51% 14.08% 147.18% 255.05% 300.67%
Market Value 6.98% 19.85% 13.50% 14.09% 147.30% 254.91% 300.87%
INDEX PERFORMANCE
Dow Jones Internet Composite Index(SM) 7.45% 20.48% 14.12% 14.70% 153.84% 274.72% 323.98%
S&P 500(R) Index 11.96% 14.66% 6.95% 8.05% 98.18% 95.72% 126.13%
S&P Composite 1500(R) Information
Technology Index 14.78% 16.37% 9.89% 10.90% 113.43% 156.86% 197.31%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 6.91% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500(R) Information
Technology Index ("benchmark") generated a return of 14.78%. Over the period,
the Internet Software & Services industry had the highest allocation of 51.1% in
the Fund. This industry had a 6.9% return leading to a contribution of 3.3% to
the Fund's performance. Amazon.com, Inc. and Facebook, Inc. were the top two
contributing securities to the Fund's return, with a 1.6% and 1.5% contribution,
respectively. Each of these securities were given an average weighting of 10.3%
over the period, that had a 10.0% return. TripAdvisor, Inc., which is in the
Internet & Direct Marketing Retail industry, contributed -1.3% to the Fund's
performance, due to its -45.6% return. On a relative basis, the Fund
underperformed the benchmark. The Internet Software & Services industry, where
the Fund over allocated to the benchmark by 31.4%, created -2.5% of the
underperformance. Another -2.3% of underperformance was created by the
Semiconductors & Semiconductor Equipment industry, where the benchmark gave an
average 14.4% allocation versus the Fund's 0% allocation. This industry returned
32.9% over the period. The IT Services and Software industries were the only
industries that created relative outperformance. Both industries, which posted
average returns, were given a smaller weighting in the Fund over the period,
creating the outperformance.
-----------------------------
Dow Jones and Dow Jones Internet Composite IndexSM are products of S&P Dow Jones
Indices ("SPDJI") and have been licensed for use by First Trust on behalf of the
Fund. The Fund, based on the Dow Jones Internet Composite Index(SM), is not
sponsored, endorsed, sold or promoted by SPDJI, Dow Jones Trademark Holdings LLC
("Dow Jones") or their respective affiliates and SPDJI, Dow Jones and their
respective affiliates make no representation regarding the advisability of
trading in the Fund.
Page 12
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 69.66%
Consumer Discretionary 20.46
Financials 4.93
Health Care 2.76
Telecommunication Services 2.19
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Facebook, Inc., Class A 9.92%
Amazon.com, Inc. 9.90
Alphabet, Inc., Class A 5.15
Netflix, Inc. 5.11
Alphabet, Inc., Class C 5.03
PayPal Holdings, Inc. 4.75
salesforce.com, Inc. 4.60
Yahoo!, Inc. 4.11
eBay, Inc. 4.11
Citrix Systems, Inc. 2.86
-------
Total 55.54%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2006 - DECEMBER 31, 2016
First Trust Dow Jones S&P Composite 1500(R)
Dow Jones Internet Internet Composite S&P 500(R) Information Technology
Index Fund Index(SM) Index Index
12/06 $10,000 $10,000 $10,000 $10,000
06/07 11,498 11,528 10,696 10,987
12/07 11,116 11,181 10,550 11,543
06/08 9,927 10,010 9,292 10,055
12/08 6,223 6,287 6,647 6,591
06/09 8,306 8,417 6,857 8,212
12/09 11,153 11,334 8,405 10,613
06/10 10,615 10,801 7,846 9,550
12/10 15,238 15,556 9,672 11,900
06/11 16,114 16,491 10,254 12,193
12/11 14,362 14,760 9,876 12,033
06/12 15,719 16,204 10,813 13,564
12/12 17,357 17,953 11,456 13,808
06/13 20,183 20,934 13,039 14,737
12/13 26,625 27,712 15,166 17,811
06/14 26,497 27,627 16,249 19,316
12/14 27,271 28,486 17,243 21,186
06/15 29,886 31,304 17,455 21,461
12/15 33,206 34,868 17,481 22,371
06/16 32,084 33,773 18,152 22,384
12/16 35,501 37,464 19,572 25,686
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 122 0 0 0
01/01/13 - 12/31/13 200 0 0 0
01/01/14 - 12/31/14 148 0 0 0
01/01/15 - 12/31/15 201 0 0 0
01/01/16 - 12/31/16 124 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 128 0 0 0
01/01/13 - 12/31/13 52 0 0 0
01/01/14 - 12/31/14 104 0 0 0
01/01/15 - 12/31/15 51 0 0 0
01/01/16 - 12/31/16 128 0 0 0
Page 13
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
The First Trust Capital Strength ETF (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called The Capital Strength Index(TM) (the
"Index"). The Fund will normally invest at least 90% of its net assets
(including investment borrowings) in common stocks that comprise the Index. The
Index is initially equally-weighted and is made up of the top 50 stocks out of
the universe of the largest 500 U.S. companies included in the Nasdaq US
Benchmark Index, ranked by one- and three-year daily volatility. Companies with
less than $1 billion in cash and short term investments, companies with
long-term debt divided by market capitalization greater than 30%, and companies
with return on equity less than 15% are excluded from the Index. The Index is
reconstituted and rebalanced on a quarterly basis. The Fund's shares are listed
for trading on the Nasdaq. The first day of secondary market trading in shares
of the Fund was July 11, 2006.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (7/6/06) Ended Ended (7/6/06)
12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 8.57% 15.25% 8.07% 8.73% 103.37% 117.23% 140.56%
Market Value 8.63% 15.29% 8.06% 8.74% 103.65% 117.04% 140.68%
INDEX PERFORMANCE
The Capital Strength Index(TM)* 9.31% N/A N/A N/A N/A N/A N/A
S&P 500 Value Index** 17.40% 14.69% 5.50% 6.46% 98.46% 70.75% 92.86%
S&P 500(R) Index 11.96% 14.66% 6.95% 7.80% 98.18% 95.72% 119.88%
------------------------------------------------------------------------------------------------------------------------------------
* On June 4, 2013, the Fund's underlying index changed from the Credit
Suisse U.S. Value Index, Powered by HOLT(TM) to The Capital Strength
Index(TM). On June 18, 2010, the Fund's underlying index changed from the
Deutsche Bank CROCI(R) US+ Index(TM) to the Credit Suisse U.S. Value
Index, Powered by HOLT(TM). Since the Fund's new underlying index had an
inception date of March 20, 2013, it was not in existence for some of the
periods disclosed.
** The Fund no longer uses the S&P 500 Value Index as a comparative index for
the Fund as the Advisor has determined that this index is no longer
representative of the Fund's investment strategy and portfolio holdings.
The S&P 500 Value Index will be represented in performance comparisons of
the Fund until May 1, 2018.
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 8.57% during the 12-month period covered by
this report. During the same period, the S&P 500 Value Index ("benchmark")
generated a return of 17.40%. The Information Technology sector generated 4.3%
of the Fund's performance, as the sector was given a 20.9% allocation and had a
return of 17.9%. The top returning sector was Industrials with a 22.8% return.
The Health Care sector was the worst contributing sector over the period with a
-0.5% contribution to performance. This sector was given an average 14.2%
weighting and had a 3.8% return. The only returning sector with negative returns
was Materials with a -13.1% return. The sector's contribution was minimized to
-0.3% due to its low average weighting of 2.0% of the Fund. On a relative basis,
the Fund underperformed the benchmark. The relative underperformance is
primarily attributed to the Fund's holdings within the Consumer Discretionary
sector where the Fund over allocated the benchmark by 10.4% and underperformed
by -9.5%; this led to -2.4% of drag. The Industrials sector, where the Fund over
allocated the benchmark by 11.1%, reversed -0.5% of underperformance.
-----------------------------
"Credit Suisse," "HOLT" and "Credit Suisse U.S. Value Index, Powered by
HOLT(TM)," are trademarks of Credit Suisse Group AG, Credit Suisse Securities
(USA) LLC or one of their affiliates.
The Capital Strength Index(TM) is the trademark (the "Mark") of the Nasdaq OMX
Group ("Nasdaq OMX"). The Mark is licensed for use by First Trust Portfolios
L.P. The Fund has not been passed on by Nasdaq OMX as to its legality or
suitability. The Fund is not issued, endorsed, sold or promoted by Nasdaq OMX.
The Fund should not be construed in any way as investment advice by Nasdaq OMX.
NASDAQ OMX MAKES NO WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE FUND
OR THE CAPITAL STRENGTH INDEX(TM).
Page 14
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CAPITAL STRENGTH ETF (FTCS) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Health Care 22.65%
Information Technology 22.60
Industrials 18.88
Consumer Staples 15.75
Consumer Discretionary 14.26
Financials 3.88
Materials 1.98
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Xilinx, Inc. 2.34%
Automatic Data Processing, Inc. 2.29
Sysco Corp. 2.25
General Dynamics Corp. 2.22
Boeing (The) Co. 2.22
T. Rowe Price Group, Inc. 2.21
Walt Disney (The) Co. 2.17
International Business Machines Corp. 2.14
UnitedHealth Group, Inc. 2.13
Western Union (The) Co. 2.10
-------
Total 22.07%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2006 - DECEMBER 31, 2016
First Trust Capital S&P 500(R) S&P 500
Strength ETF Index Value Index
12/06 $10,000 $10,000 $10,000
06/07 11,237 10,695 10,737
12/07 11,026 10,549 10,199
06/08 10,162 9,293 8,563
12/08 6,922 6,646 6,200
06/09 7,802 6,856 6,113
12/09 9,649 8,405 7,513
06/10 8,921 7,846 7,115
12/10 11,002 9,672 8,648
06/11 11,868 10,254 9,100
12/11 10,679 9,876 8,606
06/12 11,259 10,813 9,374
12/12 12,543 11,456 10,128
06/13 14,631 13,039 11,721
12/13 17,045 15,166 13,367
06/14 17,996 16,249 14,297
12/14 19,680 17,243 15,018
06/15 19,647 17,455 14,950
12/15 20,005 17,481 14,546
06/16 21,073 18,152 15,454
12/16 21,720 19,572 17,077
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 147 0 0 0
01/01/13 - 12/31/13 134 0 0 0
01/01/14 - 12/31/14 108 9 0 0
01/01/15 - 12/31/15 190 2 0 0
01/01/16 - 12/31/16 194 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 103 0 0 0
01/01/13 - 12/31/13 117 1 0 0
01/01/14 - 12/31/14 131 4 0 0
01/01/15 - 12/31/15 57 3 0 0
01/01/16 - 12/31/16 58 0 0 0
Page 15
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
The First Trust Value Line(R) Dividend Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the Value Line(R) Dividend Index (the
"Index"). The Fund will normally invest at least 90% of its assets in common
stocks that comprise the Index. The Index is designed to objectively identify
and select those stocks from the universe of stocks which Value Line, Inc.(R)
gives a Safety(TM) Ranking of #1 or #2 in the Value Line(R) Safety(TM) Ranking
System and have the potential to pay above-average dividends and achieve capital
appreciation. The Index is rebalanced on a monthly basis. The Fund's shares are
listed for trading on the NYSE Arca.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (8/19/03) Ended Ended (8/19/03)
12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 19.94% 14.66% 8.19% 9.93% 98.14% 119.63% 254.41%
Market Value 20.07% 14.68% 8.20% 9.94% 98.35% 120.00% 254.79%
INDEX PERFORMANCE
Value Line(R) Dividend Index* 20.92% 15.60% 9.04% N/A 106.43% 137.70% N/A
S&P 500(R) Index 11.96% 14.66% 6.95% 8.41% 98.18% 95.72% 194.38%
Dow Jones U.S. Select Dividend
Index(SM)* 21.98% 14.64% 6.72% N/A 98.00% 91.59% N/A
------------------------------------------------------------------------------------------------------------------------------------
On December 15, 2006, the Fund acquired the assets and adopted the
financial and performance history of First Trust Value Line(R) Dividend
Fund (the "Predecessor FVD Fund," a closed-end fund), which had an
inception date of August 19, 2003. The inception date total returns at net
asset value ("NAV") include the sales load of $0.675 per share on the
initial offering. The investment goals, strategies and policies of the
Fund are substantially similar to those of the Predecessor FVD Fund. The
inception date of the Index was July 3, 2006. Returns for the Index are
only disclosed for those periods in which the Index was in existence for
the entire period. The cumulative total returns for the period from the
reorganization date (December 15, 2006) through period end (December 31,
2016) were 119.11% and 120.39% at NAV and Market Value, respectively. That
compares to an Index return of 137.92% for the same period. The average
annual total returns for the period from the reorganization date (December
15, 2006) through period end (December 31, 2016) were 8.12% and 8.19% at
NAV and Market Value, respectively. That compares to an Index return of
9.02% for the same period.
NAV and Market Value returns assume that all distributions have been
reinvested in the Fund at NAV and Market Value, respectively. Prior to
December 15, 2006, NAV and Market Value returns assumed that all
distributions were reinvested at prices obtained by the Dividend
Reinvestment Plan of the Predecessor FVD Fund and the price used to
calculate Market Value return was the AMEX (now known as the NYSE MKT)
closing market price of the Predecessor FVD Fund.
* Performance data is not available for all the periods shown in the table
because performance data does not exist for the periods shown.
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 19.94% during the 12-month period covered by
this report. During the same period, the S&P 500(R) Index ("benchmark")
generated a return of 11.96%. The majority of the Fund's return came from the
Utilities sector. The Fund had a 22.8% average allocation to the Utilities
sector and had a 24.5% return, which lead to a 5.8% contribution. The
Industrials and Financials sectors were the top returning sectors in the Fund,
each having a 28.0% return. The Health Care sector was the only negative
returning sector over the period, with a -0.3% contribution stemming from the
Fund's 7.6% weighting in the sector and -3.5% return. The Fund's holdings in the
Pharmaceuticals industry in particular led to the negative contribution. The
industry was given an average weighting of 5.1% and had a return of -4.2%, which
led to a -0.2% contribution. On a relative basis, the Fund outperformed the
benchmark. The Fund's outperformance is primarily attributable to the Utilities
sector, where the Fund had a 19.5% greater allocation and 7.9% higher return,
resulting in 3.0% of outperformance. The Energy sector reversed -0.44% of the
Fund's outperformance due to the Fund allocating 3.0% less to the
well-performing sector and having a -1.9% lower return.
-----------------------------
Value Line is a registered trademark of Value Line, Inc. that is licensed to
First Trust on behalf of the Fund. The Fund is not sponsored, recommended, sold,
or promoted by Value Line Publishing LLC, Value Line, Inc. or any of their
affiliates.
Page 16
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Utilities 21.07%
Financials 16.39
Consumer Staples 14.46
Industrials 11.20
Information Technology 9.68
Health Care 8.75
Consumer Discretionary 6.63
Energy 3.59
Materials 3.55
Real Estate 3.13
Telecommunication Services 1.55
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Weis Markets, Inc. 0.57%
Sanofi, ADR 0.53
Realty Income Corp. 0.53
Public Storage 0.52
Anheuser-Busch InBev S.A/N.V., ADR 0.52
Federal Realty Investment Trust 0.52
Fortis, Inc. 0.52
Novartis AG, ADR 0.52
TOTAL S.A., ADR 0.52
Simon Property Group, Inc. 0.52
-------
Total 5.27%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2006 - DECEMBER 31, 2016
First Trust
Value Line(R) Value Line(R) S&P 500(R) Dow Jones U.S. Select
Dividend Index Fund Dividend Index Index Dividend Index(SM)
12/06 $10,000 $10,000 $10,000 $10,000
06/07 10,269 10,303 10,696 10,419
12/07 9,658 9,732 10,549 9,484
06/08 8,717 8,812 9,293 7,454
12/08 7,323 7,431 6,647 6,547
06/09 7,235 7,364 6,857 5,726
12/09 8,757 8,955 8,405 7,276
06/10 8,505 8,728 7,846 7,182
12/10 10,165 10,477 9,672 8,609
06/11 10,992 11,375 10,254 9,331
12/11 11,084 11,513 9,876 9,678
06/12 11,786 12,302 10,813 10,311
12/12 12,323 12,905 11,456 10,727
06/13 14,035 14,762 13,039 12,213
12/13 15,597 16,466 15,166 13,844
06/14 16,926 17,951 16,249 15,209
12/14 18,084 19,252 17,243 15,969
06/15 17,708 18,925 17,455 15,399
12/15 18,310 19,656 17,481 15,709
06/16 20,888 22,522 18,152 18,152
12/16 21,962 23,770 19,572 19,163
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 205 0 0 0
01/01/13 - 12/31/13 238 0 0 0
01/01/14 - 12/31/14 223 0 0 0
01/01/15 - 12/31/15 179 0 0 0
01/01/16 - 12/31/16 182 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 44 1 0 0
01/01/13 - 12/31/13 14 0 0 0
01/01/14 - 12/31/14 29 0 0 0
01/01/15 - 12/31/15 73 0 0 0
01/01/16 - 12/31/16 70 0 0 0
Page 17
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
The First Trust Value Line(R) 100 Exchange-Traded Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the Value Line(R) 100 Index
(the "Index"). The Fund will normally invest at least 90% of its assets in
common stocks that comprise the Index. The Index is an equal-dollar weighted
index that is designed to objectively identify and select 100 stocks from the
universe of stocks to which Value Line(R) assigns a #1 ranking in the Value
Line(R) Timeliness(TM) Ranking System (the "Ranking System"). At any one time
only 100 stocks are assigned a #1 ranking in the Ranking System. The Index is
rebalanced quarterly. The Fund's shares are listed for trading on the NYSE Arca.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (6/12/03) Ended Ended (6/12/03)
12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 10.14% 12.44% 4.13% 5.97% 79.76% 49.83% 119.46%
Market Value 10.24% 12.45% 4.99% 5.97% 79.84% 62.70% 119.56%
INDEX PERFORMANCE
Value Line(R) 100 Index* 11.29% 13.49% N/A N/A 88.29% N/A N/A
Russell 3000(R) Index 12.74% 14.67% 7.07% 8.69% 98.23% 98.10% 209.54%
------------------------------------------------------------------------------------------------------------------------------------
On June 15, 2007, the Fund acquired the assets and adopted the financial
and performance history of First Trust Value Line(R) 100 Fund (the
"Predecessor FVL Fund," a closed-end fund), which had an inception date of
June 12, 2003. The inception date total returns at NAV include the sales
load of $0.675 per share on the initial offering. The investment goals,
strategies and policies of the Fund are substantially similar to those of
the Predecessor FVL Fund. The inception date of the Index was January 16,
2007. Returns for the Index are only disclosed for those periods in which
the Index was in existence for the entire period. The cumulative total
returns for the period from the reorganization date (June 15, 2007)
through period end (December 31, 2016) were 33.15% and 33.27% at NAV and
Market Value, respectively. That compares to an Index return of 45.39% for
that same period. The average annual total returns for the period from the
reorganization date (June 15, 2007) through period end (December 31, 2016)
were 3.04% and 3.05% at NAV and Market Value, respectively. That compares
to an Index return of 4.00% for the same period.
NAV and Market Value returns assume that all distributions have been
reinvested in the Fund at NAV and Market Value, respectively. Prior to
June 15, 2007, NAV and Market Value returns assumed that all distributions
were reinvested at prices obtained by the Dividend Reinvestment Plan of
the Predecessor FVL Fund and the price used to calculate Market Value
return was the AMEX (now known as the NYSE MKT) closing market price of
the Predecessor FVL Fund.
* Performance data is not available for all the periods shown in the table
for the index because performance data does not exist for each of the
entire periods.
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 10.14% during the 12-month period covered by
this report. During the same period, the Russell 3000(R) Index ("benchmark")
generated a return of 12.74%. 2.9% of the Fund's return stemmed from the Energy
sector, where the Fund saw a 23.7% return, which was the highest sector return
amongst the Fund, and was given an average weighting of 5.4%. The highest
weighted sector over the period was the Information Technology sector, with an
average weighting of 20.3%. This sector had a 7.6% return, which led to a 1.2%
contribution to performance. The Consumer Discretionary sector, with a -1.0%
contribution, was the only sector with negative impact to performance. This
sector was given an average weighting of 11.4% and had a -12.0% return. The only
other sector to have a negative return was the Consumer Staples sector, with a
-1.3% return. On a relative basis, the Fund underperformed the benchmark.
Although the returns of the Fund and benchmark were similar, slightly more
underperformance was created by the Fund's holdings in the Consumer
Discretionary sector. Several names within this sector, such as Royal Caribbean
Cruises Ltd. and Norwegian Cruise Line Holdings, which had fairly poor returns
of -27.7% and -22.8%, respectively, were given higher allocations in the Fund.
The Consumer Discretionary sector as a whole created -1.5% of underperformance.
The Fund's allocation to the Energy sector reversed 1.3% of underperformance.
Although the Fund underperformed the benchmark within the Energy sector, the
Fund had an average 1.0% lower allocation, which allowed the Fund to allocate
more weighting to sectors that could outperform the benchmark.
-----------------------------
Value Line is a registered trademark of Value Line, Inc. that is licensed to
First Trust on behalf of the Fund. The Fund is not sponsored, recommended, sold,
or promoted by Value Line Publishing LLC, Value Line, Inc. or any of their
affiliates.
Page 18
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Energy 25.86%
Consumer Discretionary 17.68
Information Technology 14.16
Financials 9.48
Health Care 7.41
Industrials 7.16
Materials 7.05
Utilities 5.01
Telecommunication Services 3.28
Consumer Staples 2.91
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Bristow Group, Inc. 1.73%
Anixter International, Inc. 1.26
Aegon N.V. 1.21
Pandora Media, Inc. 1.20
Tesla Motors, Inc. 1.18
Kemper Corp. 1.14
CVR Energy, Inc. 1.13
America Movil S.A.B. de C.V., Class L, ADR 1.12
Speedway Motorsports, Inc. 1.12
Telefonica S.A., ADR 1.12
-------
Total 12.21%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2006 - DECEMBER 31, 2016
First Trust Value Line(R) 100 Russell 3000(R)
Exchange-Traded Fund Index
12/06 $10,000 $10,000
06/07 11,168 10,711
12/07 11,991 10,514
06/08 10,967 9,352
12/08 6,200 6,591
06/09 5,959 6,867
12/09 6,990 8,458
06/10 6,930 7,946
12/10 9,053 9,889
06/11 9,566 10,517
12/11 8,336 9,990
06/12 8,569 10,921
12/12 9,047 11,630
06/13 10,395 13,265
12/13 12,615 15,532
06/14 13,980 16,610
12/14 14,046 17,482
06/15 14,418 17,821
12/15 13,606 17,565
06/16 14,074 18,201
12/16 14,985 19,810
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 73 0 0 0
01/01/13 - 12/31/13 100 0 0 0
01/01/14 - 12/31/14 165 0 0 0
01/01/15 - 12/31/15 130 0 0 0
01/01/16 - 12/31/16 140 1 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 177 0 0 0
01/01/13 - 12/31/13 152 0 0 0
01/01/14 - 12/31/14 87 0 0 0
01/01/15 - 12/31/15 122 0 0 0
01/01/16 - 12/31/16 111 0 0 0
Page 19
--------------------------------------------------------------------------------
NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
Total returns for the periods since inception are calculated from the inception
date of each Fund. "Average annual total returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative total
returns" represent the total change in value of an investment over the periods
indicated. The total returns would have been lower if certain fees had not been
waived and expenses reimbursed by the Advisor.
Each Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint between the highest bid and the lowest offer on the stock
exchange on which shares of the Fund are listed for trading as of the time that
the Fund's NAV is calculated. Since shares of each Fund did not trade in the
secondary market until after the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
each Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and market returns assume that all distributions have been
reinvested in each Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike each Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by each Fund. These
expenses negatively impact the performance of each Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of each
Fund will vary with changes in market conditions. Shares of each Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. Each Fund's past performance is no guarantee of future performance.
Page 20
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2016 (UNAUDITED)
As a shareholder of First Trust Dow Jones Select MicroCap Index Fund, First
Trust Morningstar Dividend Leaders Index Fund, First Trust US Equity
Opportunities ETF, First Trust NYSE Arca Biotechnology Index Fund, First Trust
Dow Jones Internet Index Fund, First Trust Capital Strength ETF, First Trust
Value Line(R) Dividend Index Fund or First Trust Value Line(R) 100
Exchange-Traded Fund (each a "Fund" and collectively, the "Funds"), you incur
two types of costs: (1) transaction costs; and (2) ongoing costs, including
management fees, distribution and/or service fees, if any, and other Fund
expenses. This Example is intended to help you understand your ongoing costs of
investing in the Funds and to compare these costs with the ongoing costs of
investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended December 31, 2016.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
-----------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2016 DECEMBER 31, 2016 PERIOD (a) PERIOD (b)
-----------------------------------------------------------------------------------------------------------------------
FIRST TRUST DOW JONES SELECT MICROCAP INDEX
FUND (FDM)
Actual $1,000.00 $1,321.50 0.60% $3.50
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX
FUND (FDL)
Actual $1,000.00 $1,052.30 0.45% $2.32
Hypothetical (5% return before expenses) $1,000.00 $1,022.87 0.45% $2.29
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX)
Actual $1,000.00 $1,074.00 0.60% $3.13
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX
FUND (FBT)
Actual $1,000.00 $1,015.40 0.56% $2.84
Hypothetical (5% return before expenses) $1,000.00 $1,022.32 0.56% $2.85
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
Actual $1,000.00 $1,106.50 0.53% $2.81
Hypothetical (5% return before expenses) $1,000.00 $1,022.47 0.53% $2.69
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
Actual $1,000.00 $1,030.70 0.63% $3.22
Hypothetical (5% return before expenses) $1,000.00 $1,021.97 0.63% $3.20
Page 21
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES (CONTINUED)
DECEMBER 31, 2016 (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2016 DECEMBER 31, 2016 PERIOD (a) PERIOD (b)
-----------------------------------------------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
Actual $1,000.00 $1,051.40 0.70% $3.61
Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% $3.56
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED
FUND (FVL)
Actual $1,000.00 $1,064.70 0.70% $3.63
Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% $3.56
(a) These expense ratios reflect an expense cap for certain Funds. See Note 3
in Notes to Financial Statements.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (July 1,
2016 through December 31, 2016), multiplied by 184/366 (to reflect the
one-half year period).
Page 22
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 1.0%
5,532 National Presto Industries, Inc. $ 588,605
10,349 Sparton Corp. (a) 246,823
12,082 Vectrus, Inc. (a) 288,156
--------------
1,123,584
--------------
AIR FREIGHT & LOGISTICS -- 0.3%
9,584 Park-Ohio Holdings Corp. 408,278
--------------
AUTO COMPONENTS -- 2.2%
20,855 Horizon Global Corp. (a) 500,520
53,571 Modine Manufacturing Co. (a) 798,208
29,346 Stoneridge, Inc. (a) 519,131
4,023 Strattec Security Corp. 162,127
22,804 Tower International, Inc. 646,493
--------------
2,626,479
--------------
AUTOMOBILES -- 0.8%
29,657 Winnebago Industries, Inc. 938,644
--------------
BANKS -- 31.6%
6,796 ACNB Corp. 212,375
12,733 Allegiance Bancshares, Inc. (a) 460,298
9,080 American National Bankshares, Inc. 315,984
6,178 Bank of Marin Bancorp 430,915
6,537 Bankwell Financial Group, Inc. 212,452
6,790 Bar Harbor Bankshares 321,371
20,125 Bridge Bancorp, Inc. 762,737
18,963 Bryn Mawr Bank Corp. 799,290
3,608 C&F Financial Corp. 179,859
17,313 Camden National Corp. 769,563
11,820 Carolina Financial Corp. 363,938
35,913 Cascade Bancorp (a) 291,614
9,937 Central Valley Community Bancorp 198,343
4,165 Chemung Financial Corp. 151,398
15,084 CNB Financial Corp. 403,346
41,406 CoBiz Financial, Inc. 699,347
9,397 Codorus Valley Bancorp, Inc. 268,754
18,570 Community Trust Bancorp, Inc. 921,072
31,558 ConnectOne Bancorp, Inc. 818,930
18,038 CU Bancorp (a) 645,760
22,437 Enterprise Financial Services
Corp. 964,791
5,174 Equity Bancshares, Inc.,
Class A (a) 174,053
27,598 Farmers National Banc Corp. 391,892
23,739 Fidelity Southern Corp. 561,902
15,312 Financial Institutions, Inc. 523,670
22,558 First Bancorp 612,224
16,763 First Community Bancshares, Inc. 505,237
15,421 First Connecticut Bancorp, Inc. 349,286
12,571 First Financial Corp. 663,749
14,829 First Foundation, Inc. (a) 422,626
30,162 Flushing Financial Corp. 886,461
13,265 Franklin Financial Network,
Inc. (a) 555,140
12,024 Great Southern Bancorp, Inc. 657,112
23,558 Green Bancorp, Inc. (a) 358,082
19,071 Guaranty Bancorp 461,518
30,618 Heritage Commerce Corp. 441,818
33,577 Heritage Financial Corp. 864,608
22,278 Heritage Oaks Bancorp 274,688
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
BANKS (CONTINUED)
18,165 HomeTrust Bancshares, Inc. (a) $ 470,473
22,623 Horizon Bancorp 633,444
23,822 Independent Bank Corp. 516,937
43,352 Lakeland Bancorp, Inc. 845,364
9,851 LCNB Corp. 229,036
29,287 Macatawa Bank Corp. 304,878
25,600 MainSource Financial Group, Inc. 880,640
21,925 MBT Financial Corp. 248,849
18,278 Mercantile Bank Corp. 689,081
6,563 Merchants Bancshares, Inc. 355,715
5,333 Middleburg Financial Corp. 185,322
8,719 MidWestOne Financial Group, Inc. 327,834
6,980 MutualFirst Financial, Inc. 231,038
9,680 National Commerce Corp. (a) 359,612
7,735 Northrim BanCorp, Inc. 244,426
49,238 OFG Bancorp 645,018
8,888 Old Line Bancshares, Inc. 213,134
8,266 Orrstown Financial Services, Inc. 185,158
56,776 Park Sterling Corp. 612,613
16,722 Peapack-Gladstone Financial Corp. 516,375
20,402 Peoples Bancorp, Inc. 662,249
9,291 Premier Financial Bancorp, Inc. 186,749
13,196 QCR Holdings, Inc. 571,387
9,811 Republic Bancorp, Inc., Class A 387,927
33,681 Seacoast Banking Corp. of
Florida (a) 743,003
14,200 Shore Bancshares, Inc. 216,550
12,061 Sierra Bancorp 320,702
6,370 Southern First Bancshares,
Inc. (a) 229,320
12,648 Southern National Bancorp of
Virginia, Inc. 206,668
19,692 Southwest Bancorp, Inc. 571,068
14,161 Stonegate Bank 590,939
9,602 Summit Financial Group, Inc. 264,343
22,523 TriCo Bancshares 769,836
24,470 TriState Capital Holdings,
Inc. (a) 540,787
18,473 Triumph Bancorp, Inc. (a) 483,069
29,797 Univest Corp. of Pennsylvania 920,727
14,570 Veritex Holdings, Inc. (a) 389,165
16,510 Washington Trust Bancorp, Inc. 925,386
9,828 WashingtonFirst Bankshares, Inc. 284,914
--------------
36,855,939
--------------
BIOTECHNOLOGY -- 0.3%
185,610 PDL BioPharma, Inc. 393,493
--------------
BUILDING PRODUCTS -- 1.7%
17,730 CSW Industrials, Inc. (a) 653,351
19,575 Insteel Industries, Inc. 697,653
54,938 PGT Innovations, Inc. (a) 629,040
--------------
1,980,044
--------------
CAPITAL MARKETS -- 3.5%
26,743 GAIN Capital Holdings, Inc. 175,969
16,724 INTL FCStone, Inc. (a) 662,270
16,822 Manning & Napier, Inc. 127,006
20,775 Moelis & Co., Class A 704,272
15,946 Piper Jaffray Cos. (a) 1,156,085
18,369 PJT Partners, Inc., Class A (b) 567,235
See Notes to Financial Statements Page 23
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
CAPITAL MARKETS (CONTINUED)
16,269 Pzena Investment Management,
Inc., Class A $ 180,749
8,880 Westwood Holdings Group, Inc. 532,711
--------------
4,106,297
--------------
CHEMICALS -- 2.8%
7,839 Chase Corp. 654,948
8,212 Core Molding Technologies,
Inc. (a) 140,507
10,710 Hawkins, Inc. 577,805
8,177 KMG Chemicals, Inc. 318,004
47,562 OMNOVA Solutions, Inc. (a) 475,620
48,514 Rayonier Advanced Materials, Inc. 750,026
21,983 Trecora Resources (a) 304,465
--------------
3,221,375
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 3.0%
42,270 ARC Document Solutions, Inc. (a) 214,732
29,493 CECO Environmental Corp. 411,427
29,107 Ennis, Inc. 505,006
39,479 Hudson Technologies, Inc. (a) 316,227
43,673 InnerWorkings, Inc. (a) 430,179
41,814 Kimball International, Inc.,
Class B 734,254
20,555 SP Plus Corp. (a) 578,623
8,597 VSE Corp. 333,908
--------------
3,524,356
--------------
COMMUNICATIONS EQUIPMENT
-- 0.6%
9,738 Bel Fuse, Inc., Class B 300,904
29,109 Digi International, Inc. (a) 400,249
--------------
701,153
--------------
CONSTRUCTION & ENGINEERING
-- 1.0%
8,659 IES Holdings, Inc. (a) 165,820
18,012 MYR Group, Inc. (a) 678,692
8,508 NV5 Global, Inc. (a) 284,167
--------------
1,128,679
--------------
CONSTRUCTION MATERIALS -- 0.1%
2,246 United States Lime & Minerals,
Inc. 170,135
--------------
CONSUMER FINANCE -- 1.5%
26,337 Encore Capital Group, Inc. (a) (b) 754,555
26,069 Enova International, Inc. (a) 327,166
10,266 Regional Management Corp. (a) 269,790
6,714 World Acceptance Corp. (a) 431,576
--------------
1,783,087
--------------
CONTAINERS & PACKAGING -- 0.9%
4,358 AEP Industries, Inc. 505,964
24,491 Myers Industries, Inc. 350,221
7,051 UFP Technologies, Inc. (a) 179,448
--------------
1,035,633
--------------
DIVERSIFIED CONSUMER SERVICES
-- 1.7%
18,048 American Public Education,
Inc. (a) 443,078
19,223 Bridgepoint Education, Inc. (a) 194,729
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES
(CONTINUED)
72,185 Career Education Corp. (a) $ 728,347
16,390 Carriage Services, Inc. 469,409
7,881 Collectors Universe, Inc. 167,314
--------------
2,002,877
--------------
DIVERSIFIED FINANCIAL SERVICES
-- 0.1%
4,257 A-Mark Precious Metals, Inc. 83,012
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 0.7%
23,374 FairPoint Communications, Inc. (a) 437,094
19,276 IDT Corp., Class B 357,377
--------------
794,471
--------------
ELECTRIC UTILITIES -- 0.2%
6,483 Spark Energy, Inc., Class A (b) 196,435
--------------
ELECTRICAL EQUIPMENT -- 1.3%
7,670 Allied Motion Technologies, Inc. 164,062
28,046 LSI Industries, Inc. 273,168
9,580 Powell Industries, Inc. 373,620
36,247 Thermon Group Holdings, Inc. (a) 691,955
--------------
1,502,805
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 2.4%
36,732 CTS Corp. 822,797
30,815 Kimball Electronics, Inc. (a) 560,833
35,144 Novanta, Inc. (a) 738,024
21,327 Park Electrochemical Corp. 397,748
13,642 Vishay Precision Group, Inc. (a) 257,834
--------------
2,777,236
--------------
ENERGY EQUIPMENT & SERVICES
-- 0.4%
13,708 Natural Gas Services Group,
Inc. (a) 440,712
--------------
EQUITY REAL ESTATE INVESTMENT
TRUSTS -- 0.5%
40,688 Armada Hoffler Properties, Inc. 592,824
--------------
FOOD & STAPLES RETAILING -- 0.5%
21,489 Chefs' Warehouse (The), Inc. (a) 339,526
8,499 Village Super Market, Inc.,
Class A 262,619
--------------
602,145
--------------
FOOD PRODUCTS -- 1.2%
2,704 Alico, Inc. 73,414
10,545 Farmer Brothers Co. (a) 387,001
25,158 Omega Protein Corp. (a) 630,208
6,985 Seneca Foods Corp., Class A (a) 279,749
--------------
1,370,372
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 0.6%
11,770 Exactech, Inc. (a) 321,321
7,334 FONAR Corp. (a) 140,446
23,058 Lantheus Holdings, Inc. (a) 198,299
--------------
660,066
--------------
Page 24 See Notes to Financial Statements
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HEALTH CARE PROVIDERS & SERVICES
-- 1.0%
10,002 Almost Family, Inc. (a) $ 441,088
10,769 Landauer, Inc. 517,989
35,428 RadNet, Inc. (a) 228,511
--------------
1,187,588
--------------
HOTELS, RESTAURANTS & LEISURE
-- 3.5%
18,814 Bojangles', Inc. (a) 350,881
15,355 Bravo Brio Restaurant Group,
Inc. (a) 58,349
24,393 Century Casinos, Inc. (a) 200,754
26,381 Del Frisco's Restaurant Group,
Inc. (a) 448,477
37,315 Del Taco Restaurants, Inc. (a) 526,888
24,158 El Pollo Loco Holdings,
Inc. (a) (b) 297,143
5,992 Fogo De Chao, Inc. (a) (b) 85,985
10,967 Golden Entertainment, Inc. 132,810
14,270 Intrawest Resorts Holdings,
Inc. (a) 254,720
20,182 Lindblad Expeditions Holdings,
Inc. (a) 190,720
21,227 Marcus (The) Corp. 668,651
12,269 Monarch Casino & Resort, Inc. (a) 316,295
33,251 Ruth's Hospitality Group, Inc. 608,493
--------------
4,140,166
--------------
HOUSEHOLD DURABLES -- 2.5%
12,147 AV Homes, Inc. (a) 191,923
37,080 Beazer Homes USA, Inc. (a) 493,164
17,218 Century Communities, Inc. (a) 361,578
9,466 CSS Industries, Inc. 256,245
7,409 Flexsteel Industries, Inc. 456,913
16,461 Green Brick Partners, Inc. (a) (b) 165,433
24,492 Libbey, Inc. 476,614
26,264 William Lyon Homes, Class A (a) 499,804
--------------
2,901,674
--------------
HOUSEHOLD PRODUCTS -- 0.2%
10,276 Orchids Paper Products Co. (b) 269,026
--------------
INSURANCE -- 2.1%
12,537 Atlas Financial Holdings, Inc. (a) 226,293
10,059 Baldwin & Lyons, Inc., Class B 253,487
13,288 Crawford & Co., Class B 166,897
11,426 Donegal Group, Inc., Class A 199,726
9,662 Global Indemnity Ltd. (a) 369,185
15,234 Hallmark Financial Services,
Inc. (a) 177,171
1,627 Investors Title Co. 257,359
10,841 Patriot National, Inc. (a) (b) 50,411
33,375 State National Cos., Inc. 462,578
19,900 United Insurance Holdings Corp. 301,286
--------------
2,464,393
--------------
INTERNET & DIRECT MARKETING
RETAIL -- 0.5%
23,015 PetMed Express, Inc. (b) 530,956
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
INTERNET SOFTWARE & SERVICES
-- 0.3%
37,806 Angie's List, Inc. (a) $ 311,143
--------------
IT SERVICES -- 0.7%
61,374 Lionbridge Technologies, Inc. (a) 355,969
32,134 MoneyGram International, Inc. (a) 379,503
7,699 NCI, Inc., Class A 107,401
--------------
842,873
--------------
LEISURE PRODUCTS -- 1.3%
6,470 Johnson Outdoors, Inc., Class A 256,794
19,870 Malibu Boats, Inc., Class A (a) 379,120
18,379 MCBC Holdings, Inc. 267,966
34,903 Nautilus, Inc. (a) 645,705
--------------
1,549,585
--------------
MACHINERY -- 2.9%
10,017 Blue Bird Corp. (a) 154,763
22,687 Columbus McKinnon Corp. 613,456
27,223 Commercial Vehicle Group, Inc. (a) 150,543
24,235 Global Brass & Copper Holdings,
Inc. 831,260
14,459 Hardinge, Inc. 160,206
7,370 Hurco Cos., Inc. 243,947
12,238 Kadant, Inc. 748,966
12,722 Miller Industries, Inc. 336,497
12,562 Supreme Industries, Inc., Class A 197,223
--------------
3,436,861
--------------
MEDIA -- 1.0%
28,472 Entercom Communications Corp.,
Class A 435,622
16,995 Reading International, Inc.,
Class A (a) 282,117
11,819 Salem Media Group, Inc. 73,869
27,365 tronc, Inc. 379,552
--------------
1,171,160
--------------
METALS & MINING -- 0.8%
22,355 Materion Corp. 885,258
--------------
MORTGAGE REAL ESTATE INVESTMENT
TRUSTS -- 1.1%
45,529 Arbor Realty Trust, Inc. 339,646
31,936 Ares Commercial Real Estate Corp. 438,481
68,838 Drive Shack, Inc. 258,831
18,494 Great Ajax Corp. 245,416
--------------
1,282,374
--------------
MULTI-UTILITIES -- 0.6%
15,765 Unitil Corp. 714,785
--------------
OIL, GAS & CONSUMABLE FUELS
-- 0.7%
22,972 Hallador Energy Co. 208,816
6,347 REX American Resources Corp. (a) 626,766
--------------
835,582
--------------
PAPER & FOREST PRODUCTS -- 0.4%
47,875 Mercer International, Inc. 509,869
--------------
See Notes to Financial Statements Page 25
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PERSONAL PRODUCTS -- 0.9%
12,487 Medifast, Inc. $ 519,834
7,467 Natural Health Trends Corp. (b) 185,555
9,081 Nutraceutical International Corp. 317,381
--------------
1,022,770
--------------
PHARMACEUTICALS -- 0.9%
57,244 SciClone Pharmaceuticals,
Inc. (a) 618,235
27,753 Sucampo Pharmaceuticals, Inc.,
Class A (a) 376,053
--------------
994,288
--------------
PROFESSIONAL SERVICES -- 1.7%
60,135 CBIZ, Inc. (a) 823,849
9,277 CRA International, Inc. 339,538
44,693 Hill International, Inc. (a) 194,415
33,102 Resources Connection, Inc. 637,214
--------------
1,995,016
--------------
ROAD & RAIL -- 1.2%
31,629 Celadon Group, Inc. 226,147
12,968 Covenant Transportation Group,
Inc., Class A (a) 250,801
33,961 Roadrunner Transportation
Systems, Inc. (a) 352,855
7,901 USA Truck, Inc. (a) 68,818
37,308 YRC Worldwide, Inc. (a) 495,450
--------------
1,394,071
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 0.7%
34,781 Rudolph Technologies, Inc. (a) 812,136
--------------
SPECIALTY RETAIL -- 1.8%
15,818 Build-A-Bear Workshop, Inc. (a) 217,497
21,404 Haverty Furniture Cos., Inc. 507,275
16,392 Kirkland's, Inc. (a) 254,240
27,677 MarineMax, Inc. (a) 535,550
14,872 Shoe Carnival, Inc. 401,247
34,705 Stein Mart, Inc. 190,183
--------------
2,105,992
--------------
TEXTILES, APPAREL & LUXURY GOODS
-- 2.0%
12,005 Culp, Inc. 445,986
7,093 Delta Apparel, Inc. (a) 147,038
62,934 Iconix Brand Group, Inc. (a) 587,804
13,554 Perry Ellis International,
Inc. (a) 337,630
16,996 Unifi, Inc. (a) 554,579
21,925 Vera Bradley, Inc. (a) 256,961
--------------
2,329,998
--------------
THRIFTS & MORTGAGE FINANCE
-- 8.6%
47,112 Bank Mutual Corp. 445,208
15,842 Charter Financial Corp. 264,086
34,939 Dime Community Bancshares, Inc. 702,274
10,348 ESSA Bancorp, Inc. 162,671
10,037 Federal Agricultural Mortgage
Corp., Class C 574,819
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE
(CONTINUED)
10,070 First Defiance Financial Corp. $ 510,952
6,404 Home Bancorp, Inc. 247,258
26,176 HomeStreet, Inc. (a) 827,162
13,288 Impac Mortgage Holdings,
Inc. (a) (b) 186,298
9,971 Meta Financial Group, Inc. 1,026,016
32,015 OceanFirst Financial Corp. 961,411
6,988 Provident Financial Holdings, Inc. 141,297
12,321 SI Financial Group, Inc. 189,743
6,336 Southern Missouri Bancorp, Inc. 224,168
9,087 Territorial Bancorp, Inc. 298,417
107,308 TrustCo Bank Corp. NY 938,945
52,194 United Community Financial Corp. 466,614
56,636 United Financial Bancorp, Inc. 1,028,510
28,336 Waterstone Financial, Inc. 521,382
29,169 Western New England Bancorp,
Inc. 272,730
--------------
9,989,961
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 1.0%
17,308 CAI International, Inc. (a) 150,060
35,085 H&E Equipment Services, Inc. 815,726
20,558 Huttig Building Products, Inc. (a) 135,889
4,148 Willis Lease Finance Corp. (a) 106,106
--------------
1,207,781
--------------
WATER UTILITIES -- 0.2%
8,586 Artesian Resources Corp., Class A 274,237
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 0.4%
23,028 Spok Holdings, Inc. 477,831
--------------
TOTAL COMMON STOCKS -- 99.9% 116,657,505
(Cost $101,694,201) --------------
MONEY MARKET FUNDS -- 1.3%
1,477,617 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class, -
0.39% (c) (d) 1,477,617
(Cost $1,477,617) --------------
TOTAL INVESTMENTS -- 101.2% 118,135,122
(Cost $103,171,818) (e)
NET OTHER ASSETS AND
LIABILITIES -- (1.2)% (1,359,456)
--------------
NET ASSETS -- 100.0% $ 116,775,666
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $1,420,483 and the total value of the collateral held by the
Fund is $1,477,617.
(c) Interest rate shown reflects yield as of December 31, 2016.
(d) This security serves as collateral for securities on loan.
Page 26 See Notes to Financial Statements
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
(e) Aggregate cost for federal income tax purposes is $104,095,559. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$15,412,555 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$1,372,992.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 116,657,505 $ -- $ --
Money Market
Funds 1,477,617 -- --
----------------------------------------------------
Total Investments $ 118,135,122 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
--------------------------------------------------------------------------------
Total gross amount presented on the Statements
of Assets and Liabilities(1) $ 1,420,483
Non-cash Collateral(2) (1,420,483)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2016, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
See Notes to Financial Statements Page 27
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 2.3%
259,124 Boeing (The) Co. $ 40,340,424
--------------
BANKS -- 0.9%
100,546 F.N.B. Corp. 1,611,752
26,952 Hancock Holding Co. 1,161,631
62,939 Old National Bancorp 1,142,343
69,927 PacWest Bancorp 3,806,826
6,743 Park National Corp. 806,867
171,816 People's United Financial, Inc. 3,326,358
27,880 Trustmark Corp. 993,922
119,142 Umpqua Holdings Corp. 2,237,487
29,623 United Bankshares, Inc. 1,370,064
--------------
16,457,250
--------------
CAPITAL MARKETS -- 0.5%
223,128 Invesco Ltd. 6,769,704
114,443 Waddell & Reed Financial, Inc.,
Class A 2,232,783
--------------
9,002,487
--------------
CHEMICALS -- 3.3%
150,228 CF Industries Holdings, Inc. 4,729,178
578,774 Dow Chemical (The) Co. 33,117,448
79,155 Huntsman Corp. 1,510,277
202,819 LyondellBasell Industries N.V.,
Class A 17,397,814
79,276 Olin Corp. 2,030,258
--------------
58,784,975
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 0.0%
37,401 R.R. Donnelley & Sons Co. 610,384
--------------
COMMUNICATIONS EQUIPMENT
-- 4.7%
2,782,096 Cisco Systems, Inc. 84,074,941
--------------
CONTAINERS & PACKAGING -- 1.0%
228,053 International Paper Co. 12,100,492
121,472 WestRock Co. 6,167,134
--------------
18,267,626
--------------
DIVERSIFIED CONSUMER SERVICES
-- 0.2%
131,846 H&R Block, Inc. 3,031,140
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 19.2%
4,346,200 AT&T, Inc. 184,843,886
2,925,315 Verizon Communications, Inc. 156,153,315
--------------
340,997,201
--------------
ELECTRIC UTILITIES -- 8.5%
25,942 ALLETE, Inc. 1,665,217
307,412 American Electric Power Co., Inc. 19,354,660
503,635 Duke Energy Corp. 39,092,149
141,245 Entergy Corp. 10,377,270
139,943 Great Plains Energy, Inc. 3,827,441
68,602 Hawaiian Electric Industries, Inc. 2,268,668
119,000 OGE Energy Corp. 3,980,550
61,967 Pinnacle West Capital Corp. 4,835,285
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
ELECTRIC UTILITIES (CONTINUED)
498,129 PPL Corp. $ 16,961,292
743,098 Southern (The) Co. 36,552,991
280,205 Xcel Energy, Inc. 11,404,343
--------------
150,319,866
--------------
ELECTRICAL EQUIPMENT -- 2.0%
238,571 Eaton Corp. PLC 16,005,728
338,101 Emerson Electric Co. 18,849,131
--------------
34,854,859
--------------
FOOD PRODUCTS -- 0.1%
39,616 B&G Foods, Inc. 1,735,181
20,723 Cal-Maine Foods, Inc. 915,438
--------------
2,650,619
--------------
GAS UTILITIES -- 0.1%
14,589 Northwest Natural Gas Co. 872,422
39,881 South Jersey Industries, Inc. 1,343,591
--------------
2,216,013
--------------
HOUSEHOLD DURABLES -- 0.3%
72,455 Garmin Ltd. 3,513,343
23,283 M.D.C. Holdings, Inc. 597,442
39,360 Tupperware Brands Corp. 2,071,123
--------------
6,181,908
--------------
HOUSEHOLD PRODUCTS -- 6.4%
1,358,751 Procter & Gamble (The) Co. 114,243,784
--------------
INSURANCE -- 3.1%
494,519 MetLife, Inc. 26,649,629
160,188 Old Republic International Corp. 3,043,572
115,391 Principal Financial Group, Inc. 6,676,523
182,200 Prudential Financial, Inc. 18,959,732
--------------
55,329,456
--------------
IT SERVICES -- 4.7%
469,316 International Business Machines
Corp. 77,901,763
223,805 Western Union (The) Co. 4,861,045
--------------
82,762,808
--------------
MACHINERY -- 2.1%
295,510 Caterpillar, Inc. 27,405,597
68,887 Cummins, Inc. 9,414,786
29,972 Kennametal, Inc. 936,925
--------------
37,757,308
--------------
MEDIA -- 0.4%
20,576 Meredith Corp. 1,217,071
66,493 Regal Entertainment Group,
Class A 1,369,756
2,844 Viacom, Inc., Class A 109,494
116,694 Viacom, Inc., Class B 4,095,959
--------------
6,792,280
--------------
METALS & MINING -- 0.1%
19,014 Compass Minerals International,
Inc. 1,489,747
--------------
MULTILINE RETAIL -- 0.7%
97,428 Kohl's Corp. 4,810,995
170,608 Macy's, Inc. 6,109,472
Page 28 See Notes to Financial Statements
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MULTILINE RETAIL (CONTINUED)
45,658 Nordstrom, Inc. $ 2,188,388
--------------
13,108,855
--------------
MULTI-UTILITIES -- 5.2%
131,987 Ameren Corp. 6,924,038
34,092 Avista Corp. 1,363,339
293,905 CenterPoint Energy, Inc. 7,241,819
185,122 Consolidated Edison, Inc. 13,639,789
381,080 Dominion Resources, Inc. 29,186,917
79,574 MDU Resources Group, Inc. 2,289,344
27,699 NorthWestern Corp. 1,575,242
317,787 Public Service Enterprise Group,
Inc. 13,944,494
71,967 SCANA Corp. 5,273,742
177,129 WEC Energy Group, Inc. 10,388,616
--------------
91,827,340
--------------
OIL, GAS & CONSUMABLE FUELS
-- 1.2%
112,168 HollyFrontier Corp. 3,674,624
256,730 Valero Energy Corp. 17,539,793
--------------
21,214,417
--------------
PAPER & FOREST PRODUCTS -- 0.1%
40,683 Domtar Corp. 1,587,858
--------------
PERSONAL PRODUCTS -- 0.1%
24,244 Nu Skin Enterprises, Inc.,
Class A 1,158,378
--------------
PHARMACEUTICALS -- 11.3%
1,348,170 Merck & Co., Inc. 79,366,768
3,726,405 Pfizer, Inc. 121,033,634
--------------
200,400,402
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 7.3%
2,215,869 Intel Corp. 80,369,569
47,238 Intersil Corp., Class A 1,053,407
731,239 QUALCOMM, Inc. 47,676,783
--------------
129,099,759
--------------
SPECIALTY RETAIL -- 1.2%
54,820 Abercrombie & Fitch Co., Class A 657,840
100,588 Best Buy Co., Inc. 4,292,090
16,835 Buckle (The), Inc. 383,838
121,564 Gap (The), Inc. 2,727,896
123,322 L Brands, Inc. 8,119,521
500,903 Staples, Inc. 4,533,172
--------------
20,714,357
--------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 0.7%
19,991 Diebold Nixdorf, Inc. 502,774
838,648 HP, Inc. 12,445,536
--------------
12,948,310
--------------
TEXTILES, APPAREL & LUXURY GOODS
-- 0.3%
158,057 Coach, Inc. 5,535,156
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE
-- 0.1%
51,937 Northwest Bancshares, Inc. $ 936,424
24,336 Provident Financial Services, Inc. 688,709
--------------
1,625,133
--------------
TOBACCO -- 11.7%
1,161,166 Altria Group, Inc. 78,518,045
1,146,149 Philip Morris International, Inc. 104,861,172
438,374 Reynolds American, Inc. 24,566,479
12,956 Universal Corp. 825,945
--------------
208,771,641
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 0.1%
42,240 Aircastle Ltd. 880,704
16,704 GATX Corp. 1,028,632
--------------
1,909,336
--------------
TOTAL INVESTMENTS -- 99.9% 1,776,066,018
(Cost $1,610,308,775) (a)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 2,397,900
--------------
NET ASSETS -- 100.0% $1,778,463,918
==============
(a) Aggregate cost for federal income tax purposes is $1,620,355,524. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$162,302,044 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$6,591,550.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $1,776,066,018 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
See Notes to Financial Statements Page 29
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
AIRLINES -- 1.0%
72,553 Alaska Air Group, Inc. $ 6,437,628
--------------
AUTO COMPONENTS -- 0.5%
55,132 Adient PLC (a) 3,230,735
--------------
AUTOMOBILES -- 1.5%
999,395 Fiat Chrysler Automobiles N.V. 9,114,482
--------------
BANKS -- 3.8%
301,274 Citizens Financial Group, Inc. 10,734,393
24,109 FCB Financial Holdings, Inc.,
Class A (a) 1,149,999
82,123 First Hawaiian, Inc. 2,859,523
90,417 First Republic Bank 8,331,022
--------------
23,074,937
--------------
BIOTECHNOLOGY -- 14.7%
956,477 AbbVie, Inc. 59,894,590
177,357 Shire PLC, ADR 30,218,085
--------------
90,112,675
--------------
BUILDING PRODUCTS -- 0.6%
56,511 Allegion PLC 3,616,704
--------------
CAPITAL MARKETS -- 0.6%
56,734 Bats Global Markets, Inc. 1,901,156
111,206 NorthStar Asset Management
Group, Inc. 1,659,194
--------------
3,560,350
--------------
CHEMICALS -- 1.7%
141,528 Axalta Coating Systems Ltd. (a) 3,849,561
107,021 Chemours (The) Co. 2,364,094
24,788 Ingevity Corp. (a) 1,359,870
120,362 Valvoline, Inc. (b) 2,587,783
--------------
10,161,308
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 0.2%
51,629 Advanced Disposal Services,
Inc. (a) 1,147,196
--------------
COMMUNICATIONS EQUIPMENT
-- 1.8%
22,026 Acacia Communications,
Inc. (a) (b) 1,360,105
41,323 Arista Networks, Inc. (a) 3,998,827
113,552 CommScope Holding Co., Inc. (a) 4,224,134
35,392 Lumentum Holdings, Inc. (a) 1,367,901
--------------
10,950,967
--------------
CONSUMER FINANCE -- 3.7%
277,566 Ally Financial, Inc. 5,279,305
485,841 Synchrony Financial 17,621,453
--------------
22,900,758
--------------
CONTAINERS & PACKAGING -- 0.6%
71,805 Berry Plastics Group, Inc. (a) 3,499,058
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES
-- 0.9%
34,994 Bright Horizons Family Solutions,
Inc. (a) $ 2,450,280
79,314 ServiceMaster Global Holdings,
Inc. (a) 2,987,758
--------------
5,438,038
--------------
DIVERSIFIED FINANCIAL SERVICES
-- 0.7%
114,548 Voya Financial, Inc. 4,492,573
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 0.8%
143,092 Zayo Group Holdings, Inc. (a) 4,702,003
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 1.4%
94,469 CDW Corp. 4,920,890
100,019 Keysight Technologies, Inc. (a) 3,657,695
--------------
8,578,585
--------------
EQUITY REAL ESTATE INVESTMENT
TRUSTS -- 2.1%
91,692 Communications Sales & Leasing,
Inc. 2,329,894
121,907 Gaming and Leisure Properties,
Inc. 3,732,793
126,878 MGM Growth Properties LLC,
Class A (b) 3,211,282
91,751 STORE Capital Corp. 2,267,167
58,706 Urban Edge Properties 1,615,002
--------------
13,156,138
--------------
FOOD & STAPLES RETAILING -- 0.6%
129,843 US Foods Holding Corp. (a) 3,568,086
--------------
FOOD PRODUCTS -- 12.0%
45,499 AdvancePierre Foods Holdings, Inc. 1,354,960
115,662 Blue Buffalo Pet Products,
Inc. (a) 2,780,515
716,443 Kraft Heinz (The) Co. 62,559,803
85,931 Lamb Weston Holdings, Inc. (a) 3,252,488
69,492 Pinnacle Foods, Inc. 3,714,347
--------------
73,662,113
--------------
GAS UTILITIES -- 0.3%
30,750 ONE Gas, Inc. 1,966,770
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 0.7%
69,079 Envision Healthcare Corp. (a) 4,372,010
--------------
HEALTH CARE TECHNOLOGY -- 0.5%
80,729 Veeva Systems, Inc., Class A (a) 3,285,670
--------------
HOTELS, RESTAURANTS & LEISURE
-- 7.2%
144,054 Aramark 5,145,609
116,293 Extended Stay America, Inc. 1,878,132
582,552 Hilton Worldwide Holdings,
Inc. 15,845,415
133,710 Norwegian Cruise Line Holdings
Ltd. (a) 5,686,686
58,021 Planet Fitness, Inc., Class A 1,166,222
Page 30 See Notes to Financial Statements
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HOTELS, RESTAURANTS & LEISURE
(CONTINUED)
68,212 Red Rock Resorts, Inc., Class A $ 1,581,836
271,423 Restaurant Brands International,
Inc. 12,936,020
--------------
44,239,920
--------------
HOUSEHOLD PRODUCTS -- 0.3%
36,452 Energizer Holdings, Inc. 1,626,124
--------------
INTERNET & DIRECT MARKETING RETAIL
-- 0.3%
50,347 Wayfair, Inc., Class A (a) (b) 1,764,662
--------------
INTERNET SOFTWARE & SERVICES
-- 6.5%
76,308 Box, Inc., Class A (a) (b) 1,057,629
173,221 Facebook, Inc., Class A (a) 19,929,076
97,736 GoDaddy, Inc., Class A (a) 3,415,873
149,837 Match Group, Inc. (a) (b) 2,562,213
83,728 Nutanix, Inc., Class A (a) (b) 2,223,816
420,767 Twitter, Inc. (a) 6,858,502
106,678 Zillow Group, Inc.,
Class C (a) (b) 3,890,546
--------------
39,937,655
--------------
IT SERVICES -- 8.3%
90,592 Black Knight Financial Services,
Inc., Class A (a) (b) 3,424,378
96,187 CSRA, Inc. 3,062,594
536,174 First Data Corp., Class A (a) 7,608,309
710,190 PayPal Holdings, Inc. (a) 28,031,199
164,932 Sabre Corp. 4,115,053
25,827 Science Applications International
Corp. 2,190,130
207,257 Square, Inc., Class A (a) 2,824,913
--------------
51,256,576
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 2.8%
31,557 INC Research Holdings, Inc.,
Class A (a) 1,659,898
23,966 Medpace Holdings, Inc. (a) 864,453
36,143 PRA Health Sciences, Inc. (a) 1,992,202
144,894 Quintiles IMS Holdings, Inc. (a) 11,019,189
77,424 VWR Corp. (a) 1,937,923
--------------
17,473,665
--------------
MACHINERY -- 2.6%
203,490 Fortive Corp. 10,913,168
105,586 Xylem, Inc. 5,228,619
--------------
16,141,787
--------------
MEDIA -- 4.1%
60,020 AMC Entertainment Holdings,
Inc., Class A (b) 2,019,673
3,362 Cable One, Inc. 2,090,256
106,933 Liberty Broadband Corp.,
Class A (a) 7,748,365
197,175 Liberty Media Corp-Liberty
SiriusXM, Class A (a) 6,806,481
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
MEDIA (CONTINUED)
14,103 Madison Square Garden (The) Co.,
Class A (a) $ 2,418,806
342,160 News Corp., Class A 3,921,154
--------------
25,004,735
--------------
METALS & MINING -- 0.5%
107,631 Alcoa Corp. 3,022,279
--------------
OIL, GAS & CONSUMABLE FUELS
-- 3.2%
184,773 Antero Resources Corp. (a) 4,369,882
136,371 Cheniere Energy Partners LP
Holdings LLC 3,050,619
45,947 Diamondback Energy, Inc. (a) 4,643,404
122,186 Parsley Energy, Inc., Class A (a) 4,305,835
74,715 RSP Permian, Inc. (a) 3,333,783
--------------
19,703,523
--------------
PERSONAL PRODUCTS -- 1.3%
439,260 Coty, Inc., Class A 8,042,851
--------------
PHARMACEUTICALS -- 2.5%
290,653 Zoetis, Inc. 15,558,655
--------------
PROFESSIONAL SERVICES -- 2.0%
248,343 IHS Markit Ltd. (a) 8,793,826
107,683 TransUnion (a) 3,330,635
--------------
12,124,461
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 0.3%
63,780 Versum Materials, Inc. (a) 1,790,305
--------------
SOFTWARE -- 0.9%
87,992 CDK Global, Inc. 5,252,242
--------------
SPECIALTY RETAIL -- 1.4%
41,551 Burlington Stores, Inc. (a) 3,521,447
120,425 Michaels (The) Cos., Inc. (a) 2,462,691
22,718 Murphy USA, Inc. (a) 1,396,476
70,333 Party City Holdco, Inc. (a) 998,729
--------------
8,379,343
--------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 3.7%
980,278 Hewlett Packard Enterprise Co. 22,683,633
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 1.4%
118,072 HD Supply Holdings, Inc. (a) 5,019,241
63,255 NOW, Inc. (a) 1,294,830
81,399 Univar, Inc. (a) 2,309,289
--------------
8,623,360
--------------
TOTAL COMMON STOCKS -- 100.0% 613,654,560
(Cost $556,170,502) --------------
MONEY MARKET FUNDS -- 2.1%
13,048,247 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
0.39% (c) (d) 13,048,247
(Cost $13,048,247) --------------
See Notes to Financial Statements Page 31
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
DESCRIPTION VALUE
------------------------------------------------
TOTAL INVESTMENTS -- 102.1% $ 626,702,807
(Cost $569,218,749) (e)
NET OTHER ASSETS AND
LIABILITIES -- (2.1)% (12,678,641)
--------------
NET ASSETS -- 100.0% $ 614,024,166
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $12,693,526 and the total value of the collateral held by
the Fund is $13,048,247.
(c) Interest rate shown reflects yield as of December 31, 2016.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $572,341,148. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$71,387,817 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$17,026,158.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 613,654,560 $ -- $ --
Money Market
Funds 13,048,247 -- --
----------------------------------------------------
Total Investments $ 626,702,807 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
--------------------------------------------------------------------------------
Total gross amount presented on the Statements
of Assets and Liabilities(1) $ 12,693,526
Non-cash Collateral(2) (12,693,526)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2016, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
Page 32 See Notes to Financial Statements
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
BIOTECHNOLOGY -- 80.6%
1,052,124 ACADIA Pharmaceuticals,
Inc. (a) (b) $ 30,343,256
542,867 Agios Pharmaceuticals,
Inc. (a) (b) 22,653,840
221,751 Alexion Pharmaceuticals, Inc. (b) 27,131,235
479,302 Alkermes PLC (b) 26,639,605
726,988 Alnylam Pharmaceuticals, Inc. (b) 27,218,431
168,046 Amgen, Inc. 24,570,006
91,695 Biogen, Inc. (b) 26,002,868
324,041 BioMarin Pharmaceutical, Inc. (b) 26,843,556
269,606 Celgene Corp. (b) 31,206,895
358,746 Gilead Sciences, Inc. 25,689,801
1,762,312 Grifols S.A., ADR 28,320,354
303,946 Incyte Corp. (b) 30,476,665
193,986 Intercept Pharmaceuticals,
Inc. (a) (b) 21,076,579
1,001,344 Intrexon Corp. (a) (b) 24,332,659
949,834 Ionis Pharmaceuticals, Inc. (b) 45,430,560
936,683 Juno Therapeutics, Inc. (a) (b) 17,656,474
581,204 Kite Pharma, Inc. (a) (b) 26,061,187
1,352,055 Myriad Genetics, Inc. (b) 22,538,757
584,147 Neurocrine Biosciences, Inc. (b) 22,606,489
73,430 Regeneron Pharmaceuticals,
Inc. (b) 26,955,419
524,602 Seattle Genetics, Inc. (b) 27,683,248
401,487 Ultragenyx Pharmaceutical,
Inc. (b) 28,228,551
238,921 United Therapeutics Corp. (b) 34,268,439
330,251 Vertex Pharmaceuticals, Inc. (b) 24,329,591
--------------
648,264,465
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 16.3%
254,266 Bio-Techne Corp. 26,146,173
324,771 Charles River Laboratories
International, Inc. (b) 24,744,302
188,141 Illumina, Inc. (b) 24,089,574
1,033,493 QIAGEN N.V. (b) 28,958,474
360,206 Quintiles IMS Holdings, Inc. (b) 27,393,666
--------------
131,332,189
--------------
PHARMACEUTICALS -- 3.1%
1,998,672 Nektar Therapeutics (b) 24,523,706
--------------
TOTAL COMMON STOCKS -- 100.0% 804,120,360
(Cost $991,454,372) --------------
MONEY MARKET FUNDS -- 10.2%
82,414,165 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class, -
0.39% (c) (d) 82,414,165
(Cost $82,414,165) --------------
TOTAL INVESTMENTS -- 110.2% 886,534,525
(Cost $1,073,868,537) (e)
NET OTHER ASSETS AND
LIABILITIES -- (10.2)% (82,149,726)
--------------
NET ASSETS -- 100.0% $ 804,384,799
==============
(a) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $79,813,163 and the total value of the collateral held by
the Fund is $82,414,165.
(b) Non-income producing security.
(c) Interest rate shown reflects yield as of December 31, 2016.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $1,087,699,208. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$21,617,908 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$222,782,591.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 804,120,360 $ -- $ --
Money Market
Funds 82,414,165 -- --
----------------------------------------------------
Total Investments $ 886,534,525 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
See Notes to Financial Statements Page 33
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
--------------------------------------------------------------------------------
Total gross amount presented on the Statements
of Assets and Liabilities(1) $ 79,813,163
Non-cash Collateral(2) (79,813,163)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2016, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
Page 34 See Notes to Financial Statements
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
CAPITAL MARKETS -- 4.9%
2,392,109 E*TRADE Financial Corp. (a) $ 82,886,577
2,042,878 TD Ameritrade Holding Corp. 89,069,480
--------------
171,956,057
--------------
COMMUNICATIONS EQUIPMENT
-- 5.9%
590,606 Arista Networks, Inc. (a) 57,152,943
3,173,327 Juniper Networks, Inc. 89,678,221
737,209 NETGEAR, Inc. (a) 40,067,309
2,925,010 Sonus Networks, Inc. (a) 18,427,563
--------------
205,326,036
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 2.2%
988,564 Cogent Communications Holdings,
Inc. 40,877,121
5,156,655 Vonage Holdings Corp. (a) 35,323,087
--------------
76,200,208
--------------
HEALTH CARE TECHNOLOGY -- 2.8%
3,921,082 Allscripts Healthcare Solutions,
Inc. (a) 40,034,247
1,384,668 Veeva Systems, Inc., Class A (a) 56,355,988
--------------
96,390,235
--------------
INTERNET & DIRECT MARKETING RETAIL
-- 20.5%
460,278 Amazon.com, Inc. (a) 345,148,664
830,028 Expedia, Inc. 94,025,572
9,669,057 Groupon, Inc. (a) 32,101,269
1,438,123 Netflix, Inc. (a) 178,039,627
1,382,124 TripAdvisor, Inc. (a) 64,089,090
--------------
713,404,222
--------------
INTERNET SOFTWARE & SERVICES
-- 49.6%
1,094,494 2U, Inc. (a) 32,998,994
1,380,543 Akamai Technologies, Inc. (a) 92,054,607
226,663 Alphabet, Inc., Class A (a) 179,619,094
227,194 Alphabet, Inc., Class C (a) 175,352,873
1,651,181 Blucora, Inc. (a) 24,354,920
2,124,133 Box, Inc., Class A (a) (b) 29,440,483
1,104,035 Cornerstone OnDemand, Inc. (a) 46,711,721
4,396,626 EarthLink Holdings Corp. 24,796,971
4,827,499 eBay, Inc. (a) 143,328,445
2,898,607 Endurance International Group
Holdings, Inc. (a) 26,957,045
3,006,416 Facebook, Inc., Class A (a) 345,888,161
1,121,183 GoDaddy, Inc., Class A (a) 39,185,346
936,138 IAC/InterActiveCorp (a) 60,652,381
713,849 j2 Global, Inc. 58,392,848
473,779 LogMeIn, Inc. 45,743,363
3,744,597 Pandora Media, Inc. (a) (b) 48,829,545
2,108,296 TrueCar, Inc. (a) (b) 26,353,700
4,729,953 Twitter, Inc. (a) 77,098,234
933,668 VeriSign, Inc. (a) 71,024,125
1,722,734 Web.com Group, Inc. (a) 36,435,824
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
INTERNET SOFTWARE & SERVICES
(CONTINUED)
3,709,136 Yahoo!, Inc. (a) $ 143,432,289
--------------
1,728,650,969
--------------
IT SERVICES -- 4.7%
4,194,849 PayPal Holdings, Inc. (a) 165,570,690
--------------
SOFTWARE -- 9.4%
2,495,615 8x8, Inc. (a) 35,687,295
1,115,658 Citrix Systems, Inc. (a) 99,639,416
591,185 Ebix, Inc. (b) 33,727,104
2,340,661 salesforce.com, Inc. (a) 160,241,652
--------------
329,295,467
--------------
TOTAL COMMON STOCKS
-- 100.0% 3,486,793,884
(Cost $3,304,606,612) --------------
MONEY MARKET FUNDS -- 2.5%
85,987,348 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
0.39% (c) (d) 85,987,348
(Cost $85,987,348) --------------
TOTAL INVESTMENTS -- 102.5% 3,572,781,232
(Cost $3,390,593,960) (e)
NET OTHER ASSETS AND
LIABILITIES -- (2.5)% (86,047,303)
--------------
NET ASSETS -- 100.0% $3,486,733,929
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan (see Note 2D- Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $83,125,060 and the total value of the collateral held by
the Fund is $85,987,348.
(c) Interest rate shown reflects yield as of December 31, 2016.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $3,462,836,050. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$367,606,354 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$257,661,172.
See Notes to Financial Statements Page 35
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $3,486,793,884 $ -- $ --
Money Market
Funds 85,987,348 -- --
----------------------------------------------------
Total Investments $3,572,781,232 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
--------------------------------------------------------------------------------
Total gross amount presented on the Statements
of Assets and Liabilities(1) $ 83,125,060
Non-cash Collateral(2) (83,125,060)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2016, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
Page 36 See Notes to Financial Statements
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
AEROSPACE & DEFENSE -- 10.6%
45,617 Boeing (The) Co. $ 7,101,655
41,197 General Dynamics Corp. 7,113,074
26,839 Lockheed Martin Corp. 6,708,140
28,663 Northrop Grumman Corp. 6,666,440
45,250 Raytheon Co. 6,425,500
--------------
34,014,809
--------------
AIR FREIGHT & LOGISTICS -- 2.1%
57,737 United Parcel Service, Inc.,
Class B 6,618,970
--------------
BEVERAGES -- 3.8%
146,855 Coca-Cola (The) Co. 6,088,608
58,578 PepsiCo, Inc. 6,129,016
--------------
12,217,624
--------------
BIOTECHNOLOGY -- 1.8%
39,033 Amgen, Inc. 5,707,015
--------------
CAPITAL MARKETS -- 3.9%
49,900 S&P Global, Inc. 5,366,246
93,799 T. Rowe Price Group, Inc. 7,059,313
--------------
12,425,559
--------------
CHEMICALS -- 2.0%
66,974 PPG Industries, Inc. 6,346,456
--------------
COMMUNICATIONS EQUIPMENT
-- 1.9%
205,208 Cisco Systems, Inc. 6,201,386
--------------
FOOD & STAPLES RETAILING -- 6.3%
41,532 Costco Wholesale Corp. 6,649,688
130,281 Sysco Corp. 7,213,659
90,533 Wal-Mart Stores, Inc. 6,257,641
--------------
20,120,988
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 7.6%
128,415 Baxter International, Inc. 5,693,921
35,905 Becton, Dickinson and Co. 5,944,073
28,203 C. R. Bard, Inc. 6,336,086
54,411 Stryker Corp. 6,518,982
--------------
24,493,062
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 7.8%
77,318 AmerisourceBergen Corp. 6,045,495
82,329 Cardinal Health, Inc. 5,925,218
88,881 Express Scripts Holding Co. (a) 6,114,124
42,560 UnitedHealth Group, Inc. 6,811,302
--------------
24,896,139
--------------
HOTELS, RESTAURANTS & LEISURE
-- 4.1%
54,306 McDonald's Corp. 6,610,126
115,365 Starbucks Corp. 6,405,065
--------------
13,015,191
--------------
HOUSEHOLD PRODUCTS -- 1.9%
73,367 Procter & Gamble (The) Co. 6,168,697
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
INDUSTRIAL CONGLOMERATES -- 4.1%
36,501 3M Co. $ 6,517,984
56,783 Honeywell International, Inc. 6,578,310
--------------
13,096,294
--------------
IT SERVICES -- 12.3%
53,526 Accenture PLC, Class A 6,269,500
71,344 Automatic Data Processing, Inc. 7,332,736
41,348 International Business Machines
Corp. 6,863,355
60,156 Mastercard, Inc., Class A 6,211,107
75,131 Visa, Inc., Class A 5,861,721
309,351 Western Union (The) Co. 6,719,104
--------------
39,257,523
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 1.7%
39,614 Waters Corp. (a) 5,323,725
--------------
MACHINERY -- 2.1%
54,724 Illinois Tool Works, Inc. 6,701,501
--------------
MEDIA -- 4.2%
77,580 Omnicom Group, Inc. 6,602,834
66,506 Walt Disney (The) Co. 6,931,255
--------------
13,534,089
--------------
PERSONAL PRODUCTS -- 1.7%
71,518 Estee Lauder (The) Cos., Inc.,
Class A 5,470,412
--------------
PHARMACEUTICALS -- 3.8%
79,068 Eli Lilly and Co. 5,815,451
54,540 Johnson & Johnson 6,283,554
--------------
12,099,005
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 4.3%
176,018 Intel Corp. 6,384,173
124,288 Xilinx, Inc. 7,503,266
--------------
13,887,439
--------------
SOFTWARE -- 4.0%
57,049 Intuit, Inc. 6,538,386
103,705 Microsoft Corp. 6,444,229
--------------
12,982,615
--------------
SPECIALTY RETAIL -- 6.0%
48,870 Home Depot (The), Inc. 6,552,490
87,573 Lowe's Cos., Inc. 6,228,192
84,188 TJX (The) Cos., Inc. 6,325,044
--------------
19,105,726
--------------
TOBACCO -- 2.0%
115,043 Reynolds American, Inc. 6,447,010
--------------
TOTAL INVESTMENTS -- 100.0% 320,131,235
(Cost $302,570,634) (b)
NET OTHER ASSETS AND
LIABILITIES -- 0.0% 58,807
--------------
NET ASSETS -- 100.0% $ 320,190,042
==============
See Notes to Financial Statements Page 37
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $304,646,799. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$21,510,329 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$6,025,893.
------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 320,131,235 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
Page 38 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 2.1%
94,788 Boeing (The) Co. $ 14,756,596
59,504 Lockheed Martin Corp. 14,872,429
104,327 Raytheon Co. 14,814,434
134,503 United Technologies Corp. 14,744,219
--------------
59,187,678
--------------
AIR FREIGHT & LOGISTICS -- 1.0%
200,417 C.H. Robinson Worldwide, Inc. 14,682,549
128,539 United Parcel Service, Inc.,
Class B 14,735,711
--------------
29,418,260
--------------
AUTOMOBILES -- 0.5%
125,028 Toyota Motor Corp., ADR 14,653,282
--------------
BANKS -- 6.2%
168,173 Bank of Hawaii Corp. 14,915,263
207,435 Bank of Montreal 14,918,725
265,135 Bank of Nova Scotia (The) 14,762,717
312,871 BB&T Corp. 14,711,195
182,104 Canadian Imperial Bank of
Commerce 14,859,686
168,193 Cullen/Frost Bankers, Inc. 14,839,668
123,141 Park National Corp. 14,735,052
766,279 People's United Financial, Inc. 14,835,162
219,839 Royal Bank of Canada 14,885,299
300,767 Toronto-Dominion (The) Bank 14,839,844
285,359 U.S. Bancorp 14,658,892
266,794 Wells Fargo & Co. 14,703,017
--------------
177,664,520
--------------
BEVERAGES -- 2.6%
143,640 Anheuser-Busch InBev S.A/N.V.,
ADR 15,145,401
358,739 Coca-Cola (The) Co. 14,873,319
144,280 Diageo PLC, ADR 14,996,463
164,270 Dr Pepper Snapple Group, Inc. 14,894,361
141,987 PepsiCo, Inc. 14,856,100
--------------
74,765,644
--------------
BIOTECHNOLOGY -- 0.5%
100,613 Amgen, Inc. 14,710,627
--------------
CAPITAL MARKETS -- 2.0%
38,522 BlackRock, Inc. 14,659,162
127,921 CME Group, Inc. 14,755,687
194,111 T. Rowe Price Group, Inc. 14,608,794
338,944 Thomson Reuters Corp. 14,838,968
--------------
58,862,611
--------------
CHEMICALS -- 2.6%
101,284 Air Products and Chemicals, Inc. 14,566,665
199,135 E.I. du Pont de Nemours and Co. 14,616,509
125,417 International Flavors &
Fragrances, Inc. 14,777,885
141,234 Monsanto Co. 14,859,229
125,914 Praxair, Inc. 14,755,862
--------------
73,576,150
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES
-- 1.0%
260,009 Republic Services, Inc. $ 14,833,513
210,360 Waste Management, Inc. 14,916,628
--------------
29,750,141
--------------
COMMUNICATIONS EQUIPMENT
-- 1.5%
486,541 Cisco Systems, Inc. 14,703,269
144,322 Harris Corp. 14,788,676
178,725 Motorola Solutions, Inc. 14,814,515
--------------
44,306,460
--------------
CONTAINERS & PACKAGING -- 1.0%
305,696 Bemis Co., Inc. 14,618,383
277,403 Sonoco Products Co. 14,619,138
--------------
29,237,521
--------------
DISTRIBUTORS -- 0.5%
152,973 Genuine Parts Co. 14,615,040
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.6%
349,991 AT&T, Inc. 14,885,117
472,976 TELUS Corp. 15,064,286
278,284 Verizon Communications, Inc. 14,854,800
--------------
44,804,203
--------------
ELECTRIC UTILITIES -- 9.8%
232,800 ALLETE, Inc. 14,943,432
392,818 Alliant Energy Corp. 14,883,874
236,450 American Electric Power Co., Inc. 14,886,892
192,657 Duke Energy Corp. 14,954,036
207,494 Edison International 14,937,493
317,937 El Paso Electric Co. 14,784,071
269,539 Eversource Energy 14,886,639
489,734 Fortis, Inc. 15,122,986
445,586 Hawaiian Electric Industries, Inc. 14,735,529
183,945 IDACORP, Inc. 14,816,770
125,176 NextEra Energy, Inc. 14,953,525
442,285 OGE Energy Corp. 14,794,433
362,749 Otter Tail Corp. 14,800,159
191,742 Pinnacle West Capital Corp. 14,961,628
345,055 Portland General Electric Co. 14,951,233
436,337 PPL Corp. 14,857,275
302,780 Southern (The) Co. 14,893,748
265,465 Westar Energy, Inc. 14,958,953
366,490 Xcel Energy, Inc. 14,916,143
--------------
283,038,819
--------------
ELECTRICAL EQUIPMENT -- 1.5%
217,947 Eaton Corp. PLC 14,622,064
261,100 Emerson Electric Co. 14,556,325
125,988 Hubbell, Inc. 14,702,800
--------------
43,881,189
--------------
ENERGY EQUIPMENT & SERVICES
-- 0.5%
174,709 Schlumberger Ltd. 14,666,821
--------------
See Notes to Financial Statements Page 39
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
EQUITY REAL ESTATE INVESTMENT
TRUSTS -- 3.1%
140,438 American Tower Corp. $ 14,841,488
84,900 AvalonBay Communities, Inc. 15,040,035
106,546 Federal Realty Investment Trust 15,141,252
67,807 Public Storage 15,154,865
264,525 Realty Income Corp. 15,204,897
84,832 Simon Property Group, Inc. 15,072,101
--------------
90,454,638
--------------
FOOD & STAPLES RETAILING -- 2.1%
188,260 CVS Health Corp. 14,855,597
265,749 Sysco Corp. 14,714,522
214,162 Wal-Mart Stores, Inc. 14,802,877
246,688 Weis Markets, Inc. 16,488,626
--------------
60,861,622
--------------
FOOD PRODUCTS -- 5.1%
326,990 Archer-Daniels-Midland Co. 14,927,094
246,769 Campbell Soup Co. 14,922,121
374,582 Conagra Brands, Inc. 14,814,718
239,986 General Mills, Inc. 14,823,935
143,806 Hershey (The) Co. 14,873,855
115,821 J.M. Smucker (The) Co. 14,832,037
202,127 Kellogg Co. 14,898,781
170,440 Kraft Heinz (The) Co. 14,882,821
160,421 McCormick & Co., Inc. 14,972,092
207,697 Mead Johnson Nutrition Co. 14,696,640
--------------
148,644,094
--------------
GAS UTILITIES -- 3.6%
199,747 Atmos Energy Corp. 14,811,240
412,350 New Jersey Resources Corp. 14,638,425
248,371 Northwest Natural Gas Co. 14,852,586
433,423 South Jersey Industries, Inc. 14,602,021
230,357 Spire, Inc. 14,869,544
325,280 UGI Corp. 14,988,902
191,177 WGL Holdings, Inc. 14,582,982
--------------
103,345,700
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 1.0%
386,712 Abbott Laboratories 14,853,608
207,985 Medtronic PLC 14,814,771
--------------
29,668,379
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 1.5%
204,284 Cardinal Health, Inc. 14,702,319
417,308 Owens & Minor, Inc. 14,726,799
364,787 Patterson Cos., Inc. 14,967,211
--------------
44,396,329
--------------
HOTELS, RESTAURANTS & LEISURE
-- 1.0%
87,817 Cracker Barrel Old Country Store,
Inc. 14,663,682
121,290 McDonald's Corp. 14,763,419
--------------
29,427,101
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
HOUSEHOLD DURABLES -- 0.5%
299,081 Leggett & Platt, Inc. $ 14,619,079
--------------
HOUSEHOLD PRODUCTS -- 2.1%
122,423 Clorox (The) Co. 14,693,209
226,134 Colgate-Palmolive Co. 14,798,209
129,677 Kimberly-Clark Corp. 14,798,739
176,443 Procter & Gamble (The) Co. 14,835,327
--------------
59,125,484
--------------
INDUSTRIAL CONGLOMERATES -- 1.0%
83,429 3M Co. 14,897,916
127,548 Honeywell International, Inc. 14,776,436
--------------
29,674,352
--------------
INSURANCE -- 7.2%
287,335 Arthur J. Gallagher & Co. 14,929,927
159,239 Assurant, Inc. 14,786,934
226,960 Axis Capital Holdings Ltd. 14,813,679
112,505 Chubb Ltd. 14,864,161
194,948 Cincinnati Financial Corp. 14,767,311
355,323 CNA Financial Corp. 14,745,904
131,620 Erie Indemnity Co., Class A 14,800,669
68,658 Everest Re Group, Ltd. 14,857,591
437,104 FNF Group 14,844,052
163,245 Hanover Insurance Group (The),
Inc. 14,856,927
247,342 Mercury General Corp. 14,892,462
417,775 Progressive (The) Corp. 14,831,012
122,373 Travelers (The) Cos., Inc. 14,980,903
270,321 Validus Holdings Ltd. 14,870,358
--------------
207,841,890
--------------
IT SERVICES -- 3.1%
126,986 Accenture PLC, Class A 14,873,870
144,488 Automatic Data Processing, Inc. 14,850,476
225,179 Broadridge Financial Solutions,
Inc. 14,929,368
1,007,907 Infosys Ltd., ADR 14,947,261
89,309 International Business Machines
Corp. 14,824,401
242,127 Paychex, Inc. 14,740,692
--------------
89,166,068
--------------
LEISURE PRODUCTS -- 0.5%
536,367 Mattel, Inc. 14,776,911
--------------
MACHINERY -- 2.0%
157,876 Caterpillar, Inc. 14,641,420
143,668 Deere & Co. 14,803,551
195,585 Dover Corp. 14,655,184
119,217 Illinois Tool Works, Inc. 14,599,314
--------------
58,699,469
--------------
MEDIA -- 1.5%
171,872 Omnicom Group, Inc. 14,628,026
745,237 Shaw Communications, Inc.,
Class B 14,949,454
135,392 WPP PLC, ADR 14,982,479
--------------
44,559,959
--------------
Page 40 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MULTILINE RETAIL -- 1.0%
299,741 Kohl's Corp. $ 14,801,210
202,538 Target Corp. 14,629,320
--------------
29,430,530
--------------
MULTI-UTILITIES -- 6.7%
284,001 Ameren Corp. 14,898,693
373,271 Avista Corp. 14,927,107
242,677 Black Hills Corp. 14,885,807
358,050 CMS Energy Corp. 14,902,041
202,401 Consolidated Edison, Inc. 14,912,906
194,692 Dominion Resources, Inc. 14,911,460
151,314 DTE Energy Co. 14,905,942
508,243 MDU Resources Group, Inc. 14,622,151
340,802 Public Service Enterprise Group,
Inc. 14,954,392
200,552 SCANA Corp. 14,696,451
147,458 Sempra Energy 14,840,173
283,408 Vectren Corp. 14,779,727
254,859 WEC Energy Group, Inc. 14,947,480
--------------
193,184,330
--------------
OIL, GAS & CONSUMABLE FUELS
-- 3.1%
126,266 Chevron Corp. 14,861,508
348,845 Enbridge, Inc. 14,693,352
164,485 Exxon Mobil Corp. 14,846,416
257,720 Royal Dutch Shell PLC, Class B,
ADR 14,940,028
295,762 TOTAL S.A., ADR 15,074,989
323,658 TransCanada Corp. 14,613,159
--------------
89,029,452
--------------
PERSONAL PRODUCTS -- 0.5%
368,388 Unilever PLC, ADR 14,993,392
--------------
PHARMACEUTICALS -- 5.7%
547,582 AstraZeneca PLC, ADR 14,959,940
251,595 Bristol-Myers Squibb Co. 14,703,212
202,237 Eli Lilly and Co. 14,874,531
389,945 GlaxoSmithKline PLC, ADR 15,016,782
128,782 Johnson & Johnson 14,836,974
249,659 Merck & Co., Inc. 14,697,425
207,205 Novartis AG, ADR 15,092,812
419,653 Novo Nordisk A/S, ADR 15,048,757
458,872 Pfizer, Inc. 14,904,163
376,093 Sanofi, ADR 15,209,201
410,763 Teva Pharmaceutical Industries
Ltd., ADR 14,890,159
--------------
164,233,956
--------------
PROFESSIONAL SERVICES -- 0.5%
349,581 Nielsen Holdings PLC 14,664,923
--------------
ROAD & RAIL -- 0.5%
141,209 Union Pacific Corp. 14,640,549
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 3.6%
200,876 Analog Devices, Inc. 14,587,615
402,674 Intel Corp. 14,604,986
238,223 Linear Technology Corp. 14,853,204
228,244 Microchip Technology, Inc. 14,641,852
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (CONTINUED)
221,964 QUALCOMM, Inc. $ 14,472,053
512,960 Taiwan Semiconductor
Manufacturing Co., Ltd., ADR 14,747,600
199,374 Texas Instruments, Inc. 14,548,321
--------------
102,455,631
--------------
SOFTWARE -- 1.0%
463,143 CA, Inc. 14,714,053
235,891 Microsoft Corp. 14,658,267
--------------
29,372,320
--------------
SPECIALTY RETAIL -- 0.5%
110,359 Home Depot (The), Inc. 14,796,935
--------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 0.5%
518,663 Canon, Inc., ADR 14,595,177
--------------
TEXTILES, APPAREL & LUXURY GOODS
-- 0.5%
277,559 VF Corp. 14,807,773
--------------
THRIFTS & MORTGAGE FINANCE
-- 1.0%
895,985 Capitol Federal Financial, Inc. 14,747,913
817,923 Northwest Bancshares, Inc. 14,747,152
--------------
29,495,065
--------------
TOBACCO -- 2.1%
220,098 Altria Group, Inc. 14,883,027
132,545 British American Tobacco PLC,
ADR 14,933,845
163,442 Philip Morris International, Inc. 14,953,309
265,701 Reynolds American, Inc. 14,889,884
--------------
59,660,065
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 1.5%
308,858 Fastenal Co. 14,510,149
62,710 W.W. Grainger, Inc. 14,564,397
99,707 Watsco, Inc. 14,768,601
--------------
43,843,147
--------------
WATER UTILITIES -- 1.0%
324,150 American States Water Co. 14,768,274
495,094 Aqua America, Inc. 14,872,624
--------------
29,640,898
--------------
TOTAL INVESTMENTS -- 99.9% 2,891,244,184
(Cost $2,692,628,416) (a)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 1,737,399
--------------
NET ASSETS -- 100.0% $2,892,981,583
==============
(a) Aggregate cost for federal income tax purposes is $2,744,006,759. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$185,746,204 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$38,508,779.
ADR - American Depositary Receipt
See Notes to Financial Statements Page 41
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $2,891,244,184 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
Page 42 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
AEROSPACE & DEFENSE -- 4.2%
21,816 Aerovironment, Inc. (a) $ 585,323
29,156 Embraer S.A., ADR 561,253
19,749 Triumph Group, Inc. 523,349
4,998 United Technologies Corp. 547,881
--------------
2,217,806
--------------
AUTOMOBILES -- 1.2%
2,918 Tesla Motors, Inc. (a) 623,547
--------------
BIOTECHNOLOGY -- 0.8%
11,420 Alnylam Pharmaceuticals, Inc. (a) 427,565
--------------
CAPITAL MARKETS -- 4.0%
13,022 Eaton Vance Corp. 545,362
14,323 Franklin Resources, Inc. 566,904
34,352 KKR & Co. L.P. (b) 528,677
15,549 Legg Mason, Inc. 465,071
--------------
2,106,014
--------------
CHEMICALS -- 2.1%
89,930 CVR Partners L.P. (b) 540,479
18,441 Mosaic (The) Co. 540,875
--------------
1,081,354
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 2.1%
25,947 Essendant, Inc. 542,292
35,511 Pitney Bowes, Inc. 539,412
--------------
1,081,704
--------------
COMMUNICATIONS EQUIPMENT
-- 4.3%
25,840 ADTRAN, Inc. 577,524
35,660 Black Box Corp. 543,815
48,013 Comtech Telecommunications
Corp. 568,954
95,512 Telefonaktiebolaget LM Ericsson,
ADR 556,835
--------------
2,247,128
--------------
DIVERSIFIED CONSUMER SERVICES
-- 2.4%
37,005 Regis Corp. (a) 537,313
20,073 StoneMor Partners L.P. (b) 178,850
47,066 Weight Watchers International,
Inc. (a) 538,906
--------------
1,255,069
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 2.2%
161,978 Frontier Communications Corp. 547,485
63,799 Telefonica S.A., ADR 586,951
--------------
1,134,436
--------------
ELECTRIC UTILITIES -- 3.1%
7,234 Duke Energy Corp. 561,503
15,649 Exelon Corp. 555,383
19,760 Great Plains Energy, Inc. 540,436
--------------
1,657,322
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 0.9%
22,316 ABB Ltd., ADR $ 470,198
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 2.3%
8,188 Anixter International, Inc. (a) 663,638
17,937 National Instruments Corp. 552,818
--------------
1,216,456
--------------
ENERGY EQUIPMENT & SERVICES
-- 14.6%
44,492 Bristow Group, Inc. 911,196
49,298 CARBO Ceramics, Inc. (a) 515,657
4,728 Core Laboratories N.V. 567,549
29,896 Diamond Offshore Drilling,
Inc. (a) 529,159
9,015 Dril-Quip, Inc. (a) 541,351
55,066 Ensco PLC, Class A 535,242
54,117 Helix Energy Solutions Group,
Inc. (a) 477,312
13,531 National Oilwell Varco, Inc. 506,601
89,062 Noble Corp. PLC 527,247
19,017 Oceaneering International, Inc. 536,470
6,194 Schlumberger Ltd. 519,986
156,047 Seadrill Ltd. (a) 532,120
112,139 TETRA Technologies, Inc. (a) 562,938
80,881 Weatherford International PLC (a) 403,596
--------------
7,666,424
--------------
FOOD PRODUCTS -- 1.9%
7,337 Kellogg Co. 540,811
6,274 Mead Johnson Nutrition Co. 443,948
--------------
984,759
--------------
GAS UTILITIES -- 1.9%
9,579 National Fuel Gas Co. 542,554
14,515 Suburban Propane Partners, L.P.
(b) 436,321
--------------
978,875
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 1.0%
29,433 Meridian Bioscience, Inc. 520,964
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 0.7%
31,784 Brookdale Senior Living, Inc. (a) 394,757
--------------
HEALTH CARE TECHNOLOGY -- 1.9%
18,665 Computer Programs & Systems,
Inc. 440,494
41,041 Quality Systems, Inc. (a) 539,689
--------------
980,183
--------------
HOTELS, RESTAURANTS & LEISURE
-- 2.1%
1,306 Chipotle Mexican Grill, Inc. (a) 492,780
27,086 Speedway Motorsports, Inc. 586,954
--------------
1,079,734
--------------
HOUSEHOLD PRODUCTS -- 1.0%
6,516 Procter & Gamble (The) Co. 547,865
--------------
See Notes to Financial Statements Page 43
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INSURANCE -- 4.4%
115,143 Aegon N.V. $ 636,741
13,495 Kemper Corp. 597,828
9,588 Mercury General Corp. 577,293
9,830 MetLife, Inc. 529,739
--------------
2,341,601
--------------
INTERNET & DIRECT MARKETING RETAIL
-- 0.9%
10,419 TripAdvisor, Inc. (a) 483,129
--------------
INTERNET SOFTWARE & SERVICES
-- 2.0%
48,336 Pandora Media, Inc. (a) 630,302
12,552 Sohu.com, Inc. (a) 425,387
--------------
1,055,689
--------------
MEDIA -- 1.0%
15,478 Viacom, Inc., Class B 543,278
--------------
METALS & MINING -- 5.0%
27,945 Allegheny Technologies, Inc. 445,164
139,332 Eldorado Gold Corp. (a) 448,649
43,077 Goldcorp, Inc. 585,847
182,226 Kinross Gold Corp. (a) 566,723
207,478 Yamana Gold, Inc. 583,013
--------------
2,629,396
--------------
MORTGAGE REAL ESTATE INVESTMENT
TRUSTS -- 1.0%
54,204 Annaly Capital Management, Inc. 540,414
--------------
MULTILINE RETAIL -- 1.0%
11,315 Nordstrom, Inc. 542,328
--------------
OIL, GAS & CONSUMABLE FUELS
-- 11.3%
23,930 Cabot Oil & Gas Corp. 559,005
52,608 Cameco Corp. 550,806
36,662 Cenovus Energy, Inc. 554,696
23,335 CVR Energy, Inc. 592,476
7,657 EQT Corp. 500,768
16,527 HollyFrontier Corp. 541,424
15,037 Imperial Oil Ltd. 522,686
14,059 Noble Energy, Inc. 535,086
14,793 Range Resources Corp. 508,287
48,120 Southwestern Energy Co. (a) 520,658
10,976 TOTAL S.A., ADR 559,447
--------------
5,945,339
--------------
PHARMACEUTICALS -- 3.0%
34,841 Endo International PLC (a) 573,831
12,228 GlaxoSmithKline PLC, ADR 470,901
13,173 Sanofi, ADR 532,716
--------------
1,577,448
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 0.7%
57,705 SunPower Corp. (a) 381,430
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SOFTWARE -- 2.7%
90,112 EnerNOC, Inc. (a) $ 540,672
40,342 FireEye, Inc. (a) 480,070
14,184 Fortinet, Inc. (a) 427,222
--------------
1,447,964
--------------
SPECIALTY RETAIL -- 7.2%
46,164 Abercrombie & Fitch Co., Class A 553,968
86,693 Ascena Retail Group, Inc. (a) 536,630
24,138 Buckle (The), Inc. 550,347
42,288 Conn's, Inc. (a) 534,943
45,222 Guess?, Inc. 547,186
47,469 Rent-A-Center, Inc. 534,026
59,824 Staples, Inc. 541,407
--------------
3,798,507
--------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 2.1%
78,244 BlackBerry Ltd. (a) 539,101
22,406 Diebold Nixdorf, Inc. 563,511
--------------
1,102,612
--------------
TEXTILES, APPAREL & LUXURY GOODS
-- 1.9%
63,124 Crocs, Inc. (a) 433,030
21,023 Fossil Group, Inc. (a) 543,655
--------------
976,685
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 1.1%
46,864 America Movil S.A.B. de C.V.,
Class L, ADR 589,080
--------------
TOTAL INVESTMENTS -- 100.0% 52,627,060
(Cost $52,322,808) (c)
NET OTHER ASSETS AND
LIABILITIES -- 0.0% 16,150
--------------
NET ASSETS -- 100.0% $ 52,643,210
==============
(a) Non-income producing security.
(b) Security is a Master Limited Partnership ("MLP").
(c) Aggregate cost for federal income tax purposes is $52,418,358. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$2,142,711 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$1,934,009.
ADR - American Depositary Receipt
Page 44 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 52,627,060 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
See Notes to Financial Statements Page 45
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2016
FIRST TRUST FIRST TRUST FIRST TRUST
DOW JONES SELECT MORNINGSTAR US EQUITY
MICROCAP DIVIDEND LEADERS OPPORTUNITIES
INDEX FUND INDEX FUND ETF
(FDM) (FDL) (FPX)
---------------- ----------------- ----------------
ASSETS:
Investments, at value............................................... $ 118,135,122 $ 1,776,066,018 $ 626,702,807
Cash................................................................ 54,698 -- 553,013
Receivables:
Capital shares sold........................................... -- 6,951,487 --
Investment securities sold.................................... 576 -- --
Dividends..................................................... 144,141 3,832,265 257,250
Securities lending income..................................... 3,137 -- 54,017
Interest...................................................... -- -- --
Reclaims...................................................... -- -- 7,290
Prepaid expenses.................................................... 17,438 17,538 5,835
-------------- --------------- --------------
Total Assets.................................................. 118,355,112 1,786,867,308 627,580,212
-------------- --------------- --------------
LIABILITIES:
Due to custodian.................................................... -- 383,950 --
Payables:
Capital shares redeemed....................................... -- -- --
Investment securities purchased............................... 27,371 6,943,419 --
Investment advisory fees...................................... 35,144 348,206 228,842
Collateral for securities on loan............................. 1,477,617 -- 13,048,247
Audit and tax fees............................................ 22,925 22,925 22,925
Printing fees................................................. 3,367 65,475 29,624
Trustees' fees................................................ 156 69 170
Licensing fees................................................ -- 392,720 136,091
Other liabilities................................................... 12,866 246,626 90,147
-------------- --------------- --------------
Total Liabilities............................................. 1,579,446 8,403,390 13,556,046
-------------- --------------- --------------
NET ASSETS.......................................................... $ 116,775,666 $ 1,778,463,918 $ 614,024,166
============== =============== ==============
NET ASSETS CONSIST OF:
Paid-in capital..................................................... $ 125,021,552 $ 1,669,725,531 $ 631,936,349
Par value........................................................... 26,550 641,000 113,500
Accumulated net investment income (loss)............................ 13,856 6,393 --
Accumulated net realized gain (loss) on investments................. (23,249,596) (57,666,249) (75,509,741)
Net unrealized appreciation (depreciation) on investments........... 14,963,304 165,757,243 57,484,058
-------------- --------------- --------------
NET ASSETS.......................................................... $ 116,775,666 $ 1,778,463,918 $ 614,024,166
============== =============== ==============
NET ASSET VALUE, per share.......................................... $ 43.98 $ 27.75 $ 54.10
============== =============== ==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share)....................................... 2,655,000 64,100,002 11,350,002
============== =============== ==============
Investments, at cost................................................ $ 103,171,818 $ 1,610,308,775 $ 569,218,749
============== =============== ==============
Securities on loan, at value........................................ $ 1,420,483 $ -- $ 12,693,526
============== =============== ==============
Page 46 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST
NYSE ARCA DOW JONES CAPITAL VALUE LINE(R) VALUE LINE(R) 100
BIOTECHNOLOGY INTERNET STRENGTH DIVIDEND EXCHANGE-TRADED
INDEX FUND INDEX FUND ETF INDEX FUND FUND
(FBT) (FDN) (FTCS) (FVD) (FVL)
---------------- ----------------- ---------------- ----------------- ----------------
$ 886,534,525 $3,572,781,232 $ 320,131,235 $ 2,891,244,184 $ 52,627,060
778,327 -- -- -- 67,604
-- -- 2,045,796 179,170,410 --
4,543,115 27,244,308 -- 376,372,986 21,527,038
-- 221,773 414,601 5,117,700 37,563
52,493 38,667 -- -- --
-- 4,607 -- -- --
70,583 -- -- 240,010 912
8,852 37,225 2,640 25,288 538
-------------- --------------- -------------- --------------- --------------
891,987,895 3,600,327,812 322,594,272 3,452,170,578 74,260,715
-------------- --------------- -------------- --------------- --------------
-- 267,348 137,900 1,130,410 --
4,544,401 19,983,750 -- 179,905,078 --
-- 5,047,305 2,046,076 375,645,893 21,517,007
279,440 1,210,960 134,070 1,039,580 17,588
82,414,165 85,987,348 -- -- --
22,925 22,925 22,925 22,925 22,925
41,159 125,264 10,722 81,128 3,636
212 111 121 -- 161
164,822 519,363 7,324 1,007,706 21,495
135,972 429,509 45,092 356,275 34,693
-------------- --------------- -------------- --------------- --------------
87,603,096 113,593,883 2,404,230 559,188,995 21,617,505
-------------- --------------- -------------- --------------- --------------
$ 804,384,799 $ 3,486,733,929 $ 320,190,042 $ 2,892,981,583 $ 52,643,210
============== =============== ============== =============== ==============
$1,244,270,725 $ 3,464,081,586 $ 324,756,263 $ 2,764,795,968 $ 85,843,637
88,500 437,000 78,500 1,032,380 24,400
-- -- -- -- (54)
(252,640,414) (159,971,929) (22,205,322) (71,462,533) (33,529,025)
(187,334,012) 182,187,272 17,560,601 198,615,768 304,252
-------------- --------------- -------------- --------------- --------------
$ 804,384,799 $ 3,486,733,929 $ 320,190,042 $ 2,892,981,583 $ 52,643,210
============== =============== ============== =============== ==============
$ 90.89 $ 79.79 $ 40.79 $ 28.02 $ 21.58
============== =============== ============== =============== ==============
8,850,002 43,700,002 7,850,002 103,237,986 2,439,982
============== =============== ============== =============== ==============
$1,073,868,537 $ 3,390,593,960 $ 302,570,634 $ 2,692,628,416 $ 52,322,808
============== =============== ============== =============== ==============
$ 79,813,163 $ 83,125,060 $ -- $ -- $ --
============== =============== ============== =============== ==============
See Notes to Financial Statements Page 47
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
FIRST TRUST FIRST TRUST FIRST TRUST
DOW JONES SELECT MORNINGSTAR US EQUITY
MICROCAP DIVIDEND LEADERS OPPORTUNITIES
INDEX FUND INDEX FUND ETF
(FDM) (FDL) (FPX)
---------------- ----------------- ----------------
INVESTMENT INCOME:
Dividends........................................................... $ 1,094,530 $ 54,960,412 $ 6,212,161
Securities lending income (net of fees)............................. 16,133 -- 805,336
Interest............................................................ -- -- --
Foreign tax withholding............................................. (439) -- (37,010)
-------------- --------------- --------------
Total investment income....................................... 1,110,224 54,960,412 6,980,487
-------------- --------------- --------------
EXPENSES:
Investment advisory fees............................................ 261,289 4,433,462 2,373,228
Licensing fees...................................................... 32,984 1,337,741 593,307
Accounting and administration fees.................................. 28,233 677,402 283,941
Audit and tax fees.................................................. 21,228 21,228 21,228
Custodian fees...................................................... 13,315 175,109 84,381
Trustees' fees and expenses......................................... 8,498 11,262 9,410
Listing fees........................................................ 7,381 9,881 8,413
Printing fees....................................................... 5,876 128,543 60,750
Legal fees.......................................................... 4,229 138,816 49,639
Transfer agent fees................................................. 2,613 61,670 29,665
Registration and filing fees........................................ 643 17,894 2,300
Expenses previously waived or reimbursed............................ -- -- 22,946
Other expenses...................................................... 3,681 27,964 20,633
-------------- --------------- --------------
Total expenses................................................ 389,970 7,040,972 3,559,841
Less fees waived and expenses reimbursed by the investment
advisor.................................................... (76,424) (390,779) --
-------------- --------------- --------------
Net expenses.................................................. 313,546 6,650,193 3,559,841
-------------- --------------- --------------
NET INVESTMENT INCOME (LOSS)........................................ 796,678 48,310,219 3,420,646
-------------- --------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................... (1,573,042) (15,662,289) (33,923,808)
In-kind redemptions........................................... 3,599,300 99,252,279 56,677,705
-------------- --------------- --------------
Net realized gain (loss)............................................ 2,026,258 83,589,990 22,753,897
-------------- --------------- --------------
Net change in unrealized appreciation (depreciation) on investments. 14,044,138 126,628,833 (6,902,011)
-------------- --------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)............................. 16,070,396 210,218,823 15,851,886
-------------- --------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................................. $ 16,867,074 $ 258,529,042 $ 19,272,532
============== =============== ==============
Page 48 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST
NYSE ARCA DOW JONES CAPITAL VALUE LINE(R) VALUE LINE(R) 100
BIOTECHNOLOGY INTERNET STRENGTH DIVIDEND EXCHANGE-TRADED
INDEX FUND INDEX FUND ETF INDEX FUND FUND
(FBT) (FDN) (FTCS) (FVD) (FVL)
---------------- ----------------- ---------------- ----------------- ----------------
$ 2,412,970 $ 5,599,913 $ 4,978,724 $ 61,779,410 $ 650,864
855,694 824,607 -- -- --
-- 8,898 -- -- --
(133,285) -- -- (1,084,788) (4,454)
-------------- --------------- -------------- --------------- --------------
3,135,379 6,433,418 4,978,724 60,694,622 646,410
-------------- --------------- -------------- --------------- --------------
4,211,383 13,531,765 1,140,317 10,094,304 250,535
842,277 1,999,351 30,286 3,055,913 81,009
460,615 1,322,923 113,397 886,819 25,600
21,228 21,228 21,228 21,228 21,228
135,011 415,979 30,002 228,906 8,750
9,279 18,291 8,907 12,145 8,492
9,880 12,380 753 25,913 21,999
74,355 307,322 23,243 162,152 6,579
53,177 279,994 19,978 177,698 4,373
48,183 109,574 11,403 75,471 2,505
5,564 36,333 5,087 33,567 --
-- -- 41,092 -- --
68,200 77,032 5,714 37,735 4,918
-------------- --------------- -------------- --------------- --------------
5,939,152 18,132,172 1,451,407 14,811,851 435,988
-- -- -- (679,825) (85,239)
-------------- --------------- -------------- --------------- --------------
5,939,152 18,132,172 1,451,407 14,132,026 350,749
-------------- --------------- -------------- --------------- --------------
(2,803,773) (11,698,754) 3,527,317 46,562,596 295,661
-------------- --------------- -------------- --------------- --------------
(168,290,552) (83,570,307) (9,048,488) (26,833,244) 2,647,198
(204,952,642) 366,966,438 9,661,507 174,569,446 2,302,412
-------------- --------------- -------------- --------------- --------------
(373,243,194) 283,396,131 613,019 147,736,202 4,949,610
-------------- --------------- -------------- --------------- --------------
(454,566,123) (286,737,424) 14,122,275 148,113,774 (715,003)
-------------- --------------- -------------- --------------- --------------
(827,809,317) (3,341,293) 14,735,294 295,849,976 4,234,607
-------------- --------------- -------------- --------------- --------------
$ (830,613,090) $ (15,040,047) $ 18,262,611 $ 342,412,572 $ 4,530,268
============== =============== ============== =============== ==============
See Notes to Financial Statements Page 49
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST
DOW JONES SELECT MORNINGSTAR
MICROCAP DIVIDEND LEADERS
INDEX FUND INDEX FUND
(FDM) (FDL)
------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/2016 12/31/2015 12/31/2016 12/31/2015
-------------- -------------- -------------- --------------
OPERATIONS:
Net investment income (loss)........................... $ 796,678 $ 759,114 $ 48,310,219 $ 31,928,966
Net realized gain (loss)............................... 2,026,258 3,694,341 83,589,990 11,749,117
Net increase from payment by the advisor............... -- -- -- --
Net change in unrealized appreciation (depreciation)... 14,044,138 (4,419,000) 126,628,833 (26,130,013)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations..................................... 16,867,074 34,455 258,529,042 17,548,070
-------------- -------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. (828,593) (743,446) (48,261,512) (32,145,837)
-------------- -------------- -------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................. 70,348,426 31,352,476 1,442,870,317 141,457,821
Cost of shares redeemed................................ (19,162,623) (32,739,987) (749,967,524) (236,717,928)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions....................... 51,185,803 (1,387,511) 692,902,793 (95,260,107)
-------------- -------------- -------------- --------------
Total increase (decrease) in net assets................ 67,224,284 (2,096,502) 903,170,323 (109,857,874)
NET ASSETS:
Beginning of period.................................... 49,551,382 51,647,884 875,293,595 985,151,469
-------------- -------------- -------------- --------------
End of period.......................................... $ 116,775,666 $ 49,551,382 $1,778,463,918 $ 875,293,595
============== ============== ============== ==============
Accumulated net investment income (loss)
at end of period.................................... $ 13,856 $ -- $ 6,393 $ (62,027)
============== ============== ============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................ 1,505,000 1,555,000 36,950,002 41,150,002
Shares sold............................................ 1,700,000 950,000 55,400,000 6,000,000
Shares redeemed........................................ (550,000) (1,000,000) (28,250,000) (10,200,000)
-------------- -------------- -------------- --------------
Shares outstanding, end of period...................... 2,655,000 1,505,000 64,100,002 36,950,002
============== ============== ============== ==============
Page 50 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST
US EQUITY NYSE ARCA DOW JONES
OPPORTUNITIES BIOTECHNOLOGY INTERNET
ETF INDEX FUND INDEX FUND
(FPX) (FBT) (FDN)
------------------------------- ------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/2016 12/31/2015 12/31/2016 12/31/2015 12/31/2016 12/31/2015
-------------- -------------- -------------- -------------- -------------- --------------
$ 3,420,646 $ 4,415,039 $ (2,803,773) $ 2,588,933 $ (11,698,754) $ (9,194,381)
22,753,897 (3,584,153) (373,243,194) 326,617,811 283,396,131 189,050,659
-- -- -- -- -- --
(6,902,011) (7,795,816) (454,566,123) (147,075,543) (286,737,424) 375,900,470
-------------- -------------- -------------- -------------- -------------- --------------
19,272,532 (6,964,930) (830,613,090) 182,131,201 (15,040,047) 555,756,748
-------------- -------------- -------------- -------------- -------------- --------------
(4,684,081) (4,530,346) -- (3,747,095) -- --
-------------- -------------- -------------- -------------- -------------- --------------
117,937,765 372,941,483 428,122,566 2,367,869,339 913,770,456 3,428,956,816
(308,194,899) (107,696,610) (2,230,149,092) (1,235,810,318) (2,326,817,875) (1,046,685,047)
-------------- -------------- -------------- -------------- -------------- --------------
(190,257,134) 265,244,873 (1,802,026,526) 1,132,059,021 (1,413,047,419) 2,382,271,769
-------------- -------------- -------------- -------------- -------------- --------------
(175,668,683) 253,749,597 (2,632,639,616) 1,310,443,127 (1,428,087,466) 2,938,028,517
789,692,849 535,943,252 3,437,024,415 2,126,581,288 4,914,821,395 1,976,792,878
-------------- -------------- -------------- -------------- -------------- --------------
$ 614,024,166 $ 789,692,849 $ 804,384,799 $3,437,024,415 $3,486,733,929 $4,914,821,395
============== ============== ============== ============== ============== ==============
$ -- $ -- $ -- $ -- $ -- $ --
============== ============== ============== ============== ============== ==============
15,450,002 10,650,002 30,400,002 20,850,002 65,850,002 32,250,002
2,200,000 6,900,000 4,850,000 20,350,000 12,200,000 49,100,000
(6,300,000) (2,100,000) (26,400,000) (10,800,000) (34,350,000) (15,500,000)
-------------- -------------- -------------- -------------- -------------- --------------
11,350,002 15,450,002 8,850,002 30,400,002 43,700,002 65,850,002
============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 51
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST FIRST TRUST
CAPITAL STRENGTH VALUE LINE(R) DIVIDEND
ETF INDEX FUND
(FTCS) (FVD)
------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/2016 12/31/2015 12/31/2016 12/31/2015
-------------- -------------- -------------- --------------
OPERATIONS:
Net investment income (loss)........................... $ 3,527,317 $ 1,863,793 $ 46,562,596 $ 27,999,971
Net realized gain (loss)............................... 613,019 7,692,653 147,736,202 70,182,866
Net increase from payment by the advisor............... -- -- -- --
Net change in unrealized appreciation (depreciation)... 14,122,275 (7,484,967) 148,113,774 (85,527,963)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations..................................... 18,262,611 2,071,479 342,412,572 12,654,874
-------------- -------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. (3,539,946) (1,868,316) (47,522,750) (28,470,161)
-------------- -------------- -------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................. 220,814,366 146,883,652 2,392,736,109 703,563,120
Cost of shares redeemed................................ (81,161,652) (66,958,092) (982,675,414) (589,015,540)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions....................... 139,652,714 79,925,560 1,410,060,695 114,547,580
-------------- -------------- -------------- --------------
Total increase (decrease) in net assets................ 154,375,379 80,128,723 1,704,950,517 98,732,293
NET ASSETS:
Beginning of period.................................... 165,814,663 85,685,940 1,188,031,066 1,089,298,773
-------------- -------------- -------------- --------------
End of period.......................................... $ 320,190,042 $ 165,814,663 $2,892,981,583 $1,188,031,066
============== ============== ============== ==============
Accumulated net investment income (loss)
at end of period.................................... $ -- $ -- $ -- $ --
============== ============== ============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................ 4,350,002 2,250,002 49,787,986 45,137,986
Shares sold............................................ 5,550,000 3,850,000 89,750,000 29,150,000
Shares redeemed........................................ (2,050,000) (1,750,000) (36,300,000) (24,500,000)
-------------- -------------- -------------- --------------
Shares outstanding, end of period...................... 7,850,002 4,350,002 103,237,986 49,787,986
============== ============== ============== ==============
Page 52 See Notes to Financial Statements
FIRST TRUST
VALUE LINE(R) 100
EXCHANGE-TRADED FUND
(FVL)
-------------------------------
Year Ended Year Ended
12/31/2016 12/31/2015
-------------- --------------
$ 295,661 $ 188,382
4,949,610 (464,240)
-- 95,996
(715,003) (1,386,028)
-------------- --------------
4,530,268 (1,565,890)
-------------- --------------
(303,697) (184,307)
-------------- --------------
26,089,617 5,252,525
(30,685,938) (10,497,440)
-------------- --------------
(4,596,321) (5,244,915)
-------------- --------------
(369,750) (6,995,112)
53,012,960 60,008,072
-------------- --------------
$ 52,643,210 $ 53,012,960
============== ==============
$ (54) $ --
============== ==============
2,689,982 2,939,982
1,250,000 250,000
(1,500,000) (500,000)
-------------- --------------
2,439,982 2,689,982
============== ==============
See Notes to Financial Statements Page 53
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 32.92 $ 33.21 $ 32.47 $ 22.87 $ 20.09
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.49 0.49 0.23 0.25 0.35
Net realized and unrealized gain (loss) 11.07 (0.30) 0.76 9.62 2.83
---------- ---------- ---------- ---------- ----------
Total from investment operations 11.56 0.19 0.99 9.87 3.18
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.50) (0.48) (0.25) (0.27) (0.40)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 43.98 $ 32.92 $ 33.21 $ 32.47 $ 22.87
========== ========== ========== ========== ==========
TOTAL RETURN (a) 35.45% 0.55% 3.08% 43.32% 15.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 116,776 $ 49,551 $ 51,648 $ 91,080 $ 41,281
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.75% 0.73% 0.70% 0.72% 0.76%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 1.52% 1.46% 0.71% 0.93% 1.38%
Portfolio turnover rate (b) 48% 63% 49% 70% 71%
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 23.69 $ 23.94 $ 21.93 $ 18.46 $ 17.57
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.82 0.86 0.80 0.69 0.71
Net realized and unrealized gain (loss) 4.05 (0.25) 2.01 3.47 0.89
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.87 0.61 2.81 4.16 1.60
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.81) (0.86) (0.80) (0.69) (0.71)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 27.75 $ 23.69 $ 23.94 $ 21.93 $ 18.46
========== ========== ========== ========== ==========
TOTAL RETURN (a) 20.72% 2.73% 12.96% 22.71% 9.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $1,778,464 $ 875,294 $ 985,151 $ 687,437 $ 545,517
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.48% 0.48% 0.49% 0.49% 0.51%
Ratio of net expenses to average net assets 0.45% 0.45% 0.45% 0.45% 0.45%
Ratio of net investment income (loss) to
average net assets 3.27% 3.59% 3.55% 3.61% 3.88%
Portfolio turnover rate (b) 50% 61% 40% 35% 31%
<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 54 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 51.11 $ 50.32 $ 45.34 $ 30.82 $ 23.99
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.31 0.31 0.41 0.22 0.31
Net realized and unrealized gain (loss) 3.10 0.80 4.97 14.53 6.87
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.41 1.11 5.38 14.75 7.18
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.42) (0.32) (0.40) (0.23) (0.35)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 54.10 $ 51.11 $ 50.32 $ 45.34 $ 30.82
========== ========== ========== ========== ==========
TOTAL RETURN (a) 6.70% 2.19% 11.91% 47.98% 30.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 614,024 $ 789,693 $ 535,943 $ 351,376 $ 24,659
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.60% 0.60% 0.60% 0.66% 1.01%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.58% 0.61% 0.89% 0.69% 1.27%
Portfolio turnover rate (b) 41% 41% 46% 30% 48%
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 113.06 $ 101.99 $ 69.12 $ 46.05 $ 32.68
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.32) 0.09 0.04 (0.10) (0.22)
Net realized and unrealized gain (loss) (21.85) 11.11 32.88 23.17 13.59
---------- ---------- ---------- ---------- ----------
Total from investment operations (22.17) 11.20 32.92 23.07 13.37
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income -- (0.13) (0.05) -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 90.89 $ 113.06 $ 101.99 $ 69.12 $ 46.05
========== ========== ========== ========== ==========
TOTAL RETURN (a) (19.60)% 10.97% 47.63% 50.10% 40.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 804,385 $3,437,024 $2,126,581 $ 953,910 $ 239,445
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.56% 0.55% 0.58% 0.60% 0.61%
Ratio of net expenses to average net assets 0.56% 0.55% 0.58% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets (0.27)% 0.08% 0.06% (0.26)% (0.48)%
Portfolio turnover rate (b) 42% 30% 58% 48% 39%
<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 55
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 74.64 $ 61.30 $ 59.84 $ 39.01 $ 32.28
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.27) (0.14) (0.08) (0.11) (0.08)
Net realized and unrealized gain (loss) 5.42 13.48 1.54 20.94 6.81
---------- ---------- ---------- ---------- ----------
Total from investment operations 5.15 13.34 1.46 20.83 6.73
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 79.79 $ 74.64 $ 61.30 $ 59.84 $ 39.01
========== ========== ========== ========== ==========
TOTAL RETURN (a) 6.91% 21.77% 2.42% 53.40% 20.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $3,486,734 $4,914,821 $1,976,793 $1,929,852 $ 557,882
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.54% 0.54% 0.54% 0.57% 0.60%
Ratio of net expenses to average net assets 0.54% 0.54% 0.54% 0.57% 0.60%
Ratio of net investment income (loss) to
average net assets (0.35)% (0.29)% (0.13)% (0.28)% (0.23)%
Portfolio turnover rate (b) 21% 28% 27% 17% 33%
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 38.12 $ 38.08 $ 33.70 $ 25.16 $ 21.82
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.58 0.57 0.72 0.45 0.45
Net realized and unrealized gain (loss) 2.67 0.04 4.43 8.54 3.34
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.25 0.61 5.15 8.99 3.79
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.58) (0.57) (0.77) (0.45) (0.45)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 40.79 $ 38.12 $ 38.08 $ 33.70 $ 25.16
========== ========== ========== ========== ==========
TOTAL RETURN (a) 8.57% 1.64% 15.46% 35.90% 17.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 320,190 $ 165,815 $ 85,686 $ 65,706 $ 32,707
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.64% 0.65% 0.66% 0.76% 0.83%
Ratio of net expenses to average net assets 0.64% 0.65% 0.65% 0.65% 0.65%
Ratio of net investment income (loss) to
average net assets 1.55% 1.59% 2.07% 1.59% 1.84%
Portfolio turnover rate (b) 85% 96% 89% 156% 84%
<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 56 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 23.86 $ 24.13 $ 21.36 $ 17.29 $ 16.01
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.56 0.55 0.58 0.50 0.50
Net realized and unrealized gain (loss) 4.17 (0.26) 2.78 4.06 1.28
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.73 0.29 3.36 4.56 1.78
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.57) (0.56) (0.59) (0.49) (0.50)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 28.02 $ 23.86 $ 24.13 $ 21.36 $ 17.29
========== ========== ========== ========== ==========
TOTAL RETURN (a) 19.94% 1.26% 15.94% 26.57% 11.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $2,892,982 $1,188,031 $1,089,299 $ 796,361 $ 508,103
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.73% 0.74% 0.75% 0.76% 0.78%
Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income (loss) to
average net assets 2.31% 2.40% 2.63% 2.57% 3.03%
Portfolio turnover rate (b) 60% 82% 63% 71% 54%
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 19.71 $ 20.41 $ 18.44 $ 13.27 $ 12.37
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.12 0.07 0.11 0.06 0.15
Net realized and unrealized gain (loss) 1.87 (0.71) (c) 1.98 5.17 0.90
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.99 (0.64) 2.09 5.23 1.05
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.12) (0.06) (0.12) (0.06) (0.15)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 21.58 $ 19.71 $ 20.41 $ 18.44 $ 13.27
========== ========== ========== ========== ==========
TOTAL RETURN (a) 10.14% (3.13)%(c) 11.33% 39.44% 8.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 52,643 $ 53,013 $ 60,008 $ 56,058 $ 45,635
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.87% 0.84% 0.84% 0.87% 0.87%
Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income (loss) to
average net assets 0.59% 0.32% 0.57% 0.35% 1.03%
Portfolio turnover rate (b) 491% 404% 325% 350% 304%
<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) The Fund received a payment from the Advisor in the amount of $95,996 in
connection with a trade error, which represents $0.03 per share. Since the
Advisor reimbursed the Fund, there was no effect on the Fund's total
return.
</FN>
See Notes to Financial Statements Page 57
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
1. ORGANIZATION
First Trust Exchange-Traded Fund (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on August 8,
2003, and is registered with the Securities and Exchange Commission (the "SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nineteen exchange-traded funds. This report
covers the eight funds listed below:
First Trust Dow Jones Select MicroCap Index Fund - (NYSE Arca, Inc. ("NYSE
Arca") ticker "FDM")
First Trust Morningstar Dividend Leaders Index Fund - (NYSE Arca ticker
"FDL")
First Trust US Equity Opportunities ETF - (NYSE Arca ticker "FPX")(1)
First Trust NYSE Arca Biotechnology Index Fund - (NYSE Arca ticker "FBT")
First Trust Dow Jones Internet Index Fund - (NYSE Arca ticker "FDN")
First Trust Capital Strength ETF - (The Nasdaq Stock Market LLC ("Nasdaq")
ticker "FTCS")
First Trust Value Line(R) Dividend Index Fund - (NYSE Arca ticker "FVD")
First Trust Value Line(R) 100 Exchange-Traded Fund - (NYSE Arca ticker
"FVL")
(1) Effective on December 13, 2016, First Trust US IPO Index Fund changed its
name to First Trust US Equity Opportunities ETF. The Fund's ticker symbol
was not changed.
Each fund represents a separate series of shares of beneficial interest in the
Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual
funds, each Fund issues and redeems shares on a continuous basis, at net asset
value ("NAV"), only in large specified blocks consisting of 50,000 shares called
a "Creation Unit." Creation Units are issued and redeemed principally in-kind
for securities included in a Fund's relevant index. Except when aggregated in
Creation Units, each Fund's shares are not redeemable securities. The investment
objective of each Fund is to seek investment results that correspond generally
to the price and yield (before the Fund's fees and expenses) of the following
indices:
FUND INDEX
First Trust Dow Jones Select MicroCap Index Fund Dow Jones Select MicroCap Index(SM)
First Trust Morningstar Dividend Leaders Index Fund Morningstar(R) Dividend Leaders Index(SM)
First Trust US Equity Opportunities ETF IPOX(R)-100 U.S. Index
First Trust NYSE Arca Biotechnology Index Fund NYSE Arca Biotechnology Index(SM)
First Trust Dow Jones Internet Index Fund Dow Jones Internet Composite Index(SM)
First Trust Capital Strength ETF The Capital Strength Index(TM)
First Trust Value Line(R) Dividend Index Fund Value Line(R) Dividend Index
First Trust Value Line(R) 100 Exchange-Traded Fund Value Line(R) 100 Index
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds are each considered an investment company and follow accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 946, "Financial
Services-Investment Companies." The following is a summary of significant
accounting policies consistently followed by the Funds in the preparation of the
financial statements. The preparation of the financial statements in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. PORTFOLIO VALUATION
Each Fund's NAV is determined daily as of the close of regular trading on the
New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day
the NYSE is open for trading. If the NYSE closes early on a valuation day, the
NAV is determined as of that time. Foreign securities are priced using data
reflecting the earlier closing of the principal markets for those securities.
Each Fund's NAV is calculated by dividing the value of all assets of each Fund
(including accrued interest and dividends), less all liabilities (including
accrued expenses and dividends declared but unpaid), by the total number of
shares outstanding.
Each Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Funds'
Page 58
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. Investments valued
by the Advisor's Pricing Committee, if any, are footnoted as such in the
footnotes to the Portfolio of Investments. Each Fund's investments are valued as
follows:
Common stocks and other equity securities listed on any national or
foreign exchange (excluding Nasdaq and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for Nasdaq and
AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the principal market for such securities.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Overnight repurchase agreements are valued at amortized cost when it
represents the best estimate of fair value.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a third-party pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of a Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or third-party pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
In addition, differences between the prices used to calculate a Fund's NAV and
the prices used by such Fund's corresponding index could result in a difference
between a Fund's performance and the performance of its underlying index.
The Funds are subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
Page 59
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value each Fund's investments as of December 31, 2016, is
included with each Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis.
Distributions received from a Fund's investments in real estate investment
trusts ("REITs") may be comprised of return of capital, capital gains and
income. The actual character of the amounts received during the year is not
known until after the REITs' fiscal year end. A Fund records the character of
distributions received from REITs during the year based on estimates available.
The characterization of distributions received by a Fund may be subsequently
revised based on information received from the REITs after their tax reporting
periods conclude.
C. OFFSETTING ON THE STATEMENTS OF ASSETS AND LIABILITIES
Offsetting Assets and Liabilities require entities to disclose both gross and
net information about instruments and transactions eligible for offset on the
Statements of Assets and Liabilities, and disclose instruments and transactions
subject to master netting or similar agreements. These disclosure requirements
are intended to help investors and other financial statement users better assess
the effect or potential effect of offsetting arrangements on a fund's financial
position. The transactions subject to offsetting disclosures are derivative
instruments, repurchase agreements and reverse repurchase agreements, and
securities borrowing and securities lending transactions.
This disclosure, if applicable, is included within each Fund's Portfolio of
Investments under the heading "Offsetting Assets and Liabilities." For financial
reporting purposes, the Funds do not offset financial assets and financial
liabilities that are subject to master netting arrangements ("MNAs") or similar
agreements on the Statements of Assets and Liabilities. MNAs provide the right,
in the event of default (including bankruptcy and insolvency), for the
non-defaulting counterparty to liquidate the collateral and calculate the net
exposure to the defaulting party or request additional collateral.
D. SECURITIES LENDING
The Funds may lend securities representing up to 33 1/3% of the value of their
total assets to broker-dealers, banks and other institutions to generate
additional income. When a Fund loans its portfolio securities, it will receive,
at the inception of each loan, collateral equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
loaned securities. The collateral amount is valued at the beginning of each
business day and is compared to the market value of the loaned securities from
the prior business day to determine if additional collateral is required. If
additional collateral is required, a request is sent to the borrower. Securities
lending involves the risk that the Fund may lose money because the borrower of
the Fund's loaned securities fails to return the securities in a timely manner
or at all. The Fund could also lose money in the event of (i) a decline in the
value of the collateral provided for the loaned securities, (ii) a decline in
the value of any investments made with cash collateral or (iii) an increase in
the value of the loaned securities if the borrower does not increase the
collateral accordingly and the borrower fails to return the securities. These
events could also trigger adverse tax consequences for the Funds.
Under the Funds' Securities Lending Agency Agreement, the securities lending
agent will generally bear the risk that a borrower may default on its obligation
to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the
Funds' securities lending agent and is responsible for executing the lending of
the portfolio securities to creditworthy borrowers. The Funds, however, will be
responsible for the risks associated with the investment of cash collateral. A
Fund may lose money on its investment of cash collateral, which may affect its
ability to repay the collateral to the borrower without the use of other Fund
assets. Each Fund that engages in securities lending receives compensation (net
of any rebate and securities lending agent fees) for lending its securities.
Compensation can be in the form of fees received from the securities lending
agent or dividends or interest earned from the investment of cash collateral.
The dividend and interest earned on the securities loaned is accounted for in
the same manner as other dividend and interest income. At December 31, 2016,
only FDM, FPX, FBT and FDN have securities in the securities lending program.
In the event of a default by a borrower with respect to any loan, BBH will
exercise any and all remedies provided under the applicable borrower agreement
to make the Funds whole. These remedies include purchasing replacement
securities by applying the collateral held from the defaulting broker against
the purchase cost of the replacement securities. If, despite such efforts by BBH
to exercise these remedies, a Fund sustains losses as a result of a borrower's
default, BBH will indemnify the Fund by purchasing replacement securities at its
own expense, or paying the Fund an amount equal to the market value of the
replacement securities, subject to certain limitations which are set forth in
detail in the Securities Lending Agency Agreement between the Trust on behalf of
the Funds and BBH.
Page 60
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
E. REPURCHASE AGREEMENTS
Repurchase agreements involve the purchase of securities subject to the seller's
agreement to repurchase the securities at a mutually agreed upon date and price,
under the terms of a Master Repurchase Agreement ("MRA"). During the term of a
repurchase agreement, the value of the underlying securities held as collateral
on behalf of a Fund, including accrued interest, is required to exceed the value
of the repurchase agreement, including accrued interest. The underlying
securities for all repurchase agreements are held at the Funds' custodian or
designated sub-custodians under tri-party repurchase agreements.
MRAs govern transactions between a Fund and select counterparties. The MRAs
contain provisions for, among other things, initiation, income payments, events
of default, and maintenance of collateral for repurchase agreements.
Repurchase agreements received for lending securities are collateralized by U.S.
Treasury securities. The U.S. Treasury securities are held in a joint custody
account at BBH on behalf of the Funds participating in the securities lending
program. In the event the counterparty defaults on the repurchase agreement, the
U.S. Treasury securities can either be maintained as part of a Fund's portfolio
or sold for cash. A Fund could suffer a loss to the extent that the proceeds
from the sale of the underlying collateral held by the Fund is less than the
repurchase price and the Fund's costs associated with the delay and enforcement
of the MRA.
While the Funds may invest in repurchase agreements, any repurchase agreements
held by the Funds during the fiscal year ended December 31, 2016, were received
as collateral for lending securities. There were no repurchase agreements held
by the Funds as of December 31, 2016.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income of each Fund, if any, are declared and paid
quarterly or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by each Fund, if any, are distributed
at least annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on
significantly modified portfolio securities held by the Funds and have no impact
on net assets or NAV per share. Temporary differences, which arise from
recognizing certain items of income, expense and gain/loss in different periods
for financial statement and tax purposes, will reverse at some time in the
future.
The tax character of distributions paid by each Fund during the fiscal year
ended December 31, 2016 was as follows:
Distributions Distributions
Distributions paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
------------------ ---------------- ----------------
First Trust Dow Jones Select MicroCap Index Fund $ 828,593 $ -- $ --
First Trust Morningstar Dividend Leaders Index Fund 48,261,512 -- --
First Trust US Equity Opportunities ETF 4,684,081 -- --
First Trust NYSE Arca Biotechnology Index Fund -- -- --
First Trust Dow Jones Internet Index Fund -- -- --
First Trust Capital Strength ETF 3,539,946 -- --
First Trust Value Line(R) Dividend Index Fund 47,522,750 -- --
First Trust Value Line(R) 100 Exchange-Traded Fund 303,697 -- --
Page 61
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
The tax character of distributions paid by each Fund during the fiscal year
ended December 31, 2015 was as follows:
Distributions Distributions
Distributions paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
------------------ ---------------- ----------------
First Trust Dow Jones Select MicroCap Index Fund $ 743,446 $ -- $ --
First Trust Morningstar Dividend Leaders Index Fund 32,145,837 -- --
First Trust US Equity Opportunities ETF 4,530,346 -- --
First Trust NYSE Arca Biotechnology Index Fund 3,747,095 -- --
First Trust Dow Jones Internet Index Fund -- -- --
First Trust Capital Strength ETF 1,868,316 -- --
First Trust Value Line(R) Dividend Index Fund 28,470,161 -- --
First Trust Value Line(R) 100 Exchange-Traded Fund 184,307 -- --
As of December 31, 2016, the components of distributable earnings on a tax basis
for each Fund were as follows:
Accumulated
Undistributed Capital and Net Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
------------------ ---------------- ----------------
First Trust Dow Jones Select MicroCap Index Fund $ 13,856 $ (22,325,855) $ 14,039,563
First Trust Morningstar Dividend Leaders Index Fund 42,718 (47,655,825) 155,710,494
First Trust US Equity Opportunities ETF -- (72,387,342) 54,361,659
First Trust NYSE Arca Biotechnology Index Fund -- (238,809,743) (201,164,683)
First Trust Dow Jones Internet Index Fund -- (87,729,839) 109,945,182
First Trust Capital Strength ETF -- (20,129,157) 15,484,436
First Trust Value Line(R) Dividend Index Fund -- (20,084,190) 147,237,425
First Trust Value Line(R) 100 Exchange-Traded Fund -- (33,433,529) 208,702
G. INCOME TAXES
Each Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, each Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2013, 2014,
2015 and 2016 remain open to federal and state audit. As of December 31, 2016,
management has evaluated the application of these standards to the Funds, and
has determined that no provision for income tax is required in the Funds'
financial statements for uncertain tax positions.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses arising in taxable years after December 22, 2010, may be
carried forward indefinitely, and their character is retained as short-term
and/or long-term losses. Previously, net capital losses were carried forward for
up to eight years and treated as short-term losses. As a transition rule, the
Act requires that post-enactment net capital losses be used before pre-enactment
net capital losses. At December 31, 2016, the Funds had pre-enactment and
post-enactment net capital losses for federal income tax purposes as shown in
the following table. To the extent that these loss carryforwards are used to
offset future capital gains, it is probable that the capital gains so offset
will not be distributed to Fund shareholders. The Funds are subject to certain
limitations, under U.S. tax rules, on the use of capital loss carryforwards and
net unrealized built-in losses. These limitations apply when there has been a
50% change in ownership.
Page 62
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
Capital Capital
Loss Loss Post- Total
Available Available Enactment - Capital
Through Through No Loss
2017 2018 Expiration Available
---------- ----------- ----------- -----------
First Trust Dow Jones Select MicroCap Index Fund $3,227,616 $ 5,096,533 $14,001,706 $22,325,855
First Trust Morningstar Dividend Leaders Index Fund 16,831,977 473,435 30,350,413 47,655,825
First Trust US Equity Opportunities ETF 1,127,563 65,058 71,194,721 72,387,342
First Trust NYSE Arca Biotechnology Index Fund 5,787,577 1,039,054 231,983,112 238,809,743
First Trust Dow Jones Internet Index Fund 1,163,966 -- 86,565,873 87,729,839
First Trust Capital Strength ETF 11,336,270 1,367,556 7,425,331 20,129,157
First Trust Value Line(R) Dividend Index Fund 19,646,203 437,987 -- 20,084,190
First Trust Value Line(R) 100 Exchange-Traded Fund 29,477,928 -- 3,957,526 33,435,454
During the taxable year ended December 31, 2016, the following Funds utilized
capital loss carryforwards in the following amounts:
Pre-Enactment Post-Enactment
Capital Loss Capital Loss
Carryforward Utilized Carryforward Utilized
--------------------- ---------------------
First Trust Value Line(R) Dividend Index Fund $ 8,033,574 $ --
First Trust Value Line(R) 100 Exchange-Traded Fund -- 2,718,287
At the taxable year ended December 31, 2016, the following Funds' capital loss
carryforwards expired in the following amounts:
Capital Loss
Carryforward
Expired
---------------------
First Trust Dow Jones Select MicroCap Index Fund $ 902,807
First Trust Morningstar Dividend Leaders Index Fund 14,962,284
First Trust US Equity Opportunities ETF 2,682,788
First Trust NYSE Arca Biotechnology Index Fund 2,061,136
First Trust Dow Jones Internet Index Fund 6,295,170
First Trust Capital Strength ETF 11,401,861
First Trust Value Line(R) Dividend Index Fund 8,806,024
First Trust Value Line(R) 100 Exchange-Traded Fund 47,805,834
In order to present paid-in capital, accumulated net investment income (loss)
and accumulated net realized gain (loss) on investments on the Statements of
Assets and Liabilities that more closely represent their tax character, certain
adjustments have been made to paid-in capital, accumulated net investment income
(loss) and accumulated net realized gain (loss) on investments. These
adjustments are primarily due to the difference between book and tax treatments
of income and gains on various investment securities held by the Funds and
in-kind transactions. The results of operations and net assets were not affected
by these adjustments. For the fiscal year ended December 31, 2016, the
adjustments for each Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss) Paid-in
Income (Loss) on Investments Capital
-------------- -------------------- ----------------
First Trust Dow Jones Select MicroCap Index Fund $ 45,771 $ (2,460,280) $ 2,414,509
First Trust Morningstar Dividend Leaders Index Fund 19,713 (80,792,579) 80,772,866
First Trust US Equity Opportunities ETF 1,263,435 (52,663,782) 51,400,347
First Trust NYSE Arca Biotechnology Index Fund 2,803,773 291,431,485 (294,235,258)
First Trust Dow Jones Internet Index Fund 11,698,754 (330,208,919) 318,510,165
First Trust Capital Strength ETF 12,629 2,064,727 (2,077,356)
First Trust Value Line(R) Dividend Index Fund 960,154 (147,401,790) 146,441,636
First Trust Value Line(R) 100 Exchange-Traded Fund 7,982 45,545,739 (45,553,721)
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
H. EXPENSES
Expenses that are directly related to one of the Funds are charged directly to
the respective Fund. General expenses of the Trust are allocated to all the
Funds based upon the net assets of each Fund.
First Trust has entered into licensing agreements with each of the following
"Licensors" for the respective Funds:
FUND LICENSOR
First Trust Dow Jones Select MicroCap Index Fund Dow Jones & Company, Inc.
First Trust Morningstar Dividend Leaders Index Fund Morningstar, Inc.
First Trust US Equity Opportunities ETF IPOX(R) Schuster LLC
First Trust NYSE Arca Biotechnology Index Fund NYSE Euronext
First Trust Dow Jones Internet Index Fund Dow Jones & Company, Inc.
First Trust Capital Strength ETF Nasdaq, Inc.
First Trust Value Line(R) Dividend Index Fund Value Line Publishing, Inc.(R)
First Trust Value Line(R) 100 Exchange-Traded Fund Value Line Publishing, Inc.(R)
The respective license agreements allow for the use by First Trust of certain
trademarks and trade names of the respective Licensors. The Funds are
sub-licensees to the applicable license agreement. The respective Funds are
required to pay licensing fees, which are shown on the Statements of Operations.
I. NEW AND AMENDED FINANCIAL REPORTING RULES AND FORMS
On October 13, 2016, the SEC adopted new rules and forms, and amended existing
rules and forms. The new and amended rules and forms are intended to modernize
the reporting of information provided by funds and to improve the quality and
type of information that funds provide to the SEC and investors. The new and
amended rules and forms will be effective for the First Trust funds, including
the Funds, from reporting periods beginning on and after June 1, 2018.
Management is evaluating the new and amended rules and forms to determine the
impact to the Funds.
J. NEW ACCOUNTING PRONOUNCEMENT
In December 2016, FASB released Accounting Standards Update ("ASU") 2016-19 that
makes technical changes to various sections of the ASC, including Topic 820,
Fair Value Measurement. The changes to Topic 820 are intended to clarify the
difference between a valuation approach and a valuation technique. The changes
to ASC 820-10-50-2 require a reporting entity to disclose, for Level 2 and Level
3 fair value measurements, a change in either or both a valuation approach and a
valuation technique and the reason(s) for the change. The changes to Topic 820
are effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2016. At this time, management is evaluating the
implications of the ASU and has not yet determined its impact on the financial
statements and disclosures.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Funds, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in each Fund's portfolio, managing the Funds' business affairs and providing
certain administrative services necessary for the management of the Funds.
For these services, First Trust is entitled to receive monthly fees from each
Fund calculated at the following annual rates:
% of Average
Daily Net Assets
----------------
First Trust Dow Jones Select MicroCap Index Fund 0.50%
First Trust Morningstar Dividend Leaders Index Fund 0.30%
First Trust US Equity Opportunities ETF 0.40%
First Trust NYSE Arca Biotechnology Index Fund 0.40%
First Trust Dow Jones Internet Index Fund 0.40%
First Trust Capital Strength ETF 0.50%
First Trust Value Line(R) Dividend Index Fund 0.50%
First Trust Value Line(R) 100 Exchange-Traded Fund 0.50%
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
The Trust and First Trust have entered into an Expense Reimbursement, Fee Waiver
and Recovery Agreement ("Recovery Agreement") in which First Trust has agreed to
waive fees and/or reimburse Fund expenses to the extent that the operating
expenses of each Fund (excluding interest expense, brokerage commissions and
other trading expenses, acquired fund fees and expenses, taxes and extraordinary
expenses) exceed the below amount as a percentage of average daily net assets
per year (the "Expense Cap"). The Expense Cap will be in effect until at least
April 30, 2018.
Expense Cap
----------------
First Trust Dow Jones Select MicroCap Index Fund 0.60%
First Trust Morningstar Dividend Leaders Index Fund 0.45%
First Trust US Equity Opportunities ETF 0.60%
First Trust NYSE Arca Biotechnology Index Fund 0.60%
First Trust Dow Jones Internet Index Fund 0.60%
First Trust Capital Strength ETF 0.65%
First Trust Value Line(R) Dividend Index Fund 0.70%
First Trust Value Line(R) 100 Exchange-Traded Fund 0.70%
Expenses reimbursed and fees waived by First Trust under the Recovery Agreement
are subject to recovery by First Trust for up to three years from the date the
fee was waived or expense was incurred, but no reimbursement payment will be
made by a Fund if it results in the Fund exceeding an expense ratio equal to the
Expense Cap in place at the time the expenses were reimbursed or fees waived by
First Trust. These amounts are included in "Expenses previously waived or
reimbursed" on the Statements of Operations.
The advisory fee waivers and expense reimbursements for the fiscal year ended
December 31, 2016 and the fees waived or expenses borne by First Trust subject
to recovery from the applicable Fund for the periods indicated were as follows:
Fees Waived or Expenses Borne by First Trust
Subject to Recovery
------------------------------------------------
Advisory Year Year Year
Fee Expense Ended Ended Ended
Waivers Reimbursement 12/31/2014 12/31/2015 12/31/2016 Total
--------- ------------- ---------- ---------- ---------- ---------
First Trust Dow Jones Select MicroCap
Index Fund $ 76,424 $ -- $ 66,284 $ 69,191 $ 76,424 $ 211,899
First Trust Morningstar Dividend Leaders
Index Fund 390,779 -- 273,147 260,965 390,779 924,891
First Trust US Equity Opportunities ETF -- -- 23,043 -- -- 23,043
First Trust NYSE Arca Biotechnology
Index Fund -- -- -- -- -- --
First Trust Dow Jones Internet
Index Fund -- -- -- -- -- --
First Trust Capital Strength ETF -- -- -- -- -- --
First Trust Value Line(R) Dividend
Index Fund 679,825 -- 408,933 464,054 679,825 1,552,812
First Trust Value Line(R) 100 Exchange-Traded
Fund 85,239 -- 85,675 83,472 85,239 254,386
During the fiscal year ended December 31, 2016, First Trust recovered fees that
were previously waived from First Trust US Equity Opportunities ETF and First
Trust Capital Strength ETF of $22,946 and $41,092, respectively.
During the fiscal year ended December 31, 2015, the First Trust Value Line(R)
100 Exchange-Traded Fund received a payment from the Advisor of $95,996 in
connection with a trade error.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
each Fund. As custodian, BNYM is responsible for custody of each Fund's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of each Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for each Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen rotate every three years. The officers and "Interested" Trustee receive
no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the fiscal year ended December 31, 2016, the cost of purchases and proceeds
from sales of investments for each Fund, excluding short-term investments and
in-kind transactions, were as follows:
Purchases Sales
--------------- ---------------
First Trust Dow Jones Select MicroCap Index Fund $ 25,923,604 $ 25,734,796
First Trust Morningstar Dividend Leaders Index Fund 738,614,436 735,451,454
First Trust US Equity Opportunities ETF 250,543,842 251,093,925
First Trust NYSE Arca Biotechnology Index Fund 487,380,545 487,411,199
First Trust Dow Jones Internet Index Fund 743,035,189 754,523,771
First Trust Capital Strength ETF 194,340,040 193,594,363
First Trust Value Line(R) Dividend Index Fund 1,206,292,969 1,202,682,884
First Trust Value Line(R) 100 Exchange-Traded Fund 247,315,901 247,350,239
For the fiscal year ended December 31, 2016, the cost of in-kind purchases and
proceeds from in-kind sales for each Fund were as follows:
Purchases Sales
--------------- ---------------
First Trust Dow Jones Select MicroCap Index Fund $ 70,268,593 $ 19,160,380
First Trust Morningstar Dividend Leaders Index Fund 1,437,021,693 746,099,477
First Trust US Equity Opportunities ETF 117,679,576 307,662,875
First Trust NYSE Arca Biotechnology Index Fund 428,227,573 2,233,312,744
First Trust Dow Jones Internet Index Fund 912,194,699 2,323,911,829
First Trust Capital Strength ETF 220,348,918 81,514,515
First Trust Value Line(R) Dividend Index Fund 2,387,593,096 981,597,610
First Trust Value Line(R) 100 Exchange-Traded Fund 26,102,114 30,668,897
5. CREATION, REDEMPTION AND TRANSACTION FEES
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker-dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Such transactions are generally permitted on an
in-kind basis, with a balancing cash component to equate the transaction to the
daily NAV per Share of each Fund on the transaction date times the number of
Shares in a Creation Unit. Authorized Participants purchasing Creation Units
must pay to BNYM, as transfer agent, a standard creation transaction fee (the
"Creation Transaction Fee"), which is based on the number of different
securities in a Creation Unit of each Fund according to the fee schedule set
forth below:
Number of Securities Creation
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-499 $1,000
500 or more $1,500
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by a Fund with respect to
transactions effected outside of the clearing process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. The price for each Creation Unit will equal the daily
NAV per Share of a Fund on the transaction date times the number of Shares in a
Creation Unit plus the fees described above and, if applicable, any transfer
taxes.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
Authorized Participants redeeming Creation Units must pay to BNYM, as transfer
agent, a standard redemption transaction fee (the "Redemption Transaction Fee"),
which is based on the number of different securities in a Creation Unit of each
Fund according to the fee schedule set forth below:
Number of Securities Redemption
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-499 $1,000
500 or more $1,500
The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable fee of up to three times the Redemption Transaction Fee may
be charged to approximate additional expenses incurred by a Fund with respect to
redemptions effected outside of the clearing process or to the extent that
redemptions are for cash. Each Fund reserves the right to effect redemptions in
cash. A shareholder may request cash redemption in lieu of securities; however,
a Fund may, in its discretion, reject any such request.
6. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
in the sale of Creation Units or the provision of investor services. FTP may
also use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before April 30, 2018.
7. INDEMNIFICATION
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined that
there were no subsequent events requiring recognition or disclosure in the
financial statements that have not already been disclosed.
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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 Equity Opportunities ETF (formerly known as
First Trust US IPO Index Fund), First Trust NYSE Arca Biotechnology Index Fund,
First Trust Dow Jones Internet Index Fund, First Trust Capital Strength ETF,
First Trust Value Line(R) Dividend Index Fund and First Trust Value Line(R) 100
Exchange-Traded Fund (collectively, the "Funds"), each a series of the First
Trust Exchange-Traded Fund (the "Trust"), including the portfolios of
investments, as of December 31, 2016, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2016 by correspondence with the Trust's
custodian and brokers; when replies were not received from brokers, we performed
other auditing procedures. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the funds listed above included in the First Trust Exchange-Traded Fund, as
of December 31, 2016, and the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 23, 2017
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Funds' website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of each Fund's portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q. The
Trust's Form N-Qs are available (1) by calling (800) 988-5891; (2) on the Funds'
website located at http://www.ftportfolios.com; (3) on the SEC's website at
http://www.sec.gov; and (4) for review and copying at the SEC's Public Reference
Room ("PRR") in Washington, DC. Information regarding the operation of the PRR
may be obtained by calling (800) SEC-0330.
FEDERAL TAX INFORMATION
For the taxable year ended December 31, 2016, the following percentages of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
----------------------------
First Trust Dow Jones Select MicroCap Index Fund 95.29%
First Trust Morningstar Dividend Leaders Index Fund 100.00%
First Trust US Equity Opportunities ETF 100.00%
First Trust NYSE Arca Biotechnology Index Fund --
First Trust Dow Jones Internet Index Fund --
First Trust Capital Strength ETF 100.00%
First Trust Value Line(R) Dividend Index Fund 100.00%
First Trust Value Line(R) 100 Exchange-Traded Fund 100.00%
For the taxable year ended December 31, 2016, the following percentages of
income dividends paid by the Funds are hereby designated as qualified dividend
income:
Qualified Dividend Income
----------------------------
First Trust Dow Jones Select MicroCap Index Fund 100.00%
First Trust Morningstar Dividend Leaders Index Fund 100.00%
First Trust US Equity Opportunities ETF 100.00%
First Trust NYSE Arca Biotechnology Index Fund --
First Trust Dow Jones Internet Index Fund --
First Trust Capital Strength ETF 100.00%
First Trust Value Line(R) Dividend Index Fund 100.00%
First Trust Value Line(R) 100 Exchange-Traded Fund 100.00%
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER EACH FUND'S INVESTMENT
OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN
DOWNLOAD EACH FUND'S PROSPECTUS AT HTTP://WWW.FTPORTFOLIOS.COM OR CONTACT FIRST
TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS
THIS AND OTHER INFORMATION ABOUT EACH FUND. FOR ADDITIONAL INFORMATION ABOUT THE
RISKS ASSOCIATED WITH INVESTING IN THE FUNDS, PLEASE SEE THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION, AS WELL AS OTHER REGULATORY FILINGS. READ THESE
DOCUMENTS CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS THE
DISTRIBUTOR OF THE FIRST TRUST EXCHANGE-TRADED FUND.
The following summarizes some of the risks that should be considered for the
Funds.
Each Fund's shares will change in value, and you could lose money by investing
in a Fund. Shares are subject to market fluctuations caused by such factors as
economic, political, regulatory or market developments, changes in interest
rates and perceived trends in stock prices. Overall stock values could decline
generally or could underperform other investments. Overall stock market values
could decline generally or could underperform other investments.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
An investment in a Fund involves risks similar to those of investing in any fund
of equity securities traded on an exchange. Investors buying or selling Fund
shares on the secondary market may incur brokerage commissions. In addition,
investors who sell Fund shares may receive less than the Fund shares' net asset
value. Unlike shares of open-end funds, investors are generally not able to
purchase exchange-traded fund ("ETF") shares directly from a Fund and individual
ETF shares are not redeemable. However, specified large blocks of ETF shares
called creation units can be purchased from, or redeemed to, a Fund.
Each Fund is subject to index tracking risk. You should anticipate that the
value of Fund shares will decline, more or less, in correlation with any decline
in the value of the index that the Fund seeks to track.
Each Fund's return may not match the return of the index it seeks to track for a
number of reasons. While First Trust seeks to have a correlation of 0.95 or
better, before expenses, between a Fund's performance and the performance of its
corresponding index, there can be no assurance that a Fund will be able to
achieve such a correlation. Accordingly, each Fund's performance may correlate
to a lesser extent and may possibly vary substantially from the performance of
its corresponding index.
Each Fund is also exposed to additional market risk due to a policy of investing
principally in the securities included in its corresponding index. As a result
of such policies, securities held by each Fund will generally not be bought or
sold in response to market fluctuations and the securities may be issued by
companies concentrated in a particular industry. As a result, each Fund will
generally not sell a stock because the stock's issuer is in financial trouble,
unless that stock is removed or is anticipated to be removed from the index the
Fund seeks to track.
Each Fund relies on a license from an index provider that permits the Fund to
use its corresponding index and associated trade names and trademarks in
connection with the name and investment strategies of the Fund. Such licenses
may be terminated by the respective index provider and, as a result, each Fund
may lose its ability to use such intellectual property. There is also no
guarantee that the index provider has all rights to license the respective
intellectual property to First Trust, on behalf of the Fund. Accordingly, in the
event the license is terminated or the index provider does not have rights to
license the particular intellectual property, it may have a significant effect
on the operation of the related Fund.
Each Fund is subject to issuer specific changes risk. The value of an individual
security or a particular type of security can be more volatile than the market
as a whole and can perform differently from the value of the market as a whole.
Each Fund will be concentrated in the securities of companies of a given
industry if the Fund's corresponding index is concentrated in such industry. A
concentration makes a Fund more susceptible to any single occurrence affecting
the related industry and may subject a Fund to greater market risk than less
concentrated funds.
With the exception of First Trust Capital Strength ETF, First Trust Dow Jones
Select MicroCap Index Fund, First Trust Value Line(R) Dividend Index Fund and
First Trust Value Line(R) 100 Exchange-Traded Fund, each Fund is considered to
be non-diversified. As a result, those Funds are exposed to additional market
risk. A non-diversified fund may invest a relatively high percentage of its
assets in a limited number of issuers. As a result, changes in the market value
of a single portfolio security could cause greater fluctuations in share price
than would occur in a diversified fund. Furthermore, non-diversified funds are
more susceptible to any single political, regulatory or economic occurrence.
The Funds are not actively managed. The Funds may be affected by a general
decline in certain market segments relating to their corresponding index. The
Funds invest in securities included in or representative of their corresponding
index regardless of their investment merit. The Funds generally will not attempt
to take defensive positions in declining markets.
The First Trust Dow Jones Select MicroCap Index Fund invests in
micro-capitalization companies. Such companies may be more vulnerable to adverse
general market or economic developments, may be less liquid, and may experience
greater price volatility than larger, more established companies.
The First Trust Dow Jones Internet Index Fund invests in stocks of companies in
the technology sector. You should be aware that an investment in a portfolio
which invests in a particular sector involves additional risks, including
limited diversification. The companies engaged in the technology sector are
subject to fierce competition and high research and development costs, and their
products and services may be subject to rapid obsolescence.
The First Trust NYSE Arca Biotechnology Index Fund is concentrated in stocks of
companies in the biotechnology sector.
You should be aware that an investment in a portfolio which is concentrated in a
particular sector involves additional risks, including limited diversification.
The companies engaged in the biotechnology sector are subject to fierce
competition, substantial research and development costs, governmental
regulations and pricing constraints, and their products and services may be
subject to rapid obsolescence.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
The First Trust NYSE Arca Biotechnology Index Fund invests in the securities of
companies in the health care sector. Because companies in the health care sector
are involved in medical services or health care including biotechnology research
and production, drugs and pharmaceuticals and health care facilities and
services, general problems of these companies include extensive competition,
generic drug sales or the loss of patent protection, product liability
litigation and increased government regulations.
The First Trust US Equity Opportunities ETF invests in companies that have
recently conducted an initial public offering. The stocks of such companies are
often subject to extreme price volatility and speculative trading.
The First Trust Dow Jones Select Micro Cap Index Fund and First Trust Capital
Strength ETF invest in securities of companies in the financials sector. Banks,
thrifts and their holding companies are especially subject to the adverse
effects of economic recession; volatile interest rates; portfolio concentrations
in geographic markets and in commercial and residential real estate loans; and
competition from new entrants in their fields of business. Although recently
enacted legislation repealed most of the barriers which separated the banking,
insurance and securities industries, these industries are still extensively
regulated at both the federal and state level and may be adversely affected by
increased regulations. The downturn in the U.S. and world economies has
adversely affected banks, thrifts and other companies in the financials sector.
The First Trust Dow Jones Internet Index Fund, First Trust US Equity
Opportunities ETF and First Trust Value Line(R) 100 Exchange-Traded Fund invest
in securities of companies in the information technology industry. Information
technology companies are generally subject to the risks of rapidly changing
technologies; short product life cycles; fierce competition; and aggressive
pricing and reduced profit margins.
The First Trust Dow Jones Internet Index Fund invests in the securities of
Internet companies. Internet companies are subject to rapid changes in
technology, worldwide competition, rapid obsolescence of products and services,
loss of patent protections, cyclical market patterns, evolving industry
standards and frequent new product introductions. The Fund's investment in
Internet companies may also be subject to the risk of owning small
capitalization companies that have recently begun operations.
The First Trust US Equity Opportunities ETF First Trust Value Line(R) 100
Exchange-Traded Fund and First Trust Dow Jones Internet Index Fund invest in the
securities of companies in the consumer discretionary sector. Because companies
in the consumer discretionary sector manufacture products and provide
discretionary services directly to the consumer, the success of these companies
is tied closely to the performance of the overall domestic and international
economy, interest rates, competition and consumer confidence. Success depends
heavily on disposable household income and consumer spending. Changes in
demographics and consumer tastes can also affect the demand for, and success of,
consumer discretionary products in the marketplace.
The First Trust Capital Strength ETF and First Trust Value Line(R) 100
Exchange-Traded Fund invest in the securities of companies in the industrials
sector. General risks of these companies include the general state of the
economy, intense competition, consolidation, domestic and international
politics, excess capacity and consumer demand and spending trends. In addition,
they may also be significantly affected by overall capital spending levels,
economic cycles, technical obsolescence, delays in modernization, labor
relations, government regulations and e-commerce initiatives.
The First Trust Capital Strength ETF invests in the securities of companies in
the consumer staples sector. Consumer staples companies provide products
directly to the consumer that are typically considered non-discretionary items
based on consumer purchasing habits. The success of these companies is affected
by a variety of factors, such as government regulations, which may affect the
permissibility of using various food additives and the production methods of
companies that manufacture food products.
The First Trust Morningstar Dividend Leaders Index Fund and First Trust Value
Line(R) Dividend Index Fund invest in the securities of utilities companies.
Utilities companies are subject to the imposition of rate caps, increased
competition due to deregulation, the difficulty in obtaining an adequate return
on invested capital or in financing large construction projects, the limitations
on operations and increased costs and delays attributable to environmental
considerations, and the capital market's ability to absorb utility debt. In
addition, taxes, government regulation, international politics, price and supply
fluctuations, volatile interest rates and energy conservation may cause
difficulties for utilities. Utilities issuers have been experiencing certain of
these problems to varying degrees.
With the exception of First Trust Capital Strength ETF and First Trust Dow Jones
Select MicroCap Index Fund, the Funds may invest in small capitalization and
mid-capitalization companies. Such companies' securities may be less liquid and
may experience greater price volatility than securities of larger, more
established companies.
Because a Fund's corresponding index may include American Depositary Receipts
("ADRs"), American Depositary Shares ("ADSs") and/or stocks of non-U.S.
companies, the investments of certain Funds, including but not limited to, the
First Trust Value Line(R) 100 Exchange-Traded Fund, involves risks of investing
in non-U.S. securities that are in addition to the risk associated with domestic
Page 71
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
securities. Non-U.S. companies, in general, are not subject to the regulatory
requirements of U.S. companies and, as such, there may be less publicly
available information about these companies. Moreover, non-U.S. accounting,
auditing and financial reporting standards generally are different from those
applicable to U.S. companies. In addition, non-U.S. companies are exposed to
additional economic, political, social or diplomatic events. ADRs and ADSs also
involve substantially identical risks to those associated with investments in
non-U.S. securities. In addition, the issuers of certain depositary receipts,
particularly unsponsored or unregistered depositary receipts, are under no
obligation to distribute shareholder communications to the holders of such
receipts, or to pass through to them any voting rights with respect to the
deposited securities.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
REMUNERATION
First Trust Advisors L.P. ("First Trust") is authorised and regulated by the
U.S. Securities and Exchange Commission and is entitled to market shares of the
First Trust Exchange-Traded Funds it manages (the "Funds") in the United Kingdom
in accordance with the cooperation arrangements in Article 42 of the Alternative
Investment Fund Managers Directive (the "Directive"). First Trust is required
under the Directive to make disclosures in respect of remuneration. The
following disclosures are made in line with First Trust's interpretation of
currently available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2016, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Funds is $5,672,759.
This figure is comprised of $239,218 paid (or to be paid) in fixed compensation
and $5,433,541 paid (or to be paid) in variable compensation. There were a total
of 13 beneficiaries of the remuneration described above. Those amounts include
$3,984,992 paid (or to be paid) to senior management of First Trust Advisors
L.P. and $1,687,767 paid (or to be paid) to other employees whose professional
activities have a material impact on the risk profiles of First Trust Advisors
L.P. or the Funds (collectively, "Code Staff").
Code Staff included in the aggregated figures disclosed above are rewarded in
line with First Trust's remuneration policy (the "Remuneration Policy") which is
determined and implemented by First Trust's senior management. The Remuneration
Policy reflects First Trust's ethos of good governance and encapsulates the
following principal objectives:
i. to provide a clear link between remuneration and performance of
First Trust and to avoid rewarding for failure;
ii. to promote sound and effective risk management consistent with the
risk profiles of the Funds managed by First Trust; and
iii. to remunerate staff in line with the business strategy, objectives,
values and interests of First Trust and the Funds managed by First
Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when
considering and implementing remuneration for Code Staff and considers whether
any potential award to such person(s) would give rise to a conflict of interest.
First Trust does not reward failure, or consider the taking of risk or failure
to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in
respect of performance-related remuneration of Code Staff by reference to a
broad range of measures including (i) individual performance (using financial
and non-financial criteria), and (ii) the overall performance of First Trust.
Remuneration is not based upon the performance of the Funds.
The elements of remuneration are balanced between fixed and variable and the
senior management sets fixed salaries at a level sufficient to ensure that
variable remuneration incentivises and rewards strong individual performance but
does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
Page 72
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, ADDRESS, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
DATE OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 138 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 E. Liberty Drive, o Since Inception Limited Partnership (June 1992 to
Suite 400 December 2016); Member, Sportsmed LLC
Wheaton, IL 60187 (April 2007 to November 2015)
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investor Services, Inc. 138 Director of ADM
c/o First Trust Advisors L.P. (Futures Commission Merchant) Investor Services,
120 E. Liberty Drive, o Since Inception Inc., ADM
Suite 400 Investor Services
Wheaton, IL 60187 International and
D.O.B.: 11/57 Futures Industry
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial 138 Director of Trust
c/o First Trust Advisors L.P. and Management Consulting) Company of
120 E. Liberty Drive, o Since Inception Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating 138 Director of
c/o First Trust Advisors L.P. Officer (January 2015 to Present), Covenant
120 E. Liberty Drive, o Since Inception Pelita Harapan Educational Foundation Transport Inc.
Suite 400 (Educational Products and Services); (May 2003 to
President and Chief Executive Officer May 2014)
Wheaton, IL 60187 (June 2012 to September 2014), Servant
D.O.B.: 03/54 Interactive LLC (Educational Products
and Services); President and Chief
Executive Officer (June 2012 to September
2014), Dew Learning LLC (Educational
Products and Services); President (June
2002 to June 2012), Covenant College
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 138 None
Chairman of the Board Advisors L.P. and First Trust
120 E. Liberty Drive, o Since Inception Portfolios L.P.; Chairman of the
Suite 400 Board of Directors, BondWave LLC
Wheaton, IL 60187 (Software Development Company)
D.O.B.: 09/55 and Stonebridge Advisors LLC
(Investment Advisor)
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 73
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
POSITION AND TERM OF OFFICE
NAME, ADDRESS OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Executive
120 E. Liberty Drive, Executive Officer Officer (January 2016 to Present), Controller (January
Suite 400 o Since January 2016 2011 to January 2016), Senior Vice President (April
Wheaton, IL 60187 2007 to January 2016), First Trust Advisors L.P. and
D.O.B: 01/66 First Trust Portfolios L.P.; Chief Financial Officer,
(January 2016 to Present) BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
120 E. Liberty Drive, Officer and Chief President (April 2012 to July 2016), First Trust
Suite 400 Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.; Vice
Wheaton, IL 60187 President (September 2006 to April 2012), Guggenheim
D.O.B.: 08/72 Funds Investment Advisors, LLC and Claymore
Securities, Inc.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General Counsel,
Suite 400 o Since Inception BondWave LLC; Secretary Stonebridge
Wheaton, IL 60187 Advisors LLC
D.O.B.: 05/60
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present), Senior
120 E. Liberty Drive, Vice President (September 2005 to July 2012),
Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios
Wheaton, IL 60187 L.P.
D.O.B.: 02/70
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
120 E. Liberty Drive, and Assistant Secretary and First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 12/66
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
120 E. Liberty Drive, and First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 06/66
Stan Ueland Vice President o Indefinite Term Senior Vice President (September 2012 to Present),
120 E. Liberty Drive, Vice President (August 2005 to September 2012), First
Suite 400 o Since Inception Trust Advisors L.P. and First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 11/70
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 74
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, we restrict access to your
nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2016
Page 75
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FIRST TRUST
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
FIRST TRUST
First Trust Exchange-Traded Fund
Book 2
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)
First Trust S&P REIT Index Fund (FRI)
First Trust Water ETF (FIW)
(formerly known as First Trust ISE Water Index Fund)
First Trust Natural Gas ETF (FCG)
(formerly known as First Trust ISE-Revere Natural Gas Index Fund)
First Trust Chindia ETF (FNI)
(formerly known as First Trust ISE Chindia Index Fund)
First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)
Annual Report
December 31, 2016
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2016
Shareholder Letter........................................................... 2
Market Overview.............................................................. 3
Fund Performance Overview
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)................... 4
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)................ 6
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)............. 8
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)........ 10
First Trust S&P REIT Index Fund (FRI)..................................... 12
First Trust Water ETF (FIW)............................................... 14
First Trust Natural Gas ETF (FCG)......................................... 16
First Trust Chindia ETF (FNI)............................................. 18
First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)................ 20
Notes to Fund Performance Overview........................................... 22
Understanding Your Fund Expenses............................................. 23
Portfolio of Investments
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)................... 25
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)................ 28
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)............. 29
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)........ 32
First Trust S&P REIT Index Fund (FRI)..................................... 34
First Trust Water ETF (FIW)............................................... 37
First Trust Natural Gas ETF (FCG)......................................... 39
First Trust Chindia ETF (FNI)............................................. 41
First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)................ 44
Statements of Assets and Liabilities......................................... 48
Statements of Operations..................................................... 50
Statements of Changes in Net Assets.......................................... 52
Financial Highlights......................................................... 56
Notes to Financial Statements................................................ 61
Report of Independent Registered Public Accounting Firm...................... 71
Additional Information....................................................... 72
Board of Trustees and Officers............................................... 77
Privacy Policy............................................................... 79
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
any series of First Trust Exchange-Traded Fund (the "Trust") described in this
report (each such series is referred to as a "Fund" and collectively, as the
"Funds") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any Fund described in this report will achieve its
investment objective. Each Fund is subject to market risk, which is the
possibility that the market values of securities owned by the Fund will decline
and that the value of the Fund shares may therefore be less than what you paid
for them. Accordingly, you can lose money by investing in a Fund. See "Risk
Considerations" in the Additional Information section of this report for a
discussion of other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and share price will fluctuate and Fund shares, when
sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on each Fund's webpage at http://www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about each Fund's portfolio and presents data and analysis that
provide insight into each Fund's performance and investment approach.
By reading the market overview by Robert F. Carey, Chief Market Strategist of
the Advisor, you may obtain an understanding of how the market environment
affected the performance of each Fund. The statistical information that follows
may help you understand each Fund's performance compared to that of relevant
market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in each
Fund are spelled out in its prospectus, statement of additional information,
this report and other Fund regulatory filings.
Page 1
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SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
DECEMBER 31, 2016
Dear Shareholders:
Now that 2016 is over, many will remember some of the historic events that
occurred during the year: from the Brexit vote in the UK to leave the European
Union, to the results of the U.S. Presidential Election which seemed unlikely at
the beginning of the year, to the first World Series Championship for the
Chicago Cubs in 108 years!
First Trust Advisors L.P. ("First Trust") is pleased to provide you with this
annual report which contains detailed information about your investment for the
12 months ended December 31, 2016, including a market overview and a performance
analysis for the period. Additionally, First Trust has compiled the Funds'
financial statements for you to review. We encourage you to read this report and
discuss it with your financial advisor.
On November 8, Donald J. Trump was elected to become the 45th president in our
country's history. While no one has a crystal ball and the ability to predict
how his presidency will shape the United States (and the world), there is no
doubt that his populist message resonated for many Americans. And his message of
improving lives for the "average" American, while reducing the size and scope of
the federal government, also won him millions of votes. Many of his supporters
believe that with his background in business, President Trump will make policy
changes that will continue to grow the economy and spur stock markets even
higher. Many analysts predicted the Dow Jones Industrial Average would hit a new
benchmark, 20,000, in the first days of the New Year. As with all change and a
new administration, only time will tell.
As of December 31, 2016, the S&P 500(R) Index was up 11.96% calendar
year-to-date, on a total return basis, as measured by Bloomberg. The current
bull market (measuring from March 9, 2009 through December 31, 2016) is the
second longest in history. We remain bullish on the economy, but continue to
have a long-term perspective. We believe investors should think long-term as
well, since no one can predict volatility and the inevitable ups and downs that
occur in the market.
Thank you for your investment in First Trust Exchange-Traded Fund and for giving
First Trust the opportunity to be a part of your investment plan. We value our
relationship with you and will continue our relentless focus on bringing the
types of investments that we believe could help you reach your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 2
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MARKET OVERVIEW
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2016
ROBERT F. CAREY, CFA
SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST
FIRST TRUST ADVISORS L.P.
Mr. Carey is responsible for the overall management of research and analysis of
the First Trust product line. Mr. Carey has over 25 years of experience as an
Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial
Analyst ("CFA") designation. He is a graduate of the University of Illinois at
Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment
Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a
guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been
quoted by several publications, including The Wall Street Journal, The Wall
Street Reporter, Bloomberg News Service, and Registered Rep.
STATE OF THE ECONOMY/INVESTING
For the second consecutive year, at its December Federal Open Market Committee
meeting, the Federal Reserve (the "Fed") initiated a 25 basis point increase to
the federal funds target rate trading range, which now stands at 0.50% to 0.75%.
The Fed commented in December that inflation expectations have increased
"considerably" and noted that the labor market is tightening, according to
Bloomberg. The Fed is forecasting three quarter-point increases in 2017. For the
30-year period ended December 31, 2016, the federal funds target rate (upper
bound) averaged 3.54%, according to Bloomberg.
Consumer confidence levels continued to rise in 2016. The Conference Board's
Consumer Confidence Index reading stood at 113.70 in December, up from 96.30 in
December 2015, according to Bloomberg. The index reached as low as 25.30 in
February 2009, just prior to the end of the last bear market in stocks in March
2009. While confidence levels are higher than at any point since 2001, the index
has room to run. The highest reading so far in this millennium was 144.71, set
in January 2000. Confidence levels have been bolstered by gains in the labor
force, in our opinion. U.S. nonfarm payrolls expanded by an average of 180,000
per month in 2016, above the 159,000 per month average posted so far in the
current economic recovery (July 2009-December 2016), according to data from the
Bureau of Labor Statistics.
ETFGI, an industry research group, reported that total assets invested in
exchange-traded funds ("ETFs") and other exchange-traded products ("ETPs")
reached a record high of $3.55 trillion globally in 2016, according to its own
release. Total assets invested in U.S. ETFs/ETPs reached a record high $2.59
trillion in 2016.
U.S. STOCKS AND BONDS
In 2016, three of the major U.S. stock indices posted double-digit returns. The
S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index posted
total returns of 11.96%, 20.74%, and 26.56%, respectively, according to
Bloomberg. Ten of the 11 major S&P 500(R) Index sectors (Real Estate was added
in September 2016) posted positive total returns. The top-performing sectors
were Energy, Telecommunication Services and Financials, up 27.36%, 23.49% and
22.75%, respectively, on a total return basis. The only sector that posted a
loss was Health Care, down 2.69%. Health Care stocks, particularly the drug
makers, came under increased scrutiny during the election cycle from some of the
political candidates, including Hillary Clinton. It is not unusual for
candidates to use rising prescription drug prices as a wedge issue in an effort
to garner votes, in our opinion.
The S&P 500(R) Index closed 1.45% below its all-time closing high (2,271.72 on
December 13, 2016) on December 31, 2016, according to Bloomberg. The consensus
estimated earnings growth rates for 2017 for the S&P 500(R) Index, S&P MidCap
400(R) Index and S&P SmallCap 600(R) Index were 12.02%, 11.49% and 17.64%,
respectively, as of December 31, 2016 according to Bloomberg. The consensus
estimated earnings growth rates for 2018 for the S&P 500(R) Index, S&P MidCap
400(R) Index and S&P SmallCap 600(R) Index were 11.20%, 12.00% and 15.95%,
respectively. We are encouraged by level of those earnings growth rate estimates
at this stage of the bull market.
In the U.S. bond market, the top-performing major debt group was high yield
corporate bonds. The Bloomberg Barclays U.S. Corporate High Yield Index posted a
total return of 17.13%. The worst-performing debt group that we track was
municipal bonds, though the group still generated a positive return. The
Bloomberg Barclays Municipal Bond: Long Bond (22+) Index posted a total return
of 0.88%. The yield on the benchmark 10-Year Treasury note (T-note) increased by
18 basis points in 2016, from 2.27% on December 31, 2015 to 2.45% on December
31, 2016. A yield of 2.45% is low by historical standards. For the 30-year
period ended December 31, 2016, the average yield on the 10-year T-note was
5.11%, according to Bloomberg.
FOREIGN STOCKS AND BONDS
The U.S. dollar appreciated by 3.63% against a basket of major currencies in
2016, as measured by the U.S. Dollar Index. With respect to U.S. investors, a
stronger U.S. dollar can negatively impact returns on foreign securities.
The Bloomberg Barclays EM Hard Currency Aggregate Index of emerging markets debt
posted a total return of 9.00% in U.S. dollar ("USD") terms, while the Bloomberg
Barclays Global Aggregate Index of higher quality debt rose 2.09% (USD) for the
same period. The MSCI Emerging Markets Index of stocks posted a total return of
11.19% (USD), while the MSCI World Index (excluding the U.S.) posted a total
return of 2.75% (USD).
Page 3
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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 Stock Market LLC
("Nasdaq") based on market capitalization. The Index contains the same
securities as the NASDAQ-100 Index(R), but each of the securities is initially
set at a weight of 1.00% of the Index which is rebalanced quarterly. The Fund's
shares are listed for trading on the Nasdaq. The first day of secondary market
trading in shares of the Fund was April 25, 2006.
------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (4/19/06) Ended Ended (4/19/06)
12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 7.02% 15.94% 9.25% 8.68% 109.48% 142.31% 143.77%
Market Value 7.09% 15.96% 9.27% 8.69% 109.66% 142.66% 143.87%
INDEX PERFORMANCE
NASDAQ-100 Equal Weighted Index(SM) 7.65% 16.66% 9.95% 9.36% 116.06% 158.09% 160.59%
S&P 500(R) Index 11.96% 14.66% 6.95% 7.41% 98.18% 95.72% 114.81%
NASDAQ-100 Index(R) 7.27% 17.90% 11.82% 11.18% 127.80% 205.58% 210.71%
---------------------------------------------------------------------------------- ------------ --------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a net asset value ("NAV") return of 7.02% during the 12-month
period covered by this report. During the same period, the NASDAQ-100 Index(R)
("benchmark") generated a return of 7.27%. The Fund generated 10.2% of its
performance from Information Technology securities, which were given an average
weighting of 41.7% and had a 25.4% return, making this sector the highest
weighted and top performing sector within the Fund. Within this sector, NVIDIA
Corp. notably had a 226.9% return over the period, contributing 1.5% to the
Fund's return. The Health Care sector was the worst performing sector in the
Fund with a -22.5% return and was the third highest allocated sector in the Fund
over the period at 16.0%. These two factors led to a contribution of -4.3% to
the Fund's return. On a relative basis, the Fund underperformed the benchmark.
The primary source of the Fund's underperformance was the Fund's holdings in the
Consumer Discretionary sector. Due to the Fund's -6.4% lower return than the
benchmark in this sector, -1.2% of underperformance was created. In particular,
the Fund had a -14.0% lower return than the benchmark within the Internet &
Direct Marketing Retail industry, where the benchmark held well performing names
such as Amazon.com, Inc. at a higher weighting as the benchmark is not equally
weighted. The Information Technology sector reversed 3.3% of underperformance as
the Fund outperformed the benchmark by 11.4% within this sector.
-----------------------------
Nasdaq(R), Nasdaq-100(R), Nasdaq-100 Index(R), and Nasdaq-100 Equal Weighted
Index(SM) are trademarks of Nasdaq, Inc. (which with its affiliates is referred
to as the Corporations) and are licensed for use by First Trust on behalf of the
Fund. The Fund has not been passed on by the Corporations as to its legality or
suitability. The Fund is not issued, endorsed, sold, or promoted by the
Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH
RESPECT TO THE FUND.
Page 4
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 41.38%
Consumer Discretionary 26.75
Health Care 17.87
Industrials 5.96
Consumer Staples 5.02
Telecommunication Services 3.02
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Micron Technology, Inc. 1.09%
NVIDIA Corp. 1.07
Tesla Motors, Inc. 1.07
Xilinx, Inc. 1.04
Alexion Pharmaceuticals, Inc. 1.03
Automatic Data Processing, Inc. 1.03
SBA Communications Corp., Class A 1.03
Lam Research Corp. 1.02
Western Digital Corp. 1.02
NetEase, Inc., ADR 1.02
-------
Total 10.42%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2006 - DECEMBER 31, 2016
First Trust
NASDAQ-100 Equal NASDAQ-100 Equal S&P 500(R) NASDAQ-100
Weighted Index Fund Weighted Index(SM) Index Index(R)
12/06 $10,000 $10,000 $10,000 $10,000
06/07 10,984 11,010 10,696 11,032
12/07 10,974 11,035 10,550 11,924
06/08 9,615 9,691 9,292 10,531
12/08 6,150 6,231 6,647 6,967
06/09 7,607 7,727 6,857 8,528
12/09 9,811 10,002 8,405 10,773
06/10 9,258 9,468 7,846 10,108
12/10 11,896 12,201 9,672 12,943
06/11 12,789 13,159 10,253 13,620
12/11 11,565 11,946 9,875 13,417
06/12 12,627 13,075 10,812 15,487
12/12 13,284 13,792 11,455 15,876
06/13 15,356 16,015 13,038 17,478
12/13 18,590 19,445 15,164 21,741
06/14 20,073 21,061 16,247 23,452
12/14 22,147 23,302 17,241 25,961
06/15 22,672 23,924 17,453 27,108
12/15 22,640 23,974 17,479 28,493
06/16 21,988 23,343 18,150 27,590
12/16 24,231 25,809 19,572 30,558
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 157 0 0 0
01/01/13 - 12/31/13 203 0 0 0
01/01/14 - 12/31/14 161 3 0 0
01/01/15 - 12/31/15 126 1 0 0
01/01/16 - 12/31/16 107 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 92 1 0 0
01/01/13 - 12/31/13 49 0 0 0
01/01/14 - 12/31/14 87 1 0 0
01/01/15 - 12/31/15 122 3 0 0
01/01/16 - 12/31/16 145 0 0 0
Page 3
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC)
The First Trust NASDAQ-100-Technology Sector Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Technology
Sector IndexSM (the "Index"). The Fund will normally invest at least 90% of its
assets in common stocks that comprise the Index. The Index is an equal-weighted
index based on the securities of the NASDAQ-100 Index(R) that are classified as
"technology" according to the Industry Classification Benchmark classification
system. The NASDAQ-100 Index(R) includes 100 of the largest domestic and
international non-financial companies listed on the Nasdaq based on market
capitalization. The NASDAQ-100 Index(R) is rebalanced four times annually in
March, June, September and December. The Fund's shares are listed for trading on
the Nasdaq. The first day of secondary market trading in shares of the Fund was
April 25, 2006.
------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (4/19/06) Ended Ended (4/19/06)
12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 25.27% 18.14% 10.86% 10.10% 130.10% 180.34% 179.92%
Market Value 25.31% 18.16% 10.88% 10.10% 130.37% 180.83% 180.13%
INDEX PERFORMANCE
NASDAQ-100 Technology Sector Index(SM) 26.18% 18.90% 11.57% 10.80% 137.64% 198.99% 199.60%
S&P 500(R) Index 11.96% 14.66% 6.95% 7.41% 98.18% 95.72% 114.81%
S&P 500 Information Technology Index 13.85% 16.39% 9.93% 9.55% 113.61% 157.81% 165.43%
------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 25.27% during the 12-month period covered by
this report. During the same period, the S&P 500 Information Technology Index
("benchmark") generated a return of 13.85%. The majority of the Fund was
comprised of Semiconductors & Semiconductor Equipment securities at 40.8%. This
industry returned 42.0%, leading to a contribution to the Fund's return of
15.9%. Within the Semiconductors & Semiconductor Equipment industry, NVIDIA
Corp. notably had a 226.9% return over the period, contributing 0.7% to the
Fund's return. The Health Care Technology industry was represented in the Fund
solely by Cerner Corp., and although it was only given a 2.8% allocation, it
contributed -0.6% to the Fund's performance as the industry had a -21.3% return.
On a relative basis, the Fund outperformed the benchmark. The majority of the
relative outperformance is attributable to the Semiconductors & Semiconductor
Equipment industry, where the Fund over allocated the benchmark by 26.5% and
outperformed by 9.7%. The performance difference in this industry is due to the
benchmark holding First Solar, Inc., which had a -51.3% return. The Fund did not
have any allocation to this security. The Health Care Technology industry
reversed close to 1.0% of outperformance as the Fund did not hold the prior
mentioned Cerner Corp., which returned -21.3% over the period.
-----------------------------
Nasdaq(R), Nasdaq-100(R), Nasdaq-100 Index(R), and Nasdaq-100 Technology Sector
Index(SM) are trademarks of Nasdaq, Inc. (which with its affiliates is referred
to as the Corporations) and are licensed for use by First Trust on behalf of the
Fund. The Fund has not been passed on by the Corporations as to its legality or
suitability. The Fund is not issued, endorsed, sold, or promoted by the
Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH
RESPECT TO THE FUND.
Page 6
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION (1) LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 97.23%
Health Care 2.77
-------
Total 100.00%
=======
(1) The above sector classification is based on Standard & Poor's Global
Industry Classification Standard ("GICS"), and is different than the industry
sector classification system used by the Index to select securities, which is
the Industry Classification Benchmark ("ICB") system, the joint classification
system of Dow Jones Indexes and FTSE Group.
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Micron Technology, Inc. 3.10%
NVIDIA Corp. 3.05
Xilinx, Inc. 2.96
Lam Research Corp. 2.90
Western Digital Corp. 2.90
NetEase, Inc., ADR 2.90
NXP Semiconductors N.V. 2.89
Analog Devices, Inc. 2.89
KLA-Tencor Corp. 2.88
Yahoo!, Inc. 2.87
-------
Total 29.34%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2006 - DECEMBER 31, 2016
First Trust
NASDAQ-100- NASDAQ-100
Technology Sector Technology Sector S&P 500 Information S&P 500(R)
Index Fund Index(SM) Technology Index Index
12/06 $10,000 $10,000 $10,000 $10,000
06/07 10,941 10,967 10,932 10,696
12/07 10,766 10,825 11,631 10,550
06/08 9,769 9,852 10,110 9,292
12/08 5,893 5,971 6,613 6,647
06/09 7,901 8,032 8,257 6,857
12/09 10,602 10,817 10,693 8,405
06/10 9,796 10,022 9,563 7,846
12/10 12,926 13,268 11,784 9,672
06/11 13,026 13,410 12,027 10,253
12/11 12,183 12,583 12,069 9,875
06/12 12,739 13,198 13,679 10,812
12/12 13,161 13,677 13,858 11,455
06/13 14,703 15,329 14,738 13,038
12/13 18,177 19,013 17,798 15,164
06/14 20,562 21,576 19,389 16,247
12/14 22,690 23,887 21,378 17,241
06/15 22,130 23,361 21,540 17,453
12/15 22,378 23,697 22,645 17,479
06/16 23,034 24,479 22,573 18,150
12/16 28,034 29,899 25,781 19,571
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 132 0 0 0
01/01/13 - 12/31/13 170 0 0 0
01/01/14 - 12/31/14 171 4 0 0
01/01/15 - 12/31/15 164 2 0 0
01/01/16 - 12/31/16 147 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 117 1 0 0
01/01/13 - 12/31/13 81 1 0 0
01/01/14 - 12/31/14 76 1 0 0
01/01/15 - 12/31/15 85 1 0 0
01/01/16 - 12/31/16 105 0 0 0
Page 7
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
The First Trust NASDAQ-100 Ex-Technology Sector Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Ex-Tech
Sector IndexSM (the "Index"). The Fund will normally invest at least 90% of its
assets in common stocks that comprise the Index. The Index contains securities
of the NASDAQ-100 Index(R) that are not classified as "technology" according to
the Industry Classification Benchmark classification system and, as a result, is
a subset of the NASDAQ-100 Index(R). The NASDAQ-100 Index(R) includes 100 of the
largest domestic and international non-financial companies listed on the Nasdaq
based on market capitalization. The Index is equally-weighted and is rebalanced
four times annually in March, June, September and December. The Fund's shares
are listed for trading on the Nasdaq. The first day of secondary market trading
in shares of the Fund was February 15, 2007.
------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (2/8/07) Ended (2/8/07)
12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV -2.13% 14.98% 7.90% 100.95% 112.18%
Market Value -2.04% 14.98% 7.89% 100.95% 112.07%
INDEX PERFORMANCE
NASDAQ-100 Ex-Tech Sector Index(SM) -1.66% 15.67% 8.57% 107.05% 125.66%
Russell 1000(R) Index 12.05% 14.69% 6.86% 98.44% 92.71%
------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of -2.13% during the 12-month period covered by
this report. During the same period, the Russell 1000(R) Index ("benchmark")
generated a return of 12.05%. Over the period, it was the Fund's holdings in the
Information Technology sector that contributed the most to the Fund's return.
This attribution uses classifications according to GICS and not ICB. GICS
classifies certain securities as Information Technology that ICB would not
classify as Technology. The Information Technology sector was given a 10.9%
allocation over the period, had a 13.8% return, and a 1.6% contribution. The
majority of the Fund's holdings were comprised of Consumer Discretionary
holdings at a 42.6% weighting. This sector's contribution to the Fund's return
was minimized to only 0.8% due to the sector's low return of 1.4%. The Health
Care sector was the only sector negatively impacting the Fund's return due to
its -22.3% return and 23.2% allocation. These two factors led to the sector
having a -5.8% contribution to return. On a relative basis, the Fund
underperformed the benchmark. The primary cause of the relative underperformance
is due to the Health Care sector where the Fund over allocated and
underperformed the benchmark, which created a -6.2% drag on performance. Because
the Fund did not have a position in Real Estate Investment Trusts ("REITs"),
which the benchmark held at a 3.8% allocation, 0.2% of underperformance was
reversed.
-----------------------------
Nasdaq(R), Nasdaq-100(R), Nasdaq-100 Index(R), and Nasdaq-100 Ex-Tech Sector
Index(SM) are trademarks of Nasdaq, Inc. (which with its affiliates is referred
to as the Corporations) and are licensed for use by First Trust on behalf of the
Fund. The Fund has not been passed on by the Corporations as to its legality or
suitability. The Fund is not issued, endorsed, sold, or promoted by the
Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH
RESPECT TO THE FUND.
Page 8
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Consumer Discretionary 41.34%
Health Care 26.11
Information Technology 10.92
Industrials 9.21
Consumer Staples 7.75
Telecommunication Services 4.67
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Tesla Motors, Inc. 1.65%
Alexion Pharmaceuticals, Inc. 1.59
Automatic Data Processing, Inc. 1.59
SBA Communications Corp., Class A 1.58
Kraft Heinz (The) Co. 1.58
T-Mobile US, Inc. 1.58
Mylan N.V. 1.58
PayPal Holdings, Inc. 1.57
eBay, Inc. 1.57
Hologic, Inc. 1.56
-------
Total 15.85%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
FEBRUARY 8, 2007 - DECEMBER 31, 2016
First Trust
NASDAQ-100 NASDAQ-100
Ex-Technology Sector Ex-Tech Sector Russell 1000(R)
Index Fund Index(SM) Index
02/07 $10,000 $10,000 $10,000
12/07 10,595 10,653 10,282
06/08 9,057 9,126 9,131
12/08 6,029 6,102 6,417
06/09 7,060 7,165 6,694
12/09 8,848 9,009 8,241
06/10 8,454 8,633 7,714
12/10 10,674 10,935 9,568
06/11 11,961 12,294 10,177
12/11 10,558 10,894 9,711
06/12 11,906 12,317 10,622
12/12 12,703 13,172 11,306
06/13 15,089 15,721 12,879
12/13 17,942 18,744 15,050
06/14 18,764 19,668 16,144
12/14 20,697 21,749 17,043
06/15 21,821 23,016 17,334
12/15 21,679 22,947 17,199
06/16 20,367 21,602 17,842
12/16 21,216 22,565 19,271
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 127 1 0 0
01/01/13 - 12/31/13 145 13 0 0
01/01/14 - 12/31/14 151 14 0 0
01/01/15 - 12/31/15 201 6 0 0
01/01/16 - 12/31/16 80 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 111 11 0 0
01/01/13 - 12/31/13 82 12 0 0
01/01/14 - 12/31/14 79 7 1 0
01/01/15 - 12/31/15 42 3 0 0
01/01/16 - 12/31/16 172 0 0 0
Page 9
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (the "Fund")
seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the NASDAQ(R)
Clean Edge(R) Green Energy Index(SM) (the "Index"). The Fund will normally
invest at least 90% of its assets in common stocks that comprise the Index. The
Index is an equity index designed to track the performance of clean energy
companies that are publicly traded in the United States and includes companies
engaged in manufacturing, development, distribution and installation of emerging
clean-energy technologies including, but not limited to, solar photovoltaics,
biofuels and advanced batteries. The Index is a modified market capitalization
weighted index in which larger companies receive a larger Index weighting. The
Index weighting methodology also includes caps to prevent high concentrations
among larger alternative energy stocks. The Index is reconstituted semi-annually
in March and September and rebalanced quarterly. The Fund's shares are listed
for trading on the Nasdaq. The first day of secondary market trading in shares
of the Fund was February 14, 2007.
------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (2/8/07) Ended (2/8/07)
12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV -2.12% 10.89% -2.12% 67.68% -19.10%
Market Value -2.06% 10.98% -2.11% 68.33% -19.03%
INDEX PERFORMANCE
NASDAQ(R) Clean Edge(R) Green Energy Index(SM) -2.65% 10.53% -1.94% 64.96% -17.65%
Russell 2000(R) Index 21.31% 14.46% 6.75% 94.45% 90.80%
------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of -2.12% during the 12-month period covered by
this report. During the same period, the Russell 2000(R) Index generated a
return of 21.31%. The Utilities and the Information Technology sectors each
contributed about 1.36% to the Fund's return. The Utilities sector's
contribution stems from its 13.1% return and 15.8% allocation, while the
Information Technologies sector's contribution stems from its high 55.4%
allocation and 1.1% return. The Industrials sector contributed -4.6% to the
Fund's return. SolarCity Corp, held within this sector, was the primary cause of
the negative contribution as the security had a -65.7% return over the period
and was held at an average 2.8% allocation. On a relative basis, the Fund
underperformed the benchmark. The Information Technology and Industrials sectors
contributed -10.7% and -9.6%, respectively, to the underperformance. Within the
Information Technology sector, the underperformance was created by the Fund
having a 42.9% greater allocation and -48.4% lower return among Semiconductors &
Semiconductor Equipment industry. First Solar, Inc., within this industry, had a
-51.4% return and was held at a 6.3% weighting compared to a 0% weighting in the
benchmark, which led to -5.3% of relative drag on performance. Another -5.6% of
relative drag was created by SolarCity Corp, mentioned above, as the benchmark
had a 0% allocation to this name. The Fund did not have any exposure to the
Health Care sector, which led to 3.9% of relative outperformance as the
benchmark had a -7.3% return among Health Care sector securities.
-----------------------------
Nasdaq(R) and Clean Edge(R) are the registered trademarks (the "Marks") of
Nasdaq, Inc. ("Nasdaq") and Clean Edge, Inc. ("Clean Edge(R)") respectively.
Nasdaq and Clean Edge(R) are, collectively with their affiliates, the
"Corporations." The Marks are licensed for use by First Trust on behalf of the
Fund. The Fund has not been passed on by the Corporations as to its legality or
suitability. The Fund is not issued, endorsed, sold, or promoted by the
Corporations. The Fund should not be construed in any way as investment advice
by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY
WITH RESPECT TO THE FUND.
Page 10
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 52.72%
Utilities 16.99
Industrials 16.86
Consumer Discretionary 8.84
Energy 3.16
Financials 1.43
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Tesla Motors, Inc. 8.84%
ON Semiconductor Corp. 8.49
Hexcel Corp. 7.73
Microsemi Corp. 7.73
Acuity Brands, Inc. 7.20
Ormat Technologies, Inc. 4.39
First Solar, Inc. 4.15
Cree, Inc. 4.08
Universal Display Corp. 4.04
AVX Corp. 4.03
-------
Total 60.68%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
FEBRUARY 8, 2007 - DECEMBER 31, 2016
First Trust
NASDAQ(R) NASDAQ(R)
Clean Edge(R) Green Clean Edge(R) Russell 2000(R)
Energy Index Fund Green Energy Index Index
02/07 $10,000 $10,000 $10,000
12/07 15,430 15,522 9,489
06/08 12,350 12,472 8,599
12/08 5,595 5,675 6,283
06/09 6,920 7,038 6,449
12/09 8,045 8,213 7,990
06/10 6,665 6,824 7,834
12/10 8,210 8,434 10,136
06/11 7,640 7,879 10,765
12/11 4,825 4,992 9,713
06/12 4,670 4,822 10,542
12/12 4,801 4,927 11,301
06/13 7,177 7,346 13,093
12/13 9,111 9,329 15,688
06/14 10,479 10,732 16,188
12/14 8,834 9,037 16,455
06/15 9,481 9,700 17,237
12/15 8,266 8,460 15,729
06/16 7,456 7,611 16,078
12/16 8,091 8,235 19,081
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 37 6 1 0
01/01/13 - 12/31/13 168 5 0 0
01/01/14 - 12/31/14 122 3 0 0
01/01/15 - 12/31/15 160 1 0 0
01/01/16 - 12/31/16 68 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 153 52 1 0
01/01/13 - 12/31/13 75 4 0 0
01/01/14 - 12/31/14 124 3 0 0
01/01/15 - 12/31/15 89 2 0 0
01/01/16 - 12/31/16 184 0 0 0
Page 11
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST S&P REIT INDEX FUND (FRI)
The First Trust S&P REIT Index Fund (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the S&P United States REIT Index (the
"Index"). The Fund will normally invest at least 90% of its assets in common
stocks that comprise the Index. The Index is a subset of the S&P Developed REIT
Index, which measures the performance of more than 200 REITs or REIT-like
structures in 15 developed markets. The S&P Developed REIT Index is a sub-index
of the S&P Global REIT Index. The S&P Developed REIT Index aims to represent an
accurate measure of the REIT developed equity market, reflecting the risk and
return characteristics of this broad universe on an on-going basis. The Index
contains those constituents of the S&P Developed REIT Index that are domiciled
in the United States. As of December 31, 2016, the Index is comprised of 155
companies. The Index includes the securities of small and mid cap companies. The
Fund's shares are listed for trading on the NYSE Arca. The first day of
secondary market trading in shares of the Fund was May 10, 2007.
------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (5/8/07) Ended (5/8/07)
12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 7.92% 11.26% 4.20% 70.48% 48.79%
Market Value 7.86% 11.27% 4.21% 70.55% 48.86%
INDEX PERFORMANCE
S&P United States REIT Index* 8.49% 11.85% N/A 75.08% N/A
FTSE EPRA/NAREIT North America Index 8.18% 11.05% 4.39% 68.86% 51.40%
Russell 3000(R) Index 12.74% 14.67% 6.57% 98.23% 84.72%
------------------------------------------------------------------------------------------------------------------------------
* On November 6, 2008, the Fund's underlying index changed from the S&P REIT
Composite Index to the S&P United States REIT Index. Effective December 31,
2008, the S&P REIT Composite Index was discontinued. Therefore, the Fund's
performance and historical returns shown for the periods prior to November 6,
2008 are not necessarily indicative of the performance that the Fund, based
on its current Index, would have generated. The inception date of the Index
was June 30, 2008. Returns for the Index are only disclosed for those periods
in which the Index was in existence for the whole period.
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 7.92% during the 12-month period covered by
this report. During the same period, the Russell 3000(R) Index ("benchmark")
generated a return of 12.74%. Retail Real Estate Investment Trusts ("REITs")
were given the highest weighting at 26.1%, but their contribution to the Fund's
return was limited to 0.6% due to the groupings lower 0.95% return. Industrial
REITs had the best return of 29.9% and contributed 1.3% with its 5.2% weighting.
Self Storage REITs were the worst performing industry over the period with a
-8.5% return and -0.4% contribution. On a relative basis, the Fund
underperformed the benchmark. The Retail REITs contributed to -2.7% of the
relative underperformance by allocating 25.2% more weighting to the relatively
low returning REIT industry (0.95%). The Lodging & Resort REITs reversed 0.66%
of underperformance by having a 5.3% greater allocation and the third best
performing REIT industry (24.5%).
-----------------------------
Standard & Poor's(R), S&P(R) and S&P United States REIT Index are registered
trademarks of Standard & Poor's Financial Services LLC ("S&P") and have been
licensed for use by First Trust on behalf of the Fund. The Fund is not
sponsored, endorsed, sold or promoted by S&P or its affiliates, and S&P and its
affiliates make no representation, warranty or condition regarding the
advisability of buying, selling or holding shares of the Fund.
Page 12
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST S&P REIT INDEX FUND (FRI) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
REIT CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Retail 23.12%
Residential 16.56
Office 13.69
Specialized 13.51
Health Care 12.57
Diversified 7.55
Industrial 6.80
Hotel & Resort 6.20
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Simon Property Group, Inc. 7.15%
Public Storage 4.27
Prologis, Inc. 3.57
AvalonBay Communities, Inc. 3.12
Welltower, Inc. 3.11
Equity Residential 3.01
Ventas, Inc. 2.84
Boston Properties, Inc. 2.48
Vornado Realty Trust 2.30
Digital Realty Trust, Inc. 2.00
-------
Total 33.85%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 8, 2007 - DECEMBER 31, 2016
First Trust FTSE EPRA/NAREIT Russell 3000(R)
S&P REIT Index Fund North America Index Index
05/07 $10,000 $10,000 $10,000
12/07 8,093 8,206 9,811
06/08 7,739 7,843 8,728
12/08 4,947 4,872 6,151
06/09 4,319 4,381 6,405
12/09 6,333 6,442 7,889
06/10 6,679 6,772 7,412
12/10 8,090 8,287 9,225
06/11 8,899 9,163 9,811
12/11 8,729 8,965 9,319
06/12 10,007 10,276 10,188
12/12 10,247 10,593 10,849
06/13 10,871 11,091 12,374
12/13 10,434 10,728 14,489
06/14 12,245 12,560 15,495
12/14 13,523 13,748 16,308
06/15 12,667 12,915 16,624
12/15 13,789 13,997 16,386
06/16 15,576 15,833 16,979
12/16 14,881 15,141 18,471
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 159 0 0 0
01/01/13 - 12/31/13 130 0 0 0
01/01/14 - 12/31/14 193 0 0 0
01/01/15 - 12/31/15 130 0 0 0
01/01/16 - 12/31/16 156 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 91 0 0 0
01/01/13 - 12/31/13 122 0 0 0
01/01/14 - 12/31/14 59 0 0 0
01/01/15 - 12/31/15 122 0 0 0
01/01/16 - 12/31/16 96 0 0 0
Page 13
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST WATER ETF (FIW)
The First Trust Water ETF (the "Fund"), formerly First Trust ISE Water Index
Fund, seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the ISE
Water(TM) Index (the "Index"). The Fund will normally invest at least 90% of its
assets in common stocks that comprise the Index. The Index is a modified market
capitalization weighted index comprised of 34 stocks that derive a substantial
portion of their revenues from the potable and wastewater industries. The Index
is rebalanced on a semi-annual basis. The Fund's shares are listed for trading
on the NYSE Arca. The first day of secondary market trading in shares of the
Fund was May 11, 2007.
------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (5/8/07) Ended (5/8/07)
12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 32.21% 14.72% 8.17% 98.69% 113.37%
Market Value 32.36% 14.78% 8.18% 99.26% 113.46%
INDEX PERFORMANCE
ISE Water(TM) Index 33.03% 15.49% 8.89% 105.42% 127.52%
Russell 3000(R) Index 12.74% 14.67% 6.57% 98.23% 84.72%
------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 32.21% during the 12-month period covered by
this report. During the same period, the Russell 3000(R) Index ("benchmark")
generated a return of 12.74%. The Fund had an average 55.9% allocation to the
Industrials sector over the period. This sector had a 30.2% return, which led to
a 17.1% contribution to the Fund's return. Within this sector, it was primarily
the Machinery industry which had such a significant contribution as the Fund
held an average 37.9% allocation in the industry. The Materials sector was the
only sector that had a negative contribution over the period. The sector's
contribution of -0.06% is due to two holdings which each had a slightly negative
return and had a combined 1.96% weighting. On a relative basis, the Fund
outperformed the benchmark. The outperformance is almost entirely due to the
Fund's holdings within the Industrials sector where the Fund had a 45.4% greater
allocation and 10.0% higher return. These two factors created 9.3% of relative
outperformance. The Fund's holdings in the Materials sector, where the Fund had
a -18.2% lower return, created -1.0% of relative drag on performance.
-----------------------------
"International Securities Exchange(TM)", "ISE(TM)" and "ISE Water(TM) Index" are
trademarks of the International Securities Exchange, LLC and have been licensed
for use for certain purposes by First Trust on behalf of the Fund. The Fund,
based on the ISE Water(TM) Index, is not sponsored, endorsed, sold or promoted
by the International Securities Exchange, LLC and the International Securities
Exchange, LLC makes no representation regarding the advisability of trading in
such product.
Page 14
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST WATER ETF (FIW) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Industrials 52.37%
Utilities 19.23
Health Care 12.31
Materials 9.82
Information Technology 5.02
Financials 1.25
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Danaher Corp. 4.13%
IDEXX Laboratories, Inc. 4.11
American Water Works Co., Inc. 4.10
Roper Technologies, Inc. 4.08
Agilent Technologies, Inc. 4.07
Ecolab, Inc. 4.03
Xylem, Inc. 3.98
IDEX Corp. 3.98
Ashland Global Holdings, Inc. 3.87
Pentair PLC 3.85
-------
Total 40.20%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 8, 2007 - DECEMBER 31, 2016
First Trust Water ETF ISE Water(TM) Index Russell 3000(R) Index
05/07 $10,000 $10,000 $10,000
12/07 11,212 11,260 9,811
06/08 10,992 11,056 8,728
12/08 7,915 7,987 6,151
06/09 8,168 8,276 6,405
12/09 9,522 9,681 7,889
06/10 8,989 9,168 7,412
12/10 11,378 11,653 9,225
06/11 11,910 12,243 9,811
12/11 10,738 11,076 9,319
06/12 11,803 12,225 10,188
12/12 13,619 14,153 10,849
06/13 14,585 15,220 12,374
12/13 17,830 18,667 14,489
06/14 18,338 19,251 15,495
12/14 17,894 18,847 16,308
06/15 16,709 17,652 16,624
12/15 16,138 17,103 16,386
06/16 18,944 20,147 16,979
12/16 21,335 22,750 18,471
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 121 1 0 0
01/01/13 - 12/31/13 197 0 0 0
01/01/14 - 12/31/14 195 0 0 0
01/01/15 - 12/31/15 133 0 0 0
01/01/16 - 12/31/16 152 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 127 1 0 0
01/01/13 - 12/31/13 55 0 0 0
01/01/14 - 12/31/14 56 1 0 0
01/01/15 - 12/31/15 119 0 0 0
01/01/16 - 12/31/16 100 0 0 0
Page 15
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NATURAL GAS ETF (FCG)
The First Trust Natural Gas ETF (the "Fund"), formerly First Trust ISE-Revere
Natural Gas Index Fund, seeks investment results that correspond generally to
the price and yield (before the Fund's fees and expenses) of an equity index
called the ISE-Revere Natural Gas(TM) Index (the "Index"). The Fund will
normally invest at least 90% of its assets in common stocks that comprise the
Index. The Index is designed to take advantage of both event-driven news and
long term trends in the natural gas industry. Equity securities are selected for
inclusion in the Index using a quantitative ranking and screening system that
begins with the universe of equity securities of issuers that are involved in
the exploration and production of natural gas and that satisfy market
capitalization, liquidity and weighting concentration requirements. After
application of the screens, the remaining equity securities are divided into two
groups, one for equity securities issued by master limited partnerships ("MLPs")
and one for equity securities issued by entities that are not master limited
partnerships ("non-MLPs"). The Index is allocated 85% to equity securities
issued by non-MLPs, and the remaining 15% consists of equity securities issued
by MLPs. The Index uses a linear-based capitalization-weighted methodology for
each of the MLP and non-MLP group of constituents that initially ranks the
equity securities based on market capitalization and average daily trading
volume, and then adjusts the combined rankings of each equity security by a
factor relating to its market capitalization. The resulting linear weight
distribution prevents a few large component stocks from dominating the Index
while allowing smaller companies to adequately influence Index performance. The
Fund's shares are listed for trading on the NYSE Arca. The first day of
secondary market trading in shares of the Fund was May 11, 2007.
------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (5/8/07) Ended (5/8/07)
12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 19.48% -21.05% -12.18% -69.33% -71.46%
Market Value 19.26% -21.04% -12.18% -69.30% -71.44%
INDEX PERFORMANCE
ISE-Revere Natural Gas(TM) Index 19.78% -21.07% -11.89% -69.36% -70.52%
S&P Composite 1500(R) Energy Index 27.31% 3.35% 3.18% 17.91% 35.22%
Russell 3000(R) Index 12.74% 14.67% 6.57% 98.23% 84.72%
------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 19.48% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500(R) Energy Index
("benchmark") generated a return of 27.31%. Crude Oil Futures rose roughly 31.0%
and Natural Gas Futures rose roughly 68.5% during the period covered by this
report. During 2016, Crude Oil and Natural Gas had rebounded after two years of
declining prices. Within the Fund, WPX Energy, Inc. had a notable return of
153.8% and had a 1.8% contribution to return, as this security was held at an
average allocation of 2.2%. Devon Energy Corp. was given the largest allocation
in the Fund over the period at 5.6% and had a 44.7% return. Ultra Petroleum Co.
was the worst performing security in the Fund over the period with a -77.5%
return. On a relative basis, the Fund underperformed the benchmark. Ultra
Petroleum Co. (mentioned above), which had a -77.5% return over the period,
caused -3.7% of relative underperformance, as this company filed for bankruptcy
in April of 2016. The benchmark did not have a position in Ultra Petroleum Co.
Likewise, Stone Energy Co. was not a position in the benchmark over the period,
but had a -66.7% return as this company also filed for bankruptcy in December of
2016. The Fund's position in Encana Corp., which returned 71.8%, reversed 2.2%
of underperformance as the benchmark did not have any exposure to the security.
-----------------------------
"International Securities Exchange(TM)", "ISE(TM)" and "ISE-Revere Natural
Gas(TM) Index" are trademarks of the International Securities Exchange, LLC and
have been licensed for use for certain purposes by First Trust on behalf of the
Fund. The Fund, based on the ISE-Revere Natural Gas(TM) Index, is not sponsored,
endorsed, sold or promoted by the International Securities Exchange, LLC and the
International Securities Exchange, LLC makes no representation regarding the
advisability of trading in such product.
Page 16
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NATURAL GAS ETF (FCG) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SUB-INDUSTRY CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Oil & Gas Exploration & Production 76.96%
Oil & Gas Storage & Transportation 16.06
Integrated Oil & Gas 3.92
Gas Utilities 2.09
Oil & Gas Drilling 0.67
Oil & Gas Refining & Marketing 0.30
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Anadarko Petroleum Corp. 6.25%
Devon Energy Corp. 5.78
Concho Resources, Inc. 5.45
Noble Energy, Inc. 5.43
Cimarex Energy Co. 5.16
Cabot Oil & Gas Corp. 4.56
EQT Corp. 4.50
Encana Corp. 4.47
Range Resources Corp. 3.93
Statoil ASA, ADR 3.92
-------
Total 49.45%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 8, 2007 - DECEMBER 31, 2016
First Trust ISE-Revere Natural Russell 3000(R) S&P Composite 1500(R)
Natural Gas ETF Gas(TM) Index Index Energy Index
05/07 $10,000 $10,000 $10,000 $10,000
12/07 11,166 11,213 9,804 12,170
06/08 15,755 15,942 8,721 13,578
12/08 5,967 6,016 6,147 7,810
06/09 6,454 6,518 6,405 7,740
12/09 8,903 9,017 7,889 9,092
06/10 7,752 7,891 7,412 8,016
12/10 9,992 10,254 9,225 11,036
06/11 11,012 11,342 9,811 12,304
12/11 9,308 9,620 9,319 11,469
06/12 8,426 8,735 10,188 11,132
12/12 8,051 8,375 10,849 11,967
06/13 8,290 8,639 12,374 13,130
12/13 10,075 10,530 14,489 15,006
06/14 12,210 12,790 15,495 16,951
12/14 5,842 6,105 16,308 13,630
06/15 4,980 5,159 16,624 12,991
12/15 2,389 2,461 16,386 10,621
06/16 2,650 2,723 16,979 12,275
12/16 2,855 2,948 18,471 13,521
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 151 0 0 0
01/01/13 - 12/31/13 149 0 0 0
01/01/14 - 12/31/14 140 1 0 0
01/01/15 - 12/31/15 155 1 0 0
01/01/16 - 12/31/16 156 6 1 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 99 0 0 0
01/01/13 - 12/31/13 103 0 0 0
01/01/14 - 12/31/14 111 0 0 0
01/01/15 - 12/31/15 93 3 0 0
01/01/16 - 12/31/16 88 1 0 0
Page 17
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CHINDIA ETF (FNI)
The First Trust Chindia ETF (the "Fund"), formerly First Trust ISE Chindia Index
Fund, seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the ISE
ChIndia(TM) Index (the "Index"). The Fund will normally invest at least 90% of
its assets in common stocks that comprise the Index. The Index is a non-market
capitalization weighted portfolio of 50 American Depositary Receipts ("ADRs"),
American Depositary Shares ("ADSs") and/or stocks selected from a universe of
all listed ADRs, ADSs, and/or stocks of companies from China and India currently
trading on a U.S. exchange. The Index is rebalanced on a semi-annual basis. The
Fund's shares are listed for trading on the NYSE Arca. The first day of
secondary market trading in shares of the Fund was May 11, 2007.
------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (5/8/07) Ended (5/8/07)
12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV -2.15% 9.69% 4.35% 58.80% 50.80%
Market Value -2.22% 9.71% 4.34% 58.97% 50.64%
INDEX PERFORMANCE
ISE ChIndia(TM) Index -1.53% 10.19% 4.90% 62.45% 58.70%
Russell 3000(R) Index 12.74% 14.67% 6.57% 98.23% 84.72%
MSCI Emerging Markets Index 11.19% 1.28% 0.94% 6.55% 9.46%
------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of -2.15% during the 12-month period covered by
this report. During the same period, the MSCI Emerging Markets Index
("benchmark") generated a return of 11.19%. Indian domiciled securities were the
top performing, top contributing, and highest-weighted country over the period
with a 8.3% return, 2.9% contribution, and 38.7% weighting. The Materials sector
amongst Indian securities, represented solely by Vedanta Ltd. Sponsored ADR, had
a particularly good return of 124.9% and contribution of 2.1%. Chinese
securities were the worst performing securities over the period with a -11.1%
return. Throughout the period covered in the report, Chinese securities were
given an average 60.4% allocation, which led to the country's -4.7% contribution
to the Fund's return. On a relative basis, the Fund underperformed the
benchmark. The primary cause of the underperformance is due to the Fund's
holdings in Chinese securities. The Fund over allocated to this country relative
to the benchmark by 33.1% and it underperformed by -11.6%, leading to -8.4% of
underperformance. Further underperformance was due to the benchmark having
allocations to well-performing countries such as Brazil (67.3%), Russia (55.7%),
and Taiwan (19.6%). Similarly, some underperformance was reversed due to the
benchmark having allocations to poor performing countries such as Turkey
(-10.5%), Mexico (-9%), and Philippines (-6.1%).
-----------------------------
"International Securities Exchange(TM)", "ISE(TM)" and "ISE ChIndia(TM) Index"
are trademarks of the International Securities Exchange, LLC and have been
licensed for use for certain purposes by First Trust on behalf of the Fund. The
Fund, based on the ISE ChIndia(TM) Index, is not sponsored, endorsed, sold or
promoted by the International Securities Exchange, LLC and the International
Securities Exchange, LLC makes no representation regarding the advisability of
trading in such product.
Page 18
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CHINDIA ETF (FNI) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 44.64%
Consumer Discretionary 23.10
Financials 15.23
Health Care 5.54
Telecommunication Services 5.40
Energy 2.14
Materials 1.84
Industrials 1.38
Utilities 0.73
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Infosys Ltd., ADR 7.38%
Baidu, Inc., ADR 7.06
HDFC Bank Ltd., ADR 7.01
JD.com, Inc., ADR 6.95
Alibaba Group Holding Ltd., ADR 6.91
ICICI Bank Ltd., ADR 6.89
Wipro Ltd., ADR 4.34
Tata Motors Ltd., ADR 4.24
Dr. Reddy's Laboratories Ltd., ADR 4.07
China Mobile Ltd., ADR 4.05
-------
Total 58.90%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 8, 2007 - DECEMBER 31, 2016
First Trust ISE ChIndia(TM) Russell 3000(R) MSCI Emerging
Chindia ETF Index Index Markets Index
05/07 $10,000 $10,000 $10,000 $10,000
12/07 13,873 13,952 9,804 12,715
06/08 9,985 10,059 8,721 11,220
12/08 5,968 6,031 6,147 5,934
06/09 8,329 8,451 6,405 8,071
12/09 10,836 11,031 7,889 10,593
06/10 10,540 10,767 7,412 9,939
12/10 12,836 13,175 9,225 12,592
06/11 13,047 13,466 9,811 12,703
12/11 9,497 9,771 9,319 10,273
06/12 10,069 10,375 10,188 10,677
12/12 11,121 11,483 10,849 12,145
06/13 11,258 11,659 12,374 10,983
12/13 15,103 15,665 14,489 11,829
06/14 16,047 16,680 15,495 12,555
12/14 15,461 16,096 16,308 11,571
06/15 16,560 17,273 16,624 11,912
12/15 15,411 16,121 16,386 9,844
06/16 14,850 15,576 16,979 10,475
12/16 15,080 15,875 18,471 10,945
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
QUARTER ENDED 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 63 1 0 0
01/01/13 - 12/31/13 66 0 0 0
01/01/14 - 12/31/14 96 0 0 0
01/01/15 - 12/31/15 147 0 0 0
01/01/16 - 12/31/16 132 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
QUARTER ENDED 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 175 11 0 0
01/01/13 - 12/31/13 185 1 0 0
01/01/14 - 12/31/14 155 1 0 0
01/01/15 - 12/31/15 105 0 0 0
01/01/16 - 12/31/16 120 0 0 0
Page 19
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
The First Trust NASDAQ(R) ABA Community Bank Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ OMX(R) ABA
Community Bank Index(SM) (the "Index"). The Fund will normally invest at least
90% of its assets in common stocks that comprise the Index. The Index includes a
subset of banks and thrifts or their holding companies listed on Nasdaq. The
Index is jointly owned and was developed by Nasdaq and the American Bankers
Association ("ABA"). For the purposes of the Index, a "community bank" is
considered to be all U.S. banks and thrifts or their holding companies listed on
Nasdaq excluding the 50 largest U.S. banks by asset size. Also excluded are
banks that have an international specialization and those banks that have a
credit-card specialization, as screened by the ABA based on the most recent data
from the Federal Deposit Insurance Company. Banks with an international
specialization are those institutions with assets greater than $10 billion and
more than 25% of total assets in foreign offices. Banks with a credit-card
specialization are those institutions with credit-card loans plus securitized
receivables in excess of 50% of total assets plus securitized receivables.
Securities in the Index must have a market capitalization of at least $200
million and a three-month average daily trading volume of at least $500
thousand. The Index is rebalanced quarterly and reconstituted semi-annually. The
Fund's shares are listed for trading on the Nasdaq. The first day of secondary
market trading in shares of the Fund was July 1, 2009.
------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (6/29/09) Ended (6/29/09)
12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 37.57% 19.85% 15.46% 147.29% 194.19%
Market Value 37.71% 20.05% 15.48% 149.31% 194.66%
INDEX PERFORMANCE
NASDAQ OMX(R) ABA Community Bank Index(SM) 38.47% 20.61% 16.20% 155.20% 208.70%
S&P Composite 1500(R) Financials Index 24.28% 19.30% 14.80% 141.65% 181.81%
Russell 3000(R) Index 12.74% 14.67% 15.04% 98.23% 186.25%
------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 37.57% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500(R) Financials Index
("benchmark") generated a return of 24.28%. The Financials sector was the third
highest returning sector amongst S&P 500(R) stocks over the period covered in
this report, behind the Energy and Telecommunication Services sectors. Regional
Banks from California were the top contributing banks over the period, with a
3.2% contribution and 32.5% return. Regional Banks from Ohio were the top
performing holdings with a 71.4% return. Regional Banks from Vermont
(represented solely by Merchants Bancshares, Inc.) were the worst performing
holdings with a 1.6% return. The top returning banks were Independent Bank
Group, Inc. (96.8%), Stock Yards Bancorp, Inc. (90.6%), and Carolina Financial
Corp. (80.0%). The lowest returning banks were First NBC Bank Holding Co.
(-81.6%), Opus Bank (-17.4%), and Heritage Commerce Corp. (-9.3%). On a relative
basis, the Fund outperformed the benchmark, primarily due to the Fund's
concentration in regional banks, which caused the Fund to outperform the
benchmark by 13.6% within the Banking industry. The Fund lost -2.3% of relative
outperformance due to lack of Real Estate Investment Trust (REIT) exposure,
while the benchmark held REITs at an average 16.6% and a return of 10.8%.
-----------------------------
Nasdaq(R), OMX(R), Nasdaq OMX(R), and NASDAQ OMX(R) ABA Community Bank Index(SM)
are trademarks of Nasdaq, Inc. ("Nasdaq") and American Bankers Association
("ABA") (Nasdaq and ABA, collectively with their affiliates, are referred to as
the "Corporations") and are licensed for use by First Trust on behalf of the
Fund. The Fund has not been passed on by the Corporations as to its legality or
suitability. The Fund is not issued, endorsed, sold, or promoted by the
Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH
RESPECT TO THE FUND.
Page 20
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
INDUSTRY CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Banks 87.40%
Thrifts & Mortgage Finance 12.26
IT Services 0.34
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
East West Bancorp, Inc. 3.06%
PacWest Bancorp 2.74
Bank of the Ozarks, Inc. 2.66
Commerce Bancshares, Inc. 2.45
BOK Financial Corp. 2.29
TFS Financial Corp. 2.25
Popular, Inc. 1.90
Investors Bancorp, Inc. 1.80
Umpqua Holdings Corp. 1.73
MB Financial, Inc. 1.65
-------
Total 22.53%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JUNE 29, 2009 - DECEMBER 31, 2016
First Trust N
ASDAQ(R) ABA NASDAQ OMX(R)
Community Bank ABA Community S&P Composite 1500(R) Russell 3000(R)
Index Fund Bank Index(SM) Financials Index Index
06/09 $10,000 $10,000 $10,000 $10,000
12/09 11,280 11,318 12,112 12,224
06/10 11,438 11,505 11,744 11,484
12/10 12,721 12,846 13,722 14,293
06/11 12,520 12,688 13,420 15,201
12/11 11,898 12,095 11,662 14,439
06/12 13,081 13,343 13,227 15,785
12/12 13,507 13,817 14,806 16,809
06/13 16,006 16,427 17,584 19,172
12/13 19,302 19,873 19,879 22,448
06/14 19,296 19,929 20,907 24,006
12/14 19,827 20,537 22,839 25,266
06/15 21,637 22,484 22,892 25,761
12/15 21,390 22,288 22,677 25,388
06/16 21,026 21,976 22,310 26,307
12/16 29,426 30,865 28,184 28,619
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 100 17 1 0
01/01/13 - 12/31/13 139 24 0 0
01/01/14 - 12/31/14 115 9 0 0
01/01/15 - 12/31/15 137 5 0 0
01/01/16 - 12/31/16 133 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 114 18 0 0
01/01/13 - 12/31/13 72 17 0 0
01/01/14 - 12/31/14 116 12 0 0
01/01/15 - 12/31/15 110 0 0 0
01/01/16 - 12/31/16 119 0 0 0
Page 21
--------------------------------------------------------------------------------
NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
Total returns for the periods since inception are calculated from the inception
date of each Fund. "Average annual total returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative total
returns" represent the total change in value of an investment over the periods
indicated. The total returns would have been lower if certain fees had not been
waived and expenses reimbursed by the Advisor.
Each Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint between the highest bid and the lowest offer on the stock
exchange on which shares of the Fund are listed for trading as of the time that
the Fund's NAV is calculated. Since shares of each Fund did not trade in the
secondary market until after the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
each Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and market returns assume that all distributions have been
reinvested in each Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike each Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by each Fund. These
expenses negatively impact the performance of each Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of each
Fund will vary with changes in market conditions. Shares of each Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. Each Fund's past performance is no guarantee of future performance.
Page 22
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2016 (UNAUDITED)
As a shareholder of First Trust NASDAQ-100 Equal Weighted Index Fund, First
Trust NASDAQ-100-Technology Sector Index Fund, First Trust NASDAQ-100
Ex-Technology Sector Index Fund, First Trust NASDAQ(R) Clean Edge(R) Green
Energy Index Fund, First Trust S&P REIT Index Fund, First Trust Water ETF, First
Trust Natural Gas ETF, First Trust Chindia ETF or First Trust NASDAQ(R) ABA
Community Bank Index Fund (each a "Fund" and collectively, the "Funds"), you
incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service fees, if any, and other
Fund expenses. This Example is intended to help you understand your ongoing
costs of investing in the Funds and to compare these costs with the ongoing
costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended December 31, 2016.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2016 DECEMBER 31, 2016 PERIOD (a) PERIOD (b)
------------------------------------------------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX
FUND (QQEW)
Actual $1,000.00 $1,101.90 0.60% $3.17
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX
FUND (QTEC)
Actual $1,000.00 $1,217.00 0.60% $3.34
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR
INDEX FUND (QQXT)
Actual $1,000.00 $1,041.70 0.60% $3.08
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY
INDEX FUND (QCLN)
Actual $1,000.00 $1,085.10 0.60% $3.14
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST S&P REIT INDEX FUND (FRI)
Actual $1,000.00 $ 955.40 0.49% $2.41
Hypothetical (5% return before expenses) $1,000.00 $1,022.67 0.49% $2.49
FIRST TRUST WATER ETF (FIW)
Actual $1,000.00 $1,126.20 0.57% $3.05
Hypothetical (5% return before expenses) $1,000.00 $1,022.27 0.57% $2.90
Page 23
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES (CONTINUED)
DECEMBER 31, 2016 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2016 DECEMBER 31, 2016 PERIOD (a) PERIOD (b)
------------------------------------------------------------------------------------------------------------------------
FIRST TRUST NATURAL GAS ETF (FCG)
Actual $1,000.00 $1,077.30 0.60% $3.13
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST CHINDIA ETF (FNI)
Actual $1,000.00 $1,015.50 0.60% $3.04
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK
INDEX FUND (QABA)
Actual $1,000.00 $1,399.50 0.60% $3.62
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
(a) These expense ratios reflect an expense cap for certain Funds. See Note 3
in Notes to Financial Statements.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (July 1,
2016 through December 31, 2016), multiplied by 184/366 (to reflect the
one-half year period).
Page 24
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
AIRLINES -- 1.0%
85,713 American Airlines Group, Inc. $ 4,001,940
--------------
AUTOMOBILES -- 1.1%
20,167 Tesla Motors, Inc. (a) (b) 4,309,486
--------------
BEVERAGES -- 1.0%
91,752 Monster Beverage Corp. (b) 4,068,284
--------------
BIOTECHNOLOGY -- 9.9%
34,016 Alexion Pharmaceuticals, Inc. (b) 4,161,858
27,336 Amgen, Inc. 3,996,796
14,255 Biogen, Inc. (b) 4,042,433
47,833 BioMarin Pharmaceutical, Inc. (b) 3,962,486
35,010 Celgene Corp. (b) 4,052,407
55,098 Gilead Sciences, Inc. 3,945,568
39,627 Incyte Corp. (b) 3,973,399
10,776 Regeneron Pharmaceuticals,
Inc. (b) 3,955,762
23,729 Shire PLC, ADR 4,042,947
53,163 Vertex Pharmaceuticals, Inc. (b) 3,916,518
--------------
40,050,174
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 1.0%
34,112 Cintas Corp. 3,941,983
--------------
COMMUNICATIONS EQUIPMENT
-- 1.0%
133,484 Cisco Systems, Inc. 4,033,887
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.0%
40,114 SBA Communications Corp.,
Class A (b) 4,142,172
--------------
FOOD & STAPLES RETAILING -- 2.0%
25,454 Costco Wholesale Corp. 4,075,440
47,431 Walgreens Boots Alliance, Inc. 3,925,389
--------------
8,000,829
--------------
FOOD PRODUCTS -- 2.0%
47,229 Kraft Heinz (The) Co. 4,124,036
92,019 Mondelez International, Inc.,
Class A 4,079,202
--------------
8,203,238
--------------
HEALTH CARE EQUIPMENT & SUPPLIES
-- 3.0%
67,959 DENTSPLY SIRONA, Inc. 3,923,273
101,841 Hologic, Inc. (b) 4,085,861
6,367 Intuitive Surgical, Inc. (b) 4,037,760
--------------
12,046,894
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 2.0%
58,398 Express Scripts Holding Co. (b) 4,017,199
26,554 Henry Schein, Inc. (b) 4,028,507
--------------
8,045,706
--------------
HEALTH CARE TECHNOLOGY -- 1.0%
83,465 Cerner Corp. (b) 3,953,737
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE
-- 2.9%
47,457 Marriott International, Inc.,
Class A $ 3,923,745
92,514 Norwegian Cruise Line Holdings
Ltd. (b) 3,934,620
70,812 Starbucks Corp. 3,931,482
--------------
11,789,847
--------------
INTERNET & DIRECT MARKETING RETAIL
-- 7.9%
5,388 Amazon.com, Inc. (b) 4,040,300
99,584 Ctrip.com International Ltd.,
ADR (b) 3,983,360
34,998 Expedia, Inc. 3,964,574
159,407 JD.com, Inc., ADR (b) 4,055,314
101,263 Liberty Interactive Corp. QVC
Group, Class A (b) 2,023,235
52,738 Liberty Ventures, Series A (b) 1,944,450
32,868 Netflix, Inc. (b) 4,069,058
2,751 Priceline Group (The), Inc. (b) 4,033,131
86,190 TripAdvisor, Inc. (b) 3,996,630
--------------
32,110,052
--------------
INTERNET SOFTWARE & SERVICES
-- 7.0%
60,772 Akamai Technologies, Inc. (b) 4,052,277
2,520 Alphabet, Inc., Class A (b) 1,996,974
2,582 Alphabet, Inc., Class C (b) 1,992,839
24,756 Baidu, Inc., ADR (b) 4,070,134
137,889 eBay, Inc. (b) 4,093,924
34,062 Facebook, Inc., Class A (b) 3,918,833
19,163 NetEase, Inc., ADR 4,126,561
105,746 Yahoo!, Inc. (b) 4,089,198
--------------
28,340,740
--------------
IT SERVICES -- 5.1%
40,488 Automatic Data Processing, Inc. 4,161,357
72,576 Cognizant Technology Solutions
Corp., Class A (b) 4,066,433
38,147 Fiserv, Inc. (b) 4,054,263
66,674 Paychex, Inc. 4,059,113
103,837 PayPal Holdings, Inc. (b) 4,098,447
--------------
20,439,613
--------------
LEISURE PRODUCTS -- 1.9%
50,480 Hasbro, Inc. 3,926,839
141,714 Mattel, Inc. 3,904,221
--------------
7,831,060
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 1.0%
31,168 Illumina, Inc. (b) 3,990,751
--------------
MACHINERY -- 1.0%
62,716 PACCAR, Inc. 4,007,552
--------------
MEDIA -- 8.0%
14,155 Charter Communications, Inc.,
Class A (b) 4,075,508
58,446 Comcast Corp., Class A 4,035,696
71,895 Discovery Communications, Inc.,
Class A (b) 1,970,642
See Notes to Financial Statements Page 25
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDIA (CONTINUED)
74,170 Discovery Communications, Inc.,
Class C (b) $ 1,986,273
69,911 DISH Network Corp., Class A (b) 4,049,944
33,873 Liberty Global PLC, Class A (b) 1,036,175
34,884 Liberty Global PLC, Series C (b) 1,036,055
45,741 Liberty Global PLC LiLAC,
Class A (b) 1,004,473
47,507 Liberty Global PLC LiLAC,
Class C (b) 1,005,723
903,365 Sirius XM Holdings, Inc. (a) 4,019,974
72,826 Twenty-First Century Fox, Inc.,
Class A 2,042,041
73,617 Twenty-First Century Fox, Inc.,
Class B 2,006,063
115,910 Viacom, Inc., Class B 4,068,441
--------------
32,337,008
--------------
MULTILINE RETAIL -- 0.9%
48,486 Dollar Tree, Inc. (b) 3,742,149
--------------
PHARMACEUTICALS -- 1.0%
107,952 Mylan N.V. (b) 4,118,369
--------------
PROFESSIONAL SERVICES -- 1.0%
49,927 Verisk Analytics, Inc. (b) 4,052,575
--------------
ROAD & RAIL -- 1.0%
113,291 CSX Corp. 4,070,546
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 15.3%
56,635 Analog Devices, Inc. 4,112,834
125,583 Applied Materials, Inc. 4,052,563
22,884 Broadcom Ltd. 4,045,205
112,450 Intel Corp. 4,078,561
52,211 KLA-Tencor Corp. 4,107,961
39,087 Lam Research Corp. 4,132,669
105,150 Maxim Integrated Products, Inc. 4,055,636
63,268 Microchip Technology, Inc. 4,058,642
201,397 Micron Technology, Inc. (b) 4,414,622
40,669 NVIDIA Corp. 4,341,009
42,009 NXP Semiconductors N.V. (b) 4,117,302
61,430 QUALCOMM, Inc. 4,005,236
53,154 Skyworks Solutions, Inc. 3,968,478
56,014 Texas Instruments, Inc. 4,087,342
69,830 Xilinx, Inc. 4,215,637
--------------
61,793,697
--------------
SOFTWARE -- 10.0%
111,944 Activision Blizzard, Inc. 4,042,298
39,430 Adobe Systems, Inc. (b) 4,059,318
53,379 Autodesk, Inc. (b) 3,950,580
127,501 CA, Inc. 4,050,707
48,041 Check Point Software Technologies
Ltd. (b) 4,057,543
45,020 Citrix Systems, Inc. (b) 4,020,736
51,346 Electronic Arts, Inc. (b) 4,044,011
34,804 Intuit, Inc. 3,988,886
65,537 Microsoft Corp. 4,072,469
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SOFTWARE (CONTINUED)
169,549 Symantec Corp. $ 4,050,526
--------------
40,337,074
--------------
SPECIALTY RETAIL -- 4.0%
14,619 O'Reilly Automotive, Inc. (b) 4,070,076
58,736 Ross Stores, Inc. 3,853,081
53,486 Tractor Supply Co. 4,054,774
15,576 Ulta Beauty, Inc. (b) 3,970,945
--------------
15,948,876
--------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 3.0%
35,208 Apple, Inc. 4,077,791
104,404 Seagate Technology PLC 3,985,101
60,769 Western Digital Corp. 4,129,253
--------------
12,192,145
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 1.0%
84,966 Fastenal Co. 3,991,703
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 2.0%
71,618 T-Mobile US, Inc. (b) 4,118,751
161,780 Vodafone Group PLC, ADR 3,952,285
--------------
8,071,036
--------------
TOTAL COMMON STOCKS -- 100.0% 403,963,123
(Cost $382,019,393)
MONEY MARKET FUNDS -- 1.7%
7,144,407 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class, -
0.39% (c) (d) 7,144,407
(Cost $7,144,407) --------------
TOTAL INVESTMENTS -- 101.7% 411,107,530
(Cost $389,163,800) (e)
NET OTHER ASSETS AND
LIABILITIES -- (1.7)% (7,063,221)
--------------
NET ASSETS -- 100.0% $ 404,044,309
==============
(a) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $6,847,380 and the total value of the collateral held by the
Fund is $7,144,407.
(b) Non-income producing security.
(c) Interest rate shown reflects yield as of December 31, 2016.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $394,934,653. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$46,593,704 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$30,420,827.
ADR - American Depositary Receipt
Page 26 See Notes to Financial Statements
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------
Common Stocks* $403,963,123 $ -- $ --
Money Market
Funds 7,144,407 -- --
------------------------------------------
Total Investments $411,107,530 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 6,847,380
Non-cash Collateral(2) (6,847,380)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2016, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
See Notes to Financial Statements Page 27
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.9%
COMMUNICATIONS EQUIPMENT
-- 2.8%
1,469,641 Cisco Systems, Inc. $ 44,412,551
--------------
HEALTH CARE TECHNOLOGY -- 2.8%
918,956 Cerner Corp. (a) 43,530,946
--------------
INTERNET SOFTWARE & SERVICES
-- 17.0%
669,091 Akamai Technologies, Inc. (a) 44,614,988
27,757 Alphabet, Inc., Class A (a) 21,996,035
28,424 Alphabet, Inc., Class C (a) 21,938,212
272,567 Baidu, Inc., ADR (a) 44,812,740
375,033 Facebook, Inc., Class A (a) 43,147,547
211,001 NetEase, Inc., ADR 45,436,955
1,164,319 Yahoo!, Inc. (a) 45,024,216
--------------
266,970,693
--------------
IT SERVICES -- 2.9%
799,066 Cognizant Technology Solutions
Corp., Class A (a) 44,771,668
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 43.3%
623,579 Analog Devices, Inc. 45,284,307
1,382,755 Applied Materials, Inc. 44,621,504
251,957 Broadcom Ltd. 44,538,439
1,238,099 Intel Corp. 44,905,851
574,899 KLA-Tencor Corp. 45,233,053
430,378 Lam Research Corp. 45,503,866
1,157,732 Maxim Integrated Products, Inc. 44,653,723
696,622 Microchip Technology, Inc. 44,688,301
2,217,664 Micron Technology, Inc. (a) 48,611,195
447,751 NVIDIA Corp. 47,792,942
462,540 NXP Semiconductors N.V. (a) 45,333,545
676,394 QUALCOMM, Inc. 44,100,889
585,255 Skyworks Solutions, Inc. 43,695,138
616,746 Texas Instruments, Inc. 45,003,956
768,946 Xilinx, Inc. 46,421,270
--------------
680,387,979
--------------
SOFTWARE -- 22.6%
434,144 Adobe Systems, Inc. (a) 44,695,125
587,755 Autodesk, Inc. (a) 43,499,748
1,403,914 CA, Inc. 44,602,348
528,947 Check Point Software Technologies
Ltd. (a) 44,674,864
495,692 Citrix Systems, Inc. (a) 44,270,252
383,215 Intuit, Inc. 43,920,271
721,589 Microsoft Corp. 44,839,540
1,866,852 Symantec Corp. 44,599,094
--------------
355,101,242
--------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 8.5%
387,641 Apple, Inc. 44,896,581
1,149,649 Seagate Technology PLC 43,882,102
669,133 Western Digital Corp. 45,467,587
--------------
134,246,270
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
TOTAL INVESTMENTS -- 99.9% $1,569,421,349
(Cost $1,489,529,150) (b)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 1,433,368
--------------
NET ASSETS -- 100.0% $1,570,854,717
==============
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $1,498,057,351. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$81,012,157 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$9,648,159.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
-------------------------------------------
Common Stocks* $1,569,421,349 $ -- $ --
===========================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
Page 28 See Notes to Financial Statements
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (a) -- 100.0%
AIRLINES -- 1.5%
33,803 American Airlines Group, Inc. $ 1,578,262
--------------
AUTOMOBILES -- 1.6%
7,951 Tesla Motors, Inc. (b) (c) 1,699,049
--------------
BEVERAGES -- 1.6%
36,181 Monster Beverage Corp. (c) 1,604,265
--------------
BIOTECHNOLOGY -- 15.3%
13,413 Alexion Pharmaceuticals, Inc. (c) 1,641,080
10,779 Amgen, Inc. 1,575,998
5,622 Biogen, Inc. (c) 1,594,287
18,862 BioMarin Pharmaceutical, Inc. (c) 1,562,528
13,806 Celgene Corp. (c) 1,598,044
21,728 Gilead Sciences, Inc. 1,555,942
15,632 Incyte Corp. (c) 1,567,421
4,250 Regeneron Pharmaceuticals,
Inc. (c) 1,560,132
9,357 Shire PLC, ADR 1,594,246
20,964 Vertex Pharmaceuticals, Inc. (c) 1,544,418
--------------
15,794,096
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 1.5%
13,452 Cintas Corp. 1,554,513
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.6%
15,819 SBA Communications Corp.,
Class A (c) 1,633,470
--------------
FOOD & STAPLES RETAILING -- 3.1%
10,037 Costco Wholesale Corp. 1,607,024
18,704 Walgreens Boots Alliance, Inc. 1,547,943
--------------
3,154,967
--------------
FOOD PRODUCTS -- 3.1%
18,622 Kraft Heinz (The) Co. 1,626,073
36,287 Mondelez International, Inc.,
Class A 1,608,603
--------------
3,234,676
--------------
HEALTH CARE EQUIPMENT & SUPPLIES
-- 4.6%
26,799 DENTSPLY SIRONA, Inc. 1,547,106
40,161 Hologic, Inc. (c) 1,611,259
2,510 Intuitive Surgical, Inc. (c) 1,591,767
--------------
4,750,132
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 3.1%
23,027 Express Scripts Holding Co. (c) 1,584,027
10,471 Henry Schein, Inc. (c) 1,588,556
--------------
3,172,583
--------------
HOTELS, RESTAURANTS & LEISURE
-- 4.5%
18,710 Marriott International, Inc.,
Class A 1,546,943
36,485 Norwegian Cruise Line Holdings
Ltd. (c) 1,551,707
27,923 Starbucks Corp. 1,550,285
--------------
4,648,935
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
INTERNET & DIRECT MARKETING RETAIL
-- 12.3%
2,124 Amazon.com, Inc. (c) $ 1,592,724
39,269 Ctrip.com International Ltd.,
ADR (c) 1,570,760
13,801 Expedia, Inc. 1,563,377
62,868 JD.com, Inc., ADR (c) 1,599,362
39,932 Liberty Interactive Corp. QVC
Group, Class A (c) 797,841
20,801 Liberty Ventures, Series A (c) 766,933
12,961 Netflix, Inc. (c) 1,604,572
1,085 Priceline Group (The), Inc. (c) 1,590,675
33,989 TripAdvisor, Inc. (c) 1,576,070
--------------
12,662,314
--------------
INTERNET SOFTWARE & SERVICES
-- 1.6%
54,375 eBay, Inc. (c) 1,614,394
--------------
IT SERVICES -- 6.3%
15,965 Automatic Data Processing, Inc. 1,640,883
15,043 Fiserv, Inc. (c) 1,598,770
26,291 Paychex, Inc. 1,600,596
40,947 PayPal Holdings, Inc. (c) 1,616,178
--------------
6,456,427
--------------
LEISURE PRODUCTS -- 3.0%
19,909 Hasbro, Inc. 1,548,721
55,885 Mattel, Inc. 1,539,632
--------------
3,088,353
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 1.5%
12,289 Illumina, Inc. (c) 1,573,483
--------------
MACHINERY -- 1.5%
24,732 PACCAR, Inc. 1,580,375
--------------
MEDIA -- 12.4%
5,582 Charter Communications, Inc.,
Class A (c) 1,607,169
23,047 Comcast Corp., Class A 1,591,395
28,356 Discovery Communications, Inc.,
Class A (c) 777,238
29,252 Discovery Communications, Inc.,
Class C (c) 783,369
27,569 DISH Network Corp., Class A (c) 1,597,072
13,206 Liberty Global PLC, Class A (c) 403,972
13,598 Liberty Global PLC, Series C (c) 403,861
18,246 Liberty Global PLC LiLAC,
Class A (c) 400,682
18,950 Liberty Global PLC LiLAC,
Class C (c) 401,171
356,205 Sirius XM Holdings, Inc. (b) 1,585,112
28,720 Twenty-First Century Fox, Inc.,
Class A 805,309
29,031 Twenty-First Century Fox, Inc.,
Class B 791,095
45,714 Viacom, Inc., Class B 1,604,561
--------------
12,752,006
--------------
See Notes to Financial Statements Page 29
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
MULTILINE RETAIL -- 1.4%
19,122 Dollar Tree, Inc. (c) $ 1,475,836
--------------
PHARMACEUTICALS -- 1.6%
42,571 Mylan N.V. (c) 1,624,084
--------------
PROFESSIONAL SERVICES -- 1.5%
19,688 Verisk Analytics, Inc. (c) 1,598,075
--------------
ROAD & RAIL -- 1.6%
44,674 CSX Corp. 1,605,137
--------------
SOFTWARE -- 3.1%
44,147 Activision Blizzard, Inc. 1,594,148
20,250 Electronic Arts, Inc. (c) 1,594,890
--------------
3,189,038
--------------
SPECIALTY RETAIL -- 6.1%
5,765 O'Reilly Automotive, Inc. (c) 1,605,034
23,156 Ross Stores, Inc. 1,519,034
21,090 Tractor Supply Co. 1,598,833
6,143 Ulta Beauty, Inc. (c) 1,566,096
--------------
6,288,997
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 1.5%
33,508 Fastenal Co. 1,574,206
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 3.1%
28,241 T-Mobile US, Inc. (c) 1,624,140
63,789 Vodafone Group PLC, ADR 1,558,365
--------------
3,182,505
--------------
TOTAL COMMON STOCKS -- 100.0% 103,090,178
(Cost $102,459,563) --------------
MONEY MARKET FUNDS -- 2.7%
2,755,604 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
0.39% (d) (e) 2,755,604
60,959 Morgan Stanley Institutional
Liquidity Fund - Treasury
Portfolio - Institutional
Class - 0.38% (d) 60,959
--------------
TOTAL MONEY MARKET FUNDS --
2.7% 2,816,563
(Cost $2,816,563) --------------
TOTAL INVESTMENTS -- 102.7% 105,906,741
(Cost $105,276,126) (f)
NET OTHER ASSETS AND
LIABILITIES -- (2.7)% (2,788,979)
--------------
NET ASSETS -- 100.0% $ 103,117,762
==============
(a) The industry allocation is based on Standard & Poor's Global Industry
Classification Standard (GICS), and is different than the industry sector
classification system used by the Index to select securities, which is the
Industry Classification Benchmark (ICB) system, which is maintained by
FTSE International Limited.
(b) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $2,639,470 and the total value of the collateral held by the
Fund is $2,755,604.
(c) Non-income producing security.
(d) Interest rate shown reflects yield as of December 31, 2016.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $106,246,410. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$9,609,237 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$9,948,906.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------
Common Stocks* $103,090,178 $ -- $ --
Money Market
Funds 2,816,563 -- --
------------------------------------------
Total Investments $105,906,741 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
Page 30 See Notes to Financial Statements
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 2,639,470
Non-cash Collateral(2) (2,639,470)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2016, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
See Notes to Financial Statements Page 31
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 7.7%
77,791 Hexcel Corp. $ 4,001,569
--------------
AUTOMOBILES -- 8.8%
21,433 Tesla Motors, Inc. (a) (b) 4,580,018
--------------
ELECTRICAL EQUIPMENT -- 9.1%
16,146 Acuity Brands, Inc. 3,727,466
157,114 Ballard Power Systems,
Inc. (a) (b) 259,238
30,179 FuelCell Energy, Inc. (a) (b) 52,813
162,505 Plug Power, Inc. (a) (b) 195,006
93,409 Sunrun, Inc. (a) (b) 496,002
--------------
4,730,525
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 12.2%
133,621 AVX Corp. 2,088,496
31,615 Itron, Inc. (b) 1,987,003
28,873 Maxwell Technologies, Inc. (a) (b) 147,830
37,140 Universal Display Corp. (b) 2,090,982
--------------
6,314,311
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 17.0%
25,254 8point3 Energy Partners
L.P. (a) (c) 327,797
90,170 Atlantica Yield PLC (a) 1,744,789
48,800 NextEra Energy Partners, L.P. (c) 1,246,352
42,436 Ormat Technologies, Inc. 2,275,418
78,700 Pattern Energy Group, Inc. 1,494,513
101,816 TerraForm Global, Inc., Class A 402,173
82,353 TerraForm Power, Inc.,
Class A (a) (b) 1,054,942
99,081 Vivint Solar, Inc. (a) (b) 252,657
--------------
8,798,641
--------------
MORTGAGE REAL ESTATE INVESTMENT
TRUSTS -- 1.4%
38,970 Hannon Armstrong Sustainable
Infrastructure Capital, Inc. 740,040
--------------
OIL, GAS & CONSUMABLE FUELS
-- 3.2%
34,523 Green Plains, Inc. 961,466
35,661 Pacific Ethanol, Inc. (b) 338,779
34,688 Renewable Energy Group, Inc. (b) 336,474
--------------
1,636,719
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 39.0%
35,710 Advanced Energy Industries,
Inc. (b) 1,955,123
51,994 Canadian Solar, Inc. (a) (b) 633,287
80,162 Cree, Inc. (b) 2,115,475
66,943 First Solar, Inc. (a) (b) 2,148,201
28,374 IXYS Corp. 337,651
36,248 JA Solar Holdings Co., Ltd.,
ADR (b) 172,540
20,506 JinkoSolar Holding Co., Ltd.,
ADR (a) (b) 312,306
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (CONTINUED)
74,143 Microsemi Corp. (b) $ 4,001,498
344,600 ON Semiconductor Corp. (b) 4,397,096
26,219 Power Integrations, Inc. 1,778,959
36,948 SolarEdge Technologies,
Inc. (a) (b) 458,155
124,541 SunPower Corp. (a) (b) 823,216
36,539 Veeco Instruments, Inc. (b) 1,065,112
--------------
20,198,619
--------------
SOFTWARE -- 1.5%
27,808 EnerNOC, Inc. (b) 166,848
46,692 Silver Spring Networks, Inc. (b) 621,470
--------------
788,318
--------------
TOTAL COMMON STOCKS -- 99.9% 51,788,760
(Cost $56,746,464)
MONEY MARKET FUNDS -- 17.2%
8,918,137 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class, -
0.39% (d) (e) 8,918,137
(Cost $8,918,137) --------------
TOTAL INVESTMENTS -- 117.1% 60,706,897
(Cost $65,664,601) (f)
NET OTHER ASSETS AND
LIABILITIES -- (17.1)% (8,869,689)
--------------
NET ASSETS -- 100.0% $ 51,837,208
==============
(a) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $8,628,800 and the total value of the collateral held by the
Fund is $8,918,137.
(b) Non-income producing security.
(c) Security is a Master Limited Partnership ("MLP").
(d) Interest rate shown reflects yield as of December 31, 2016.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $66,345,460. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$8,007,675 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$13,646,238.
ADR - American Depositary Receipt
Page 32 See Notes to Financial Statements
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------
Common Stocks* $ 51,788,760 $ -- $ --
Money Market
Funds 8,918,137 -- --
------------------------------------------
Total Investments $ 60,706,897 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 8,628,800
Non-cash Collateral(2) (8,628,800)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2016, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
See Notes to Financial Statements Page 33
FIRST TRUST S&P REIT INDEX FUND (FRI)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.6%
DIVERSIFIED REITS -- 7.5%
12,112 American Assets Trust, Inc. $ 521,785
10,946 Armada Hoffler Properties, Inc. 159,483
37,137 Empire State Realty Trust, Inc.,
Class A 749,796
17,583 First Potomac Realty Trust 192,886
65,554 Forest City Realty Trust, Inc.,
Class A 1,366,145
7,161 Gladstone Commercial Corp. 143,936
51,339 Global Net Lease, Inc. 401,984
127,245 Gramercy Property Trust 1,168,109
36,683 Investors Real Estate Trust 261,550
21,461 iStar, Inc. (a) 265,473
64,344 Lexington Realty Trust 694,915
44,327 Liberty Property Trust 1,750,916
54,504 NorthStar Realty Finance Corp. 825,736
4,490 One Liberty Properties, Inc. 112,789
5,886 PS Business Parks, Inc. 685,837
19,149 Select Income REIT 482,555
145,820 Spirit Realty Capital, Inc. 1,583,605
47,010 STORE Capital Corp. 1,161,617
293,759 VEREIT, Inc. 2,485,201
22,487 Washington Real Estate Investment
Trust 735,100
8,821 Whitestone REIT 126,846
32,051 WP Carey, Inc. 1,893,894
--------------
17,770,158
--------------
HEALTH CARE REITS -- 12.5%
25,321 Care Capital Properties, Inc. 633,025
19,419 CareTrust REIT, Inc. 297,499
3,917 Community Healthcare Trust, Inc. 90,208
140,997 HCP, Inc. 4,190,431
34,946 Healthcare Realty Trust, Inc. 1,059,563
42,741 Healthcare Trust of America, Inc.,
Class A 1,244,191
11,825 LTC Properties, Inc. 555,538
6,304 MedEquities Realty Trust, Inc. 69,974
96,570 Medical Properties Trust, Inc. 1,187,811
12,013 National Health Investors, Inc. 891,004
24,764 New Senior Investment Group, Inc. 242,440
58,845 Omega Healthcare Investors, Inc. 1,839,495
40,884 Physicians Realty Trust 775,161
28,221 Quality Care Properties, Inc. (a) 437,425
19,679 Sabra Health Care REIT, Inc. 480,561
71,634 Senior Housing Properties Trust 1,356,032
3,775 Universal Health Realty Income
Trust 247,602
106,780 Ventas, Inc. 6,675,886
109,322 Welltower, Inc. 7,316,921
--------------
29,590,767
--------------
HOTEL & RESORT REITS -- 6.2%
47,149 Apple Hospitality REIT, Inc. 942,037
7,832 Ashford Hospitality Prime, Inc. 106,907
24,075 Ashford Hospitality Trust, Inc. 186,822
11,571 Chatham Lodging Trust 237,784
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
HOTEL & RESORT REITS (CONTINUED)
18,126 Chesapeake Lodging Trust $ 468,738
60,402 DiamondRock Hospitality Co. 696,435
38,645 FelCor Lodging Trust, Inc. 309,546
12,614 Hersha Hospitality Trust 271,201
49,532 Hospitality Properties Trust 1,572,146
223,106 Host Hotels & Resorts, Inc. 4,203,317
34,103 LaSalle Hotel Properties 1,039,118
21,729 Pebblebrook Hotel Trust 646,438
37,481 RLJ Lodging Trust 917,910
15,381 Ryman Hospitality Properties, Inc. 969,157
26,345 Summit Hotel Properties, Inc. 422,310
65,291 Sunstone Hotel Investors, Inc. 995,688
32,235 Xenia Hotels & Resorts, Inc. 626,004
--------------
14,611,558
--------------
INDUSTRIAL REITS -- 6.8%
27,448 DCT Industrial Trust, Inc. 1,314,210
106,955 Duke Realty Corp. 2,840,725
9,874 EastGroup Properties, Inc. 729,096
35,256 First Industrial Realty Trust, Inc. 988,931
21,078 Monmouth Real Estate Investment
Corp. 321,229
159,399 Prologis, Inc. 8,414,673
19,915 Rexford Industrial Realty, Inc. 461,829
22,795 STAG Industrial, Inc. 544,117
13,998 Terreno Realty Corp. 398,803
--------------
16,013,613
--------------
OFFICE REITS -- 13.6%
23,946 Alexandria Real Estate Equities,
Inc. 2,661,119
46,371 Boston Properties, Inc. 5,832,544
52,811 Brandywine Realty Trust 871,910
6,177 City Office REIT, Inc. 81,351
37,232 Columbia Property Trust, Inc. 804,211
28,578 Corporate Office Properties Trust 892,205
103,205 Cousins Properties, Inc. 878,275
43,406 Douglas Emmett, Inc. 1,586,923
7,256 Easterly Government Properties,
Inc. 145,265
37,852 Equity Commonwealth (a) 1,144,644
32,333 Franklin Street Properties Corp. 419,036
21,462 Government Properties Income
Trust 409,173
30,222 Highwoods Properties, Inc. 1,541,624
36,782 Hudson Pacific Properties, Inc. 1,279,278
27,803 Kilroy Realty Corp. 2,035,736
27,045 Mack-Cali Realty Corp. 784,846
50,013 New York REIT, Inc. 506,132
16,899 NorthStar Realty Europe Corp. 212,420
12,883 Parkway, Inc. (a) 286,647
43,791 Piedmont Office Realty Trust, Inc.,
Class A 915,670
30,554 SL Green Realty Corp. 3,286,083
14,398 Tier REIT, Inc. 250,381
51,860 Vornado Realty Trust 5,412,628
--------------
32,238,101
--------------
Page 34 See Notes to Financial Statements
FIRST TRUST S&P REIT INDEX FUND (FRI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
RESIDENTIAL REITS -- 16.5%
39,837 American Campus Communities,
Inc. $ 1,982,687
65,256 American Homes 4 Rent, Class A 1,369,071
47,308 Apartment Investment &
Management Co., Class A 2,150,149
41,410 AvalonBay Communities, Inc. 7,335,781
5,899 Bluerock Residential Growth
REIT, Inc. 80,934
26,377 Camden Property Trust 2,217,514
14,997 Colony Starwood Homes 432,064
22,030 Education Realty Trust, Inc. 931,869
24,180 Equity LifeStyle Properties, Inc. 1,743,378
110,264 Equity Residential 7,096,591
19,759 Essex Property Trust, Inc. 4,593,967
17,895 Independence Realty Trust, Inc. 159,623
34,233 Mid-America Apartment
Communities, Inc. 3,352,095
50,311 Monogram Residential Trust, Inc. 544,365
5,269 NexPoint Residential Trust, Inc. 117,709
7,450 Preferred Apartment Communities,
Inc., Class A 111,080
10,669 Silver Bay Realty Trust Corp. 182,867
20,037 Sun Communities, Inc. 1,535,035
80,589 UDR, Inc. 2,939,887
7,870 UMH Properties, Inc. 118,444
--------------
38,995,110
--------------
RETAIL REITS -- 23.0%
24,384 Acadia Realty Trust 796,869
7,890 Agree Realty Corp. 363,335
1,064 Alexander's, Inc. 454,190
78,920 Brixmor Property Group, Inc. 1,927,226
51,504 CBL & Associates Properties, Inc. 592,296
22,894 Cedar Realty Trust, Inc. 149,498
92,772 DDR Corp. 1,416,628
28,008 Equity One, Inc. 859,566
21,644 Federal Realty Investment Trust 3,075,829
176,081 General Growth Properties, Inc. 4,398,503
7,982 Getty Realty Corp. 203,461
128,167 Kimco Realty Corp. 3,224,682
25,192 Kite Realty Group Trust 591,508
36,403 Macerich (The) Co. 2,578,789
44,368 National Retail Properties, Inc. 1,961,066
20,971 Pennsylvania Real Estate
Investment Trust 397,610
23,899 Ramco-Gershenson Properties
Trust 396,245
77,983 Realty Income Corp. 4,482,463
31,508 Regency Centers Corp. 2,172,477
32,957 Retail Opportunity Investments
Corp. 696,381
71,583 Retail Properties of America, Inc.,
Class A 1,097,367
3,551 Saul Centers, Inc. 236,532
6,856 Seritage Growth Properties,
Class A 292,820
94,757 Simon Property Group, Inc. 16,835,476
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
RETAIL REITS (CONTINUED)
28,972 Tanger Factory Outlet Centers,
Inc. $ 1,036,618
18,222 Taubman Centers, Inc. 1,347,152
27,671 Urban Edge Properties 761,229
8,699 Urstadt Biddle Properties, Inc.,
Class A 209,733
55,913 Washington Prime Group, Inc. 582,054
35,530 Weingarten Realty Investors 1,271,619
20,494 Wheeler Real Estate Investment
Trust, Inc. 34,840
--------------
54,444,062
--------------
SPECIALIZED REITS -- 13.5%
35,447 CoreCivic, Inc. 867,034
10,220 CoreSite Realty Corp. 811,161
54,289 CubeSmart 1,453,317
22,411 CyrusOne, Inc. 1,002,444
47,926 Digital Realty Trust, Inc. 4,709,209
22,791 DuPont Fabros Technology, Inc. 1,001,209
19,184 EPR Properties 1,376,836
37,938 Extra Space Storage, Inc. 2,930,331
5,229 Farmland Partners, Inc. 58,356
18,060 Four Corners Property Trust, Inc. 370,591
58,714 Gaming and Leisure Properties, Inc. 1,797,823
22,622 GEO Group (The), Inc. 812,808
73,884 Iron Mountain, Inc. 2,399,752
13,994 Life Storage, Inc. 1,193,128
12,185 National Storage Affiliates Trust 268,923
44,981 Public Storage 10,053,253
14,387 QTS Realty Trust, Inc., Class A 714,315
--------------
31,820,490
--------------
TOTAL INVESTMENTS -- 99.6% 235,483,859
(Cost $251,198,444) (b)
NET OTHER ASSETS AND
LIABILITIES -- 0.4% 941,861
--------------
NET ASSETS -- 100.0% $ 236,425,720
==============
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $253,109,805. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$4,482,927 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$22,108,873.
See Notes to Financial Statements Page 35
FIRST TRUST S&P REIT INDEX FUND (FRI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------
Common Stocks* $235,483,859 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
Page 36 See Notes to Financial Statements
FIRST TRUST WATER ETF (FIW)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.7%
BUILDING PRODUCTS -- 2.0%
214,470 Advanced Drainage Systems, Inc. $ 4,418,082
--------------
CHEMICALS -- 9.8%
78,420 Ashland Global Holdings, Inc. 8,570,522
250,215 Calgon Carbon Corp. 4,253,655
75,999 Ecolab, Inc. 8,908,603
--------------
21,732,780
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 3.0%
157,352 Tetra Tech, Inc. 6,789,739
--------------
CONSTRUCTION & ENGINEERING
-- 8.6%
199,730 AECOM (a) 7,262,183
110,710 Aegion Corp. (a) 2,623,827
272,816 Layne Christensen Co. (a) 2,965,510
44,198 Valmont Industries, Inc. 6,227,498
--------------
19,079,018
--------------
DIVERSIFIED FINANCIAL SERVICES
-- 1.2%
182,865 PICO Holdings, Inc. (a) 2,770,405
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 5.0%
118,933 Badger Meter, Inc. 4,394,574
106,902 Itron, Inc. (a) 6,718,791
--------------
11,113,365
--------------
HEALTH CARE EQUIPMENT & SUPPLIES
-- 8.2%
117,258 Danaher Corp. 9,127,362
77,451 IDEXX Laboratories, Inc. (a) 9,082,679
--------------
18,210,041
--------------
INDUSTRIAL CONGLOMERATES -- 4.1%
49,289 Roper Technologies, Inc. 9,023,830
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 4.1%
197,795 Agilent Technologies, Inc. 9,011,540
--------------
MACHINERY -- 34.5%
104,897 Crane Co. 7,565,172
264,007 Energy Recovery, Inc. (a) (b) 2,732,472
154,934 Flowserve Corp. 7,444,579
108,506 Franklin Electric Co., Inc. 4,220,883
88,247 Gorman-Rupp (The) Co. 2,731,245
97,705 IDEX Corp. 8,799,312
51,815 Lindsay Corp. (b) 3,865,917
171,710 Mueller Industries, Inc. 6,861,532
325,903 Mueller Water Products, Inc.,
Class A 4,337,769
152,024 Pentair PLC 8,523,986
219,719 Rexnord Corp. (a) 4,304,295
97,286 Watts Water Technologies, Inc.,
Class A 6,343,047
177,892 Xylem, Inc. 8,809,212
--------------
76,539,421
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
WATER UTILITIES -- 19.2%
100,547 American States Water Co. $ 4,580,921
125,416 American Water Works Co., Inc. 9,075,102
266,218 Aqua America, Inc. 7,997,189
279,204 Cadiz, Inc. (a) (b) 3,490,050
131,202 California Water Service Group 4,447,748
971,291 Cia de Saneamento Basico do
Estado de Sao Paulo, ADR 8,430,806
80,772 SJW Group 4,521,616
--------------
42,543,432
--------------
TOTAL COMMON STOCKS -- 99.7% 221,231,653
(Cost $196,363,310) --------------
MONEY MARKET FUNDS -- 2.5%
4,881,399 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
0.39% (c) (d) 4,881,399
628,071 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 0.38% (c) 628,071
--------------
TOTAL MONEY MARKET FUNDS --
2.5% 5,509,470
(Cost $5,509,470) --------------
TOTAL INVESTMENTS -- 102.2% 226,741,123
(Cost $201,872,780) (e)
NET OTHER ASSETS AND
LIABILITIES -- (2.2)% (4,949,964)
--------------
NET ASSETS -- 100.0% $ 221,791,159
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $4,759,859 and the total value of the collateral held by the
Fund is $4,881,399.
(c) Interest rate shown reflects yield as of December 31, 2016.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $203,979,383. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$26,335,111 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$3,573,371.
ADR - American Depositary Receipt
See Notes to Financial Statements Page 37
FIRST TRUST WATER ETF (FIW)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------
Common Stocks* $221,231,653 $ -- $ --
Money Market
Funds 5,509,470 -- --
------------------------------------------
Total Investments $226,741,123 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 4,759,859
Non-cash Collateral(2) (4,759,859)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2016, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
Page 38 See Notes to Financial Statements
FIRST TRUST NATURAL GAS ETF (FCG)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
ENERGY EQUIPMENT & SERVICES
-- 0.7%
62,928 Unit Corp. (a) $ 1,690,875
--------------
GAS UTILITIES -- 2.1%
92,605 National Fuel Gas Co. 5,245,147
--------------
OIL, GAS & CONSUMABLE FUELS
-- 97.2%
225,027 Anadarko Petroleum Corp. 15,691,133
328,143 Antero Resources Corp. (a) 7,760,582
490,253 Cabot Oil & Gas Corp. 11,452,310
1,288,801 Chesapeake Energy Corp. (a) 9,047,383
95,306 Cimarex Energy Co. 12,952,085
103,090 Concho Resources, Inc. (a) 13,669,734
139,659 Continental Resources, Inc. (a) 7,198,025
317,596 Devon Energy Corp. 14,504,609
182,707 Enbridge Energy Partners, L.P. (b) 4,655,374
955,960 Encana Corp. 11,222,970
210,857 Enerplus Corp. 1,998,924
172,739 EQT Corp. 11,297,131
39,835 EQT Midstream Partners, L.P. (b) 3,054,548
152,064 Golar LNG Ltd. (c) 3,488,348
136,910 Gulfport Energy Corp. (a) 2,962,732
343,349 Kinder Morgan, Inc. 7,110,758
132,875 Matador Resources Co. (a) 3,422,860
220,417 Newfield Exploration Co. (a) 8,926,889
358,402 Noble Energy, Inc. 13,640,780
15,047 NuStar Energy, L.P. (b) 749,341
120,804 ONEOK Partners, L.P. (b) 5,195,780
65,676 PDC Energy, Inc. (a) 4,766,764
349,953 QEP Resources, Inc. (a) 6,442,635
287,033 Range Resources Corp. 9,862,454
187,620 Rice Energy, Inc. (a) 4,005,687
94,231 SM Energy Co. 3,249,085
742,170 Southwestern Energy Co. (a) 8,030,279
159,422 Spectra Energy Corp. 6,550,650
31,829 Spectra Energy Partners, L.P. (b) 1,459,041
539,995 Statoil ASA, ADR 9,849,509
231,072 Synergy Resources Corp. (a) 2,058,852
23,642 Vermilion Energy, Inc. (c) 996,983
40,402 Western Gas Partners, L.P. (b) 2,374,022
168,696 Williams Partners, L.P. (b) 6,415,509
551,765 WPX Energy, Inc. (a) 8,039,216
--------------
244,102,982
--------------
TOTAL COMMON STOCKS -- 100.0% 251,039,004
(Cost $239,912,124) --------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
MONEY MARKET FUNDS -- 1.0%
2,273,810 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
0.39% (d) (e) $ 2,273,810
142,544 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio -Institutional
Class - 0.38% (d) 142,544
--------------
TOTAL MONEY MARKET FUNDS --
1.0% 2,416,354
(Cost $2,416,354) --------------
TOTAL INVESTMENTS -- 101.0% 253,455,358
(Cost $242,328,478) (f)
NET OTHER ASSETS AND
LIABILITIES -- (1.0)% (2,431,360)
--------------
NET ASSETS -- 100.0% $ 251,023,998
==============
(a) Non-income producing security.
(b) Security is a Master Limited Partnership ("MLP").
(c) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $2,188,314 and the total value of the collateral held by the
Fund is $2,273,810.
(d) Interest rate shown reflects yield as of December 31, 2016.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $251,500,515. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$17,095,249 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$15,140,406.
ADR - American Depositary Receipt
See Notes to Financial Statements Page 39
FIRST TRUST NATURAL GAS ETF (FCG)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------
Common Stocks* $251,039,004 $ -- $ --
Money Market
Funds 2,416,354 -- --
------------------------------------------
Total Investments $253,455,358 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 2,188,314
Non-cash Collateral(2) (2,188,314)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2016, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
Page 40 See Notes to Financial Statements
FIRST TRUST CHINDIA ETF (FNI)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
AUTOMOBILES -- 4.2%
162,209 Tata Motors Ltd., ADR $ 5,578,367
--------------
BANKS -- 13.9%
151,903 HDFC Bank Ltd., ADR 9,217,474
1,208,749 ICICI Bank Ltd., ADR 9,053,530
--------------
18,271,004
--------------
BIOTECHNOLOGY -- 1.5%
34,829 BeiGene Ltd., ADR (a) 1,057,409
8,143 China Biologic Products, Inc. (a) 875,535
--------------
1,932,944
--------------
CAPITAL MARKETS -- 0.7%
40,817 Noah Holdings Ltd., ADR (a) (b) 895,117
--------------
DIVERSIFIED CONSUMER SERVICES
-- 2.1%
21,809 New Oriental Education &
Technology Group, Inc., ADR (a) 918,159
39,821 Nord Anglia Education, Inc. (a) (b) 927,829
13,041 TAL Education Group, ADR (a) 914,826
--------------
2,760,814
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.4%
19,439 China Telecom Corp., Ltd., ADR 896,721
76,399 China Unicom (Hong Kong) Ltd.,
ADR (b) 882,408
--------------
1,779,129
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 0.7%
47,156 Hollysys Automation Technologies
Ltd. 863,898
--------------
HOTELS, RESTAURANTS & LEISURE
-- 1.4%
18,375 China Lodging Group Ltd.,
ADR (a) 952,560
55,630 Melco Crown Entertainment Ltd.,
ADR 884,517
--------------
1,837,077
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 0.7%
36,806 Huaneng Power International, Inc.,
ADR (b) 958,428
--------------
INSURANCE -- 0.6%
66,387 China Life Insurance Co., Ltd.,
ADR (b) 854,401
--------------
INTERNET & DIRECT MARKETING
RETAIL -- 15.4%
126,914 Ctrip.com International Ltd.,
ADR (a) 5,076,560
359,381 JD.com, Inc., ADR (a) 9,142,653
111,802 MakeMyTrip Ltd. (a) (b) 2,482,005
31,578 Qunar Cayman Islands Ltd.,
ADR (a) (b) 951,445
230,239 Vipshop Holdings Ltd., ADR (a) 2,534,931
--------------
20,187,594
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
INTERNET SOFTWARE & SERVICES
-- 28.1%
111,849 21Vianet Group, Inc., ADR (a) (b) $ 784,061
28,389 58.com, Inc., ADR (a) 794,892
103,408 Alibaba Group Holding Ltd.,
ADR (a) 9,080,256
34,400 Autohome, Inc., ADR (a) 869,632
56,468 Baidu, Inc., ADR (a) 9,283,904
77,461 Baozun, Inc., ADR (a) (b) 934,954
47,894 Bitauto Holdings Ltd., ADR (a) (b) 907,112
320,052 Fang Holdings Ltd., ADR (a) (b) 1,049,771
46,214 Momo, Inc., ADR (a) (b) 849,413
24,656 NetEase, Inc., ADR 5,309,423
38,192 SINA Corp. (a) 2,321,692
25,777 Sohu.com, Inc. (a) 873,583
56,881 Weibo Corp., ADR (a) (b) 2,309,369
33,714 Yirendai Ltd., ADR (a) 698,554
21,222 YY, Inc., ADR (a) 836,571
--------------
36,903,187
--------------
IT SERVICES -- 13.9%
654,396 Infosys Ltd., ADR 9,704,693
590,139 Wipro Ltd., ADR (b) 5,712,545
103,103 WNS (Holdings) Ltd., ADR (a) 2,840,488
--------------
18,257,726
--------------
MARINE -- 0.7%
97,265 Seaspan Corp. 889,002
--------------
METALS & MINING -- 1.8%
194,905 Vedanta Ltd., ADR 2,420,720
--------------
OIL, GAS & CONSUMABLE FUELS
-- 2.1%
13,201 China Petroleum & Chemical
Corp., ADR 937,535
7,152 CNOOC Ltd., ADR 886,562
13,408 PetroChina Co., Ltd., ADR 988,170
--------------
2,812,267
--------------
PHARMACEUTICALS -- 4.1%
118,229 Dr. Reddy's Laboratories Ltd.,
ADR 5,353,409
--------------
PROFESSIONAL SERVICES -- 0.7%
27,468 51job, Inc., ADR (a) (b) 928,418
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 0.7%
96,472 Trina Solar Ltd., ADR (a) 897,190
--------------
SOFTWARE -- 1.3%
40,993 Changyou.com Ltd., ADR (a) 869,871
94,358 Cheetah Mobile, Inc., ADR (a) 902,063
--------------
1,771,934
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 4.0%
101,583 China Mobile Ltd., ADR 5,325,997
--------------
TOTAL COMMON STOCKS -- 100.0% 131,478,623
(Cost $142,014,959) --------------
See Notes to Financial Statements Page 41
FIRST TRUST CHINDIA ETF (FNI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
MONEY MARKET FUNDS -- 9.6%
12,642,507 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
0.39% (c) (d) $ 12,642,507
(Cost $12,642,507) --------------
TOTAL INVESTMENTS -- 109.6% 144,121,130
(Cost $154,657,466) (e)
NET OTHER ASSETS AND
LIABILITIES -- (9.6)% (12,655,283)
--------------
NET ASSETS -- 100.0% $ 131,465,847
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $12,367,307 and the total value of the collateral held by
the Fund is $12,642,507.
(c) Interest rate shown reflects yield as of December 31, 2016.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $155,886,271. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$7,752,714 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$19,517,855.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------
Common Stocks* $131,478,623 $ -- $ --
Money Market
Funds 12,642,507 -- --
------------------------------------------
Total Investments $144,121,130 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
COUNTRY ALLOCATION AS A PERCENTAGE OF NET ASSETS**:
----------------------------------------------------
Cayman Islands 48.6%
India 35.8
United States 10.9
Hong Kong 5.4
China 3.5
Jersey 2.2
Mauritius 1.9
Marshall Islands 0.7
Virgin Islands 0.6
Net Other Assets and Liabilities (9.6)
-------
100.0%
=======
** Portfolio securities are categorized based upon their country of
incorporation, which can be different from the country categorization of
the Fund's underlying index.
Page 42 See Notes to Financial Statements
FIRST TRUST CHINDIA ETF (FNI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 12,367,307
Non-cash Collateral(2) (12,367,307)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at Value", is not offset and is shown on a gross
basis.
(2) At December 31, 2016, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
See Notes to Financial Statements Page 43
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
BANKS -- 87.4%
43,645 1st Source Corp. $ 1,949,186
17,901 Access National Corp. (a) 496,932
21,776 Allegiance Bancshares, Inc. (b) 787,202
58,921 Ameris Bancorp 2,568,956
22,726 Arrow Financial Corp. 920,403
42,213 Atlantic Capital Bancshares,
Inc. (b) 802,047
26,507 BancFirst Corp. 2,466,476
93,337 Bancorp (The), Inc. (b) 733,629
10,336 Bank of Marin Bancorp 720,936
204,406 Bank of the Ozarks, Inc. 10,749,712
56,396 Banner Corp. 3,147,461
45,187 Blue Hills Bancorp, Inc. 847,256
87,988 BNC Bancorp 2,806,817
111,208 BOK Financial Corp. 9,234,712
140,257 Boston Private Financial Holdings,
Inc. 2,321,253
32,220 Bridge Bancorp, Inc. 1,221,138
119,007 Brookline Bancorp, Inc. 1,951,715
28,540 Bryn Mawr Bank Corp. 1,202,961
26,055 Camden National Corp. 1,158,145
44,516 Capital Bank Financial Corp.,
Class A 1,747,253
21,175 Carolina Financial Corp. 651,978
133,105 Cathay General Bancorp 5,061,983
81,018 CenterState Banks, Inc. 2,039,223
20,484 Central Valley Community Bancorp 408,861
119,029 Chemical Financial Corp. 6,447,801
25,325 City Holding Co. 1,711,970
70,008 CoBiz Financial, Inc. 1,182,435
97,931 Columbia Banking System, Inc. 4,375,557
171,074 Commerce Bancshares, Inc. 9,889,788
29,729 Community Trust Bancorp, Inc. 1,474,558
51,064 ConnectOne Bancorp, Inc. 1,325,111
29,826 CU Bancorp (b) 1,067,771
182,448 CVB Financial Corp. 4,183,533
56,744 Eagle Bancorp, Inc. (b) 3,458,547
243,240 East West Bancorp, Inc. 12,363,889
33,765 Enterprise Financial Services Corp. 1,451,895
12,669 Farmers Capital Bank Corp. 532,731
45,637 Farmers National Banc Corp. 648,045
44,105 Fidelity Southern Corp. 1,043,965
24,508 Financial Institutions, Inc. 838,174
33,946 First Bancorp 921,294
64,464 First Busey Corp. 1,984,202
18,570 First Citizens BancShares, Inc.,
Class A 6,592,350
28,666 First Community Bancshares, Inc. 863,993
104,532 First Financial Bancorp 2,973,935
111,470 First Financial Bankshares,
Inc. (a) 5,038,444
20,562 First Financial Corp. 1,085,674
27,546 First Foundation, Inc. (b) 785,061
36,209 First Interstate BancSystem, Inc.,
Class A 1,540,693
68,854 First Merchants Corp. 2,592,353
21,020 First MID-Illinois Bancshares, Inc. 714,680
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
BANKS (CONTINUED)
137,216 First Midwest Bancorp, Inc. $ 3,461,960
39,661 First of Long Island (The) Corp. 1,132,322
48,288 Flushing Financial Corp. 1,419,184
292,354 Fulton Financial Corp. 5,496,255
25,746 German American Bancorp, Inc. 1,354,497
129,117 Glacier Bancorp, Inc. 4,677,909
23,502 Great Southern Bancorp, Inc. 1,284,384
62,192 Green Bancorp, Inc. (b) 945,318
47,833 Guaranty Bancorp 1,157,559
130,887 Hancock Holding Co. 5,641,230
54,451 Hanmi Financial Corp. 1,900,340
43,974 Heartland Financial USA, Inc. 2,110,752
63,991 Heritage Commerce Corp. 923,390
50,529 Heritage Financial Corp. 1,301,122
236,960 Home BancShares, Inc. 6,580,379
30,375 HomeTrust Bancshares, Inc. (b) 786,713
228,176 Hope Bancorp, Inc. 4,994,773
37,398 Horizon Bancorp 1,047,144
69,305 IBERIABANK Corp. 5,804,294
44,424 Independent Bank Corp./MA 3,129,671
35,848 Independent Bank Corp./MI 777,902
31,164 Independent Bank Group, Inc. 1,944,634
111,299 International Bancshares Corp. 4,540,999
521,857 Investors Bancorp, Inc. 7,279,905
74,986 Lakeland Bancorp, Inc. 1,462,227
42,320 Lakeland Financial Corp. 2,004,275
80,608 LegacyTexas Financial Group, Inc. 3,470,981
49,789 Live Oak Bancshares, Inc. 921,097
40,548 MainSource Financial Group, Inc. 1,394,851
141,016 MB Financial, Inc. 6,660,186
38,364 MBT Financial Corp. 435,431
27,506 Mercantile Bank Corp. 1,036,976
11,618 Merchants Bancshares, Inc. 629,696
26,008 Midland States Bancorp, Inc. 940,969
19,293 MidWestOne Financial Group, Inc. 725,417
18,444 National Commerce Corp. (b) 685,195
72,825 NBT Bancorp, Inc. 3,049,911
14,417 Nicolet Bankshares, Inc. (b) 687,547
227,756 Old National Bancorp 4,133,771
49,864 Old Second Bancorp, Inc. 550,997
54,465 Opus Bank 1,636,673
38,139 Pacific Continental Corp. 833,337
46,660 Pacific Premier Bancorp, Inc. (b) 1,649,431
202,944 PacWest Bancorp 11,048,271
89,936 Park Sterling Corp. 970,409
28,594 Peapack-Gladstone Financial Corp. 882,983
30,702 Peoples Bancorp, Inc. 996,587
30,020 People's Utah Bancorp 806,037
77,915 Pinnacle Financial Partners, Inc. 5,399,510
175,098 Popular, Inc. 7,672,794
23,947 Preferred Bank 1,255,302
22,058 QCR Holdings, Inc. 955,111
71,036 Renasant Corp. 2,999,140
31,413 Republic Bancorp, Inc., Class A 1,242,070
58,910 S&T Bancorp, Inc. 2,299,846
40,307 Sandy Spring Bancorp, Inc. 1,611,877
Page 44 See Notes to Financial Statements
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
BANKS (CONTINUED)
64,157 Seacoast Banking Corp.
of Florida (b) $ 1,415,303
88,774 ServisFirst Bancshares, Inc. 3,323,699
23,266 Sierra Bancorp 618,643
52,759 Simmons First National Corp.,
Class A 3,278,972
40,866 South State Corp. 3,571,688
44,349 Southside Bancshares, Inc. 1,670,627
31,522 Southwest Bancorp, Inc. 914,138
62,234 State Bank Financial Corp. 1,671,605
38,089 Stock Yards Bancorp, Inc. 1,788,279
23,942 Stonegate Bank 999,100
31,885 Sun Bancorp, Inc. 829,010
82,687 Texas Capital Bancshares, Inc. (b) 6,482,661
105,264 TowneBank 3,500,028
38,516 TriCo Bancshares 1,316,477
47,823 TriState Capital Holdings, Inc. (b) 1,056,888
30,549 Triumph Bancorp, Inc. (b) 798,856
114,106 Trustmark Corp. 4,067,879
83,622 UMB Financial Corp. 6,448,929
371,544 Umpqua Holdings Corp. 6,977,596
73,492 Union Bankshares Corp. 2,626,604
128,995 United Bankshares, Inc. 5,966,019
119,565 United Community Banks, Inc. 3,541,515
44,841 Univest Corp. of Pennsylvania 1,385,587
28,888 Washington Trust Bancorp, Inc. 1,619,172
74,003 WesBanco, Inc. 3,186,569
43,317 Westamerica Bancorporation 2,725,939
87,353 Wintrust Financial Corp. 6,339,207
38,961 Xenith Bankshares, Inc. (b) 1,098,700
--------------
353,045,915
--------------
IT SERVICES -- 0.3%
18,853 Cass Information Systems, Inc. 1,387,015
--------------
THRIFTS & MORTGAGE FINANCE
-- 12.3%
77,058 Bank Mutual Corp. 728,198
128,089 Beneficial Bancorp, Inc. 2,356,838
106,801 BofI Holding, Inc. (a) (b) 3,049,168
232,647 Capitol Federal Financial, Inc. 3,829,370
38,888 Clifton Bancorp, Inc. 657,985
63,348 Dime Community Bancshares, Inc. 1,273,295
15,152 First Defiance Financial Corp. 768,812
3,600 Hingham Institution for Savings 708,408
41,903 HomeStreet, Inc. (b) 1,324,135
149,359 Kearny Financial Corp. 2,322,532
90,626 Meridian Bancorp, Inc. 1,712,831
14,381 Meta Financial Group, Inc. 1,479,805
81,551 Northfield Bancorp, Inc. 1,628,573
170,924 Northwest Bancshares, Inc. 3,081,760
43,620 OceanFirst Financial Corp. 1,309,909
76,339 Oritani Financial Corp. 1,431,356
16,477 Territorial Bancorp, Inc. 541,105
478,285 TFS Financial Corp. 9,106,546
161,477 TrustCo Bank Corp. NY 1,412,924
78,540 United Community Financial Corp. 702,148
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE
(CONTINUED)
85,227 United Financial Bancorp, Inc. $ 1,547,722
150,302 Washington Federal, Inc. 5,162,874
49,584 Waterstone Financial, Inc. 912,346
52,851 WSFS Financial Corp. 2,449,644
--------------
49,498,284
--------------
TOTAL COMMON STOCKS -- 100.0% 403,931,214
(Cost $343,053,244)
MONEY MARKET FUNDS -- 1.2%
4,968,211 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
0.39% (c) (d) 4,968,211
(Cost $4,968,211) --------------
TOTAL INVESTMENTS -- 101.2% 408,899,425
(Cost $348,021,455) (e)
NET OTHER ASSETS AND
LIABILITIES -- (1.2)% (4,876,551)
--------------
NET ASSETS -- 100.0% $ 404,022,874
==============
(a) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $4,823,735 and the total value of the collateral held by the
Fund is $4,968,211.
(b) Non-income producing security.
(c) Interest rate shown reflects yield as of December 31, 2016.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $349,873,996. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$59,356,527 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$331,098.
See Notes to Financial Statements Page 45
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------
Common Stocks* $403,931,214 $ -- $ --
Money Market
Funds 4,968,211 -- --
------------------------------------------
Total Investments $408,899,425 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 4,823,735
Non-cash Collateral(2) (4,823,735)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2016, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
Page 46 See Notes to Financial Statements
This page intentionally left blank.
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2016
FIRST TRUST FIRST TRUST
NASDAQ-100 FIRST TRUST NASDAQ-100
EQUAL NASDAQ-100- EX-TECHNOLOGY
WEIGHTED TECHNOLOGY SECTOR SECTOR
INDEX FUND INDEX FUND INDEX FUND
(QQEW) (QTEC) (QQXT)
---------------- ------------------ ----------------
ASSETS:
Investments, at value............................................... $ 411,107,530 $1,569,421,349 $ 105,906,741
Cash................................................................ 119,998 1,200,964 --
Receivables:
Capital shares sold........................................... -- 7,985,724 --
Investment securities sold.................................... -- 4,094,839 --
Dividends..................................................... 313,730 1,240,666 85,819
Securities lending income..................................... 4,687 -- 1,922
Interest...................................................... -- -- 15
Prepaid expenses.................................................... 3,779 3,500 1,180
-------------- -------------- --------------
TOTAL ASSETS.................................................. 411,549,724 1,583,947,042 105,995,677
-------------- -------------- --------------
LIABILITIES:
Due to custodian.................................................... -- -- --
Payables:
Capital shares redeemed....................................... -- -- --
Investment securities purchased............................... -- 12,074,095 --
Investment advisory fees...................................... 145,210 548,804 43,129
Collateral for securities on loan............................. 7,144,407 -- 2,755,604
Licensing fees................................................ 97,622 249,063 27,724
Audit and tax fees............................................ 22,925 22,925 22,925
Printing fees................................................. 20,915 16,819 10,096
Trustees' fees................................................ 170 -- 181
Other liabilities................................................... 74,166 180,619 18,256
-------------- -------------- --------------
TOTAL LIABILITIES............................................. 7,505,415 13,092,325 2,877,915
-------------- -------------- --------------
NET ASSETS.......................................................... $ 404,044,309 $1,570,854,717 $ 103,117,762
============== ============== ==============
NET ASSETS CONSIST OF:
Paid-in capital..................................................... $ 416,985,318 $1,517,202,713 $ 114,051,298
Par value........................................................... 87,500 298,500 25,500
Accumulated net investment income (loss)............................ -- -- --
Accumulated net realized gain (loss) on investments................. (34,972,239) (26,538,695) (11,589,651)
Net unrealized appreciation (depreciation) on investments and
foreign currency translation..................................... 21,943,730 79,892,199 630,615
-------------- -------------- --------------
NET ASSETS.......................................................... $ 404,044,309 $1,570,854,717 $ 103,117,762
============== ============== ==============
NET ASSET VALUE, per share.......................................... $ 46.18 $ 52.62 $ 40.44
============== ============== ==============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share)........................... 8,750,002 29,850,002 2,550,002
============== ============== ==============
Investments, at cost................................................ $ 389,163,800 $1,489,529,150 $ 105,276,126
============== ============== ==============
Securities on loan, at value........................................ $ 6,847,380 $ -- $ 2,639,470
============== ============== ==============
Page 48 See Notes to Financial Statements
FIRST TRUST FIRST TRUST
NASDAQ(R) FIRST TRUST NASDAQ(R) ABA
CLEAN EDGE(R) S&P FIRST TRUST FIRST TRUST FIRST TRUST COMMUNITY
GREEN ENERGY REIT WATER NATURAL GAS CHINDIA BANK
INDEX FUND INDEX FUND ETF ETF ETF INDEX FUND
(QCLN) (FRI) (FIW) (FCG) (FNI) (QABA)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 60,706,897 $ 235,483,859 $ 226,741,123 $ 253,455,358 $ 144,121,130 $ 408,899,425
51,326 -- 3,644 12,243 64,745 --
-- -- -- -- -- --
-- 7,849,169 -- -- -- --
51,258 1,222,016 86,878 65,001 -- 404,863
18,317 -- 3,788 493 63,209 3,250
-- 32 41 47 -- --
530 3,822 1,534 2,570 1,639 1,762
-------------- -------------- -------------- -------------- -------------- --------------
60,828,328 244,558,898 226,837,008 253,535,712 144,250,723 409,309,300
-------------- -------------- -------------- -------------- -------------- --------------
-- 27 -- -- -- 32,578
-- 7,878,482 -- -- -- --
-- -- -- -- -- --
20,180 61,940 76,598 91,252 55,308 145,650
8,918,137 -- 4,881,399 2,273,810 12,642,507 4,968,211
13,101 106,173 23,539 63,655 30,443 60,045
22,925 22,925 22,925 22,925 22,925 22,925
6,851 20,210 10,475 21,239 9,697 13,006
165 190 121 133 176 95
9,761 43,231 30,792 38,700 23,820 43,916
-------------- -------------- -------------- -------------- -------------- --------------
8,991,120 8,133,178 5,045,849 2,511,714 12,784,876 5,286,426
-------------- -------------- -------------- -------------- -------------- --------------
$ 51,837,208 $ 236,425,720 $ 221,791,159 $ 251,023,998 $ 131,465,847 $ 404,022,874
============== ============== ============== ============== ============== ==============
$ 101,299,278 $ 253,949,166 $ 215,212,963 $ 747,576,815 $ 213,175,545 $ 346,961,974
33,500 102,500 56,000 95,984 48,000 76,500
-- -- -- -- (518,720) --
(44,537,866) (1,911,361) (18,346,147) (507,775,666) (70,702,642) (3,893,570)
(4,957,704) (15,714,585) 24,868,343 11,126,865 (10,536,336) 60,877,970
-------------- -------------- -------------- -------------- -------------- --------------
$ 51,837,208 $ 236,425,720 $ 221,791,159 $ 251,023,998 $ 131,465,847 $ 404,022,874
============== ============== ============== ============== ============== ==============
$ 15.47 $ 23.07 $ 39.61 $ 26.15 $ 27.39 $ 52.81
============== ============== ============== ============== ============== ==============
3,350,002 10,250,002 5,600,002 9,598,365 4,800,002 7,650,002
============== ============== ============== ============== ============== ==============
$ 65,664,601 $ 251,198,444 $ 201,872,780 $ 242,328,478 $ 154,657,466 $ 348,021,455
============== ============== ============== ============== ============== ==============
$ 8,628,800 $ -- $ 4,759,859 $ 2,188,314 $ 12,367,307 $ 4,823,735
============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 49
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
FIRST TRUST FIRST TRUST
NASDAQ-100 FIRST TRUST NASDAQ-100
EQUAL NASDAQ-100- EX-TECHNOLOGY
WEIGHTED TECHNOLOGY SECTOR SECTOR
INDEX FUND INDEX FUND INDEX FUND
(QQEW) (QTEC) (QQXT)
---------------- ------------------ ----------------
INVESTMENT INCOME:
Dividends........................................................... $ 4,998,343 $ 9,157,571 $ 1,032,192
Securities lending income (net of fees)............................. 190,027 -- 103,976
Interest............................................................ -- -- 341
Foreign tax withholding............................................. (11,164) -- --
-------------- -------------- --------------
Total investment income....................................... 5,177,206 9,157,571 1,136,509
-------------- -------------- --------------
EXPENSES:
Investment advisory fees............................................ 1,571,141 1,829,117 549,682
Licensing fees...................................................... 392,785 457,279 137,421
Accounting and administration fees.................................. 187,948 219,587 67,491
Custodian fees...................................................... 98,703 57,784 33,524
Printing fees....................................................... 37,335 32,306 22,441
Legal fees.......................................................... 33,052 24,428 13,041
Audit and tax fees.................................................. 21,228 21,228 21,228
Transfer agent fees................................................. 19,639 21,607 6,871
Trustees' fees and expenses......................................... 9,049 8,943 8,740
Listing fees........................................................ 6,662 7,533 6,036
Excise tax.......................................................... -- -- --
Registration and filing fees........................................ -- 30,262 799
Expenses previously waived or reimbursed............................ -- 23,113 --
Other expenses...................................................... 16,217 10,488 6,377
-------------- -------------- --------------
Total expenses................................................ 2,393,759 2,743,675 873,651
Less fees waived and expenses reimbursed by the investment
advisor ................................................... (37,048) -- (49,128)
-------------- -------------- --------------
Net expenses.................................................. 2,356,711 2,743,675 824,523
-------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)........................................ 2,820,495 6,413,896 311,986
-------------- -------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................... (15,015,295) (10,714,441) (5,772,198)
In-kind redemptions........................................... 20,860,327 54,358,081 17,365,903
-------------- -------------- --------------
Net realized gain (loss)............................................ 5,845,032 43,643,640 11,593,705
-------------- -------------- --------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................... 4,631,267 59,587,597 (18,610,059)
Foreign currency translation.................................. -- -- --
-------------- -------------- --------------
Net change in unrealized appreciation (depreciation)................ 4,631,267 59,587,597 (18,610,059)
-------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)............................. 10,476,299 103,231,237 (7,016,354)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................................. $ 13,296,794 $ 109,645,133 $ (6,704,368)
============== ============== ==============
Page 50 See Notes to Financial Statements
FIRST TRUST FIRST TRUST
NASDAQ(R) FIRST TRUST NASDAQ(R) ABA
CLEAN EDGE(R) S&P FIRST TRUST FIRST TRUST FIRST TRUST COMMUNITY
GREEN ENERGY REIT WATER NATURAL GAS CHINDIA BANK
INDEX FUND INDEX FUND ETF ETF ETF INDEX FUND
(QCLN) (FRI) (FIW) (FCG) (FNI) (QABA)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 313,991 $ 8,616,900 $ 1,600,124 $ 1,598,807 $ 1,937,797 $ 4,202,857
713,444 -- 29,796 1,023,112 686,578 15,576
-- 694 296 587 -- --
-- -- (34,832) (158,933) (78,304) (6,727)
-------------- -------------- -------------- -------------- -------------- --------------
1,027,435 8,617,594 1,595,384 2,463,573 2,546,071 4,211,706
-------------- -------------- -------------- -------------- -------------- --------------
230,526 859,967 554,255 856,871 672,837 786,656
57,632 229,324 69,282 214,218 134,567 176,998
28,846 141,720 68,505 105,436 80,990 98,395
12,129 41,249 18,442 41,283 38,804 28,394
12,289 41,692 15,478 40,892 13,467 39,571
5,082 28,291 10,877 18,949 14,479 15,931
21,228 21,228 21,228 21,228 21,228 21,228
2,882 14,333 6,928 10,711 8,411 9,833
8,482 9,039 8,636 8,818 8,724 9,127
6,033 9,000 10,999 13,880 11,381 6,077
-- -- -- 31,110 -- --
(607) 1,183 2,422 (1,029) 1,306 3,044
-- -- -- -- -- --
5,431 8,832 5,828 8,786 9,032 6,347
-------------- -------------- -------------- -------------- -------------- --------------
389,953 1,405,858 792,880 1,371,153 1,015,226 1,201,601
(44,163) -- -- (54,736) (5,970) (21,616)
-------------- -------------- -------------- -------------- -------------- --------------
345,790 1,405,858 792,880 1,316,417 1,009,256 1,179,985
-------------- -------------- -------------- -------------- -------------- --------------
681,645 7,211,736 802,504 1,147,156 1,536,815 3,031,721
-------------- -------------- -------------- -------------- -------------- --------------
(10,096,419) 807,756 (6,126,882) (173,444,882) (13,896,708) (1,420,487)
2,399,383 13,141,925 6,105,930 43,514,651 2,330,213 1,598,460
-------------- -------------- -------------- -------------- -------------- --------------
(7,697,036) 13,949,681 (20,952) (129,930,231) (11,566,495) 177,973
-------------- -------------- -------------- -------------- -------------- --------------
5,128,516 (9,738,996) 33,980,246 177,660,257 2,877,754 65,114,595
-- -- -- (15) -- --
-------------- -------------- -------------- -------------- -------------- --------------
5,128,516 (9,738,996) 33,980,246 177,660,242 2,877,754 65,114,595
-------------- -------------- -------------- -------------- -------------- --------------
(2,568,520) 4,210,685 33,959,294 47,730,011 (8,688,741) 65,292,568
-------------- -------------- -------------- -------------- -------------- --------------
$ (1,886,875) $ 11,422,421 $ 34,761,798 $ 48,877,167 $ (7,151,926) $ 68,324,289
============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 51
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST
NASDAQ-100 NASDAQ-100-
EQUAL WEIGHTED TECHNOLOGY SECTOR
INDEX FUND INDEX FUND
(QQEW) (QTEC)
------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/2016 12/31/2015 12/31/2016 12/31/2015
-------------- -------------- -------------- --------------
OPERATIONS:
Net investment income (loss)........................... $ 2,820,495 $ 3,082,310 $ 6,413,896 $ 2,766,046
Net realized gain (loss)............................... 5,845,032 41,765,707 43,643,640 44,818,868
Net change in unrealized appreciation (depreciation)... 4,631,267 (34,310,836) 59,587,597 (55,092,351)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations..................................... 13,296,794 10,537,181 109,645,133 (7,507,437)
-------------- -------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. (3,070,171) (3,678,500) (6,834,167) (3,154,776)
-------------- -------------- -------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................. 53,443,431 195,067,101 1,382,978,541 76,107,779
Cost of shares redeemed................................ (192,304,559) (247,074,977) (217,669,917) (129,579,619)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions....................... (138,861,128) (52,007,876) 1,165,308,624 (53,471,840)
-------------- -------------- -------------- --------------
Total increase (decrease) in net assets................ (128,634,505) (45,149,195) 1,268,119,590 (64,134,053)
NET ASSETS:
Beginning of period.................................... 532,678,814 577,828,009 302,735,127 366,869,180
-------------- -------------- -------------- --------------
End of period.......................................... $ 404,044,309 $ 532,678,814 $1,570,854,717 $ 302,735,127
============== ============== ============== ==============
Accumulated net investment income (loss)
at end of period.................................... $ -- $ -- $ -- $ --
============== ============== ============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................ 12,250,002 13,500,002 7,100,002 8,400,002
Shares sold............................................ 1,200,000 4,450,000 27,350,000 1,750,000
Shares redeemed as a result of reverse share split
(See Note 4)........................................ -- -- -- --
Shares redeemed........................................ (4,700,000) (5,700,000) (4,600,000) (3,050,000)
============== ============== ============== ==============
Shares outstanding, end of period...................... 8,750,002 12,250,002 29,850,002 7,100,002
============== ============== ============== ==============
Page 52 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST
NASDAQ-100 NASDAQ(R) S&P FIRST TRUST
EX-TECHNOLOGY SECTOR CLEAN EDGE(R) GREEN ENERGY REIT WATER
INDEX FUND INDEX FUND INDEX FUND ETF
(QQXT) (QCLN) (FRI) (FIW)
----------------------------- ------------------------------- ------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/2016 12/31/2015 12/31/2016 12/31/2015 12/31/2016 12/31/2015 12/31/2016 12/31/2015
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 311,986 $ 497,186 $ 681,645 $ 523,436 $ 7,211,736 $ 5,848,521 $ 802,504 $ 1,102,605
11,593,705 5,502,730 (7,697,036) (4,852,254) 13,949,681 23,006,725 (20,952) 9,174,441
(18,610,059) (186,256) 5,128,516 (1,381,171) (9,738,996) (22,518,489) 33,980,246 (30,704,492)
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
(6,704,368) 5,813,660 (1,886,875) (5,709,989) 11,422,421 6,336,757 34,761,798 (20,427,446)
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
(399,080) (636,390) (738,910) (527,840) (8,613,812) (6,276,431) (827,655) (1,094,946)
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
22,735,602 80,613,411 2,142,506 4,544,831 166,972,713 119,979,221 111,623,834 9,558,341
(96,961,872) (18,537,885) (17,334,393) (18,268,019) (159,605,559) (232,919,287) (26,198,610) (84,154,350)
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
(74,226,270) 62,075,526 (15,191,887) (13,723,188) 7,367,154 (112,940,066) 85,425,224 (74,596,009)
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
(81,329,718) 67,252,796 (17,817,672) (19,961,017) 10,175,763 (112,879,740) 119,359,367 (96,118,401)
184,447,480 117,194,684 69,654,880 89,615,897 226,249,957 339,129,697 102,431,792 198,550,193
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 103,117,762 $ 184,447,480 $ 51,837,208 $ 69,654,880 $ 236,425,720 $ 226,249,957 $ 221,791,159 $ 102,431,792
============= ============= ============== ============== ============== ============== ============== ==============
$ -- $ -- $ -- $ 12,316 $ -- $ -- $ -- $ 7,659
============= ============= ============== ============== ============== ============== ============== ==============
4,450,002 2,950,002 4,350,002 5,200,002 10,250,002 15,250,002 3,400,002 5,900,002
600,000 1,950,000 150,000 250,000 6,950,000 5,250,000 2,950,000 300,000
-- -- -- -- -- -- -- --
(2,500,000) (450,000) (1,150,000) (1,100,000) (6,950,000) (10,250,000) (750,000) (2,800,000)
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
2,550,002 4,450,002 3,350,002 4,350,002 10,250,002 10,250,002 5,600,002 3,400,002
============= ============= ============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 53
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST FIRST TRUST
NATURAL GAS CHINDIA
ETF ETF
(FCG) (FNI)
------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/2016 12/31/2015 12/31/2016 12/31/2015
-------------- -------------- -------------- --------------
OPERATIONS:
Net investment income (loss)........................... $ 1,147,156 $ 5,401,247 $ 1,536,815 $ 1,407,972
Net realized gain (loss)............................... (129,930,231) (182,923,218) (11,566,495) (5,169,003)
Net change in unrealized appreciation (depreciation)... 177,660,242 (5,578,141) 2,877,754 (22,242,010)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations..................................... 48,877,167 (183,100,112) (7,151,926) (26,003,041)
-------------- -------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. (4,197,410) (5,545,080) (2,037,296) (1,676,190)
-------------- -------------- -------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................. 400,163,152 248,375,073 2,725,776 248,313,891
Cost of shares redeemed................................ (346,861,336) (153,633,016) (83,258,296) (111,110,415)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions....................... 53,301,816 94,742,057 (80,532,520) 137,203,476
-------------- -------------- -------------- --------------
Total increase (decrease) in net assets................ 97,981,573 (93,903,135) (89,721,742) 109,524,245
NET ASSETS:
Beginning of period.................................... 153,042,425 246,945,560 221,187,589 111,663,344
-------------- -------------- -------------- --------------
End of period.......................................... $ 251,023,998 $ 153,042,425 $ 131,465,847 $ 221,187,589
============== ============== ============== ==============
Accumulated net investment income (loss)
at end of period.................................... $ -- $ -- $ (518,720) $ (206,457)
============== ============== ============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................ 6,860,000 4,400,000 (a) 7,800,002 3,900,002
Shares sold............................................ 45,050,000 7,080,000 (a) 100,000 7,950,000
Shares redeemed as a result of reverse share split
(See Note 4)........................................ (9,561,635) -- -- --
Shares redeemed........................................ (32,750,000) (4,620,000) (a) (3,100,000) (4,050,000)
-------------- -------------- -------------- --------------
Shares outstanding, end of period...................... 9,598,365 6,860,000 4,800,002 7,800,002
============== ============== ============== ==============
(a) Share amounts have been adjusted to reflect the 1-for-5 reverse share
split that was effective May 2, 2016.
Page 54 See Notes to Financial Statements
FIRST TRUST
NASDAQ(R) ABA
COMMUNITY BANK
INDEX FUND
(QABA)
-----------------------------
Year Ended Year Ended
12/31/2016 12/31/2015
------------- -------------
$ 3,031,721 $ 1,745,776
177,973 6,013,312
65,114,595 (10,201,193)
------------- -------------
68,324,289 (2,442,105)
------------- -------------
(3,108,936) (1,652,931)
------------- -------------
202,615,894 198,934,541
(87,710,500) (80,755,559)
------------- -------------
114,905,394 118,178,982
------------- -------------
180,120,747 114,083,946
223,902,127 109,818,181
------------- -------------
$ 404,022,874 $ 223,902,127
============= =============
$ -- $ 112,770
============= =============
5,750,002 3,000,002
4,150,000 4,950,000
-- --
(2,250,000) (2,200,000)
------------- -------------
7,650,002 5,750,002
============= =============
See Notes to Financial Statements Page 55
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 43.48 $ 42.80 $ 36.35 $ 26.10 $ 22.98
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.31 0.22 0.41 0.17 0.27
Net realized and unrealized gain (loss) 2.73 0.73 6.49 10.25 3.14
------------ ------------ ------------ ------------ ------------
Total from investment operations 3.04 0.95 6.90 10.42 3.41
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.34) (0.27) (0.45) (0.17) (0.29)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 46.18 $ 43.48 $ 42.80 $ 36.35 $ 26.10
============ ============ ============ ============ ============
TOTAL RETURN (a) 7.02% 2.22% 19.13% 39.95% 14.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 404,044 $ 532,679 $ 577,828 $ 288,945 $ 84,815
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.61% 0.60% 0.61% 0.63% 0.68%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.72% 0.51% 1.10% 0.60% 1.01%
Portfolio turnover rate (b) 29% 31% 27% 38% 34%
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 42.64 $ 43.67 $ 35.43 $ 25.86 $ 24.14
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.67 0.37 0.45 0.24 0.19
Net realized and unrealized gain (loss) 9.99 (0.98) 8.32 9.59 1.74
------------ ------------ ------------ ------------ ------------
Total from investment operations 10.66 (0.61) 8.77 9.83 1.93
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.68) (0.42) (0.53) (0.26) (0.21)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 52.62 $ 42.64 $ 43.67 $ 35.43 $ 25.86
============ ============ ============ ============ ============
TOTAL RETURN (a) 25.27% (1.37)% 24.83% 38.12% 8.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 1,570,855 $ 302,735 $ 366,869 $ 177,165 $ 106,008
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.60% 0.60% 0.61% 0.62% 0.65%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 1.40% 0.83% 1.32% 0.80% 0.63%
Portfolio turnover rate (b) 27% 23% 20% 33% 26%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 56 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 41.45 $ 39.73 $ 34.77 $ 24.70 $ 20.80
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.09 0.13 0.32 0.10 0.31
Net realized and unrealized gain (loss) (0.98) 1.75 4.97 10.06 3.92
------------ ------------ ------------ ------------ ------------
Total from investment operations (0.89) 1.88 5.29 10.16 4.23
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.12) (0.16) (0.33) (0.09) (0.33)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 40.44 $ 41.45 $ 39.73 $ 34.77 $ 24.70
============ ============ ============ ============ ============
TOTAL RETURN (a) (2.13)% 4.75% 15.35% 41.24% 20.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 103,118 $ 184,447 $ 117,195 $ 90,396 $ 41,982
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.64% 0.63% 0.64% 0.67% 0.76%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.23% 0.33% 0.90% 0.38% 1.34%
Portfolio turnover rate (b) 30% 39% 23% 33% 40%
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 16.01 $ 17.23 $ 17.90 $ 9.48 $ 9.65
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.17 0.11 0.13 0.07 0.13
Net realized and unrealized gain (loss) (0.52) (1.21) (0.66) 8.42 (0.18)
------------ ------------ ------------ ------------ ------------
Total from investment operations (0.35) (1.10) (0.53) 8.49 (0.05)
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.19) (0.12) (0.14) (0.07) (0.12)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 15.47 $ 16.01 $ 17.23 $ 17.90 $ 9.48
============ ============ ============ ============ ============
TOTAL RETURN (a) (2.12)% (6.43)% (3.05)% 89.79% (0.50)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 51,837 $ 69,655 $ 89,616 $ 97,574 $ 13,740
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.68% 0.65% 0.64% 0.70% 0.98%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 1.18% 0.65% 0.61% 0.60% 1.19%
Portfolio turnover rate (b) 49% 35% 37% 49% 24%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 57
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST S&P REIT INDEX FUND (FRI)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 22.07 $ 22.24 $ 17.54 $ 17.75 $ 15.47
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.62 0.55 0.41 0.52 0.38
Net realized and unrealized gain (loss) 1.13 (0.13) 4.75 (0.19) 2.30
------------ ------------ ------------ ------------ ------------
Total from investment operations 1.75 0.42 5.16 0.33 2.68
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.75) (0.59) (0.46) (0.54) (0.37)
Net realized gain -- -- -- -- (0.03)
------------ ------------ ------------ ------------ ------------
Total distributions (0.75) (0.59) (0.46) (0.54) (0.40)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 23.07 $ 22.07 $ 22.24 $ 17.54 $ 17.75
============ ============ ============ ============ ============
TOTAL RETURN (a) 7.92% 1.97% 29.61% 1.82% 17.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 236,426 $ 226,250 $ 339,130 $ 148,210 $ 402,888
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.49% 0.48% 0.50% 0.50% 0.50%
Ratio of net expenses to average net assets 0.49% 0.48% 0.50% 0.50% 0.50%
Ratio of net investment income (loss) to
average net assets 2.52% 2.30% 2.35% 2.31% 2.15%
Portfolio turnover rate (b) 6% 8% 11% 11% 8%
FIRST TRUST WATER ETF (FIW)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 30.13 $ 33.65 $ 33.79 $ 25.99 $ 20.71
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.20 0.23 0.25 0.21 0.23
Net realized and unrealized gain (loss) 9.48 (3.52) (0.14) 7.80 5.30
------------ ------------ ------------ ------------ ------------
Total from investment operations 9.68 (3.29) 0.11 8.01 5.53
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.20) (0.23) (0.25) (0.21) (0.25)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 39.61 $ 30.13 $ 33.65 $ 33.79 $ 25.99
============ ============ ============ ============ ============
TOTAL RETURN (a) 32.21% (9.81)% 0.36% 30.91% 26.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 221,791 $ 102,432 $ 198,550 $ 197,643 $ 72,769
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.57% 0.57% 0.59% 0.60% 0.63%
Ratio of net expenses to average net assets 0.57% 0.57% 0.59% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.58% 0.70% 0.75% 0.75% 1.02%
Portfolio turnover rate (b) 42% 17% 24% 45% 31%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 58 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NATURAL GAS ETF (FCG)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
2016 2015 (a) 2014 (a) 2013 (a) 2012 (a)
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 22.30 $ 56.10 $ 97.65 $ 78.35 $ 90.95
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.13 1.00 0.70 0.35 0.35
Net realized and unrealized gain (loss) 4.16 (33.75) (41.50) 19.30 (12.60)
------------ ------------ ------------ ------------ ------------
Total from investment operations 4.29 (32.75) (40.80) 19.65 (12.25)
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.44) (1.05) (0.75) (0.35) (0.35)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 26.15 $ 22.30 $ 56.10 $ 97.65 $ 78.35
============ ============ ============ ============ ============
TOTAL RETURN (b) 19.48% (59.10)% (42.02)% 25.13% (13.51)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 251,024 $ 153,042 $ 246,946 $ 464,795 $ 387,899
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.64% (c) 0.62% 0.61% 0.60% 0.63%
Ratio of net expenses to average net assets 0.61% (c) 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.54% 2.44% 0.74% 0.40% 0.40%
Portfolio turnover rate (d) 103% 67% 42% 49% 41%
FIRST TRUST CHINDIA ETF (FNI)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 28.36 $ 28.63 $ 28.22 $ 20.97 $ 18.23
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.25 0.15 0.20 0.20 0.35
Net realized and unrealized gain (loss) (0.85) (0.24) 0.48 7.26 2.74
------------ ------------ ------------ ------------ ------------
Total from investment operations (0.60) (0.09) 0.68 7.46 3.09
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.37) (0.18) (0.27) (0.21) (0.35)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 27.39 $ 28.36 $ 28.63 $ 28.22 $ 20.97
============ ============ ============ ============ ============
TOTAL RETURN (b) (2.15)% (0.32)% 2.37% 35.81% 17.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 131,466 $ 221,188 $ 111,663 $ 71,962 $ 66,066
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.60% 0.62% 0.65% 0.66% 0.73%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.91% 0.64% 0.54% 0.79% 1.60%
Portfolio turnover rate (d) 47% 68% 40% 40% 29%
(a) All per share amounts and net asset values have been adjusted to reflect
the impact of the 1-for-5 reverse share split on May 2, 2016. The net
asset values reported on December 31, 2015, 2014, 2013 and 2012 prior to
the reverse share split restatement were $4.46, $11.22, $19.53 and $15.67,
respectively.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(c) Includes excise tax. If this excise tax expense was not included, the
total and net expense ratios would have been 0.63% and 0.60%,
respectively.
(d) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 59
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 38.94 $ 36.61 $ 36.11 $ 25.56 $ 22.97
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.58 0.56 0.47 0.37 0.48
Net realized and unrealized gain (loss) 13.89 2.31 0.50 10.55 2.62
------------ ------------ ------------ ------------ ------------
Total from investment operations 14.47 2.87 0.97 10.92 3.10
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.60) (0.54) (0.47) (0.37) (0.51)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 52.81 $ 38.94 $ 36.61 $ 36.11 $ 25.56
============ ============ ============ ============ ============
TOTAL RETURN (a) 37.57% 7.88% 2.72% 42.89% 13.52%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 404,023 $ 223,902 $ 109,818 $ 52,362 $ 8,945
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.61% 0.62% 0.64% 0.76% 1.04%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 1.54% 1.52% 1.41% 1.38% 1.90%
Portfolio turnover rate (b) 16% 19% 26% 29% 17%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 60 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
1. ORGANIZATION
First Trust Exchange-Traded Fund (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on August 8,
2003, and is registered with the Securities and Exchange Commission (the "SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nineteen exchange-traded funds. This report
covers the nine funds listed below:
First Trust NASDAQ-100 Equal Weighted Index Fund - (The Nasdaq Stock
Market LLC ("Nasdaq") ticker "QQEW")
First Trust NASDAQ-100-Technology Sector Index Fund - (Nasdaq ticker
"QTEC")
First Trust NASDAQ-100 Ex-Technology Sector Index Fund - (Nasdaq ticker
"QQXT")
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund - (Nasdaq
ticker "QCLN")
First Trust S&P REIT Index Fund - (NYSE Arca, Inc. ("NYSE Arca") ticker
"FRI")
First Trust Water ETF - (NYSE Arca ticker "FIW")1
First Trust Natural Gas ETF - (NYSE Arca ticker "FCG")1
First Trust Chindia ETF - (NYSE Arca ticker "FNI")1
First Trust NASDAQ(R) ABA Community Bank Index Fund - (Nasdaq ticker
"QABA")
1 Effective on December 13, 2016, First Trust ISE Water Index Fund
changed its name to First Trust Water ETF, First Trust ISE-Revere
Natural Gas Index Fund changed its name to First Trust Natural Gas
ETF, and First Trust ISE Chindia Index Fund changed its name to
First Trust Chindia ETF. The Funds' ticker symbols were not changed.
Each fund represents a separate series of shares of beneficial interest in the
Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual
funds, each Fund issues and redeems shares on a continuous basis, at net asset
value ("NAV"), only in large specified blocks consisting of 50,000 shares called
a "Creation Unit." Creation Units are issued and redeemed principally in-kind
for securities included in a Fund's relevant index. Except when aggregated in
Creation Units, each Fund's shares are not redeemable securities. The investment
objective of each Fund is to seek investment results that correspond generally
to the price and yield (before the Fund's fees and expenses) of the following
indices:
FUND INDEX
First Trust NASDAQ-100 Equal Weighted Index Fund NASDAQ-100 Equal Weighted Index(SM)
First Trust NASDAQ-100-Technology Sector Index Fund NASDAQ-100 Technology Sector Index(SM)
First Trust NASDAQ-100 Ex-Technology Sector Index Fund NASDAQ-100 Ex-Tech Sector Index(SM)
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund NASDAQ(R) Clean Edge(R) Green Energy Index(SM)
First Trust S&P REIT Index Fund S&P United States REIT Index
First Trust Water ETF ISE Water(TM) Index
First Trust Natural Gas ETF ISE-Revere Natural Gas(TM) Index
First Trust Chindia ETF ISE ChIndia(TM) Index
First Trust NASDAQ(R) ABA Community Bank Index Fund NASDAQ OMX(R) ABA Community Bank Index(SM)
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds are each considered an investment company and follow accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 946, "Financial
Services-Investment Companies." The following is a summary of significant
accounting policies consistently followed by the Funds in the preparation of the
financial statements. The preparation of the financial statements in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. PORTFOLIO VALUATION
Each Fund's NAV is determined daily as of the close of regular trading on the
New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day
the NYSE is open for trading. If the NYSE closes early on a valuation day, the
NAV is determined as of that time. Foreign securities are priced using the data
reflecting the earlier closing of the principal markets for those securities.
Each Fund's NAV is calculated by dividing the value of all assets of each Fund
(including accrued interest and dividends), less all liabilities (including
accrued expenses and dividends declared but unpaid), by the total number of
shares outstanding.
Each Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
Page 61
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Funds'
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with the 1940 Act. Investments valued by the
Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to
the Portfolio of Investments. Each Fund's investments are valued as follows:
Common stocks, real estate investment trusts ("REITs"), master limited
partnerships ("MLPs") and other equity securities listed on any national
or foreign exchange (excluding Nasdaq and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for Nasdaq and
AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the principal market for such securities.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Overnight repurchase agreements are valued at amortized cost when it
represents the best estimate of fair value.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a third-party pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of a Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or third-party pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
In addition, differences between the prices used to calculate a Fund's NAV and
the prices used by such Fund's corresponding index could result in a difference
between a Fund's performance and the performance of its underlying index.
The Funds are subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
Page 62
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value each Fund's investments as of December 31, 2016, is
included with each Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis.
Distributions received from a Fund's investments in MLPs generally are comprised
of return of capital and investment income. A Fund records estimated return of
capital and investment income based on historical information available from
each MLP. These estimates may subsequently be revised based on information
received from the MLPs after their tax reporting periods are concluded.
Distributions received from a Fund's investments in REITs may be comprised of
return of capital, capital gains and income. The actual character of the amounts
received during the year is not known until after the REITs' fiscal year end. A
Fund records the character of distributions received from the REITs during the
year based on estimates available. The characterization of distributions
received by a Fund may be subsequently revised based on information received
from the REITs after their tax reporting periods conclude.
C. OFFSETTING ON THE STATEMENTS OF ASSETS AND LIABILITIES
Offsetting Assets and Liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset on the
Statements of Assets and Liabilities, and disclose instruments and transactions
subject to master netting or similar agreements. These disclosure requirements
are intended to help investors and other financial statement users better assess
the effect or potential effect of offsetting arrangements on a fund's financial
position. The transactions subject to offsetting disclosures are derivative
instruments, repurchase agreements and reverse repurchase agreements, and
securities borrowing and securities lending transactions.
This disclosure, if applicable, is included within each Fund's Portfolio of
Investments under the heading "Offsetting Assets and Liabilities". For financial
reporting purposes, the Funds do not offset financial assets and financial
liabilities that are subject to master netting arrangements ("MNAs") or similar
agreements on the Statements of Assets and Liabilities. MNAs provide the right,
in the event of default (including bankruptcy and insolvency), for the
non-defaulting counterparty to liquidate the collateral and calculate the net
exposure to the defaulting party or request additional collateral.
D. SECURITIES LENDING
The Funds may lend securities representing up to 33 1/3% of the value of their
total assets to broker-dealers, banks and other institutions to generate
additional income. When a Fund loans its portfolio securities, it will receive,
at the inception of each loan, collateral equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
loaned securities. The collateral amount is valued at the beginning of each
business day and is compared to the market value of the loaned securities from
the prior business day to determine if additional collateral is required. If
additional collateral is required, a request is sent to the borrower. Securities
lending involves the risk that the Fund may lose money because the borrower of
the Fund's loaned securities fails to return the securities in a timely manner
or at all. The Fund could also lose money in the event of (i) a decline in the
value of the collateral provided for the loaned securities, (ii) a decline in
the value of any investments made with cash collateral or (iii) an increase in
the value of the loaned securities if the borrower does not increase the
collateral accordingly and the borrower fails to return the securities. These
events could also trigger adverse tax consequences for the Funds.
Under the Funds' Securities Lending Agency Agreement, the securities lending
agent will generally bear the risk that a borrower may default on its obligation
to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the
Funds' securities lending agent and is responsible for executing the lending of
the portfolio securities to creditworthy borrowers. The Funds, however, will be
responsible for the risks associated with the investment of cash collateral. A
Fund may lose money on its investment of cash collateral, which may affect its
ability to repay the collateral to the borrower without the use of other Fund
assets. Each Fund that engages in securities lending receives compensation (net
of any rebate and securities lending agent fees) for lending its securities.
Compensation can be in the form of fees received from the securities lending
agent or dividends or interest earned from the investment of cash collateral.
The dividend and interest earned on the securities loaned is accounted for in
the same manner as other dividend and interest income. At December 31, 2016,
QQEW, QQXT, QCLN, FIW, FCG, FNI and QABA have securities in the securities
lending program.
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
In the event of a default by a borrower with respect to any loan, BBH will
exercise any and all remedies provided under the applicable borrower agreement
to make the Funds whole. These remedies include purchasing replacement
securities by applying the collateral held from the defaulting broker against
the purchase cost of the replacement securities. If, despite such efforts by BBH
to exercise these remedies, a Fund sustains losses as a result of a borrower's
default, BBH will indemnify the Fund by purchasing replacement securities at its
own expense, or paying the Fund an amount equal to the market value of the
replacement securities, subject to certain limitations which are set forth in
detail in the Securities Lending Agency Agreement between the Trust on behalf of
the Funds and BBH.
E. REPURCHASE AGREEMENTS
Repurchase agreements involve the purchase of securities subject to the seller's
agreement to repurchase the securities at a mutually agreed upon date and price,
under the terms of a Master Repurchase Agreement ("MRA"). During the term of a
repurchase agreement, the value of the underlying securities held as collateral
on behalf of a Fund, including accrued interest, is required to exceed the value
of the repurchase agreement, including accrued interest. The underlying
securities for all repurchase agreements are held at the Funds' custodian or
designated sub-custodians under tri-party repurchase agreements.
MRAs govern transactions between a Fund and select counterparties. The MRAs
contain provisions for, among other things, initiation, income payments, events
of default, and maintenance of collateral for repurchase agreements.
Repurchase agreements received for lending securities are collateralized by U.S.
Treasury securities. The U.S. Treasury securities are held in a joint custody
account at BBH on behalf of the Funds participating in the securities lending
program. In the event the counterparty defaults on the repurchase agreement, the
U.S. Treasury securities can either be maintained as part of a Fund's portfolio
or sold for cash. A Fund could suffer a loss to the extent that the proceeds
from the sale of the underlying collateral held by the Fund are less than the
repurchase price and the Fund's costs associated with the delay and enforcement
of the MRA.
While the Funds may invest in repurchase agreements, any repurchase agreements
held by the Funds during the fiscal year ended December 31, 2016, were received
as collateral for lending securities. There were no repurchase agreements held
by the Funds as of December 31, 2016.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income of each Fund, if any, are declared and paid
quarterly, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by each Fund, if any, are distributed
at least annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on
significantly modified portfolio securities held by the Funds and have no impact
on net assets or NAV per share. Temporary differences, which arise from
recognizing certain items of income, expense and gain/loss in different periods
for financial statement and tax purposes, will reverse at some time in the
future.
The tax character of distributions paid by each Fund during the fiscal year
ended December 31, 2016 was as follows:
Distributions Distributions
Distributions paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
------------------ ---------------- ----------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 3,070,171 $ -- $ --
First Trust NASDAQ-100-Technology Sector Index Fund 6,834,167 -- --
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 399,080 -- --
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 738,910 -- --
First Trust S&P REIT Index Fund 8,613,812 -- --
First Trust Water ETF 827,655 -- --
First Trust Natural Gas ETF 4,197,410 -- --
First Trust Chindia ETF 2,037,296 -- --
First Trust NASDAQ(R)ABA Community Bank Index Fund 3,108,936 -- --
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
The tax character of distributions paid by each Fund during the fiscal year
ended December 31, 2015 was as follows:
Distributions Distributions
Distributions paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
------------------ ---------------- ----------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 3,678,500 $ -- $ --
First Trust NASDAQ-100-Technology Sector Index Fund 3,154,776 -- --
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 636,390 -- --
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 527,840 -- --
First Trust S&P REIT Index Fund 6,276,431 -- --
First Trust Water ETF 1,094,946 -- --
First Trust Natural Gas ETF 5,545,080 -- --
First Trust Chindia ETF 1,676,190 -- --
First Trust NASDAQ(R)ABA Community Bank Index Fund 1,652,931 -- --
As of December 31, 2016, the components of distributable earnings on a tax basis
for each Fund were as follows:
Accumulated
Undistributed Capital and Net Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
------------------ ---------------- ----------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ -- $(29,201,386) $ 16,172,877
First Trust NASDAQ-100-Technology Sector Index Fund -- (18,010,494) 71,363,998
First Trust NASDAQ-100 Ex-Technology Sector Index Fund -- (10,619,367) (339,669)
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- (43,857,007) (5,638,563)
First Trust S&P REIT Index Fund -- -- (17,625,946)
First Trust Water ETF -- (16,239,544) 22,761,740
First Trust Natural Gas ETF -- (498,603,629) 1,954,828
First Trust Chindia ETF (215,841) (69,776,716) (11,765,141)
First Trust NASDAQ(R) ABA Community Bank Index Fund -- (2,041,029) 59,025,429
G. INCOME TAXES
Each Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, each Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2013, 2014,
2015 and 2016 remain open to federal and state audit. As of December 31, 2016,
management has evaluated the application of these standards to the Funds, and
has determined that no provision for income tax is required in the Funds'
financial statements for uncertain tax positions.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses arising in taxable years after December 22, 2010, may be
carried forward indefinitely, and their character is retained as short-term
and/or long-term losses. Previously, net capital losses were carried forward for
up to eight years and treated as short-term losses. As a transition rule, the
Act requires that post-enactment net capital losses be used before pre-enactment
net capital losses. At December 31, 2016, the Funds, except for First Trust S&P
REIT Index Fund, had pre-enactment and post-enactment net capital losses for
federal income tax purposes as shown in the following table. To the extent that
these loss carryforwards are used to offset future capital gains, it is probable
that the capital gains so offset will not be distributed to Fund shareholders.
The Funds are subject to certain limitations, under U.S. tax rules, on the use
of capital loss carryforwards and net unrealized built-in losses. These
limitations apply when there has been a 50% change in ownership.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
Capital Capital
Loss Loss Post- Total
Available Available Enactment - Capital
Through Through No Loss
2017 2018 Expiration Available
------------ ------------ ------------ ------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 4,681,103 $ -- $ 24,520,283 $ 29,201,386
First Trust NASDAQ-100-Technology Sector Index Fund 2,016,911 -- 15,993,583 18,010,494
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 1,051,894 80,899 9,486,574 10,619,367
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 7,483,633 5,884,801 30,488,573 43,857,007
First Trust Water ETF 5,768,328 2,198,674 8,272,542 16,239,544
First Trust Natural Gas ETF 32,569,413 40,089,981 425,944,235 498,603,629
First Trust Chindia ETF 11,686,955 7,245,147 50,844,614 69,776,716
First Trust NASDAQ(R) ABA Community Bank Index Fund 4,787 116,604 1,919,638 2,041,029
At the taxable year ended December 31, 2016, the following Funds' capital loss
carryforwards expired in the following amounts:
Capital Loss
Carryforward
Expired
------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 1,957,170
First Trust NASDAQ-100-Technology Sector Index Fund 1,421,664
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 143,597
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 4,246,707
First Trust Water ETF 318,246
First Trust Natural Gas ETF 7,264,703
First Trust Chindia ETF 11,116,593
Certain losses realized during the current fiscal year may be deferred and
treated as occurring on the first day of the following fiscal year for federal
income tax purposes. For the fiscal year ended December 31, 2016, the following
Funds incurred and elected to defer net ordinary losses as follows:
Qualified Late Year Losses
--------------------------
Ordinary Losses Capital Losses
--------------- --------------
First Trust Chindia ETF $ 215,841 $ --
In order to present paid-in capital, accumulated net investment income (loss)
and accumulated net realized gain (loss) on investments on the Statements of
Assets and Liabilities that more closely represent their tax character, certain
adjustments have been made to paid-in capital, accumulated net investment income
(loss) and accumulated net realized gain (loss) on investments. These
adjustments are primarily due to the difference between book and tax treatments
of income and gains on various investment securities held by the Funds and
in-kind transactions. The results of operations and net assets were not affected
by these adjustments. For the fiscal year ended December 31, 2016, the
adjustments for each Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss) Paid-in
Income (Loss) on Investments Capital
-------------- ------------------ ----------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 249,676 $ (15,838,431) $ 15,588,755
First Trust NASDAQ-100-Technology Sector Index Fund 420,271 (47,696,858) 47,276,587
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 87,094 (16,417,896) 16,330,802
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 44,949 3,116,967 (3,161,916)
First Trust S&P REIT Index Fund 1,402,076 (14,595,894) 13,193,818
First Trust Water ETF 17,492 (5,708,566) 5,691,074
First Trust Natural Gas ETF 3,050,254 19,416,240 (22,466,494)
First Trust Chindia ETF 188,218 10,532,526 (10,720,744)
First Trust NASDAQ(R)ABA Community Bank Index Fund (35,555) (964,347) 999,902
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
H. EXPENSES
Expenses that are directly related to one of the Funds are charged directly to
the respective Fund. General expenses of the Trust are allocated to all the
Funds based upon the net assets of each Fund.
First Trust has entered into licensing agreements with each of the following
"Licensors" for the respective Funds:
FUND LICENSOR
First Trust NASDAQ-100 Equal Weighted Index Fund The Nasdaq Stock Market LLC
First Trust NASDAQ-100-Technology Sector Index Fund The Nasdaq Stock Market LLC
First Trust NASDAQ-100 Ex-Technology Sector Index Fund The Nasdaq Stock Market LLC
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund The Nasdaq Stock Market LLC/Clean Edge(R), Inc.
First Trust S&P REIT Index Fund S&P Dow Jones Indices LLC
First Trust Water ETF International Securities Exchange, LLC
First Trust Natural Gas ETF International Securities Exchange, LLC
First Trust Chindia ETF International Securities Exchange, LLC
First Trust NASDAQ(R)ABA Community Bank Index Fund The Nasdaq Stock Market LLC
The respective license agreements allow for the use by First Trust of certain
trademarks and trade names of the respective Licensors. The Funds are
sub-licensees to the applicable license agreement. The respective Funds are
required to pay licensing fees, which are shown on the Statements of Operations.
I. NEW AND AMENDED FINANCIAL REPORTING RULES AND FORMS
On October 13, 2016, the SEC adopted new rules and forms, and amended existing
rules and forms. The new and amended rules and forms are intended to modernize
the reporting of information provided by funds and to improve the quality and
type of information that funds provide to the SEC and investors. The new and
amended rules and forms will be effective for the First Trust funds, including
the Funds, for reporting periods beginning on and after June 1, 2018. Management
is evaluating the new and amended rules and forms to determine the impact to the
Funds.
J. NEW ACCOUNTING PRONOUNCEMENT
In December 2016, FASB released Accounting Standards Update ("ASU") 2016-19 that
makes technical changes to various sections of the ASC, including Topic 820,
Fair Value Measurement. The changes to Topic 820 are intended to clarify the
difference between a valuation approach and a valuation technique. The changes
to ASC 820-10-50-2 require a reporting entity to disclose, for Level 2 and Level
3 fair value measurements, a change in either or both a valuation approach and a
valuation technique and the reason(s) for the change. The changes to Topic 820
are effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2016. At this time, management is evaluating the
implications of the ASU and has not yet determined its impact on the financial
statements and disclosures.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Funds, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in each Fund's portfolio, managing the Funds' business affairs and providing
certain administrative services necessary for the management of the Funds.
For these services, First Trust is entitled to receive monthly fees from each
Fund calculated at the following annual rates:
% of Average
Daily Net Assets
----------------
First Trust NASDAQ-100 Equal Weighted Index Fund 0.40%
First Trust NASDAQ-100-Technology Sector Index Fund 0.40%
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 0.40%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.40%
First Trust S&P REIT Index Fund 0.30%
First Trust Water ETF 0.40%
First Trust Natural Gas ETF 0.40%
First Trust Chindia ETF 0.40%
First Trust NASDAQ(R)ABA Community Bank Index Fund 0.40%
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
The Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver
and Recovery Agreement ("Recovery Agreement") in which First Trust has agreed to
waive fees and/or reimburse Fund expenses to the extent that the operating
expenses of each Fund (excluding interest expense, brokerage commissions and
other trading expenses, acquired fund fees and expenses, taxes and extraordinary
expenses) exceed the below amount as a percentage of average daily net assets
per year (the "Expense Cap"). The Expense Cap will be in effect until at least
April 30, 2018.
Expense Cap
----------------
First Trust NASDAQ-100 Equal Weighted Index Fund 0.60%
First Trust NASDAQ-100-Technology Sector Index Fund 0.60%
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 0.60%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.60%
First Trust S&P REIT Index Fund 0.50%
First Trust Water ETF 0.60%
First Trust Natural Gas ETF 0.60%
First Trust Chindia ETF 0.60%
First Trust NASDAQ(R)ABA Community Bank Index Fund 0.60%
Expenses reimbursed and fees waived by First Trust under the Recovery Agreement
are subject to recovery by First Trust for up to three years from the date the
fee was waived or expense was incurred, but no reimbursement payment will be
made by a Fund if it results in the Fund exceeding an expense ratio equal to the
Expense Cap in place at the time the expenses were reimbursed or fees were
waived by First Trust. These amounts are included in "Expenses previously waived
or reimbursed" on the Statements of Operations.
The advisory fee waivers and expense reimbursements for the fiscal year ended
December 31, 2016 and fees waived or expenses borne by First Trust subject to
recovery from the applicable Fund for the periods indicated were as follows:
Fees Waived or Expenses Borne
by First Trust Subject to Recovery
------------------------------------------------
Advisory Year Year Year
Fee Expense Ended Ended Ended
Waivers Reimbursement 12/31/2014 12/31/2015 12/31/2016 Total
--------- ------------- ---------- ---------- ---------- ---------
First Trust NASDAQ-100 Equal Weighted Index
Fund $ 37,048 $ -- $ 41,566 $ -- $ 37,048 $ 78,614
First Trust NASDAQ-100-Technology Sector
Index Fund -- -- 10,480 10,215 -- 20,695
First Trust NASDAQ-100 Ex-Technology Sector
Index Fund 49,128 -- 40,262 38,410 49,128 127,800
First Trust NASDAQ(R) Clean Edge(R) Green Energy
Index Fund 44,163 -- 50,372 38,617 44,163 133,152
First Trust S&P REIT Index Fund -- -- -- -- -- --
First Trust Water ETF -- -- -- -- -- --
First Trust Natural Gas ETF 54,736 -- 42,386 37,153 54,736 134,275
First Trust Chindia ETF 5,970 -- 33,734 38,142 5,970 77,846
First Trust NASDAQ(R) ABA Community Bank
Index Fund 21,616 -- 37,176 22,638 21,616 81,430
During the fiscal year ended December 31, 2016, First Trust recovered fees that
were previously waived from First Trust NASDAQ-100-Technology Sector Index Fund
of $23,113.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
each Fund. As custodian, BNYM is responsible for custody of each Fund's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of each Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for each Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen rotate every three years. The officers and "Interested" Trustee receive
no compensation from the Trust for acting in such capacities.
4. REVERSE SHARE SPLIT
On April 22, 2016, the Trust's Board of Trustees approved a one-for-five reverse
share split, whereby every five outstanding shares of the First Trust Natural
Gas ETF ("FCG") as of the close of business on April 29, 2016 automatically
converted to one share as of the opening of business on May 2, 2016. In
addition, at the opening of business on May 2, 2016, FCG's shares no longer
traded under the CUSIP number 33734J102, and instead began trading under the new
CUSIP number 33733E807.
For the fiscal year ended December 31, 2015, all share transactions on the
Statements of Changes in Net Assets, and all prior years' per share data on the
Financial Highlights have been adjusted to reflect the reverse share split. For
the fiscal year ended December 31, 2016, the share transactions on the
Statements of Changes in Net Assets reflect the actual transactions, including
the impact of the reverse share split. As a result of the reverse share split,
fractional shares totaling 1,635 shares were redeemed and paid out to
shareholders. The reverse share split had no impact on the overall value of a
shareholder's investment in FCG.
5. PURCHASES AND SALES OF SECURITIES
For the fiscal year ended December 31, 2016, the cost of purchases and proceeds
from sales of investments for each Fund, excluding short-term investments and
in-kind transactions, were as follows:
Purchases Sales
--------------- ---------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 115,149,110 $ 115,117,093
First Trust NASDAQ-100-Technology Sector Index Fund 132,728,250 133,673,701
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 41,772,280 41,698,212
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 28,402,579 28,264,323
First Trust S&P REIT Index Fund 21,763,309 17,781,643
First Trust Water ETF 59,771,842 60,280,223
First Trust Natural Gas ETF 220,346,382 219,452,875
First Trust Chindia ETF 79,675,533 81,592,384
First Trust NASDAQ(R)ABA Community Bank Index Fund 32,582,898 32,377,851
For the fiscal year ended December 31, 2016, the cost of in-kind purchases and
proceeds from in-kind sales for each Fund were as follows:
Purchases Sales
--------------- ---------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 53,379,427 $ 192,071,439
First Trust NASDAQ-100-Technology Sector Index Fund 1,381,725,626 217,101,079
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 22,701,705 96,866,644
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 2,136,171 17,304,813
First Trust S&P REIT Index Fund 166,591,160 159,251,779
First Trust Water ETF 111,526,363 26,156,089
First Trust Natural Gas ETF 397,035,423 346,220,016
First Trust Chindia ETF 2,724,674 83,169,894
First Trust NASDAQ(R)ABA Community Bank Index Fund 202,374,572 87,692,001
6. CREATION, REDEMPTION AND TRANSACTION FEES
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker-dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Such transactions are generally permitted on an
in-kind basis, with a balancing cash component to equate the transaction to the
daily NAV per Share of each Fund on the transaction date times the number of
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
Shares in a Creation Unit. Authorized Participants purchasing Creation Units
must pay to BNYM, as transfer agent, a standard creation transaction fee (the
"Creation Transaction Fee"), which is based on the number of different
securities in a Creation Unit of each Fund according to the fee schedule set
forth below:
Number of Securities Creation
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-499 $1,000
500 or more $1,500
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by a Fund with respect to
transactions effected outside of the clearing process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. The price for each Creation Unit will equal the daily
NAV per Share of a Fund on the transaction date times the number of Shares in a
Creation Unit plus the fees described above and, if applicable, any transfer
taxes.
Authorized Participants redeeming Creation Units must pay to BNYM, as transfer
agent, a standard redemption transaction fee (the "Redemption Transaction Fee"),
which is based on the number of different securities in a Creation Unit of each
Fund according to the fee schedule set forth below:
Number of Securities Redemption
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-499 $1,000
500 or more $1,500
The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable fee of up to three times the Redemption Transaction Fee may
be charged to approximate additional expenses incurred by a Fund with respect to
redemptions effected outside of the clearing process or to the extent that
redemptions are for cash. Each Fund reserves the right to effect redemptions in
cash. A shareholder may request cash redemption in lieu of securities; however,
a Fund may, in its discretion, reject any such request.
7. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
in the sale of Creation Units or the provision of investor services. FTP may
also use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before April 30, 2018.
8. INDEMNIFICATION
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
9. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined that
there were no subsequent events requiring recognition or disclosure in the
financial statements that have not already been disclosed.
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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 Water ETF (formerly known as First Trust ISE Water Index
Fund), First Trust Natural Gas Index ETF (formerly known as First Trust
ISE-Revere Natural Gas Index Fund), First Trust Chindia ETF (formerly known as
First Trust ISE Chindia Index Fund), and First Trust NASDAQ(R) ABA Community
Bank Index Fund (collectively, the "Funds"), each a series of the First Trust
Exchange-Traded Fund (the "Trust"), including the portfolios of investments, as
of December 31, 2016, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2016 by correspondence with the Trust's
custodian and brokers; when replies were not received from brokers, we performed
other auditing procedures. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the funds listed above included in the First Trust Exchange-Traded Fund, as
of December 31, 2016, and the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 23, 2017
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ADDITIONAL INFORMATION
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Funds' website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of each Fund's portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q. The
Trust's Form N-Qs are available (1) by calling (800) 988-5891; (2) on the Funds'
website located at http://www.ftportfolios.com; (3) on the SEC's website at
http://www.sec.gov; and (4) for review and copying at the SEC's Public Reference
Room ("PRR") in Washington, DC. Information regarding the operation of the PRR
may be obtained by calling (800) SEC-0330.
FEDERAL TAX INFORMATION
For the taxable year ended December 31, 2016, the following percentages of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
----------------------------
First Trust NASDAQ-100 Equal Weighted Index Fund 100.00%
First Trust NASDAQ-100-Technology Sector Index Fund 100.00%
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 100.00%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 41.26%
First Trust S&P REIT Index Fund --
First Trust Water ETF 100.00%
First Trust Natural Gas ETF 28.36%
First Trust Chindia ETF --
First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
For the taxable year ended December 31, 2016, the following percentages of
income dividends paid by the Funds are hereby designated as qualified dividend
income:
Qualified Dividend Income
----------------------------
First Trust NASDAQ-100 Equal Weighted Index Fund 100.00%
First Trust NASDAQ-100-Technology Sector Index Fund 100.00%
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 100.00%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 42.67%
First Trust S&P REIT Index Fund --
First Trust Water ETF 100.00%
First Trust Natural Gas ETF 48.37%
First Trust Chindia ETF 69.69%
First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
For the tax year ended December 31, 2016, the First Trust S&P REIT Index Fund
designated $3,784,301, or amounts necessary, as long-term capital gain. During
the tax year, Fund shareholders redeemed amounts in excess of the Fund's
long-term capital gain and of these proceeds, $3,784,301, or amounts necessary,
represents long-term capital gain from the Fund.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER EACH FUND'S INVESTMENT
OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN
DOWNLOAD EACH FUND'S PROSPECTUS AT HTTP://WWW.FTPORTFOLIOS.COM OR CONTACT FIRST
TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS
THIS AND OTHER INFORMATION ABOUT EACH FUND. FOR ADDITIONAL INFORMATION ABOUT THE
RISKS ASSOCIATED WITH INVESTING IN THE FUNDS, PLEASE SEE THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION, AS WELL AS OTHER REGULATORY FILINGS. READ THESE
DOCUMENTS CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS THE
DISTRIBUTOR OF THE FIRST TRUST EXCHANGE-TRADED FUND.
The following summarizes some of the risks that should be considered for the
Funds.
Each Fund's shares will change in value, and you could lose money by investing
in a Fund. Shares are subject to market fluctuations caused by such factors as
economic, political, regulatory or market developments, changes in interest
rates and perceived trends in stock prices. Overall stock values could decline
generally or could underperform other investments. Overall stock market values
could decline generally or could underperform other investments.
An investment in a Fund involves risks similar to those of investing in any fund
of equity securities traded on an exchange. Investors buying or selling Fund
shares on the secondary market may incur brokerage commissions. In addition,
investors who sell Fund shares may receive less than the Fund shares' net asset
value. Unlike shares of open-end funds, investors are generally not able to
purchase exchange-traded fund ("ETF") shares directly from a Fund and individual
ETF shares are not redeemable. However, specified large blocks of ETF shares
called creation units can be purchased from, or redeemed to, a Fund.
Each Fund is subject to index tracking risk. You should anticipate that the
value of Fund shares will decline, more or less, in correlation with any decline
in the value of the index that the Fund seeks to track.
Each Fund's return may not match the return of the index it seeks to track for a
number of reasons. While First Trust seeks to have a correlation of 0.95 or
better, before expenses, between a Fund's performance and the performance of its
corresponding index, there can be no assurance that a Fund will be able to
achieve such a correlation. Accordingly, each Fund's performance may correlate
to a lesser extent and may possibly vary substantially from the performance of
its corresponding index.
Each Fund is also exposed to additional market risk due to a policy of investing
principally in the securities included in its corresponding index. As a result
of such policies, securities held by each Fund will generally not be bought or
sold in response to market fluctuations and the securities may be issued by
companies concentrated in a particular industry. As a result, each Fund will
generally not sell a stock because the stock's issuer is in financial trouble,
unless that stock is removed or is anticipated to be removed from the index the
Fund seeks to track.
Each Fund relies on a license from an index provider that permits the Fund to
use its corresponding index and associated trade names and trademarks in
connection with the name and investment strategies of the Fund. Such licenses
may be terminated by the respective index provider and, as a result, each Fund
may lose its ability to use such intellectual property. There is also no
guarantee that the index provider has all rights to license the respective
intellectual property to First Trust, on behalf of the Fund. Accordingly, in the
event the license is terminated or the index provider does not have rights to
license the particular intellectual property, it may have a significant effect
on the operation of the related Fund.
Each Fund is subject to issuer specific changes risk. The value of an individual
security or a particular type of security can be more volatile than the market
as a whole and can perform differently from the value of the market as a whole.
Each Fund will be concentrated in the securities of companies of a given
industry if the Fund's corresponding index is concentrated in such industry. A
concentration makes a Fund more susceptible to any single occurrence affecting
the related industry and may subject a Fund to greater market risk than less
concentrated funds.
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund and First Trust
Chindia ETF are non-diversified. As a result, those Funds are exposed to
additional market risk. A non-diversified fund may invest a relatively high
percentage of its assets in a limited number of issuers. As a result, changes in
the market value of a single portfolio security could cause greater fluctuations
in share price than would occur in a diversified fund. Furthermore,
non-diversified funds are more susceptible to any single political, regulatory
or economic occurrence.
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invests in the
securities of companies in the consumer staples sector. Consumer staples
companies provide products directly to the consumer that are typically
considered non-discretionary items based on consumer purchasing habits. The
success of these companies is affected by a variety of factors, such as
government regulations, which may affect the permissibility of using various
food additives and the production methods of companies that manufacture food
products.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
The Funds are not actively managed. The Funds may be affected by a general
decline in certain market segments relating to their corresponding index. The
Funds invest in securities included in or representative of their corresponding
index regardless of their investment merit. The Funds generally will not attempt
to take defensive positions in declining markets.
The First Trust NASDAQ-100 Equal Weighted Index Fund and the First Trust
NASDAQ-100-Technology Sector Index Fund invest in stocks of companies in the
technology sector. You should be aware that an investment in a portfolio which
invests in a particular sector involves additional risks, including limited
diversification. The companies engaged in the technology sector are subject to
fierce competition and high research and development costs, and their products
and services may be subject to rapid obsolescence.
First Trust S&P REIT Index Fund and First Trust NASDAQ(R) ABA Community Bank
Index Fund invest in securities of companies in the financials and real estate
sectors. Banks, thrifts and their holding companies are especially subject to
the adverse effects of economic recession; volatile interest rates; portfolio
concentrations in geographic markets and in commercial and residential real
estate loans; and competition from new entrants in their fields of business.
Although recently enacted legislation repealed most of the barriers which
separated the banking, insurance and securities industries, these industries are
still extensively regulated at both the federal and state level and may be
adversely affected by increased regulations.
The First Trust Chindia ETF, the First Trust NASDAQ-100 Equal Weighted Index
Fund, the First Trust NASDAQ-100-Technology Sector Index Fund and the First
Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invest in securities of
companies in the information technology industry. Information technology
companies are generally subject to the risks of rapidly changing technologies;
short product life cycles; fierce competition; and aggressive pricing and
reduced profit margins.
The First Trust Chindia ETF, First Trust NASDAQ-100 Ex-Technology Sector Index
Fund and First Trust NASDAQ-100 Equal Weighted Index Fund invest in the
securities of companies in the consumer discretionary sector. Because companies
in the consumer discretionary sector manufacture products and provide
discretionary services directly to the consumer, the success of these companies
is tied closely to the performance of the overall domestic and international
economy, interest rates, competition and consumer confidence. Success depends
heavily on disposable household income and consumer spending. Changes in
demographics and consumer tastes can also affect the demand for, and success of,
consumer discretionary products in the marketplace.
The First Trust Natural Gas ETF invests in the securities of companies in the
energy sector. General problems of issuers in the energy sector include volatile
fluctuations in price and supply of energy fuels, international politics,
terrorist attacks, reduced demand as a result of increases in energy efficiency
and energy conservation, the success of exploration projects, clean-up and
litigation costs relating to oil spills and environmental damage, and tax and
other regulatory policies of various governments. In addition, recent oil prices
have been at historic highs and extremely volatile.
The First Trust Water ETF and the First Trust NASDAQ(R) Clean Edge(R) Green
Energy Index Fund invest in the securities of companies in the industrials
sector. General risks of these companies include the general state of the
economy, intense competition, consolidation, domestic and international
politics, excess capacity and consumer demand and spending trends. In addition,
they may also be significantly affected by overall capital spending levels,
economic cycles, technical obsolescence, delays in modernization, labor
relations, government regulations and e-commerce initiatives.
The First Trust S&P REIT Index Fund invests in companies in the real estate
industry, including real estate investment trusts ("REITs") and is subject to
the risks associated with investing in real estate (any of which could cause the
value of a REIT's stock price to decline), which may include, but are not
limited to, possible declines in the value of real estate, adverse general and
local economic conditions, possible lack of availability of mortgage funds,
overbuilding in a REIT's market, changes in interest rates and environmental
problems. Furthermore, increases in interest rates typically lower the present
value of a REIT's future earnings stream, and may make financing property
purchases and improvements more costly.
The First Trust NASDAQ-100 Ex-Technology Sector Index Fund invests in the
securities of companies in the health care sector. Because companies in the
health care sector are involved in medical services or health care including
biotechnology research and production, drugs and pharmaceuticals and health care
facilities and services, general problems of these companies include extensive
competition, generic drug sales or the loss of patent protection, product
liability litigation and increased government regulations.
The First Trust Water ETF invests in the securities of utilities companies.
Utilities companies are subject to the imposition of rate caps, increased
competition due to deregulation, the difficulty in obtaining an adequate return
on invested capital or in financing large construction projects, the limitations
on operations and increased costs and delays attributable to environmental
considerations, and the capital market's ability to absorb utility debt. In
addition, taxes, government regulation, international politics, price and supply
fluctuations, volatile interest rates and energy conservation may cause
difficulties for utilities. Utilities issuers have been experiencing certain of
these problems to varying degrees.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
The Funds may invest in small capitalization and mid-capitalization companies.
Such companies' securities may be less liquid and may experience greater price
volatility than securities of larger, more established companies.
Because a Fund's corresponding index may include American Depositary Receipts
("ADRs"), American Depositary Shares ("ADSs") and/or stocks of non-U.S.
companies, the investments of certain Funds, including but not limited to, the
First Trust Chindia ETF, the First Trust Natural Gas ETF and the First Trust
Water ETF involve risks of investing in non-U.S. securities that are in addition
to the risk associated with domestic securities. Non-U.S. companies, in general,
are not subject to the regulatory requirements of U.S. companies and, as such,
there may be less publicly available information about these companies.
Moreover, non-U.S. accounting, auditing and financial reporting standards
generally are different from those applicable to U.S. companies. In addition,
non-U.S. companies are exposed to additional economic, political, social or
diplomatic events. ADRs and ADSs also involve substantially identical risks to
those associated with investments in non-U.S. securities. In addition, the
issuers of certain depositary receipts, particularly unsponsored or unregistered
depositary receipts, are under no obligation to distribute shareholder
communications to the holders of such receipts, or to pass through to them any
voting rights with respect to the deposited securities.
The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invests in
renewable and alternative energy companies. You should be aware that share
prices of renewable and alternative energy companies have been significantly
more volatile than shares of companies operating in other more established
industries and the securities included in the First Trust NASDAQ(R) Clean
Edge(R) Green Energy Index Fund may be subject to sharp price declines. This
industry is relatively nascent and under-researched in comparison to more
established and mature sectors, and should therefore be regarded as having
greater investment risk.
The First Trust Water ETF invests in companies in the potable water and
wastewater industries. You should be aware that adverse developments in these
industries may significantly affect the value of the shares of the First Trust
ISE Water Index Fund. Companies involved in the potable water and wastewater
industries are subject to environmental considerations, taxes, government
regulation, price and supply fluctuations, competition and conservation.
The First Trust Natural Gas ETF invests in companies in the natural gas
industry. You should be aware that one of the natural gas industry's primary
risks is the competitive risk associated with the prices of alternative fuels,
such as coal and oil. Additionally, the natural gas industry is sensitive to
increased interest rates because of the industry's capital intensive nature.
Furthermore, there are additional risks and hazards that are inherent in the
natural gas industry that may cause the price of natural gas to widely
fluctuate.
The First Trust Chindia ETF invests in the securities of Chinese and Indian
companies. You should be aware that investments in such companies are subject to
additional risks, which are associated with possible adverse economic, political
and social developments in those countries.
The First Trust NASDAQ(R) ABA Community Bank Index Fund is concentrated in the
securities of NASDAQ(R) listed community banks as defined by its corresponding
index which involves additional risks, including limited diversification. These
companies are subject to certain risks, including the adverse effects of
volatile interest rates, economic recession, increased competition from new
entrants in the field, and potential increased regulation. The financial
performance of these companies may also be highly dependent upon the business
environment in certain geographic regions of the United States and may be
adversely impacted by any downturn or unfavorable economic or employment
developments in their local markets and the United States as a whole. These
companies may also be subject to interest rate risks and changes in monetary
policy as their earnings are largely dependent upon their net interest income
and lending risks that could further increase because of increases in interest
rates and/or continuing economic weakness. First Trust NASDAQ-100-Technology
Sector Index Fund and First Trust NASDAQ(R) Clean Edge(R) Green Energy Index
Fund invest in semiconductor companies. Semiconductor companies are primarily
involved in the design, distribution, manufacture and sale of semiconductors.
Semiconductor companies are significantly affected by rapid obsolescence,
intense competition and global demand. The Fund is also subject to the risk that
the securities of such issuers will underperform the market as a whole due to
legislative or regulatory changes. The prices of the securities of semiconductor
companies may fluctuate widely in response to such events.
First Trust Natural Gas ETF invests in MLPs. An investment in MLP units involves
risks which differ from an investment in common stock of a corporation. Holders
of MLP units have limited control and voting rights on matters affecting the
partnership. In addition, there are certain tax risks associated with an
investment in MLP units and conflicts of interest may exist between common unit
holders and the general partner, including those arising from incentive
distribution payments. In addition, there is the risk that an MLP could be,
contrary to its intention, taxed as a corporation, resulting in decreased
returns from such MLP.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
REMUNERATION
First Trust Advisors L.P. ("First Trust") is authorised and regulated by the
U.S. Securities and Exchange Commission and is entitled to market shares of the
First Trust Exchange-Traded Funds it manages (the "Funds") in the United Kingdom
in accordance with the cooperation arrangements in Article 42 of the Alternative
Investment Fund Managers Directive (the "Directive"). First Trust is required
under the Directive to make disclosures in respect of remuneration. The
following disclosures are made in line with First Trust's interpretation of
currently available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2016, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Funds is $5,672,759.
This figure is comprised of $239,218 paid (or to be paid) in fixed compensation
and $5,433,541 paid (or to be paid) in variable compensation. There were a total
of 13 beneficiaries of the remuneration described above. Those amounts include
$3,984,992 paid (or to be paid) to senior management of First Trust Advisors
L.P. and $1,687,767 paid (or to be paid) to other employees whose professional
activities have a material impact on the risk profiles of First Trust Advisors
L.P. or the Funds (collectively, "Code Staff").
Code Staff included in the aggregated figures disclosed above are rewarded in
line with First Trust's remuneration policy (the "Remuneration Policy") which is
determined and implemented by First Trust's senior management. The Remuneration
Policy reflects First Trust's ethos of good governance and encapsulates the
following principal objectives:
i. to provide a clear link between remuneration and performance of
First Trust and to avoid rewarding for failure;
ii. to promote sound and effective risk management consistent with the
risk profiles of the Funds managed by First Trust; and
iii. to remunerate staff in line with the business strategy, objectives,
values and interests of First Trust and the Funds managed by First
Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when
considering and implementing remuneration for Code Staff and considers whether
any potential award to such person(s) would give rise to a conflict of interest.
First Trust does not reward failure, or consider the taking of risk or failure
to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in
respect of performance-related remuneration of Code Staff by reference to a
broad range of measures including (i) individual performance (using financial
and non-financial criteria), and (ii) the overall performance of First Trust.
Remuneration is not based upon the performance of the Funds.
The elements of remuneration are balanced between fixed and variable and the
senior management sets fixed salaries at a level sufficient to ensure that
variable remuneration incentivises and rewards strong individual performance but
does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
Page 76
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE
DATE OF BIRTH AND AND YEAR FIRST PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST ELECTED OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 138 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 E. Liberty Drive, o Since Inception Limited Partnership (June 1992 to
Suite 400 December 2016); Member, Sportsmed LLC
Wheaton, IL 60187 (April 2007 to November 2015)
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investor Services, Inc. 138 Director of ADM
c/o First Trust Advisors L.P. (Futures Commission Merchant) Investor Services,
120 E. Liberty Drive, o Since Inception Inc., ADM
Suite 400 Investor Services
Wheaton, IL 60187 International and
D.O.B.: 11/57 Futures Industry
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 138 Director of Trust
c/o First Trust Advisors L.P. Management Consulting) Company of
120 E. Liberty Drive, o Since Inception Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating 138 Director of
c/o First Trust Advisors L.P. Officer (January 2015 to Present), Pelita Covenant
120 E. Liberty Drive, o Since Inception Harapan Educational Foundation (Educational Transport Inc.
Suite 400 Products and Services); President and Chief (May 2003 to
Wheaton, IL 60187 Executive Officer (June 2012 to September May 2014)
D.O.B.: 03/54 2014), Servant Interactive LLC (Educational
Products and Services); President and Chief
Executive Officer (June 2012 to September
2014), Dew Learning LLC (Educational
Products and Services); President (June
2002 to June 2012), Covenant College
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 138 None
Chairman of the Board Advisors L.P. and First Trust
120 E. Liberty Drive, o Since Inception Portfolios L.P.; Chairman of the
Suite 400 Board of Directors, BondWave LLC
Wheaton, IL 60187 (Software Development Company)
D.O.B.: 09/55 and Stonebridge Advisors LLC
(Investment Advisor)
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
POSITION AND TERM OF OFFICE
NAME, ADDRESS OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Executive
120 E. Liberty Drive, Executive Officer Officer (January 2016 to Present), Controller (January
Suite 400 o Since January 2016 2011 to January 2016), Senior Vice President (April
Wheaton, IL 60187 2007 to January 2016), First Trust Advisors L.P. and
D.O.B: 01/66 First Trust Portfolios L.P.; Chief Financial Officer,
(January 2016 to Present), BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
120 E. Liberty Drive, Officer and Chief President (April 2012 to July 2016), First Trust
Suite 400 Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.; Vice
Wheaton, IL 60187 President (September 2006 to April 2012), Guggenheim
D.O.B.: 08/72 Funds Investment Advisors, LLC and Claymore
Securities, Inc.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General Counsel,
Suite 400 o Since Inception BondWave LLC; Secretary, Stonebridge
Wheaton, IL 60187 Advisors LLC
D.O.B.: 05/60
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present), Senior
120 E. Liberty Drive, Vice President (September 2005 to July 2012),
Suite 400 o Since Inception First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.
D.O.B.: 02/70
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
120 E. Liberty Drive, and Assistant Secretary and First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 12/66
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
120 E. Liberty Drive, and First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 06/66
Stan Ueland Vice President o Indefinite Term Senior Vice President (September 2012 to Present),
120 E. Liberty Drive, Vice President (August 2005 to September 2012), First
Suite 400 o Since Inception Trust Advisors L.P. and First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 11/70
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, we restrict access to your
nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2016
Page 79
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FIRST TRUST
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
FIRST TRUST
First Trust Exchange-Traded Fund
Book 3
First Trust Total US Market AlphaDEX(R) ETF (TUSA)
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (VIXH)
Annual Report
December 31, 2016
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2016
Shareholder Letter........................................................... 2
Market Overview.............................................................. 3
Fund Performance Overview
First Trust Total US Market AlphaDEX(R) ETF (TUSA)........................ 4
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (VIXH).............. 6
Notes to Fund Performance Overview........................................... 8
Understanding Your Fund Expenses............................................. 9
Portfolio of Investments
First Trust Total US Market AlphaDEX(R) ETF (TUSA)........................ 10
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (VIXH).............. 25
Statements of Assets and Liabilities......................................... 32
Statements of Operations..................................................... 33
Statements of Changes in Net Assets.......................................... 34
Financial Highlights......................................................... 35
Notes to Financial Statements................................................ 36
Report of Independent Registered Public Accounting Firm...................... 44
Additional Information....................................................... 45
Board of Trustees and Officers............................................... 48
Privacy Policy............................................................... 50
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
any series of First Trust Exchange-Traded Fund (the "Trust") described in this
report (each such series is referred to as a "Fund" and collectively, as the
"Funds") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any Fund described in this report will achieve its
investment objective. Each Fund is subject to market risk, which is the
possibility that the market values of securities owned by the Fund will decline
and that the value of the Fund shares may therefore be less than what you paid
for them. Accordingly, you can lose money by investing in a Fund. See "Risk
Considerations" in the Additional Information Section of this report for a
discussion of other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and share price will fluctuate and Fund shares, when
sold, may be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on each Fund's webpage at http://www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about each Fund's portfolio and presents data and analysis that
provide insight into each Fund's performance and investment approach.
By reading the market overview by Robert F. Carey, Chief Market Strategist of
the Advisor, you may obtain an understanding of how the market environment
affected the performance of each Fund. The statistical information that follows
may help you understand each Fund's performance compared to that of relevant
market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in each
Fund are spelled out in its prospectus, statement of additional information,
this report and other Fund regulatory filings.
Page 1
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SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
DECEMBER 31, 2016
Dear Shareholders:
Now that 2016 is over, many will remember some of the historic events that
occurred during the year: from the Brexit vote in the UK to leave the European
Union, to the results of the U.S. Presidential Election which seemed unlikely at
the beginning of the year, to the first World Series Championship for the
Chicago Cubs in 108 years!
First Trust Advisors L.P. ("First Trust") is pleased to provide you with this
annual report which contains detailed information about your investment for the
12 months ended December 31, 2016, including a market overview and a performance
analysis for the period. Additionally, First Trust has compiled the Funds'
financial statements for you to review. We encourage you to read this report and
discuss it with your financial advisor.
On November 8, Donald J. Trump was elected to become the 45th president in our
country's history. While no one has a crystal ball and the ability to predict
how his presidency will shape the United States (and the world), there is no
doubt that his populist message resonated for many Americans. And his message of
improving lives for the "average" American, while reducing the size and scope of
the federal government, also won him millions of votes. Many of his supporters
believe that with his background in business, President Trump will make policy
changes that will continue to grow the economy and spur stock markets even
higher. Many analysts predicted the Dow Jones Industrial Average would hit a new
benchmark, 20,000, in the first days of the New Year. As with all change and a
new administration, only time will tell.
As of December 31, 2016, the S&P 500(R) Index was up 11.96% calendar
year-to-date, on a total return basis, as measured by Bloomberg. The current
bull market (measuring from March 9, 2009 through December 31, 2016) is the
second longest in history. We remain bullish on the economy, but continue to
have a long-term perspective. We believe investors should think long-term as
well, since no one can predict volatility and the inevitable ups and downs that
occur in the market.
Thank you for your investment in First Trust Exchange-Traded Fund and for giving
First Trust the opportunity to be a part of your investment plan. We value our
relationship with you and will continue our relentless focus on bringing the
types of investments that we believe could help you reach your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 2
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MARKET OVERVIEW
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2016
ROBERT F. CAREY, CFA
SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST
FIRST TRUST ADVISORS L.P.
Mr. Carey is responsible for the overall management of research and analysis of
the First Trust product line. Mr. Carey has over 25 years of experience as an
Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial
Analyst ("CFA") designation. He is a graduate of the University of Illinois at
Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment
Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a
guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been
quoted by several publications, including The Wall Street Journal, The Wall
Street Reporter, Bloomberg News Service, and Registered Rep.
STATE OF THE ECONOMY/INVESTING
For the second consecutive year, at its December Federal Open Market Committee
meeting, the Federal Reserve (the "Fed") initiated a 25 basis point increase to
the federal funds target rate trading range, which now stands at 0.50% to 0.75%.
The Fed commented in December that inflation expectations have increased
"considerably" and noted that the labor market is tightening, according to
Bloomberg. The Fed is forecasting three quarter-point increases in 2017. For the
30-year period ended December 31, 2016, the federal funds target rate (upper
bound) averaged 3.54%, according to Bloomberg.
Consumer confidence levels continued to rise in 2016. The Conference Board's
Consumer Confidence Index reading stood at 113.70 in December, up from 96.30 in
December 2015, according to Bloomberg. The index reached as low as 25.30 in
February 2009, just prior to the end of the last bear market in stocks in March
2009. While confidence levels are higher than at any point since 2001, the index
has room to run. The highest reading so far in this millennium was 144.71, set
in January 2000. Confidence levels have been bolstered by gains in the labor
force, in our opinion. U.S. nonfarm payrolls expanded by an average of 180,000
per month in 2016, above the 159,000 per month average posted so far in the
current economic recovery (July 2009-December 2016), according to data from the
Bureau of Labor Statistics.
ETFGI, an industry research group, reported that total assets invested in
exchange-traded funds ("ETFs") and other exchange-traded products ("ETPs")
reached a record high of $3.55 trillion globally in 2016, according to its own
release. Total assets invested in U.S. ETFs/ETPs reached a record high $2.59
trillion in 2016.
U.S. STOCKS AND BONDS
In 2016, three of the major U.S. stock indices posted double-digit returns. The
S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index posted
total returns of 11.96%, 20.74%, and 26.56%, respectively, according to
Bloomberg. Ten of the 11 major S&P 500(R) Index sectors (Real Estate was added
in September 2016) posted positive total returns. The top-performing sectors
were Energy, Telecommunication Services and Financials, up 27.36%, 23.49% and
22.75%, respectively, on a total return basis. The only sector that posted a
loss was Health Care, down 2.69%. Health Care stocks, particularly the drug
makers, came under increased scrutiny during the election cycle from some of the
political candidates, including Hillary Clinton. It is not unusual for
candidates to use rising prescription drug prices as a wedge issue in an effort
to garner votes, in our opinion.
The S&P 500(R) Index closed 1.45% below its all-time closing high (2,271.72 on
December 13, 2016) on December 31, 2016, according to Bloomberg. The consensus
estimated earnings growth rates for 2017 for the S&P 500(R) Index, S&P MidCap
400(R) Index and S&P SmallCap 600(R) Index were 12.02%, 11.49% and 17.64%,
respectively, as of December 31, 2016 according to Bloomberg. The consensus
estimated earnings growth rates for 2018 for the S&P 500(R) Index, S&P MidCap
400(R) Index and S&P SmallCap 600(R) Index were 11.20%, 12.00% and 15.95%,
respectively. We are encouraged by level of those earnings growth rate estimates
at this stage of the bull market.
In the U.S. bond market, the top-performing major debt group was high yield
corporate bonds. The Bloomberg Barclays U.S. Corporate High Yield Index posted a
total return of 17.13%. The worst-performing debt group that we track was
municipal bonds, though the group still generated a positive return. The
Bloomberg Barclays Municipal Bond: Long Bond (22+) Index posted a total return
of 0.88%. The yield on the benchmark 10-Year Treasury note (T-note) increased by
18 basis points in 2016, from 2.27% on December 31, 2015 to 2.45% on December
31, 2016. A yield of 2.45% is low by historical standards. For the 30-year
period ended December 31, 2016, the average yield on the 10-year T-note was
5.11%, according to Bloomberg.
FOREIGN STOCKS AND BONDS
The U.S. dollar appreciated by 3.63% against a basket of major currencies in
2016, as measured by the U.S. Dollar Index. With respect to U.S. investors, a
stronger U.S. dollar can negatively impact returns on foreign securities.
The Bloomberg Barclays EM Hard Currency Aggregate Index of emerging markets debt
posted a total return of 9.00% in U.S. dollar ("USD") terms, while the Bloomberg
Barclays Global Aggregate Index of higher quality debt rose 2.09% (USD) for the
same period. The MSCI Emerging Markets Index of stocks posted a total return of
11.19% (USD), while the MSCI World Index (excluding the U.S.) posted a total
return of 2.75% (USD).
Page 3
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
The First Trust Total US Market AlphaDEX(R) ETF (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the NASDAQ AlphaDEX(R) Total US Market
Index (the "Index"). The Fund will normally invest at least 90% of its assets in
common stocks that comprise the Index. The Index is designed to quantitatively
identify and select stocks across market capitalizations (including large-cap,
mid-cap and small-cap companies) that exhibit growth and value factors and
appear to have the greatest potential for capital appreciation. The Index is a
modified equal-dollar weighted index. The Index is reconstituted and balanced on
a quarterly basis. The Fund's shares are listed for trading on The Nasdaq Stock
Market LLC. The first day of secondary market trading in shares of the Fund was
December 7, 2006.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (12/5/06) Ended Ended (12/5/06)
12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 15.48% 10.22% 4.80% 4.65% 62.70% 59.81% 58.06%
Market Value 15.70% 10.24% 4.80% 4.66% 62.79% 59.77% 58.25%
INDEX PERFORMANCE
NASDAQ AlphaDEX(R) Total US Market Index* 16.42% N/A N/A N/A N/A N/A N/A
Russell 3000(R) Index 12.74% 14.67% 7.07% 7.03% 98.23% 98.10% 98.25%
------------------------------------------------------------------------------------------------------------------------------------
* On January 9, 2015, the Fund's underlying index changed from the Value Line(R)
Equity Allocation Index to the NASDAQ AlphaDEX(R) Total US Market Index.
Therefore, the Fund's performance and total returns shown for the periods prior
to January 9, 2015, are not necessarily indicative of the performance the Fund,
based on its current index, would have generated. Since the Fund's new
underlying index had an inception date of September 8, 2014, it was not in
existence for all of the periods disclosed. The Value Line(R) Equity Allocation
Index is not shown above as the index terminated on January 9, 2015 and
information on this index is no longer available.
(See Notes to Fund Performance Overview on page 8.)
PERFORMANCE REVIEW
The Fund generated a net asset value ("NAV") return of 15.48% during the
12-month period covered by this report. During the same period, the Russell
3000(R) Index ("benchmark") generated a return of 12.74%. The Financials and
Industrials sectors were the top two contributing and performing sectors with
4.8% and 4.3% contributions and 30.0% and 27.8% returns, respectively. The
Health Care sector was the only negative returning sector over the period with a
-0.9% contribution, stemming from the Fund's 8.6% weighting in the sector and
-5.3% return. The Biotechnology industry in particular contributed -0.7% to the
Fund's return as the industry had a -19.4% return. On a relative basis, the Fund
outperformed the benchmark. The Financials sector, where the Fund over weighted
the benchmark by 1.7%, is responsible for 1.4% of outperformance. Similarly, the
Industrials sector created 1.4% of outperformance by the Fund over weighting the
benchmark by 4.6% this well-performing sector. The Energy sector reversed 1.0%
of outperformance. The Fund had a -2.0% lower allocation than the benchmark
within this sector and had -10.1% lower return.
The NASDAQ AlphaDEX(R) Total US Market Index (the "Index") is a trademark of The
Nasdaq OMX Group and has been licensed for use by First Trust Portfolios L.P.
AlphaDEX(R) is a trademark owned by First Trust Portfolios L.P. and has been
licensed to The Nasdaq OMX Group for use in the name of the Index. The First
Trust Total US Market AlphaDEX(R) ETF is not sponsored, endorsed, sold or
promoted by The Nasdaq OMX Group and The Nasdaq OMX Group makes no
representation or warranty regarding the advisability of investing in the First
Trust Total US Market AlphaDEX(R) ETF or as to the result to be obtained by any
person from use of the Index in connection with the trading of the First Trust
Total US Market AlphaDEX(R) ETF.
Page 4
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
Information Technology 18.45%
Financials 17.72
Consumer Discretionary 16.96
Industrials 15.44
Health Care 9.63
Materials 4.46
Energy 4.26
Consumer Staples 4.03
Real Estate 3.98
Utilities 3.43
Telecommunication Services 1.64
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
NVIDIA Corp. 0.61%
United Continental Holdings, Inc. 0.55
Valero Energy Corp. 0.51
American Airlines Group, Inc. 0.50
Marathon Petroleum Corp. 0.49
Level 3 Communications, Inc. 0.48
Host Hotels & Resorts, Inc. 0.48
Regions Financial Corp. 0.46
Harris Corp. 0.44
Best Buy Co., Inc. 0.44
-------
Total 4.96%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2006 - DECEMBER 31, 2016
First Trust
Total US Market Russell 3000(R)
AlphaDEX(R) ETF Index
12/06 $10,000 $10,000
06/07 10,728 10,711
12/07 10,465 10,514
06/08 9,575 9,353
12/08 6,755 6,592
06/09 7,115 6,869
12/09 9,062 8,461
06/10 8,930 7,949
12/10 10,862 9,893
06/11 11,100 10,521
12/11 9,824 9,994
06/12 9,995 10,925
12/12 10,683 11,634
06/13 12,225 13,270
12/13 14,385 15,538
06/14 15,110 16,616
12/14 14,725 17,488
06/15 14,899 17,827
12/15 13,844 17,572
06/16 14,295 18,208
12/16 15,986 19,808
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2012 through
December 31, 2016. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 124 1 0 0
01/01/13 - 12/31/13 140 0 0 0
01/01/14 - 12/31/14 178 0 0 0
01/01/15 - 12/31/15 115 15 0 0
01/01/16 - 12/31/16 121 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/12 - 12/31/12 122 3 0 0
01/01/13 - 12/31/13 104 8 0 0
01/01/14 - 12/31/14 68 6 0 0
01/01/15 - 12/31/15 110 12 0 0
01/01/16 - 12/31/16 131 0 0 0
Page 5
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the CBOE(R) VIX(R) Tail
Hedge Index (the "Index"). The Fund will normally invest at least 90% of its
assets in common stocks and call options included in the Index. The Index is
composed of each of the equity securities comprising the S&P 500(R) Index and an
out-of-the-money call option position on the Chicago Board Options Exchange
Volatility Index(R) (the "VIX Index"). The VIX Index is quoted in percentage
points, is calculated and disseminated in real-time by The Chicago Board Options
Exchange ("CBOE(R)") and is a way of measuring the market's expectation of
volatility in the S&P 500(R) over the next 30-day period. The Index, and in turn
the Fund, tracks the performance of an S&P 500(R) stock portfolio (with
dividends reinvested), and call options on the VIX Index. The amount of the
Index allocated to call options on the VIX Index is reevaluated and rebalanced
each month, depending on the level of forward expected volatility in the S&P
500(R) Index, as measured by the closest to maturity VIX Index futures. The
Index is designed to help address extreme downward movements in the market by
hedging its portfolio through purchasing call options on the VIX Index, or "tail
hedging." The Index is reconstituted and rebalanced monthly. The Fund's shares
are listed for trading on the NYSE Arca, Inc. The first day of secondary market
trading in shares of the Fund was August 30, 2012.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (8/29/12) Inception (8/29/12)
12/31/16 to 12/31/16 to 12/31/16
FUND PERFORMANCE
NAV 0.54% 5.85% 27.97%
Market Value 0.67% 5.88% 28.13%
INDEX PERFORMANCE
CBOE(R) VIX(R) Tail Hedge Index 1.02% 6.31% 30.42%
S&P 500(R) Index 11.96% 13.63% 74.14%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 8.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 0.54% during the 12-month period covered by
this report. During the same period, the S&P 500(R) Index ("benchmark")
generated a return of 11.96%. Greater volatility, as measured by the Index,
through much of the year, had the Fund invested in VIX options. During 11 of the
12 months throughout 2016, the Fund acquired a VIX option at a 1.0% weighting of
the Fund's NAV at the time of rebalance. The January 20th option expired in the
money and created 0.12% of relative outperformance against the benchmark. During
the other 10 months, the options expired out of the money creating roughly
-11.0% of relative underperformance.
S&P(R) and S&P 500(R) are registered trademarks of Standard & Poor's Financial
Services LLC ("SPFS"); and CBOE(R), Chicago Board Options Exchange(R), CBOE
Volatility Index(R) and VIX(R) are registered trademarks of Chicago Board
Options Exchange, Incorporated ("CBOE(R)"); and these trademarks have been
licensed for use by the S&P Dow Jones Indices LLC and sublicensed for certain
purposes by First Trust.
Page 6
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 20.77%
Financials 14.82
Health Care 13.64
Consumer Discretionary 12.02
Industrials 10.27
Consumer Staples 9.37
Energy 7.56
Utilities 3.17
Real Estate 2.88
Materials 2.84
Telecommunication Services 2.66
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Apple, Inc. 3.20%
Microsoft Corp. 2.51
Exxon Mobil Corp. 1.94
Johnson & Johnson 1.63
Berkshire Hathaway, Inc., Class B 1.61
JPMorgan Chase & Co. 1.60
Amazon.com, Inc. 1.53
General Electric Co. 1.45
Facebook, Inc., Class A 1.40
AT&T, Inc. 1.36
-------
Total 18.23%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 29, 2012 - DECEMBER 31, 2016
First Trust
CBOE(R) S&P 500(R) CBOE(R) VIX(R) S&P 500(R)
VIX(R) Tail Hedge Fund Tail Hdge Index Index
08/12 $10,000 $10,000 $10,000
12/12 9,863 9,880 10,193
06/13 10,686 10,719 11,602
12/13 11,738 11,799 13,494
06/14 12,251 12,345 14,457
12/14 13,525 13,666 15,342
06/15 13,175 13,320 15,531
12/15 12,730 12,910 15,554
06/16 12,551 12,752 16,151
12/16 12,800 13,041 17,414
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2016
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period August 30, 2012 (commencement
of trading) through December 31, 2016. Shareholders may pay more than NAV when
they buy Fund shares and receive less than NAV when they sell those shares
because shares are bought and sold at current market price. Data presented
represents past performance and cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
08/30/12 - 12/31/12 57 3 0 0
01/01/13 - 12/31/13 155 5 0 0
01/01/14 - 12/31/14 152 2 0 1
01/01/15 - 12/31/15 98 1 0 1
01/01/16 - 12/31/16 76 3 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
08/30/12 - 12/31/12 21 1 1 0
01/01/13 - 12/31/13 92 0 0 0
01/01/14 - 12/31/14 95 2 0 0
01/01/15 - 12/31/15 148 1 1 2
01/01/16 - 12/31/16 168 4 1 0
Page 7
--------------------------------------------------------------------------------
NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
Total returns for the periods since inception are calculated from the inception
date of each Fund. "Average annual total returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative total
returns" represent the total change in value of an investment over the periods
indicated. The total returns would have been lower if certain fees had not been
waived and expenses reimbursed by the Advisor.
Each Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint between the highest bid and the lowest offer on the stock
exchange on which shares of the Fund are listed for trading as of the time that
the Fund's NAV is calculated. Since shares of each Fund did not trade in the
secondary market until after the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
each Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and market returns assume that all distributions have been
reinvested in each Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike each Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by each Fund. These
expenses negatively impact the performance of each Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of each
Fund will vary with changes in market conditions. Shares of each Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. Each Fund's past performance is no guarantee of future performance.
Page 8
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2016 (UNAUDITED)
As a shareholder of First Trust Total US Market AlphaDEX(R) ETF or First Trust
CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (each a "Fund" and collectively, the
"Funds"), you incur two types of costs: (1) transaction costs; and (2) ongoing
costs, including management fees, distribution and/or service fees, if any, and
other Fund expenses. This Example is intended to help you understand your
ongoing costs of investing in the Funds and to compare these costs with the
ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended December 31, 2016.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
-----------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2016 DECEMBER 31, 2016 PERIOD (a) PERIOD (b)
-----------------------------------------------------------------------------------------------------------------------
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
Actual $1,000.00 $1,118.30 0.70% (a) $3.73
Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% (a) $3.56
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE
FUND (VIXH)
Actual $1,000.00 $1,019.80 0.60% $3.05
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
(a) These expense ratios reflect an expense cap. See Note 3 in Notes to
Financial Statements.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (July 1,
2016 through December 31, 2016), multiplied by 184/366 (to reflect the
one-half year period).
Page 9
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 2.0%
83 AAR Corp. $ 2,743
39 Astronics Corp. (a) 1,320
38 B/E Aerospace, Inc. 2,287
102 BWX Technologies, Inc. 4,049
19 Cubic Corp. 911
86 Curtiss-Wright Corp. 8,459
158 DigitalGlobe, Inc. (a) 4,527
11 Esterline Technologies Corp. (a) 981
42 General Dynamics Corp. 7,252
113 HEICO Corp. 8,718
177 Hexcel Corp. 9,105
38 Huntington Ingalls Industries, Inc. 6,999
54 Lockheed Martin Corp. 13,497
44 Moog, Inc., Class A (a) 2,890
40 National Presto Industries, Inc. 4,256
31 Northrop Grumman Corp. 7,210
77 Rockwell Collins, Inc. 7,143
44 Spirit AeroSystems Holdings, Inc.,
Class A 2,567
91 TASER International, Inc. (a) 2,206
54 Teledyne Technologies, Inc. (a) 6,642
657 Textron, Inc. 31,904
123 TransDigm Group, Inc. 30,622
--------------
166,288
--------------
AIR FREIGHT & LOGISTICS -- 0.4%
182 Air Transport Services Group,
Inc. (a) 2,905
61 Atlas Air Worldwide Holdings,
Inc. (a) 3,181
76 Expeditors International of
Washington, Inc. 4,025
37 FedEx Corp. 6,889
20 Forward Air Corp. 948
64 Hub Group, Inc., Class A (a) 2,800
267 XPO Logistics, Inc. (a) 11,524
--------------
32,272
--------------
AIRLINES -- 1.6%
149 Alaska Air Group, Inc. 13,221
892 American Airlines Group, Inc. 41,647
72 Hawaiian Holdings, Inc. (a) 4,104
568 JetBlue Airways Corp. (a) 12,735
165 SkyWest, Inc. 6,014
230 Spirit Airlines, Inc. (a) 13,308
622 United Continental Holdings,
Inc. (a) 45,331
--------------
136,360
--------------
AUTO COMPONENTS -- 1.0%
202 American Axle & Manufacturing
Holdings, Inc. (a) 3,898
279 BorgWarner, Inc. 11,004
115 Cooper Tire & Rubber Co. 4,468
44 Cooper-Standard Holdings, Inc. (a) 4,549
112 Dana, Inc. 2,126
27 Dorman Products, Inc. (a) 1,973
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
AUTO COMPONENTS (CONTINUED)
190 Fox Factory Holding Corp. (a) $ 5,272
446 Gentex Corp. 8,782
182 Goodyear Tire & Rubber (The) Co. 5,618
44 LCI Industries (a) 4,741
81 Lear Corp. 10,722
275 Metaldyne Performance Group, Inc. 6,311
36 Standard Motor Products, Inc. 1,916
119 Superior Industries International,
Inc. 3,136
101 Tenneco, Inc. (a) 6,309
--------------
80,825
--------------
AUTOMOBILES -- 1.0%
2,706 Ford Motor Co. 32,824
1,028 General Motors Co. 35,816
124 Harley-Davidson, Inc. 7,234
69 Thor Industries, Inc. 6,903
111 Winnebago Industries, Inc. 3,513
--------------
86,290
--------------
BANKS -- 6.9%
49 1st Source Corp. 2,188
75 Ameris Bancorp 3,270
89 Associated Banc-Corp. 2,198
12 BancFirst Corp. 1,117
38 BancorpSouth, Inc. 1,180
1,252 Bank of America Corp. 27,669
27 Bank of Hawaii Corp. 2,395
195 BankUnited, Inc. 7,350
346 BB&T Corp. 16,269
94 Berkshire Hills Bancorp, Inc. 3,464
57 BOK Financial Corp. 4,733
68 Boston Private Financial Holdings,
Inc. 1,125
71 Brookline Bancorp, Inc. 1,164
57 Cathay General Bancorp 2,168
49 CenterState Banks, Inc. 1,233
35 Central Pacific Financial Corp. 1,100
59 Chemical Financial Corp. 3,196
270 CIT Group, Inc. 11,524
553 Citigroup, Inc. 32,865
793 Citizens Financial Group, Inc. 28,255
17 City Holding Co. 1,149
27 Columbia Banking System, Inc. 1,206
83 Comerica, Inc. 5,653
42 Commerce Bancshares, Inc. 2,428
47 Community Trust Bancorp, Inc. 2,331
54 Cullen/Frost Bankers, Inc. 4,764
160 East West Bancorp, Inc. 8,133
28 Enterprise Financial Services Corp. 1,204
142 F.N.B. Corp. 2,276
45 FCB Financial Holdings, Inc.,
Class A (a) 2,147
1,277 Fifth Third Bancorp 34,441
502 First BanCorp (a) 3,318
9 First Citizens BancShares, Inc.,
Class A 3,195
Page 10 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
BANKS (CONTINUED)
86 First Commonwealth Financial
Corp. $ 1,219
40 First Financial Bancorp 1,138
24 First Financial Bankshares, Inc. 1,085
257 First Horizon National Corp. 5,143
28 First Interstate BancSystem, Inc.,
Class A 1,191
65 First Merchants Corp. 2,447
254 First Republic Bank 23,404
110 Flushing Financial Corp. 3,233
120 Fulton Financial Corp. 2,256
22 German American Bancorp, Inc. 1,157
64 Great Southern Bancorp, Inc. 3,498
26 Great Western Bancorp, Inc. 1,133
27 Hancock Holding Co. 1,164
66 Hanmi Financial Corp. 2,303
72 Heartland Financial USA, Inc. 3,456
116 Hilltop Holdings, Inc. 3,457
94 Home BancShares, Inc. 2,610
596 Huntington Bancshares, Inc. 7,879
13 IBERIABANK Corp. 1,089
20 Independent Bank Group, Inc. 1,248
88 International Bancshares Corp. 3,590
326 Investors Bancorp, Inc. 4,548
294 JPMorgan Chase & Co. 25,369
537 KeyCorp 9,811
83 LegacyTexas Financial Group, Inc. 3,574
75 National Bank Holdings Corp.,
Class A 2,392
186 Old National Bancorp 3,376
49 Opus Bank 1,472
33 Pacific Premier Bancorp, Inc. (a) 1,167
46 PacWest Bancorp 2,504
248 People's United Financial, Inc. 4,801
218 PNC Financial Services Group
(The), Inc. 25,497
205 Popular, Inc. 8,983
107 Prosperity Bancshares, Inc. 7,680
2,647 Regions Financial Corp. 38,011
60 S&T Bancorp, Inc. 2,342
28 Sandy Spring Bancorp, Inc. 1,120
34 ServisFirst Bancshares, Inc. 1,273
17 Simmons First National Corp.,
Class A 1,057
54 Southside Bancshares, Inc. 2,034
38 State Bank Financial Corp. 1,021
53 Stock Yards Bancorp, Inc. 2,488
447 SunTrust Banks, Inc. 24,518
35 SVB Financial Group (a) 6,008
120 Synovus Financial Corp. 4,930
240 TCF Financial Corp. 4,702
23 Tompkins Financial Corp. 2,174
65 TriCo Bancshares 2,222
63 Trustmark Corp. 2,246
152 U.S. Bancorp 7,808
521 Umpqua Holdings Corp. 9,784
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
BANKS (CONTINUED)
65 Union Bankshares Corp. $ 2,323
52 United Bankshares, Inc. 2,405
41 United Community Banks, Inc. 1,214
90 Valley National Bancorp 1,048
22 Washington Trust Bancorp, Inc. 1,233
103 Webster Financial Corp. 5,591
443 Wells Fargo & Co. 24,414
26 WesBanco, Inc. 1,120
209 Western Alliance Bancorp (a) 10,180
31 Wintrust Financial Corp. 2,250
190 Zions Bancorporation 8,178
--------------
575,276
--------------
BEVERAGES -- 0.1%
39 Constellation Brands, Inc.,
Class A 5,979
86 MGP Ingredients, Inc. 4,298
--------------
10,277
--------------
BIOTECHNOLOGY -- 1.8%
104 AbbVie, Inc. 6,512
72 Acceleron Pharma, Inc. (a) 1,837
606 Agenus, Inc. (a) 2,497
42 Alkermes PLC (a) 2,334
78 Amgen, Inc. 11,404
318 ARIAD Pharmaceuticals, Inc. (a) 3,956
645 Array BioPharma, Inc. (a) 5,670
63 Biogen, Inc. (a) 17,866
98 Coherus Biosciences, Inc. (a) 2,759
37 Eagle Pharmaceuticals, Inc. (a) 2,936
28 Emergent BioSolutions, Inc. (a) 920
188 Exact Sciences Corp. (a) 2,512
340 Exelixis, Inc. (a) 5,069
83 Five Prime Therapeutics, Inc. (a) 4,159
149 Foundation Medicine, Inc. (a) (b) 2,637
60 Genomic Health, Inc. (a) 1,763
144 Halozyme Therapeutics, Inc. (a) 1,423
69 Incyte Corp. (a) 6,919
93 Inovio Pharmaceuticals, Inc. (a) 645
36 Intercept Pharmaceuticals,
Inc. (a) (b) 3,911
219 Ironwood Pharmaceuticals, Inc. (a) 3,349
16 Kite Pharma, Inc. (a) 717
241 Lexicon Pharmaceuticals, Inc. (a) 3,333
29 MacroGenics, Inc. (a) 593
212 Myriad Genetics, Inc. (a) 3,534
77 Neurocrine Biosciences, Inc. (a) 2,980
555 OPKO Health, Inc. (a) 5,161
15 Prothena Corp. PLC (a) 738
156 Retrophin, Inc. (a) 2,953
57 Sarepta Therapeutics, Inc. (a) 1,564
181 Seattle Genetics, Inc. (a) 9,551
58 Spark Therapeutics, Inc. (a) 2,894
83 United Therapeutics Corp. (a) 11,905
262 Vanda Pharmaceuticals, Inc. (a) 4,179
178 Xencor, Inc. (a) 4,685
--------------
145,865
--------------
See Notes to Financial Statements Page 11
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
BUILDING PRODUCTS -- 1.2%
159 A.O. Smith Corp. $ 7,529
30 AAON, Inc. 991
28 Allegion PLC 1,792
32 American Woodmark Corp. (a) 2,408
151 Builders FirstSource, Inc. (a) 1,656
225 Fortune Brands Home & Security,
Inc. 12,029
117 Gibraltar Industries, Inc. (a) 4,873
51 Griffon Corp. 1,336
74 Insteel Industries, Inc. 2,637
50 Lennox International, Inc. 7,659
571 Masco Corp. 18,055
119 NCI Building Systems, Inc. (a) 1,862
147 Owens Corning 7,579
70 Patrick Industries, Inc. (a) 5,341
50 Quanex Building Products Corp. 1,015
40 Simpson Manufacturing Co., Inc. 1,750
59 Trex Co., Inc. (a) 3,800
35 Universal Forest Products, Inc. 3,576
379 USG Corp. (a) 10,946
--------------
96,834
--------------
CAPITAL MARKETS -- 2.5%
65 Ameriprise Financial, Inc. 7,211
328 Bank of New York Mellon (The)
Corp. 15,541
67 E*TRADE Financial Corp. (a) 2,322
100 Eaton Vance Corp. 4,188
17 Evercore Partners, Inc., Class A 1,168
12 FactSet Research Systems, Inc. 1,961
138 Federated Investors, Inc., Class B 3,903
918 Franklin Resources, Inc. 36,334
81 Goldman Sachs Group (The), Inc. 19,396
37 Greenhill & Co., Inc. 1,025
35 Houlihan Lokey, Inc. 1,089
121 Intercontinental Exchange, Inc. 6,827
45 INTL FCStone, Inc. (a) 1,782
418 Invesco Ltd. 12,682
186 Janus Capital Group, Inc. 2,468
224 KCG Holdings, Inc., Class A (a) 2,968
58 LPL Financial Holdings, Inc. 2,042
59 MarketAxess Holdings, Inc. 8,668
407 Morgan Stanley 17,196
93 MSCI, Inc. 7,327
18 Piper Jaffray Cos. (a) 1,305
67 Raymond James Financial, Inc. 4,641
258 S&P Global, Inc. 27,745
188 State Street Corp. 14,611
9 Virtus Investment Partners, Inc. 1,063
240 Waddell & Reed Financial, Inc.,
Class A 4,682
--------------
210,145
--------------
CHEMICALS -- 2.9%
90 A. Schulman, Inc. 3,011
382 Albemarle Corp. 32,883
17 Ashland Global Holdings, Inc. 1,858
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
CHEMICALS (CONTINUED)
11 Balchem Corp. $ 923
112 Cabot Corp. 5,660
172 Calgon Carbon Corp. 2,924
59 Celanese Corp., Series A 4,646
322 CF Industries Holdings, Inc. 10,137
38 Chase Corp. 3,175
483 Eastman Chemical Co. 36,326
63 Ferro Corp. (a) 903
37 H.B. Fuller Co. 1,787
361 Huntsman Corp. 6,888
45 Innophos Holdings, Inc. 2,352
57 Innospec, Inc. 3,904
183 International Flavors & Fragrances,
Inc. 21,563
81 Koppers Holdings, Inc. (a) 3,264
124 Kraton Corp. (a) 3,532
405 LyondellBasell Industries N.V.,
Class A 34,741
37 Minerals Technologies, Inc. 2,858
401 Mosaic (The) Co. 11,761
5 NewMarket Corp. 2,119
286 Olin Corp. 7,324
116 PolyOne Corp. 3,717
146 RPM International, Inc. 7,859
94 Scotts Miracle-Gro (The) Co.,
Class A 8,982
26 Sensient Technologies Corp. 2,043
36 Stepan Co. 2,933
77 Trinseo S.A. 4,566
183 Westlake Chemical Corp. 10,246
--------------
244,885
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 1.3%
22 ABM Industries, Inc. 899
75 Brady Corp., Class A 2,816
290 Cintas Corp. 33,512
82 Clean Harbors, Inc. (a) 4,563
183 Copart, Inc. (a) 10,140
117 Deluxe Corp. 8,378
157 Interface, Inc. 2,912
182 KAR Auction Services, Inc. 7,757
43 Matthews International Corp.,
Class A 3,305
110 McGrath RentCorp 4,311
30 MSA Safety, Inc. 2,080
13 Multi-Color Corp. 1,009
216 Pitney Bowes, Inc. 3,281
163 Quad/Graphics, Inc. 4,381
83 R.R. Donnelley & Sons Co. 1,355
67 Rollins, Inc. 2,263
68 SP Plus Corp. (a) 1,914
314 Steelcase, Inc., Class A 5,621
49 Stericycle, Inc. (a) 3,775
20 UniFirst Corp. 2,873
71 Viad Corp. 3,131
--------------
110,276
--------------
Page 12 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMMUNICATIONS EQUIPMENT
-- 1.7%
46 ADTRAN, Inc. $ 1,028
115 Arista Networks, Inc. (a) 11,128
1,061 Brocade Communications Systems,
Inc. 13,252
40 Ciena Corp. (a) 976
824 Cisco Systems, Inc. 24,901
99 EchoStar Corp., Class A (a) 5,088
47 F5 Networks, Inc. (a) 6,802
146 Finisar Corp. (a) 4,419
357 Harris Corp. 36,582
289 Infinera Corp. (a) 2,454
326 Juniper Networks, Inc. 9,213
104 Lumentum Holdings, Inc. (a) 4,020
72 NETGEAR, Inc. (a) 3,913
509 Oclaro, Inc. (a) 4,556
183 Ubiquiti Networks, Inc. (a) 10,577
26 ViaSat, Inc. (a) 1,722
--------------
140,631
--------------
CONSTRUCTION & ENGINEERING
-- 0.8%
264 AECOM (a) 9,599
74 Argan, Inc. 5,221
96 Dycom Industries, Inc. (a) 7,708
99 EMCOR Group, Inc. 7,005
115 Fluor Corp. 6,040
53 Granite Construction, Inc. 2,915
76 Jacobs Engineering Group, Inc. (a) 4,332
230 KBR, Inc. 3,839
127 Primoris Services Corp. 2,893
350 Quanta Services, Inc. (a) 12,197
162 Tutor Perini Corp. (a) 4,536
--------------
66,285
--------------
CONSTRUCTION MATERIALS -- 0.1%
51 Eagle Materials, Inc. 5,025
206 Headwaters, Inc. (a) 4,845
94 Summit Materials, Inc., Class A (c) 2,236
--------------
12,106
--------------
CONSUMER FINANCE -- 1.8%
503 Ally Financial, Inc. 9,567
204 American Express Co. 15,112
364 Capital One Financial Corp. 31,755
19 Credit Acceptance Corp. (a) (b) 4,133
231 Discover Financial Services 16,653
155 Encore Capital Group, Inc. (a) (b) 4,441
76 Green Dot Corp., Class A (a) 1,790
542 Navient Corp. 8,905
86 Nelnet, Inc., Class A 4,364
190 OneMain Holdings, Inc. (a) 4,207
76 PRA Group, Inc. (a) 2,972
806 Santander Consumer USA
Holdings, Inc. (a) 10,881
525 SLM Corp. (a) 5,785
700 Synchrony Financial 25,389
--------------
145,954
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.6%
51 AptarGroup, Inc. $ 3,746
76 Avery Dennison Corp. 5,337
77 Bemis Co., Inc. 3,682
223 Berry Plastics Group, Inc. (a) 10,867
34 Crown Holdings, Inc. (a) 1,787
420 Graphic Packaging Holding Co. 5,242
18 Greif, Inc., Class A 923
107 Owens-Illinois, Inc. (a) 1,863
121 Packaging Corp. of America 10,263
74 Sonoco Products Co. 3,900
--------------
47,610
--------------
DISTRIBUTORS -- 0.4%
921 LKQ Corp. (a) 28,229
62 Pool Corp. 6,469
--------------
34,698
--------------
DIVERSIFIED CONSUMER SERVICES
-- 0.3%
29 Bright Horizons Family Solutions,
Inc. (a) 2,031
45 Capella Education Co. 3,951
38 DeVry Education Group, Inc. 1,186
254 H&R Block, Inc. 5,839
243 K12, Inc. (a) 4,170
206 LifeLock, Inc. (a) 4,927
69 Regis Corp. (a) 1,002
74 Service Corp. International 2,102
--------------
25,208
--------------
DIVERSIFIED FINANCIAL SERVICES
-- 0.4%
181 Berkshire Hathaway, Inc.,
Class B (a) 29,499
68 Voya Financial, Inc. 2,667
--------------
32,166
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.1%
13 ATN International, Inc. 1,042
1,191 CenturyLink, Inc. 28,322
1,884 Frontier Communications Corp. 6,368
322 Iridium Communications,
Inc. (a) (b) 3,091
704 Level 3 Communications, Inc. (a) 39,677
85 ORBCOMM, Inc. (a) 703
87 Windstream Holdings, Inc. (b) 638
264 Zayo Group Holdings, Inc. (a) 8,675
--------------
88,516
--------------
ELECTRIC UTILITIES -- 2.3%
66 ALLETE, Inc. 4,237
51 Alliant Energy Corp. 1,932
305 American Electric Power Co., Inc. 19,203
245 Duke Energy Corp. 19,017
255 Entergy Corp. 18,735
785 Exelon Corp. 27,860
197 FirstEnergy Corp. 6,101
287 Great Plains Energy, Inc. 7,849
See Notes to Financial Statements Page 13
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRIC UTILITIES (CONTINUED)
197 Hawaiian Electric Industries,
Inc. $ 6,515
186 OGE Energy Corp. 6,222
214 PG&E Corp. 13,005
103 Pinnacle West Capital Corp. 8,037
27 PNM Resources, Inc. 926
184 Portland General Electric Co. 7,973
567 PPL Corp. 19,306
127 Southern (The) Co. 6,247
476 Xcel Energy, Inc. 19,373
--------------
192,538
--------------
ELECTRICAL EQUIPMENT -- 1.1%
123 Acuity Brands, Inc. 28,396
137 AMETEK, Inc. 6,658
27 AZZ, Inc. 1,725
398 Eaton Corp. PLC 26,702
120 Emerson Electric Co. 6,690
95 Encore Wire Corp. 4,118
13 EnerSys 1,015
36 Hubbell, Inc. 4,201
59 Regal Beloit Corp. 4,086
51 Sensata Technologies Holding
N.V. (a) 1,987
553 Sunrun, Inc. (a) 2,936
44 Thermon Group Holdings, Inc. (a) 840
--------------
89,354
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 3.0%
402 Amphenol Corp., Class A 27,014
27 Anixter International, Inc. (a) 2,188
153 Arrow Electronics, Inc. (a) 10,909
239 Avnet, Inc. 11,379
189 AVX Corp. 2,954
114 Belden, Inc. 8,524
175 Benchmark Electronics, Inc. (a) 5,338
86 CDW Corp. 4,480
111 Cognex Corp. 7,062
24 Coherent, Inc. (a) 3,297
1,381 Corning, Inc. 33,517
48 Dolby Laboratories, Inc., Class A 2,169
37 ePlus, Inc. (a) 4,262
98 Fabrinet (a) 3,949
125 FLIR Systems, Inc. 4,524
107 II-VI, Inc. (a) 3,173
107 Insight Enterprises, Inc. (a) 4,327
78 Itron, Inc. (a) 4,902
359 Jabil Circuit, Inc. 8,498
309 Keysight Technologies, Inc. (a) 11,300
7 Littelfuse, Inc. 1,062
57 MTS Systems Corp. 3,232
69 National Instruments Corp. 2,127
13 OSI Systems, Inc. (a) 990
132 PC Connection, Inc. 3,708
56 Plexus Corp. (a) 3,026
29 Rogers Corp. (a) 2,228
153 Sanmina Corp. (a) 5,607
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS (CONTINUED)
95 ScanSource, Inc. (a) $ 3,833
52 SYNNEX Corp. 6,293
507 TE Connectivity Ltd. 35,125
41 Tech Data Corp. (a) 3,472
274 Trimble, Inc. (a) 8,261
380 TTM Technologies, Inc. (a) 5,179
111 VeriFone Systems, Inc. (a) 1,968
25 Zebra Technologies Corp.,
Class A (a) 2,144
--------------
252,021
--------------
ENERGY EQUIPMENT & SERVICES
-- 0.6%
133 Archrock, Inc. 1,756
78 Dril-Quip, Inc. (a) 4,684
205 Fairmount Santrol Holdings,
Inc. (a) 2,417
66 FMC Technologies, Inc. (a) 2,345
58 Helmerich & Payne, Inc. 4,489
522 McDermott International, Inc. (a) 3,857
127 Oceaneering International, Inc. 3,583
39 Patterson-UTI Energy, Inc. 1,050
233 RPC, Inc. 4,616
49 Superior Energy Services, Inc. 827
919 Transocean Ltd. (a) 13,546
56 U.S. Silica Holdings, Inc. 3,174
--------------
46,344
--------------
EQUITY REAL ESTATE INVESTMENT
TRUSTS -- 3.6%
36 Alexandria Real Estate Equities,
Inc. 4,001
362 American Homes 4 Rent, Class A 7,595
58 American Tower Corp. 6,129
43 Apartment Investment &
Management Co., Class A 1,954
212 Apple Hospitality REIT, Inc. 4,236
591 Ashford Hospitality Trust, Inc. 4,586
125 Brandywine Realty Trust 2,064
71 Brixmor Property Group, Inc. 1,734
92 Care Capital Properties, Inc. 2,300
287 CBL & Associates Properties, Inc. 3,300
190 Chesapeake Lodging Trust 4,913
187 Communications Sales & Leasing,
Inc. 4,752
706 CoreCivic, Inc. 17,269
41 CyrusOne, Inc. 1,834
81 DCT Industrial Trust, Inc. 3,878
479 DiamondRock Hospitality Co. 5,523
160 Douglas Emmett, Inc. 5,850
50 EPR Properties 3,588
324 Equity Commonwealth (a) 9,798
139 First Industrial Realty Trust, Inc. 3,899
85 Forest City Realty Trust, Inc.,
Class A 1,771
146 GEO Group (The), Inc. 5,246
73 Getty Realty Corp. 1,861
203 Gramercy Property Trust 1,864
Page 14 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
EQUITY REAL ESTATE INVESTMENT
TRUSTS (CONTINUED)
60 Healthcare Trust of America, Inc.,
Class A $ 1,747
38 Highwoods Properties, Inc. 1,938
198 Hospitality Properties Trust 6,284
2,098 Host Hotels & Resorts, Inc. 39,526
179 Hudson Pacific Properties, Inc. 6,226
96 InfraREIT, Inc. 1,719
30 Lamar Advertising Co., Class A 2,017
410 LaSalle Hotel Properties 12,493
49 Liberty Property Trust 1,935
265 Medical Properties Trust, Inc. 3,259
61 Monmouth Real Estate Investment
Corp. 929
100 National Health Investors, Inc. 7,417
39 National Retail Properties, Inc. 1,724
42 National Storage Affiliates Trust 927
151 New Senior Investment Group, Inc. 1,478
55 Omega Healthcare Investors, Inc. 1,719
182 Physicians Realty Trust 3,451
90 Piedmont Office Realty Trust, Inc.,
Class A 1,882
45 Potlatch Corp. 1,874
488 Prologis, Inc. 25,762
35 PS Business Parks, Inc. 4,078
295 Rayonier, Inc. 7,847
76 Rexford Industrial Realty, Inc. 1,762
466 RLJ Lodging Trust 11,412
69 Sabra Health Care REIT, Inc. 1,685
65 Select Income REIT 1,638
345 Senior Housing Properties Trust 6,531
50 Silver Bay Realty Trust Corp. 857
294 Spirit Realty Capital, Inc. 3,193
36 STAG Industrial, Inc. 859
331 Summit Hotel Properties, Inc. 5,306
340 Sunstone Hotel Investors, Inc. 5,185
32 Terreno Realty Corp. 912
56 Tier REIT, Inc. 974
70 Urban Edge Properties 1,926
70 Washington Prime Group, Inc. 729
287 Xenia Hotels & Resorts, Inc. 5,574
--------------
294,720
--------------
FOOD & STAPLES RETAILING -- 1.1%
49 Casey's General Stores, Inc. 5,825
73 CVS Health Corp. 5,760
88 Ingles Markets, Inc., Class A 4,233
440 Kroger (The) Co. 15,184
95 Sprouts Farmers Market, Inc. (a) 1,797
175 SUPERVALU, Inc. (a) 817
87 United Natural Foods, Inc. (a) 4,152
362 Wal-Mart Stores, Inc. 25,022
66 Weis Markets, Inc. 4,412
922 Whole Foods Market, Inc. 28,361
--------------
95,563
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
FOOD PRODUCTS -- 2.3%
108 Amplify Snack Brands,
Inc. (a) (b) $ 951
620 Archer-Daniels-Midland Co. 28,303
199 B&G Foods, Inc. 8,716
165 Blue Buffalo Pet Products, Inc. (a) 3,967
165 Bunge Ltd. 11,920
13 Calavo Growers, Inc. 798
90 Cal-Maine Foods, Inc. 3,976
322 Darling Ingredients, Inc. (a) 4,157
98 Farmer Brothers Co. (a) 3,597
518 Flowers Foods, Inc. 10,344
44 Fresh Del Monte Produce, Inc. 2,668
220 Hain Celestial Group (The),
Inc. (a) 8,587
196 Ingredion, Inc. 24,492
53 John B. Sanfilippo & Son, Inc. 3,731
45 Lancaster Colony Corp. 6,362
744 Mondelez International, Inc.,
Class A 32,981
117 Pinnacle Foods, Inc. 6,254
51 Post Holdings, Inc. (a) 4,100
18 Sanderson Farms, Inc. 1,696
437 Tyson Foods, Inc., Class A 26,954
--------------
194,554
--------------
GAS UTILITIES -- 0.2%
28 Southwest Gas Holdings, Inc. 2,146
87 UGI Corp. 4,009
94 WGL Holdings, Inc. 7,170
--------------
13,325
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 3.1%
76 ABIOMED, Inc. (a) 8,564
105 Align Technology, Inc. (a) 10,094
686 Baxter International, Inc. 30,417
182 Becton, Dickinson and Co. 30,130
823 Boston Scientific Corp. (a) 17,801
22 Cantel Medical Corp. 1,733
110 Cardiovascular Systems, Inc. (a) 2,663
22 Cooper (The) Cos., Inc. 3,848
198 CryoLife, Inc. (a) 3,792
51 Cynosure, Inc., Class A (a) 2,326
167 Danaher Corp. 12,999
67 DexCom, Inc. (a) 4,000
271 Edwards Lifesciences Corp. (a) 25,393
115 Glaukos Corp. (a) 3,945
7 ICU Medical, Inc. (a) 1,031
87 IDEXX Laboratories, Inc. (a) 10,202
44 Inogen, Inc. (a) 2,955
85 Insulet Corp. (a) 3,203
27 Intuitive Surgical, Inc. (a) 17,123
44 Masimo Corp. (a) 2,966
227 Medtronic PLC 16,169
42 Nevro Corp. (a) 3,052
118 NuVasive, Inc. (a) 7,948
139 NxStage Medical, Inc. (a) 3,643
57 Penumbra, Inc. (a) 3,637
39 Quidel Corp. (a) 835
202 ResMed, Inc. 12,534
See Notes to Financial Statements Page 15
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HEALTH CARE EQUIPMENT &
SUPPLIES (CONTINUED)
174 Spectranetics (The) Corp. (a) $ 4,263
12 Teleflex, Inc. 1,934
20 Varian Medical Systems, Inc. (a) 1,796
72 Vascular Solutions, Inc. (a) 4,039
26 West Pharmaceutical Services, Inc. 2,206
36 Wright Medical Group N.V. (a) 827
89 Zeltiq Aesthetics, Inc. (a) 3,873
--------------
261,941
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 2.3%
138 Aceto Corp. 3,032
57 Aetna, Inc. 7,069
138 Air Methods Corp. (a) 4,395
156 Anthem, Inc. 22,428
112 Brookdale Senior Living, Inc. (a) 1,391
195 Centene Corp. (a) 11,019
6 Chemed Corp. 962
87 Ensign Group (The), Inc. 1,932
278 Express Scripts Holding Co. (a) 19,124
92 HealthEquity, Inc. (a) 3,728
97 HealthSouth Corp. 4,000
165 Healthways, Inc. (a) 3,754
426 Kindred Healthcare, Inc. 3,344
48 Laboratory Corp. of America
Holdings (a) 6,162
71 LHC Group, Inc. (a) 3,245
74 LifePoint Health, Inc. (a) 4,203
65 Magellan Health, Inc. (a) 4,891
89 MEDNAX, Inc. (a) 5,933
101 Molina Healthcare, Inc. (a) 5,480
53 National HealthCare Corp. 4,017
50 Owens & Minor, Inc. 1,765
43 Patterson Cos., Inc. 1,764
93 PharMerica Corp. (a) 2,339
72 Providence Service (The) Corp. (a) 2,740
309 Quest Diagnostics, Inc. 28,397
258 Select Medical Holdings Corp. (a) 3,419
36 Surgical Care Affiliates, Inc. (a) 1,666
86 Tenet Healthcare Corp. (a) 1,276
28 U.S. Physical Therapy, Inc. 1,966
159 Universal Health Services, Inc.,
Class B 16,914
112 VCA, Inc. (a) 7,689
17 WellCare Health Plans, Inc. (a) 2,330
--------------
192,374
--------------
HEALTH CARE TECHNOLOGY -- 0.4%
106 Cerner Corp. (a) 5,021
63 HealthStream, Inc. (a) 1,578
196 HMS Holdings Corp. (a) 3,559
176 Medidata Solutions, Inc. (a) 8,742
91 Omnicell, Inc. (a) 3,085
237 Veeva Systems, Inc., Class A (a) 9,646
--------------
31,631
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE -- 3.0%
206 Aramark $ 7,358
137 Belmond Ltd., Class A (a) 1,829
8 Biglari Holdings, Inc. (a) 3,786
98 BJ's Restaurants, Inc. (a) 3,851
45 Bob Evans Farms, Inc. 2,395
109 Bojangles', Inc. (a) 2,033
35 Brinker International, Inc. 1,734
56 Buffalo Wild Wings, Inc. (a) 8,646
669 Carnival Corp. 34,828
35 Cheesecake Factory (The), Inc. 2,096
12 Churchill Downs, Inc. 1,805
44 Cracker Barrel Old Country Store,
Inc. 7,347
96 Darden Restaurants, Inc. 6,981
65 Domino's Pizza, Inc. 10,351
75 Dunkin' Brands Group, Inc. 3,933
248 Eldorado Resorts, Inc. (a) 4,204
145 Fiesta Restaurant Group, Inc. (a) 4,328
570 Hilton Worldwide Holdings, Inc. 15,504
35 Hyatt Hotels Corp., Class A (a) 1,934
254 ILG, Inc. 4,615
130 International Speedway Corp.,
Class A 4,784
268 Intrawest Resorts Holdings,
Inc. (a) 4,784
36 Jack in the Box, Inc. 4,019
78 La Quinta Holdings, Inc. (a) 1,108
24 Marriott Vacations Worldwide Corp. 2,036
1,004 MGM Resorts International (a) 28,945
693 Norwegian Cruise Line Holdings
Ltd. (a) 29,473
33 Papa John's International, Inc. 2,824
99 Planet Fitness, Inc., Class A 1,990
97 Red Robin Gourmet Burgers,
Inc. (a) 5,471
309 Scientific Games Corp., Class A (a) 4,326
65 SeaWorld Entertainment, Inc. 1,231
62 Vail Resorts, Inc. 10,001
161 Wendy's (The) Co. 2,177
30 Wingstop, Inc. 888
200 Yum! Brands, Inc. 12,666
--------------
246,281
--------------
HOUSEHOLD DURABLES -- 2.4%
293 CalAtlantic Group, Inc. 9,965
26 Cavco Industries, Inc. (a) 2,596
865 D.R. Horton, Inc. 23,641
111 Ethan Allen Interiors, Inc. 4,090
272 Garmin Ltd. 13,189
93 Harman International Industries,
Inc. 10,338
10 Helen of Troy Ltd. (a) 845
97 Installed Building Products,
Inc. (a) 4,006
99 iRobot Corp. (a) 5,787
216 KB Home 3,415
142 La-Z-Boy, Inc. 4,409
771 Lennar Corp., Class A 33,099
118 LGI Homes, Inc. (a) 3,390
106 M.D.C. Holdings, Inc. 2,720
Page 16 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HOUSEHOLD DURABLES (CONTINUED)
185 M/I Homes, Inc. (a) $ 4,658
125 Meritage Homes Corp. (a) 4,350
33 Mohawk Industries, Inc. (a) 6,589
1 NVR, Inc. (a) 1,669
489 PulteGroup, Inc. 8,988
35 Tempur Sealy International,
Inc. (a) 2,390
328 Toll Brothers, Inc. (a) 10,168
131 TopBuild Corp. (a) 4,664
198 TRI Pointe Group, Inc. (a) 2,273
60 Tupperware Brands Corp. 3,157
47 Universal Electronics, Inc. (a) 3,034
121 Whirlpool Corp. 21,994
235 William Lyon Homes, Class A (a) 4,472
--------------
199,896
--------------
HOUSEHOLD PRODUCTS -- 0.3%
176 Central Garden & Pet Co.,
Class A (a) 5,438
499 HRG Group, Inc. (a) 7,765
71 Spectrum Brands Holdings, Inc. 8,685
--------------
21,888
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 0.1%
152 AES (The) Corp. 1,766
205 NRG Yield, Inc., Class C 3,239
54 Ormat Technologies, Inc. 2,896
--------------
7,901
--------------
INDUSTRIAL CONGLOMERATES -- 0.1%
76 Carlisle Cos., Inc. 8,382
--------------
INSURANCE -- 5.2%
182 Aflac, Inc. 12,667
15 Alleghany Corp. (a) 9,122
97 Allied World Assurance Co.
Holdings AG 5,210
94 Allstate (The) Corp. 6,967
189 Ambac Financial Group, Inc. (a) 4,252
98 American Equity Investment Life
Holding Co. 2,209
53 American Financial Group, Inc. 4,670
32 American National Insurance Co. 3,988
292 AmTrust Financial Services, Inc. 7,995
25 Arch Capital Group Ltd. (a) 2,157
62 Argo Group International Holdings
Ltd. 4,086
116 Arthur J. Gallagher & Co. 6,027
93 Aspen Insurance Holdings Ltd. 5,115
64 Assurant, Inc. 5,943
353 Assured Guaranty Ltd. 13,333
180 Axis Capital Holdings Ltd. 11,749
52 Brown & Brown, Inc. 2,333
642 CNO Financial Group, Inc. 12,294
117 Employers Holdings, Inc. 4,633
150 Endurance Specialty Holdings Ltd. 13,860
19 Erie Indemnity Co., Class A 2,137
52 Everest Re Group, Ltd. 11,253
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
INSURANCE (CONTINUED)
27 FBL Financial Group, Inc.,
Class A $ 2,110
200 First American Financial Corp. 7,326
354 FNF Group 12,022
104 Hanover Insurance Group (The),
Inc. 9,465
305 Hartford Financial Services Group
(The), Inc. 14,533
24 Horace Mann Educators Corp. 1,027
32 Infinity Property & Casualty Corp. 2,813
50 James River Group Holdings Ltd. 2,078
278 Lincoln National Corp. 18,423
343 Maiden Holdings Ltd. 5,985
97 Marsh & McLennan Cos., Inc. 6,556
36 Mercury General Corp. 2,168
294 MetLife, Inc. 15,844
78 National General Holdings Corp. 1,949
18 Navigators Group (The), Inc. 2,120
445 Old Republic International Corp. 8,455
122 OneBeacon Insurance Group Ltd.,
Class A 1,958
16 Primerica, Inc. 1,106
127 Principal Financial Group, Inc. 7,348
17 ProAssurance Corp. 955
320 Prudential Financial, Inc. 33,299
54 Reinsurance Group of America, Inc. 6,795
82 RenaissanceRe Holdings Ltd. 11,170
30 RLI Corp. 1,894
26 Safety Insurance Group, Inc. 1,916
66 Selective Insurance Group, Inc. 2,841
92 Torchmark Corp. 6,786
228 Travelers (The) Cos., Inc. 27,912
62 United Fire Group, Inc. 3,049
139 Universal Insurance Holdings, Inc. 3,948
222 Unum Group 9,752
197 Validus Holdings Ltd. 10,837
103 W. R. Berkley Corp. 6,851
5 White Mountains Insurance Group
Ltd. 4,180
777 XL Group Ltd. 28,951
--------------
436,422
--------------
INTERNET & DIRECT MARKETING RETAIL
-- 1.0%
95 1-800-Flowers.com, Inc.,
Class A (a) 1,016
39 Amazon.com, Inc. (a) 29,245
244 Etsy, Inc. (a) 2,874
22 HSN, Inc. 755
1,306 Liberty Interactive Corp. QVC
Group, Class A (a) 26,094
117 Nutrisystem, Inc. 4,054
13 Priceline Group (The), Inc. (a) 19,059
20 Shutterfly, Inc. (a) 1,004
22 Wayfair, Inc., Class A (a) 771
--------------
84,872
--------------
See Notes to Financial Statements Page 17
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INTERNET SOFTWARE & SERVICES
-- 1.7%
68 2U, Inc. (a) $ 2,050
111 Akamai Technologies, Inc. (a) 7,402
121 Alarm.com Holdings, Inc. (a) 3,367
16 Alphabet, Inc., Class A (a) 12,679
44 Benefitfocus, Inc. (a) 1,307
221 Box, Inc., Class A (a) 3,063
97 Cimpress N.V. (a) 8,886
76 Cornerstone OnDemand, Inc. (a) 3,216
18 CoStar Group, Inc. (a) 3,393
48 Envestnet, Inc. (a) 1,692
204 Facebook, Inc., Class A (a) 23,470
278 Five9, Inc. (a) 3,945
79 Gogo, Inc. (a) 728
228 GrubHub, Inc. (a) 8,577
148 GTT Communications, Inc. (a) 4,255
59 j2 Global, Inc. 4,826
39 LogMeIn, Inc. 3,766
177 MINDBODY, Inc., Class A (a) 3,770
68 New Relic, Inc. (a) 1,921
38 NIC, Inc. 908
410 Pandora Media, Inc. (a) (b) 5,346
65 Quotient Technology, Inc. (a) 699
68 Shutterstock, Inc. (a) 3,231
36 SPS Commerce, Inc. (a) 2,516
461 TrueCar, Inc. (a) (b) 5,763
850 Twitter, Inc. (a) 13,855
151 Web.com Group, Inc. (a) 3,194
104 Yelp, Inc. (a) 3,966
--------------
141,791
--------------
IT SERVICES -- 2.3%
160 Accenture PLC, Class A 18,741
43 Black Knight Financial Services,
Inc., Class A (a) 1,625
124 Booz Allen Hamilton Holding Corp. 4,473
87 Broadridge Financial Solutions,
Inc. 5,768
26 CACI International, Inc.,
Class A (a) 3,232
137 Cognizant Technology Solutions
Corp., Class A (a) 7,676
38 Computer Sciences Corp. 2,258
115 Convergys Corp. 2,824
100 CoreLogic, Inc. (a) 3,683
66 DST Systems, Inc. 7,072
28 EPAM Systems, Inc. (a) 1,801
72 Euronet Worldwide, Inc. (a) 5,215
170 Fidelity National Information
Services, Inc. 12,859
150 FleetCor Technologies, Inc. (a) 21,228
22 Forrester Research, Inc. 945
85 Global Payments, Inc. 5,900
41 International Business Machines
Corp. 6,806
23 Jack Henry & Associates, Inc. 2,042
69 ManTech International Corp.,
Class A 2,915
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
IT SERVICES (CONTINUED)
69 MAXIMUS, Inc. $ 3,849
164 NeuStar, Inc., Class A (a) 5,478
478 PayPal Holdings, Inc. (a) 18,867
70 Sabre Corp. 1,746
63 Science Applications International
Corp. 5,342
124 Sykes Enterprises, Inc. (a) 3,579
187 Syntel, Inc. 3,701
60 TeleTech Holdings, Inc. 1,830
126 Teradata Corp. (a) 3,423
104 Vantiv, Inc., Class A (a) 6,200
71 Virtusa Corp. (a) 1,783
314 Western Union (The) Co. 6,820
73 WEX, Inc. (a) 8,147
--------------
187,828
--------------
LEISURE PRODUCTS -- 0.4%
66 American Outdoor Brands Corp. (a) 1,391
121 Brunswick Corp. 6,599
150 Callaway Golf Co. 1,644
192 Nautilus, Inc. (a) 3,552
101 Polaris Industries, Inc. (b) 8,321
45 Sturm Ruger & Co., Inc. (b) 2,372
246 Vista Outdoor, Inc. (a) 9,078
--------------
32,957
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 1.3%
160 Accelerate Diagnostics, Inc. (a) 3,320
106 Albany Molecular Research,
Inc. (a) 1,989
12 Bio-Rad Laboratories, Inc.,
Class A (a) 2,187
71 Charles River Laboratories
International, Inc. (a) 5,410
59 INC Research Holdings, Inc.,
Class A (a) 3,103
77 Luminex Corp. (a) 1,558
62 Mettler-Toledo International,
Inc. (a) 25,951
318 NeoGenomics, Inc. (a) 2,725
97 Pacific Biosciences of California,
Inc. (a) 369
56 PAREXEL International Corp. (a) 3,680
105 PerkinElmer, Inc. 5,476
77 PRA Health Sciences, Inc. (a) 4,244
121 Quintiles IMS Holdings, Inc. (a) 9,202
123 Thermo Fisher Scientific, Inc. 17,355
138 VWR Corp. (a) 3,454
124 Waters Corp. (a) 16,664
--------------
106,687
--------------
MACHINERY -- 3.4%
159 AGCO Corp. 9,200
26 Alamo Group, Inc. 1,979
21 Albany International Corp.,
Class A 972
68 Allison Transmission Holdings, Inc. 2,291
60 Altra Industrial Motion Corp. 2,214
Page 18 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MACHINERY (CONTINUED)
105 American Railcar Industries,
Inc. (b) $ 4,755
44 Astec Industries, Inc. 2,968
86 Barnes Group, Inc. 4,078
140 Briggs & Stratton Corp. 3,116
90 CLARCOR, Inc. 7,422
125 Colfax Corp. (a) 4,491
124 Crane Co. 8,943
153 Cummins, Inc. 20,911
52 Donaldson Co., Inc. 2,188
136 Douglas Dynamics, Inc. 4,576
177 Dover Corp. 13,263
272 Energy Recovery, Inc. (a) 2,815
19 ESCO Technologies, Inc. 1,076
41 Flowserve Corp. 1,970
64 Franklin Electric Co., Inc. 2,490
60 Global Brass & Copper Holdings,
Inc. 2,058
68 Gorman-Rupp (The) Co. 2,105
123 Greenbrier (The) Cos., Inc. (b) 5,111
43 Hyster-Yale Materials Handling,
Inc. 2,742
63 IDEX Corp. 5,674
218 Illinois Tool Works, Inc. 26,696
385 Ingersoll-Rand PLC 28,890
97 ITT, Inc. 3,741
62 John Bean Technologies Corp. 5,329
50 Kadant, Inc. 3,060
85 Lydall, Inc. (a) 5,257
63 Middleby (The) Corp. (a) 8,115
55 Milacron Holdings Corp. (a) 1,025
54 Mueller Industries, Inc. 2,158
208 Mueller Water Products, Inc.,
Class A 2,769
190 Navistar International Corp. (a) 5,960
98 Nordson Corp. 10,981
105 Oshkosh Corp. 6,784
11 RBC Bearings, Inc. (a) 1,021
39 Snap-on, Inc. 6,680
9 Standex International Corp. 791
34 Terex Corp. 1,072
74 Timken (The) Co. 2,938
126 Toro (The) Co. 7,050
405 Trinity Industries, Inc. 11,243
306 Wabash National Corp. (a) 4,841
48 Wabtec Corp. 3,985
125 Woodward, Inc. 8,631
149 Xylem, Inc. 7,378
--------------
285,803
--------------
MARINE -- 0.1%
158 Kirby Corp. (a) 10,507
44 Matson, Inc. 1,557
--------------
12,064
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
MEDIA -- 2.2%
84 AMC Entertainment Holdings, Inc.,
Class A $ 2,827
10 Cable One, Inc. 6,217
24 Charter Communications, Inc.,
Class A (a) 6,910
154 Cinemark Holdings, Inc. 5,907
197 Comcast Corp., Class A 13,603
1,213 Discovery Communications, Inc.,
Class A (a) 33,248
374 Gannett Co., Inc. 3,632
175 Interpublic Group of Cos. (The),
Inc. 4,097
34 John Wiley & Sons, Inc., Class A 1,853
55 Liberty Broadband Corp.,
Class C (a) 4,074
281 New Media Investment Group, Inc. 4,493
561 News Corp., Class A 6,429
75 Nexstar Broadcasting Group, Inc.,
Class A (b) 4,747
180 Regal Entertainment Group,
Class A 3,708
89 Scholastic Corp. 4,227
62 Scripps Networks Interactive, Inc.,
Class A 4,425
359 TEGNA, Inc. 7,679
164 Time Warner, Inc. 15,831
686 Viacom, Inc., Class B 24,079
211 Walt Disney (The) Co. 21,990
164 World Wrestling Entertainment,
Inc., Class A 3,018
--------------
182,994
--------------
METALS & MINING -- 0.5%
361 AK Steel Holding Corp. (a) 3,686
447 Cliffs Natural Resources, Inc. (a) 3,759
221 Coeur Mining, Inc. (a) 2,009
161 Commercial Metals Co. 3,507
611 Hecla Mining Co. 3,202
30 Kaiser Aluminum Corp. 2,331
113 Materion Corp. 4,475
136 Reliance Steel & Aluminum Co. 10,817
127 Royal Gold, Inc. 8,045
65 Stillwater Mining Co. (a) 1,047
54 Worthington Industries, Inc. 2,562
--------------
45,440
--------------
MORTGAGE REAL ESTATE INVESTMENT
TRUSTS -- 0.5%
118 Blackstone Mortgage Trust, Inc.,
Class A 3,548
369 Capstead Mortgage Corp. 3,760
369 Chimera Investment Corp. 6,280
37 Hannon Armstrong Sustainable
Infrastructure Capital, Inc. 703
582 MFA Financial, Inc. 4,441
426 New Residential Investment Corp. 6,697
168 PennyMac Mortgage Investment
Trust 2,750
See Notes to Financial Statements Page 19
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MORTGAGE REAL ESTATE INVESTMENT
TRUSTS (CONTINUED)
246 Redwood Trust, Inc. $ 3,742
174 Starwood Property Trust, Inc. 3,819
230 Two Harbors Investment Corp. 2,005
--------------
37,745
--------------
MULTILINE RETAIL -- 0.9%
55 Big Lots, Inc. 2,762
69 Dillard's, Inc., Class A 4,326
213 J.C. Penney Co., Inc. (a) 1,770
224 Kohl's Corp. 11,061
529 Macy's, Inc. 18,943
76 Nordstrom, Inc. 3,643
100 Ollie's Bargain Outlet Holdings,
Inc. (a) 2,845
380 Target Corp. 27,447
--------------
72,797
--------------
MULTI-UTILITIES -- 0.8%
173 Consolidated Edison, Inc. 12,747
139 DTE Energy Co. 13,693
308 MDU Resources Group, Inc. 8,861
136 NorthWestern Corp. 7,734
624 Public Service Enterprise Group,
Inc. 27,381
--------------
70,416
--------------
OIL, GAS & CONSUMABLE FUELS
-- 3.7%
73 Antero Resources Corp. (a) 1,726
111 Callon Petroleum Co. (a) 1,706
150 Cheniere Energy, Inc. (a) 6,214
938 Chesapeake Energy Corp. (a) 6,585
127 Chevron Corp. 14,948
102 CONSOL Energy, Inc. 1,859
251 Continental Resources, Inc. (a) 12,937
190 CVR Energy, Inc. (b) 4,824
101 Delek US Holdings, Inc. 2,431
444 Devon Energy Corp. 20,277
41 Diamondback Energy, Inc. (a) 4,143
794 Eclipse Resources Corp. (a) 2,120
68 EOG Resources, Inc. 6,875
75 Exxon Mobil Corp. 6,769
68 Laredo Petroleum, Inc. (a) 962
826 Marathon Oil Corp. 14,298
805 Marathon Petroleum Corp. 40,532
45 Newfield Exploration Co. (a) 1,823
304 Oasis Petroleum, Inc. (a) 4,603
153 ONEOK, Inc. 8,784
1,166 Overseas Shipholding Group, Inc.,
Class A 4,466
175 Parsley Energy, Inc., Class A (a) 6,167
77 PBF Energy, Inc., Class A 2,147
324 Phillips 66 27,997
70 Pioneer Natural Resources Co. 12,605
375 Rice Energy, Inc. (a) 8,006
152 RSP Permian, Inc. (a) 6,782
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS
(CONTINUED)
296 Sanchez Energy Corp. (a) $ 2,673
283 Southwestern Energy Co. (a) 3,062
80 Targa Resources Corp. 4,486
123 Tesoro Corp. 10,756
616 Valero Energy Corp. 42,085
165 Western Refining, Inc. 6,245
127 World Fuel Services Corp. 5,831
--------------
307,724
--------------
PAPER & FOREST PRODUCTS -- 0.2%
137 Boise Cascade Co. (a) 3,082
40 Clearwater Paper Corp. (a) 2,622
138 KapStone Paper and Packaging
Corp. 3,043
33 Neenah Paper, Inc. 2,812
201 P.H. Glatfelter Co. 4,802
90 Schweitzer-Mauduit International,
Inc. 4,098
--------------
20,459
--------------
PERSONAL PRODUCTS -- 0.1%
615 Avon Products, Inc. (a) 3,100
32 Herbalife Ltd. (a) 1,540
30 Nu Skin Enterprises, Inc., Class A 1,433
47 Revlon, Inc., Class A (a) 1,370
13 USANA Health Sciences, Inc. (a) 796
--------------
8,239
--------------
PHARMACEUTICALS -- 0.8%
144 Akorn, Inc. (a) 3,144
230 Amphastar Pharmaceuticals, Inc. (a) 4,237
52 ANI Pharmaceuticals, Inc. (a) 3,152
76 Catalent, Inc. (a) 2,049
536 Corcept Therapeutics, Inc. (a) 3,891
139 Depomed, Inc. (a) 2,505
26 Dermira, Inc. (a) 789
324 Horizon Pharma PLC (a) 5,242
37 Impax Laboratories, Inc. (a) 490
66 Lannett Co., Inc. (a) 1,455
105 Merck & Co., Inc. 6,181
343 Mylan N.V. (a) 13,086
51 Nektar Therapeutics (a) 626
64 Phibro Animal Health Corp.,
Class A 1,875
71 Sucampo Pharmaceuticals, Inc.,
Class A (a) 962
141 Supernus Pharmaceuticals, Inc. (a) 3,560
72 Theravance Biopharma Inc. (a) 2,295
126 Zoetis, Inc. 6,745
--------------
62,284
--------------
PROFESSIONAL SERVICES -- 1.0%
78 Advisory Board (The) Co. (a) 2,593
311 CBIZ, Inc. (a) 4,261
57 Dun & Bradstreet (The) Corp. 6,915
146 Equifax, Inc. 17,262
39 FTI Consulting, Inc. (a) 1,758
44 Huron Consulting Group, Inc. (a) 2,229
Page 20 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PROFESSIONAL SERVICES (CONTINUED)
59 ICF International, Inc. (a) $ 3,257
60 Insperity, Inc. 4,257
227 Kelly Services, Inc., Class A 5,203
136 ManpowerGroup, Inc. 12,086
172 Navigant Consulting, Inc. (a) 4,503
207 Robert Half International, Inc. 10,097
227 TransUnion (a) 7,021
201 TriNet Group, Inc. (a) 5,150
--------------
86,592
--------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT -- 0.4%
27 Altisource Portfolio Solutions
S.A. (a) 718
467 CBRE Group, Inc., Class A (a) 14,706
17 Howard Hughes (The) Corp. (a) 1,940
86 Jones Lang LaSalle, Inc. 8,689
39 Kennedy-Wilson Holdings, Inc. 800
67 Marcus & Millichap, Inc. (a) 1,790
303 Realogy Holdings Corp. 7,796
--------------
36,439
--------------
ROAD & RAIL -- 1.4%
24 AMERCO 8,870
57 Avis Budget Group, Inc. (a) 2,091
642 CSX Corp. 23,067
85 Genesee & Wyoming, Inc.,
Class A (a) 5,900
138 Heartland Express, Inc. 2,810
24 J.B. Hunt Transport Services, Inc. 2,330
58 Landstar System, Inc. 4,947
207 Marten Transport Ltd. 4,823
202 Norfolk Southern Corp. 21,830
114 Old Dominion Freight Line, Inc. (a) 9,780
119 Ryder System, Inc. 8,858
145 Saia, Inc. (a) 6,402
122 Swift Transportation Co. (a) 2,972
67 Union Pacific Corp. 6,946
187 Werner Enterprises, Inc. 5,040
--------------
116,666
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 4.8%
37 Advanced Energy Industries,
Inc. (a) 2,026
1,418 Advanced Micro Devices, Inc. (a) 16,080
24 Ambarella, Inc. (a) 1,299
179 Amkor Technology, Inc. (a) 1,888
1,083 Applied Materials, Inc. 34,948
16 Cabot Microelectronics Corp. 1,011
99 CEVA, Inc. (a) 3,321
184 Cirrus Logic, Inc. (a) 10,403
806 Cypress Semiconductor Corp. 9,221
82 Diodes, Inc. (a) 2,105
150 Entegris, Inc. (a) 2,685
248 First Solar, Inc. (a) 7,958
241 FormFactor, Inc. (a) 2,699
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (CONTINUED)
80 Inphi Corp. (a) $ 3,570
339 Integrated Device Technology,
Inc. (a) 7,987
692 Intel Corp. 25,099
345 Lam Research Corp. 36,477
537 Lattice Semiconductor Corp. (a) 3,952
21 MACOM Technology Solutions
Holdings, Inc. (a) 972
172 MaxLinear, Inc., Class A (a) 3,750
526 Microchip Technology, Inc. 33,743
1,469 Micron Technology, Inc. (a) 32,200
187 Microsemi Corp. (a) 10,092
70 MKS Instruments, Inc. 4,158
122 Monolithic Power Systems, Inc. 9,995
266 NeoPhotonics Corp. (a) 2,875
477 NVIDIA Corp. 50,915
477 ON Semiconductor Corp. (a) 6,087
422 Photronics, Inc. (a) 4,769
41 Power Integrations, Inc. 2,782
105 Qorvo, Inc. (a) 5,537
191 QUALCOMM, Inc. 12,453
348 Rambus, Inc. (a) 4,792
63 Semtech Corp. (a) 1,988
30 Synaptics, Inc. (a) 1,607
279 Texas Instruments, Inc. 20,359
240 Xilinx, Inc. 14,489
--------------
396,292
--------------
SOFTWARE -- 3.8%
226 8x8, Inc. (a) 3,232
407 A10 Networks, Inc. (a) 3,382
737 Activision Blizzard, Inc. 26,613
241 Adobe Systems, Inc. (a) 24,811
168 Aspen Technology, Inc. (a) 9,186
271 Autodesk, Inc. (a) 20,057
171 Barracuda Networks, Inc. (a) 3,665
30 Blackbaud, Inc. 1,920
56 BroadSoft, Inc. (a) 2,310
592 CA, Inc. 18,808
154 Cadence Design Systems, Inc. (a) 3,884
102 CDK Global, Inc. 6,088
153 Citrix Systems, Inc. (a) 13,664
61 Ebix, Inc. 3,480
229 Electronic Arts, Inc. (a) 18,036
25 Ellie Mae, Inc. (a) 2,092
63 Fair Isaac Corp. 7,511
79 Gigamon, Inc. (a) 3,598
33 Guidewire Software, Inc. (a) 1,628
60 HubSpot, Inc. (a) 2,820
166 Oracle Corp. 6,383
69 Paycom Software, Inc. (a) 3,139
59 Paylocity Holding Corp. (a) 1,771
59 Pegasystems, Inc. 2,124
131 Proofpoint, Inc. (a) 9,255
39 PROS Holdings, Inc. (a) 839
133 PTC, Inc. (a) 6,154
91 Qualys, Inc. (a) 2,880
See Notes to Financial Statements Page 21
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SOFTWARE (CONTINUED)
99 Rapid7, Inc. (a) $ 1,205
81 Red Hat, Inc. (a) 5,646
147 RingCentral, Inc., Class A (a) 3,028
330 ServiceNow, Inc. (a) 24,532
123 Silver Spring Networks, Inc. (a) 1,637
100 Splunk, Inc. (a) 5,115
122 SS&C Technologies Holdings, Inc. 3,489
85 Synchronoss Technologies, Inc. (a) 3,255
132 Synopsys, Inc. (a) 7,770
71 Tableau Software, Inc., Class A (a) 2,993
217 Take-Two Interactive Software,
Inc. (a) 10,696
45 TiVo Corp. (a) 940
34 Tyler Technologies, Inc. (a) 4,854
10 Ultimate Software Group (The),
Inc. (a) 1,823
27 VMware, Inc., Class A (a) (b) 2,126
356 Workday, Inc., Class A (a) 23,528
192 Workiva, Inc. (a) 2,621
113 Zendesk, Inc. (a) 2,396
--------------
316,984
--------------
SPECIALTY RETAIL -- 3.9%
171 Aaron's, Inc. 5,470
274 Abercrombie & Fitch Co., Class A 3,288
549 American Eagle Outfitters, Inc. 8,328
31 Asbury Automotive Group, Inc. (a) 1,913
623 Ascena Retail Group, Inc. (a) 3,856
161 AutoNation, Inc. (a) 7,833
231 Barnes & Noble, Inc. 2,576
227 Bed Bath & Beyond, Inc. 9,225
855 Best Buy Co., Inc. 36,483
181 Buckle (The), Inc. (b) 4,127
121 Burlington Stores, Inc. (a) 10,255
107 Cabela's, Inc. (a) 6,265
172 Caleres, Inc. 5,645
132 Cato (The) Corp., Class A 3,971
11 Children's Place (The), Inc. 1,110
104 Dick's Sporting Goods, Inc. 5,522
170 DSW, Inc., Class A 3,850
369 Express, Inc. (a) 3,970
116 Foot Locker, Inc. 8,223
169 Francesca's Holdings Corp. (a) 3,047
355 GameStop Corp., Class A 8,967
1,468 Gap (The), Inc. 32,942
80 Genesco, Inc. (a) 4,968
128 GNC Holdings, Inc., Class A 1,413
41 Group 1 Automotive, Inc. 3,196
298 Guess?, Inc. 3,606
87 Hibbett Sports, Inc. (a) 3,245
18 Lithia Motors, Inc., Class A 1,743
110 Murphy USA, Inc. (a) 6,762
1,220 Office Depot, Inc. 5,514
51 Party City Holdco, Inc. (a) 724
163 Penske Automotive Group, Inc. 8,450
50 RH (a) 1,535
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SPECIALTY RETAIL (CONTINUED)
508 Ross Stores, Inc. $ 33,325
131 Signet Jewelers Ltd. 12,348
232 Sonic Automotive, Inc., Class A 5,313
81 Tiffany & Co. 6,272
110 Ulta Salon, Cosmetics & Fragrance,
Inc. (a) 28,043
227 Urban Outfitters, Inc. (a) 6,465
162 Vitamin Shoppe, Inc. (a) 3,848
153 Williams-Sonoma, Inc. 7,404
--------------
321,040
--------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 1.2%
97 3D Systems Corp. (a) 1,289
173 Apple, Inc. 20,037
105 Diebold Nixdorf, Inc. 2,641
1,436 Hewlett Packard Enterprise Co. 33,229
122 NCR Corp. (a) 4,948
55 NetApp, Inc. 1,940
149 Super Micro Computer, Inc. (a) 4,179
112 Western Digital Corp. 7,610
2,579 Xerox Corp. 22,515
--------------
98,388
--------------
TEXTILES, APPAREL & LUXURY GOODS
-- 0.5%
179 Coach, Inc. 6,269
104 Columbia Sportswear Co. 6,063
58 Deckers Outdoor Corp. (a) 3,213
157 Fossil Group, Inc. (a) 4,060
149 G-III Apparel Group Ltd. (a) 4,404
39 Oxford Industries, Inc. 2,345
89 PVH Corp. 8,031
58 Ralph Lauren Corp. 5,239
50 Steven Madden Ltd. (a) 1,787
38 Wolverine World Wide, Inc. 834
--------------
42,245
--------------
THRIFTS & MORTGAGE FINANCE
-- 0.4%
39 BofI Holding, Inc. (a) (b) 1,114
208 Dime Community Bancshares, Inc. 4,181
98 Essent Group Ltd. (a) 3,172
126 Flagstar Bancorp, Inc. (a) 3,394
104 HomeStreet, Inc. (a) 3,286
64 Kearny Financial Corp. 995
544 MGIC Investment Corp. (a) 5,543
82 Provident Financial Services, Inc. 2,321
321 Radian Group, Inc. 5,772
123 TrustCo Bank Corp. NY 1,076
34 Walker & Dunlop, Inc. (a) 1,061
65 Washington Federal, Inc. 2,233
24 WSFS Financial Corp. 1,112
--------------
35,260
--------------
TOBACCO -- 0.1%
75 Universal Corp. 4,781
--------------
Page 22 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TRADING COMPANIES &
DISTRIBUTORS -- 0.9%
343 Air Lease Corp. $ 11,775
41 Beacon Roofing Supply, Inc. (a) 1,889
98 GATX Corp. (b) 6,035
104 H&E Equipment Services, Inc. 2,418
245 HD Supply Holdings, Inc. (a) 10,415
52 Herc Holdings, Inc. (a) 2,088
40 Kaman Corp. 1,957
80 MSC Industrial Direct Co., Inc.,
Class A 7,391
178 Rush Enterprises, Inc., Class A (a) 5,678
198 Triton International Ltd. 3,129
125 United Rentals, Inc. (a) 13,198
52 Veritiv Corp. (a) 2,795
57 WESCO International, Inc. (a) 3,793
--------------
72,561
--------------
TRANSPORTATION INFRASTRUCTURE
-- 0.0%
47 Macquarie Infrastructure Corp. 3,840
--------------
WATER UTILITIES -- 0.0%
20 SJW Group 1,120
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 0.6%
360 Telephone and Data Systems, Inc. 10,393
559 T-Mobile US, Inc. (a) 32,148
120 United States Cellular Corp. (a) 5,247
--------------
47,788
--------------
TOTAL COMMON STOCKS -- 99.9% 8,313,998
--------------
(Cost $7,832,610)
MONEY MARKET FUNDS -- 1.0%
54,293 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
0.39% (d) (e) 54,293
31,840 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 0.38% (d) 31,840
--------------
TOTAL MONEY MARKET FUNDS --
1.0% 86,133
(Cost $86,133) --------------
TOTAL INVESTMENTS -- 100.9% 8,400,131
(Cost $7,918,743) (f)
NET OTHER ASSETS AND
LIABILITIES -- (0.9)% (78,745)
--------------
NET ASSETS -- 100.0% $ 8,321,386
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan (see Note 2E - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $52,733 and the total value of the collateral held by the
Fund is $54,293.
(c) Non-income producing security which makes payment-in-kind ("PIK")
distributions. For the year ended December 31, 2016, the Fund received 1
PIK share of Summit Materials, Inc., Class A.
(d) Interest rate shown reflects yield as of December 31, 2016.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $7,976,178. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$708,281 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$284,328.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------------
Common Stocks* $ 8,313,998 $ -- $ --
Money Market
Funds 86,133 -- --
------------------------------------------------
Total Investments $ 8,400,131 $ -- $ --
================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
See Notes to Financial Statements Page 23
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 201
-----------------------------
OFFSETTING ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2D - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 52,733
Non-cash Collateral(2) (52,733)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included "Investments, at value," is not offset and is shown on a gross
basis.
(2) At December 31, 2016, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
Page 24 See Notes to Financial Statements
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
AEROSPACE & DEFENSE -- 2.2%
81 Arconic, Inc. $ 1,502
106 Boeing (The) Co. 16,502
53 General Dynamics Corp. 9,151
14 L-3 Technologies, Inc. 2,130
47 Lockheed Martin Corp. 11,747
33 Northrop Grumman Corp. 7,675
54 Raytheon Co. 7,668
24 Rockwell Collins, Inc. 2,226
50 Textron, Inc. 2,428
9 TransDigm Group, Inc. 2,241
142 United Technologies Corp. 15,566
--------------
78,836
--------------
AIR FREIGHT & LOGISTICS -- 0.7%
26 C.H. Robinson Worldwide, Inc. 1,905
33 Expeditors International of
Washington, Inc. 1,747
45 FedEx Corp. 8,379
128 United Parcel Service, Inc.,
Class B 14,674
--------------
26,705
--------------
AIRLINES -- 0.6%
23 Alaska Air Group, Inc. 2,041
96 American Airlines Group, Inc. 4,482
136 Delta Air Lines, Inc. 6,690
114 Southwest Airlines Co. 5,682
53 United Continental Holdings,
Inc. (a) 3,862
--------------
22,757
--------------
AUTO COMPONENTS -- 0.2%
37 BorgWarner, Inc. 1,459
50 Delphi Automotive PLC 3,368
48 Goodyear Tire & Rubber (The) Co. 1,482
--------------
6,309
--------------
AUTOMOBILES -- 0.6%
723 Ford Motor Co. 8,770
257 General Motors Co. 8,954
33 Harley-Davidson, Inc. 1,925
--------------
19,649
--------------
BANKS -- 6.7%
1,871 Bank of America Corp. 41,349
150 BB&T Corp. 7,053
528 Citigroup, Inc. 31,379
95 Citizens Financial Group, Inc. 3,385
32 Comerica, Inc. 2,180
140 Fifth Third Bancorp 3,776
201 Huntington Bancshares, Inc. 2,657
663 JPMorgan Chase & Co. 57,210
200 KeyCorp 3,654
29 M&T Bank Corp. 4,536
58 People's United Financial, Inc. 1,123
90 PNC Financial Services Group
(The), Inc. 10,526
228 Regions Financial Corp. 3,274
91 SunTrust Banks, Inc. 4,991
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
BANKS (CONTINUED)
296 U.S. Bancorp $ 15,206
837 Wells Fargo & Co. 46,127
38 Zions Bancorporation 1,636
--------------
240,062
--------------
BEVERAGES -- 2.1%
34 Brown-Forman Corp., Class B 1,527
719 Coca-Cola (The) Co. 29,810
33 Constellation Brands, Inc.,
Class A 5,059
34 Dr Pepper Snapple Group, Inc. 3,083
34 Molson Coors Brewing Co.,
Class B 3,309
75 Monster Beverage Corp. (a) 3,325
266 PepsiCo, Inc. 27,832
--------------
73,945
--------------
BIOTECHNOLOGY -- 2.8%
301 AbbVie, Inc. 18,848
42 Alexion Pharmaceuticals, Inc. (a) 5,139
138 Amgen, Inc. 20,177
40 Biogen, Inc. (a) 11,343
144 Celgene Corp. (a) 16,668
244 Gilead Sciences, Inc. 17,473
14 Regeneron Pharmaceuticals, Inc. (a) 5,139
46 Vertex Pharmaceuticals, Inc. (a) 3,389
--------------
98,176
--------------
BUILDING PRODUCTS -- 0.3%
18 Allegion PLC 1,152
29 Fortune Brands Home & Security,
Inc. 1,550
173 Johnson Controls International PLC 7,126
61 Masco Corp. 1,929
--------------
11,757
--------------
CAPITAL MARKETS -- 2.8%
10 Affiliated Managers Group, Inc. (a) 1,453
29 Ameriprise Financial, Inc. 3,217
196 Bank of New York Mellon (The)
Corp. 9,286
23 BlackRock, Inc. 8,752
223 Charles Schwab (The) Corp. 8,802
63 CME Group, Inc. 7,267
51 E*TRADE Financial Corp. (a) 1,767
64 Franklin Resources, Inc. 2,533
68 Goldman Sachs Group (The), Inc. 16,283
110 Intercontinental Exchange, Inc. 6,206
76 Invesco Ltd. 2,306
31 Moody's Corp. 2,922
267 Morgan Stanley 11,281
21 Nasdaq, Inc. 1,410
39 Northern Trust Corp. 3,473
48 S&P Global, Inc. 5,162
67 State Street Corp. 5,207
45 T. Rowe Price Group, Inc. 3,387
--------------
100,714
--------------
See Notes to Financial Statements Page 25
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
CHEMICALS -- 2.1%
40 Air Products and Chemicals, Inc. $ 5,753
21 Albemarle Corp. 1,808
43 CF Industries Holdings, Inc. 1,354
208 Dow Chemical (The) Co. 11,902
161 E.I. du Pont de Nemours and Co. 11,817
27 Eastman Chemical Co. 2,031
49 Ecolab, Inc. 5,744
25 FMC Corp. 1,414
15 International Flavors & Fragrances,
Inc. 1,767
62 LyondellBasell Industries N.V.,
Class A 5,318
81 Monsanto Co. 8,522
65 Mosaic (The) Co. 1,906
49 PPG Industries, Inc. 4,643
53 Praxair, Inc. 6,211
15 Sherwin-Williams (The) Co. 4,031
--------------
74,221
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 0.3%
16 Cintas Corp. 1,849
34 Pitney Bowes, Inc. 516
43 Republic Services, Inc. 2,453
16 Stericycle, Inc. (a) 1,233
75 Waste Management, Inc. 5,318
--------------
11,369
--------------
COMMUNICATIONS EQUIPMENT
-- 1.0%
929 Cisco Systems, Inc. 28,074
12 F5 Networks, Inc. (a) 1,737
23 Harris Corp. 2,357
70 Juniper Networks, Inc. 1,978
31 Motorola Solutions, Inc. 2,570
--------------
36,716
--------------
CONSTRUCTION & ENGINEERING
-- 0.1%
26 Fluor Corp. 1,365
22 Jacobs Engineering Group, Inc. (a) 1,254
28 Quanta Services, Inc. (a) 976
--------------
3,595
--------------
CONSTRUCTION MATERIALS -- 0.2%
12 Martin Marietta Materials, Inc. 2,658
24 Vulcan Materials Co. 3,004
--------------
5,662
--------------
CONSUMER FINANCE -- 0.8%
142 American Express Co. 10,520
89 Capital One Financial Corp. 7,764
73 Discover Financial Services 5,263
56 Navient Corp. 920
145 Synchrony Financial 5,259
--------------
29,726
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.3%
16 Avery Dennison Corp. $ 1,124
32 Ball Corp. 2,402
76 International Paper Co. 4,033
36 Sealed Air Corp. 1,632
46 WestRock Co. 2,335
--------------
11,526
--------------
DISTRIBUTORS -- 0.1%
28 Genuine Parts Co. 2,675
57 LKQ Corp. (a) 1,747
--------------
4,422
--------------
DIVERSIFIED CONSUMER SERVICES
-- 0.0%
41 H&R Block, Inc. 943
--------------
DIVERSIFIED FINANCIAL SERVICES
-- 1.6%
352 Berkshire Hathaway, Inc.,
Class B (a) 57,369
60 Leucadia National Corp. 1,395
--------------
58,764
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 2.7%
1,137 AT&T, Inc. 48,357
101 CenturyLink, Inc. 2,402
217 Frontier Communications Corp. 733
54 Level 3 Communications, Inc. (a) 3,043
755 Verizon Communications, Inc. 40,302
--------------
94,837
--------------
ELECTRIC UTILITIES -- 2.0%
42 Alliant Energy Corp. 1,591
91 American Electric Power Co., Inc. 5,729
128 Duke Energy Corp. 9,935
60 Edison International 4,320
33 Entergy Corp. 2,425
59 Eversource Energy 3,259
171 Exelon Corp. 6,069
79 FirstEnergy Corp. 2,447
87 NextEra Energy, Inc. 10,393
94 PG&E Corp. 5,712
21 Pinnacle West Capital Corp. 1,639
126 PPL Corp. 4,290
181 Southern (The) Co. 8,903
94 Xcel Energy, Inc. 3,826
--------------
70,538
--------------
ELECTRICAL EQUIPMENT -- 0.5%
8 Acuity Brands, Inc. 1,847
43 AMETEK, Inc. 2,090
84 Eaton Corp. PLC 5,635
119 Emerson Electric Co. 6,634
24 Rockwell Automation, Inc. 3,226
--------------
19,432
--------------
Page 26 See Notes to Financial Statements
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 0.4%
57 Amphenol Corp., Class A $ 3,830
176 Corning, Inc. 4,272
25 FLIR Systems, Inc. 905
66 TE Connectivity Ltd. 4,572
--------------
13,579
--------------
ENERGY EQUIPMENT & SERVICES
-- 1.2%
78 Baker Hughes, Inc. 5,068
42 FMC Technologies, Inc. (a) 1,492
160 Halliburton Co. 8,655
20 Helmerich & Payne, Inc. 1,548
70 National Oilwell Varco, Inc. 2,621
258 Schlumberger Ltd. 21,659
72 Transocean Ltd. (a) 1,061
--------------
42,104
--------------
EQUITY REAL ESTATE INVESTMENT
TRUSTS -- 2.8%
79 American Tower Corp. 8,349
29 Apartment Investment &
Management Co., Class A 1,318
25 AvalonBay Communities, Inc. 4,429
28 Boston Properties, Inc. 3,522
67 Crown Castle International Corp. 5,814
29 Digital Realty Trust, Inc. 2,850
13 Equinix, Inc. 4,646
68 Equity Residential 4,376
12 Essex Property Trust, Inc. 2,790
23 Extra Space Storage, Inc. 1,777
13 Federal Realty Investment Trust 1,847
108 General Growth Properties, Inc. 2,698
87 HCP, Inc. 2,586
137 Host Hotels & Resorts, Inc. 2,581
45 Iron Mountain, Inc. 1,462
79 Kimco Realty Corp. 1,988
22 Macerich (The) Co. 1,558
21 Mid-America Apartment
Communities, Inc. 2,056
98 Prologis, Inc. 5,173
28 Public Storage 6,258
48 Realty Income Corp. 2,759
58 Simon Property Group, Inc. 10,305
19 SL Green Realty Corp. 2,043
49 UDR, Inc. 1,788
66 Ventas, Inc. 4,126
32 Vornado Realty Trust 3,340
67 Welltower, Inc. 4,484
139 Weyerhaeuser Co. 4,182
--------------
101,105
--------------
FOOD & STAPLES RETAILING -- 2.1%
81 Costco Wholesale Corp. 12,969
197 CVS Health Corp. 15,545
175 Kroger (The) Co. 6,039
93 Sysco Corp. 5,149
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
FOOD & STAPLES RETAILING
(CONTINUED)
158 Walgreens Boots Alliance, Inc. $ 13,076
279 Wal-Mart Stores, Inc. 19,285
59 Whole Foods Market, Inc. 1,815
--------------
73,878
--------------
FOOD PRODUCTS -- 1.6%
107 Archer-Daniels-Midland Co. 4,885
36 Campbell Soup Co. 2,177
77 Conagra Brands, Inc. 3,045
109 General Mills, Inc. 6,733
26 Hershey (The) Co. 2,689
50 Hormel Foods Corp. 1,741
22 J.M. Smucker (The) Co. 2,817
47 Kellogg Co. 3,464
110 Kraft Heinz (The) Co. 9,605
21 McCormick & Co., Inc. 1,960
34 Mead Johnson Nutrition Co. 2,406
286 Mondelez International, Inc.,
Class A 12,678
54 Tyson Foods, Inc., Class A 3,331
--------------
57,531
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 2.4%
273 Abbott Laboratories 10,486
91 Baxter International, Inc. 4,035
39 Becton, Dickinson and Co. 6,457
252 Boston Scientific Corp. (a) 5,451
14 C. R. Bard, Inc. 3,145
9 Cooper (The) Cos., Inc. 1,574
113 Danaher Corp. 8,796
43 DENTSPLY SIRONA, Inc. 2,482
40 Edwards Lifesciences Corp. (a) 3,748
52 Hologic, Inc. (a) 2,086
7 Intuitive Surgical, Inc. (a) 4,439
254 Medtronic PLC 18,093
53 St. Jude Medical, Inc. 4,250
58 Stryker Corp. 6,949
17 Varian Medical Systems, Inc. (a) 1,526
37 Zimmer Biomet Holdings, Inc. 3,819
--------------
87,336
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 2.6%
65 Aetna, Inc. 8,061
31 AmerisourceBergen Corp. 2,424
49 Anthem, Inc. 7,045
59 Cardinal Health, Inc. 4,246
32 Centene Corp. (a) 1,808
48 Cigna Corp. 6,403
29 DaVita, Inc. (a) 1,862
22 Envision Healthcare Corp. (a) 1,392
114 Express Scripts Holding Co. (a) 7,842
54 HCA Holdings, Inc. (a) 3,997
15 Henry Schein, Inc. (a) 2,276
28 Humana, Inc. 5,713
19 Laboratory Corp. of America
Holdings (a) 2,439
See Notes to Financial Statements Page 27
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HEALTH CARE PROVIDERS & SERVICES
(CONTINUED)
42 McKesson Corp. $ 5,899
15 Patterson Cos., Inc. 615
26 Quest Diagnostics, Inc. 2,389
176 UnitedHealth Group, Inc. 28,167
17 Universal Health Services, Inc.,
Class B 1,809
--------------
94,387
--------------
HEALTH CARE TECHNOLOGY -- 0.1%
56 Cerner Corp. (a) 2,653
--------------
HOTELS, RESTAURANTS & LEISURE
-- 1.6%
78 Carnival Corp. 4,061
5 Chipotle Mexican Grill, Inc. (a) 1,887
23 Darden Restaurants, Inc. 1,672
59 Marriott International, Inc.,
Class A 4,878
154 McDonald's Corp. 18,745
31 Royal Caribbean Cruises Ltd. 2,543
269 Starbucks Corp. 14,935
20 Wyndham Worldwide Corp. 1,527
15 Wynn Resorts Ltd. 1,298
65 Yum! Brands, Inc. 4,116
--------------
55,662
--------------
HOUSEHOLD DURABLES -- 0.5%
63 D.R. Horton, Inc. 1,722
21 Garmin Ltd. 1,018
13 Harman International Industries,
Inc. 1,445
25 Leggett & Platt, Inc. 1,222
36 Lennar Corp., Class A 1,545
12 Mohawk Industries, Inc. (a) 2,396
89 Newell Brands, Inc. 3,974
55 PulteGroup, Inc. 1,011
14 Whirlpool Corp. 2,545
--------------
16,878
--------------
HOUSEHOLD PRODUCTS -- 1.8%
48 Church & Dwight Co., Inc. 2,121
24 Clorox (The) Co. 2,880
165 Colgate-Palmolive Co. 10,798
66 Kimberly-Clark Corp. 7,532
495 Procter & Gamble (The) Co. 41,620
--------------
64,951
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 0.1%
122 AES (The) Corp. 1,418
58 NRG Energy, Inc. 711
--------------
2,129
--------------
INDUSTRIAL CONGLOMERATES -- 2.6%
111 3M Co. 19,821
1,638 General Electric Co. 51,761
141 Honeywell International, Inc. 16,335
19 Roper Technologies, Inc. 3,478
--------------
91,395
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
INSURANCE -- 2.8%
76 Aflac, Inc. $ 5,290
68 Allstate (The) Corp. 5,040
181 American International Group, Inc. 11,821
49 Aon PLC 5,465
33 Arthur J. Gallagher & Co. 1,715
11 Assurant, Inc. 1,021
86 Chubb Ltd. 11,362
28 Cincinnati Financial Corp. 2,121
70 Hartford Financial Services Group
(The), Inc. 3,336
42 Lincoln National Corp. 2,783
51 Loews Corp. 2,388
95 Marsh & McLennan Cos., Inc. 6,421
204 MetLife, Inc. 10,994
50 Principal Financial Group, Inc. 2,893
107 Progressive (The) Corp. 3,799
80 Prudential Financial, Inc. 8,325
20 Torchmark Corp. 1,475
53 Travelers (The) Cos., Inc. 6,488
43 Unum Group 1,889
24 Willis Towers Watson PLC 2,935
50 XL Group Ltd. 1,863
--------------
99,424
--------------
INTERNET & DIRECT MARKETING RETAIL
-- 2.3%
73 Amazon.com, Inc. (a) 54,740
22 Expedia, Inc. 2,492
79 Netflix, Inc. (a) 9,780
9 Priceline Group (The), Inc. (a) 13,195
21 TripAdvisor, Inc. (a) 974
--------------
81,181
--------------
INTERNET SOFTWARE & SERVICES
-- 4.2%
32 Akamai Technologies, Inc. (a) 2,134
55 Alphabet, Inc., Class A (a) 43,585
55 Alphabet, Inc., Class C (a) 42,450
192 eBay, Inc. (a) 5,700
433 Facebook, Inc., Class A (a) 49,817
17 VeriSign, Inc. (a) 1,293
163 Yahoo!, Inc. (a) 6,303
--------------
151,282
--------------
IT SERVICES -- 3.6%
115 Accenture PLC, Class A 13,470
11 Alliance Data Systems Corp. 2,513
84 Automatic Data Processing, Inc. 8,634
112 Cognizant Technology Solutions
Corp., Class A (a) 6,275
27 CSRA, Inc. 860
61 Fidelity National Information
Services, Inc. 4,614
40 Fiserv, Inc. (a) 4,251
28 Global Payments, Inc. 1,943
160 International Business Machines
Corp. 26,558
176 Mastercard, Inc., Class A 18,172
60 Paychex, Inc. 3,653
Page 28 See Notes to Financial Statements
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
IT SERVICES (CONTINUED)
208 PayPal Holdings, Inc. (a) $ 8,210
24 Teradata Corp. (a) 652
31 Total System Services, Inc. 1,520
346 Visa, Inc., Class A 26,995
90 Western Union (The) Co. 1,955
--------------
130,275
--------------
LEISURE PRODUCTS -- 0.1%
21 Hasbro, Inc. 1,633
63 Mattel, Inc. 1,736
--------------
3,369
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 0.6%
60 Agilent Technologies, Inc. 2,734
27 Illumina, Inc. (a) 3,457
5 Mettler-Toledo International,
Inc. (a) 2,093
20 PerkinElmer, Inc. 1,043
73 Thermo Fisher Scientific, Inc. 10,300
15 Waters Corp. (a) 2,016
--------------
21,643
--------------
MACHINERY -- 1.5%
108 Caterpillar, Inc. 10,016
29 Cummins, Inc. 3,964
54 Deere & Co. 5,564
29 Dover Corp. 2,173
24 Flowserve Corp. 1,153
56 Fortive Corp. 3,003
58 Illinois Tool Works, Inc. 7,103
48 Ingersoll-Rand PLC 3,602
65 PACCAR, Inc. 4,154
25 Parker-Hannifin Corp. 3,500
31 Pentair PLC 1,738
11 Snap-on, Inc. 1,884
28 Stanley Black & Decker, Inc. 3,211
33 Xylem, Inc. 1,634
--------------
52,699
--------------
MEDIA -- 3.1%
73 CBS Corp., Class B 4,644
40 Charter Communications, Inc.,
Class A (a) 11,517
441 Comcast Corp., Class A 30,451
28 Discovery Communications, Inc.,
Class A (a) 767
41 Discovery Communications, Inc.,
Class C (a) 1,098
74 Interpublic Group of Cos. (The),
Inc. 1,732
71 News Corp., Class A 814
22 News Corp., Class B 259
44 Omnicom Group, Inc. 3,745
18 Scripps Networks Interactive, Inc.,
Class A 1,285
40 TEGNA, Inc. 856
143 Time Warner, Inc. 13,804
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
MEDIA (CONTINUED)
196 Twenty-First Century Fox, Inc.,
Class A $ 5,496
90 Twenty-First Century Fox, Inc.,
Class B 2,452
64 Viacom, Inc., Class B 2,246
271 Walt Disney (The) Co. 28,244
--------------
109,410
--------------
METALS & MINING -- 0.3%
232 Freeport-McMoRan, Inc. (a) 3,060
98 Newmont Mining Corp. 3,339
59 Nucor Corp. 3,512
--------------
9,911
--------------
MULTILINE RETAIL -- 0.5%
47 Dollar General Corp. 3,481
44 Dollar Tree, Inc. (a) 3,396
33 Kohl's Corp. 1,630
57 Macy's, Inc. 2,041
22 Nordstrom, Inc. 1,054
104 Target Corp. 7,512
--------------
19,114
--------------
MULTI-UTILITIES -- 1.1%
45 Ameren Corp. 2,361
80 CenterPoint Energy, Inc. 1,971
52 CMS Energy Corp. 2,164
56 Consolidated Edison, Inc. 4,126
116 Dominion Resources, Inc. 8,885
33 DTE Energy Co. 3,251
60 NiSource, Inc. 1,328
94 Public Service Enterprise Group,
Inc. 4,125
26 SCANA Corp. 1,905
46 Sempra Energy 4,629
58 WEC Energy Group, Inc. 3,402
--------------
38,147
--------------
OIL, GAS & CONSUMABLE FUELS
-- 6.4%
103 Anadarko Petroleum Corp. 7,182
70 Apache Corp. 4,443
86 Cabot Oil & Gas Corp. 2,009
138 Chesapeake Energy Corp. (a) 969
350 Chevron Corp. 41,195
18 Cimarex Energy Co. 2,446
27 Concho Resources, Inc. (a) 3,580
229 ConocoPhillips 11,482
97 Devon Energy Corp. 4,430
107 EOG Resources, Inc. 10,818
32 EQT Corp. 2,093
768 Exxon Mobil Corp. 69,320
49 Hess Corp. 3,052
355 Kinder Morgan, Inc. 7,352
157 Marathon Oil Corp. 2,718
98 Marathon Petroleum Corp. 4,934
30 Murphy Oil Corp. 934
37 Newfield Exploration Co. (a) 1,498
79 Noble Energy, Inc. 3,007
See Notes to Financial Statements Page 29
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL, GAS & CONSUMABLE FUELS
(CONTINUED)
141 Occidental Petroleum Corp. $ 10,043
39 ONEOK, Inc. 2,239
82 Phillips 66 7,085
31 Pioneer Natural Resources Co. 5,582
35 Range Resources Corp. 1,202
91 Southwestern Energy Co. (a) 985
130 Spectra Energy Corp. 5,342
22 Tesoro Corp. 1,924
84 Valero Energy Corp. 5,739
127 Williams (The) Cos., Inc. 3,955
--------------
227,558
--------------
PERSONAL PRODUCTS -- 0.1%
87 Coty, Inc., Class A 1,593
41 Estee Lauder (The) Cos., Inc.,
Class A 3,136
--------------
4,729
--------------
PHARMACEUTICALS -- 5.1%
69 Allergan PLC (a) 14,491
309 Bristol-Myers Squibb Co. 18,058
180 Eli Lilly and Co. 13,239
37 Endo International PLC (a) 609
504 Johnson & Johnson 58,066
20 Mallinckrodt PLC (a) 996
510 Merck & Co., Inc. 30,024
85 Mylan N.V. (a) 3,243
27 Perrigo Co. PLC 2,247
1,124 Pfizer, Inc. 36,508
91 Zoetis, Inc. 4,871
--------------
182,352
--------------
PROFESSIONAL SERVICES -- 0.3%
7 Dun & Bradstreet (The) Corp. 849
22 Equifax, Inc. 2,601
62 Nielsen Holdings PLC 2,601
24 Robert Half International, Inc. 1,171
29 Verisk Analytics, Inc. (a) 2,354
--------------
9,576
--------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT -- 0.0%
56 CBRE Group, Inc., Class A (a) 1,763
--------------
ROAD & RAIL -- 0.9%
173 CSX Corp. 6,216
16 J.B. Hunt Transport Services, Inc. 1,553
20 Kansas City Southern 1,697
54 Norfolk Southern Corp. 5,836
10 Ryder System, Inc. 744
153 Union Pacific Corp. 15,863
--------------
31,909
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 3.4%
57 Analog Devices, Inc. 4,139
200 Applied Materials, Inc. 6,454
74 Broadcom Ltd. 13,081
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (CONTINUED)
14 First Solar, Inc. (a) $ 449
877 Intel Corp. 31,809
29 KLA-Tencor Corp. 2,282
30 Lam Research Corp. 3,172
45 Linear Technology Corp. 2,806
40 Microchip Technology, Inc. 2,566
193 Micron Technology, Inc. (a) 4,231
100 NVIDIA Corp. 10,674
24 Qorvo, Inc. (a) 1,266
273 QUALCOMM, Inc. 17,800
34 Skyworks Solutions, Inc. 2,538
185 Texas Instruments, Inc. 13,499
47 Xilinx, Inc. 2,837
--------------
119,603
--------------
SOFTWARE -- 4.3%
127 Activision Blizzard, Inc. 4,586
92 Adobe Systems, Inc. (a) 9,471
36 Autodesk, Inc. (a) 2,664
58 CA, Inc. 1,843
29 Citrix Systems, Inc. (a) 2,590
56 Electronic Arts, Inc. (a) 4,411
45 Intuit, Inc. 5,157
1,440 Microsoft Corp. 89,482
555 Oracle Corp. 21,340
33 Red Hat, Inc. (a) 2,300
118 salesforce.com, Inc. (a) 8,078
115 Symantec Corp. 2,747
--------------
154,669
--------------
SPECIALTY RETAIL -- 2.4%
14 Advance Auto Parts, Inc. 2,368
12 AutoNation, Inc. (a) 584
5 AutoZone, Inc. (a) 3,949
28 Bed Bath & Beyond, Inc. 1,138
51 Best Buy Co., Inc. 2,176
35 CarMax, Inc. (a) 2,254
25 Foot Locker, Inc. 1,772
41 Gap (The), Inc. 920
226 Home Depot (The), Inc. 30,302
44 L Brands, Inc. 2,897
161 Lowe's Cos., Inc. 11,450
17 O'Reilly Automotive, Inc. (a) 4,733
73 Ross Stores, Inc. 4,789
13 Signet Jewelers Ltd. 1,225
120 Staples, Inc. 1,086
20 Tiffany & Co. 1,549
121 TJX (The) Cos., Inc. 9,091
24 Tractor Supply Co. 1,819
11 Ulta Salon, Cosmetics & Fragrance,
Inc. (a) 2,804
16 Urban Outfitters, Inc. (a) 456
--------------
87,362
--------------
Page 30 See Notes to Financial Statements
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2016
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 3.8%
987 Apple, Inc. $ 114,314
308 Hewlett Packard Enterprise Co. 7,127
317 HP, Inc. 4,704
51 NetApp, Inc. 1,799
55 Seagate Technology PLC 2,100
53 Western Digital Corp. 3,602
158 Xerox Corp. 1,379
--------------
135,025
--------------
TEXTILES, APPAREL & LUXURY GOODS
-- 0.7%
52 Coach, Inc. 1,821
70 Hanesbrands, Inc. 1,510
30 Michael Kors Holdings Ltd. (a) 1,289
247 NIKE, Inc., Class B 12,555
15 PVH Corp. 1,354
10 Ralph Lauren Corp. 903
34 Under Armour, Inc., Class A (a) 988
34 Under Armour, Inc., Class C (b) 856
61 VF Corp. 3,254
--------------
24,530
--------------
TOBACCO -- 1.7%
361 Altria Group, Inc. 24,411
287 Philip Morris International, Inc. 26,258
153 Reynolds American, Inc. 8,574
--------------
59,243
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 0.2%
54 Fastenal Co. 2,537
16 United Rentals, Inc. (a) 1,689
10 W.W. Grainger, Inc. 2,323
--------------
6,549
--------------
WATER UTILITIES -- 0.1%
33 American Water Works Co., Inc. 2,388
--------------
TOTAL INVESTMENTS -- 100.0% 3,567,960
(Cost $2,728,325) (c)
NET OTHER ASSETS AND
LIABILITIES -- 0.0% 1,441
--------------
NET ASSETS -- 100.0% $ 3,569,401
==============
(a) Non-income producing security.
(b) Non-income producing security which makes PIK distributions. For the year
ended December 31, 2016, the Fund received fractional PIK shares of Under
Armour, Inc., Class C.
(c) Aggregate cost for federal income tax purposes is $2,737,740. As of
December 31, 2016, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$918,725 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$88,505.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2016 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------------
Common Stocks* $ 3,567,960 $ -- $ --
================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2016.
See Notes to Financial Statements Page 31
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2016
FIRST TRUST
FIRST TRUST CBOE(R)
TOTAL US MARKET S&P 500(R)
ALPHADEX(R) VIX(R)
ETF TAIL HEDGE FUND
(TUSA) (VIXH)
------------------ ------------------
ASSETS:
Investments, at value................................................................ $ 8,400,131 $ 3,567,960
Receivables:
From investment advisor........................................................ 15,768 --
Dividends...................................................................... 10,761 4,549
Securities lending income...................................................... 57 --
Interest....................................................................... 5 --
Prepaid expenses..................................................................... 7,592 --
-------------- --------------
TOTAL ASSETS................................................................... 8,434,314 3,572,509
-------------- --------------
LIABILITIES:
Due to custodian..................................................................... -- 1,281
Payables:
Investment advisory fees....................................................... -- 1,827
Collateral for securities on loan.............................................. 54,293 --
Audit and tax fees............................................................. 22,925 --
Printing fees.................................................................. 8,623 --
Licensing fees................................................................. 1,658 --
Trustees' fees................................................................. 159 --
Other liabilities.................................................................... 25,270 --
-------------- --------------
TOTAL LIABILITIES.............................................................. 112,928 3,108
-------------- --------------
NET ASSETS........................................................................... $ 8,321,386 $ 3,569,401
============== ==============
NET ASSETS CONSIST OF:
Paid-in capital...................................................................... $ 11,121,473 $ 3,799,037
Par value............................................................................ 3,000 1,500
Accumulated net investment income (loss)............................................. -- --
Accumulated net realized gain (loss) on investments and options...................... (3,284,475) (1,070,771)
Net unrealized appreciation (depreciation) on investments............................ 481,388 839,635
-------------- --------------
NET ASSETS........................................................................... $ 8,321,386 $ 3,569,401
============== ==============
NET ASSET VALUE, per share........................................................... $ 27.74 $ 23.80
============== ==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share)........................................................ 300,002 150,002
============== ==============
Investments, at cost................................................................. $ 7,918,743 $ 2,728,325
============== ==============
Securities on loan, at value......................................................... $ 52,733 $ --
============== ==============
Page 32 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
FIRST TRUST
FIRST TRUST CBOE(R)
TOTAL US MARKET S&P 500(R)
ALPHADEX(R) VIX(R)
ETF TAIL HEDGE FUND
(TUSA) (VIXH)
------------------ ------------------
INVESTMENT INCOME:
Dividends............................................................................ $ 167,061 $ 77,469
Securities lending income (net of fees).............................................. 256 --
Interest............................................................................. 100 --
Foreign tax withholding.............................................................. (37) --
-------------- --------------
Total investment income........................................................ 167,380 77,469
-------------- --------------
EXPENSES:
Investment advisory fees............................................................. 44,812 21,199 (a)
Custodian fees....................................................................... 28,960 --
Accounting and administration fees................................................... 21,344 --
Audit and tax fees................................................................... 21,228 --
Listing fees......................................................................... 17,377 --
Printing fees........................................................................ 17,053 --
Licensing fees....................................................................... 10,422 --
Trustees' fees and expenses.......................................................... 8,431 --
Legal fees........................................................................... 833 --
Transfer agent fees.................................................................. 448 --
Registration and filing fees......................................................... (72) --
Other expenses....................................................................... 4,411 --
-------------- --------------
Total expenses................................................................. 175,247 21,199
Less fees waived and expenses reimbursed by the investment advisor............. (112,511) --
-------------- --------------
Net expenses................................................................... 62,736 21,199
-------------- --------------
NET INVESTMENT INCOME (LOSS)......................................................... 104,644 56,270
-------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments.................................................................... (904,502) 23,880
Options........................................................................ -- (377,263)
In-kind redemptions............................................................ 1,586,716 --
-------------- --------------
Net realized gain (loss)............................................................. 682,214 (353,383)
-------------- --------------
Net change in unrealized appreciation (depreciation) on:
Investments.................................................................... 785,988 296,601
Options........................................................................ -- 19,165
-------------- --------------
Net change in unrealized appreciation (depreciation)................................. 785,988 315,766
-------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS).............................................. 1,468,202 (37,617)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................................................... $ 1,572,846 $ 18,653
============== ==============
(a) Fund is subject to a Unitary Fee (see Note 3 in the Notes to Financial
Statements).
See Notes to Financial Statements Page 33
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST
FIRST TRUST CBOE(R)
TOTAL US MARKET S&P 500(R)
ALPHADEX(R) VIX(R)
ETF TAIL HEDGE FUND
(TUSA) (VIXH)
----------------------------- -----------------------------
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
12/31/2015 12/31/2014 12/31/2015 12/31/2014
------------- ------------- ------------- -------------
OPERATIONS:
Net investment income (loss)........................... $ 104,644 $ 62,257 $ 56,270 $ 55,327
Net realized gain (loss)............................... 682,214 69,168 (353,383) (244,840)
Net change in unrealized appreciation (depreciation)... 785,988 (496,144) 315,766 (38,707)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations..................................... 1,572,846 (364,719) 18,653 (228,220)
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. (113,796) (65,921) (59,491) (56,416)
------------- ------------- ------------- -------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................. 10,272,574 4,949,444 -- --
Cost of shares redeemed................................ (11,927,907) (1,226,230) -- --
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from shareholder transactions....................... (1,655,333) 3,723,214 -- --
------------- ------------- ------------- -------------
Total increase (decrease) in net assets................ (196,283) 3,292,574 (40,838) (284,636)
NET ASSETS:
Beginning of period.................................... 8,517,669 5,225,095 3,610,239 3,894,875
------------- ------------- ------------- -------------
End of period.......................................... $ 8,321,386 $ 8,517,669 $ 3,569,401 $ 3,610,239
============= ============= ============= =============
Accumulated net investment income (loss)
at end of period.................................... $ -- $ (392) $ -- $ --
============= ============= ============= =============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................ 350,002 200,002 150,002 150,002
Shares sold............................................ 400,000 200,000 -- --
Shares redeemed........................................ (450,000) (50,000) -- --
------------- ------------- ------------- -------------
Shares outstanding, end of period...................... 300,002 350,002 150,002 150,002
============= ============= ============= =============
Page 34 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2016 2015 2014 2013 2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 24.34 $ 26.13 $ 25.80 $ 19.34 $ 18.16
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.32 0.22 0.27 0.21 0.34
Net realized and unrealized gain (loss) 3.43 (1.78) 0.34 6.47 1.24
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.75 (1.56) 0.61 6.68 1.58
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.35) (0.23) (0.28) (0.22) (0.40)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 27.74 $ 24.34 $ 26.13 $ 25.80 $ 19.34
========== ========== ========== ========== ==========
TOTAL RETURN (a) 15.48% (5.99)% 2.36% 34.65% 8.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 8,321 $ 8,518 $ 5,225 $ 5,160 $ 3,868
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 1.96% 1.97% 3.17% 2.01% 1.85%
Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income (loss) to
average net assets 1.17% 0.96% 1.05% 0.91% 1.64%
Portfolio turnover rate (b) 113% 170% 183% 186% 203%
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
FOR THE PERIOD
YEAR ENDED DECEMBER 31, 8/29/2012 (c)
--------------------------------------------------------- THROUGH
2016 2015 2014 2013 12/31/2012
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 24.07 $ 25.97 $ 22.86 $ 19.51 $ 19.89
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.38 0.37 0.34 0.34 0.11
Net realized and unrealized gain (loss) (0.25) (1.89) 3.11 3.34 (0.38)
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.13 (1.52) 3.45 3.68 (0.27)
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.40) (0.38) (0.34) (0.33) (0.11)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 23.80 $ 24.07 $ 25.97 $ 22.86 $ 19.51
========== ========== ========== ========== ==========
TOTAL RETURN (a) 0.54% (5.88)% 15.22% 19.00% (1.37)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 3,569 $ 3,610 $ 3,895 $ 5,716 $ 2,927
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d)
Ratio of net investment income (loss) to
average net assets 1.59% 1.46% 1.42% 1.53% 1.97% (d)
Portfolio turnover rate (b) 4% 7% 7% 4% 2%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns for First Trust Total US Market
AlphaDEX(R) ETF would have been lower if certain fees had not been waived
and expenses reimbursed by the investment advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(c) Inception date is consistent with the commencement of investment
operations and is the date the initial creation units were established.
(d) Annualized.
See Notes to Financial Statements Page 35
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
1. ORGANIZATION
First Trust Exchange-Traded Fund (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on August 8,
2003, and is registered with the Securities and Exchange Commission (the "SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nineteen exchange-traded funds. This report
covers the two funds listed below:
First Trust Total US Market AlphaDEX(R) ETF - (The Nasdaq Stock Market LLC
("Nasdaq") ticker "TUSA")
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund - (NYSE Arca, Inc.
("NYSE Arca") ticker "VIXH")
Each fund represents a separate series of shares of beneficial interest in the
Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual
funds, each Fund issues and redeems shares on a continuous basis, at net asset
value ("NAV"), only in large specified blocks consisting of 50,000 shares called
a "Creation Unit." Creation Units are issued and redeemed principally in-kind
for securities included in a Fund's relevant index. Except when aggregated in
Creation Units, each Fund's shares are not redeemable securities. The investment
objective of each Fund is to seek investment results that correspond generally
to the price and yield (before the Fund's fees and expenses) of the following
indices:
FUND INDEX
First Trust Total US Market AlphaDEX(R) ETF NASDAQ AlphaDEX(R) Total US Market Index
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund CBOE(R) VIX(R) Tail Hedge Index
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds are each considered an investment company and follow accounting and
reporting guidance under Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 946, "Financial
Services-Investment Companies." The following is a summary of significant
accounting policies consistently followed by the Funds in the preparation of the
financial statements. The preparation of the financial statements in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. PORTFOLIO VALUATION
Each Fund's NAV is determined daily as of the close of regular trading on the
New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day
the NYSE is open for trading. If the NYSE closes early on a valuation day, the
NAV is determined as of that time. Each Fund's NAV is calculated by dividing the
value of all assets of each Fund (including accrued interest and dividends),
less all liabilities (including accrued expenses and dividends declared but
unpaid), by the total number of shares outstanding.
Each Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Funds'
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with the 1940 Act. Investments valued by the
Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to
the Portfolio of Investments. Each Fund's investments are valued as follows:
Common stocks and other equity securities listed on any national or
foreign exchange (excluding Nasdaq and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for Nasdaq and
AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the principal market for such securities.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Exchange-traded options contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded options contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
Page 36
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
their closing bid price. Over-the-counter options contracts are fair
valued at the mean of their most recent bid and asked price, if available,
and otherwise at closing bid price.
Overnight repurchase agreements are valued at amortized cost when it
represents the best estimate of fair value.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a third-party pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of a Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or third-party pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
In addition, differences between the prices used to calculate a Fund's NAV and
the prices used by such Fund's corresponding index could result in a difference
between a Fund's performance and the performance of its underlying index.
The Funds are subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value each Fund's investments as of December 31, 2016, is
included with each Fund's Portfolio of Investments.
B. CALL OPTIONS
The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund ("VIXH") is subject to
equity price risk in the normal course of pursuing its investment objective and
may purchase out-of-the-money call options on the Chicago Board Options Exchange
Volatility Index(R) (the "VIX Index") to hedge against changes in the value of
equities. Also, VIXH may sell call options on the VIX Index in order to close
out existing positions. The purchase of call options involves the risk of loss
of all or a part of the cash paid for the call options (the premium). The market
risk associated with purchasing options on the VIX Index is limited to the
Page 37
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
premium paid. When VIXH purchases a call option, the premium paid represents the
cost of the call option, which is included in "Investments, at cost" on the
Statements of Assets and Liabilities. Options are marked-to-market daily and
their value will be affected by changes in the market value of the stocks
included in the stock index.
If VIXH elects to exercise a call option on the VIX Index, settlement does not
occur by the delivery of the securities comprising the VIX Index. VIXH, as
holder of the stock index option, receives an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in the
case of a call, or less than in the case of a put, the exercise price of the
option. This amount of cash is equal to the difference between the closing price
of the stock index and the exercise price of the option expressed in dollars
times a specified multiple. If VIXH elects to allow a call option to expire,
then the equity price risk for purchased options is limited to the premium
initially paid. Gain or loss on options is presented separately as "Net realized
gain (loss) on options" on the Statements of Operations.
For the fiscal year ended December 31, 2016, VIXH recorded a change in
unrealized gain of $19,165 on the options, which is included in the "Net change
in unrealized appreciation (depreciation) on options" on the Statements of
Operations. For the fiscal year ended December 31, 2016, VIXH recorded a
realized loss on options of $377,263, which is included in "Net realized gain
(loss) on options" on the Statements of Operations.
At December 31, 2016, VIXH had no open options contracts. During the fiscal year
ended December 31, 2016, the number of purchased options contracts opened,
expired and closed were 4,217, 4,217 and 304, respectively.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis.
Distributions received from a Fund's investments in real estate investment
trusts ("REITs") may be comprised of return of capital, capital gains and
income. The actual character of the amounts received during the year is not
known until after the REITs' fiscal year end. A Fund records the character of
distributions received from the REITs during the year based on estimates
available. The characterization of distributions received by a Fund may be
subsequently revised based on information received from the REITs after their
tax reporting periods conclude.
D. OFFSETTING ON THE STATEMENTS OF ASSETS AND LIABILITIES
Offsetting Assets and Liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset on the
Statements of Assets and Liabilities, and disclose instruments and transactions
subject to master netting or similar agreements. These disclosure requirements
are intended to help investors and other financial statement users better assess
the effect or potential effect of offsetting arrangements on a fund's financial
position. The transactions subject to offsetting disclosures are derivative
instruments, repurchase agreements and reverse repurchase agreements, and
securities borrowing and securities lending transactions.
This disclosure, if applicable, is included within each Fund's Portfolio of
Investments under the heading "Offsetting Assets and Liabilities". For financial
reporting purposes, the Funds do not offset financial assets and financial
liabilities that are subject to master netting arrangements ("MNAs") or similar
agreements on the Statements of Assets and Liabilities. MNAs provide the right,
in the event of default (including bankruptcy and insolvency), for the
non-defaulting counterparty to liquidate the collateral and calculate the net
exposure to the defaulting party or request additional collateral.
E. SECURITIES LENDING
The Funds may lend securities representing up to 33 1/3% of the value of their
total assets to broker-dealers, banks and other institutions to generate
additional income. When a Fund loans its portfolio securities, it will receive,
at the inception of each loan, collateral equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
loaned securities. The collateral amount is valued at the beginning of each
business day and is compared to the market value of the loaned securities from
the prior business day to determine if additional collateral is required. If
additional collateral is required, a request is sent to the borrower. Securities
lending involves the risk that the Fund may lose money because the borrower of
the Fund's loaned securities fails to return the securities in a timely manner
or at all. The Fund could also lose money in the event of (i) a decline in the
value of the collateral provided for the loaned securities, (ii) a decline in
the value of any investments made with cash collateral or (iii) an increase in
the value of the loaned securities if the borrower does not increase the
collateral accordingly and the borrower fails to return the securities. These
events could also trigger adverse tax consequences for the Funds.
Page 38
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
Under the Funds' Securities Lending Agency Agreement, the securities lending
agent will generally bear the risk that a borrower may default on its obligation
to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the
Funds' securities lending agent and is responsible for executing the lending of
the portfolio securities to creditworthy borrowers. The Funds, however, will be
responsible for the risks associated with the investment of cash collateral. A
Fund may lose money on its investment of cash collateral, which may affect its
ability to repay the collateral to the borrower without the use of other Fund
assets. Each Fund that engages in securities lending receives compensation (net
of any rebate and securities lending agent fees) for lending its securities.
Compensation can be in the form of fees received from the securities lending
agent or dividends or interest earned from the investment of cash collateral.
The dividend and interest earned on the securities loaned is accounted for in
the same manner as other dividend and interest income. At December 31, 2016,
only TUSA has securities in the securities lending program.
In the event of a default by a borrower with respect to any loan, BBH will
exercise any and all remedies provided under the applicable borrower agreement
to make the Funds whole. These remedies include purchasing replacement
securities by applying the collateral held from the defaulting broker against
the purchase cost of the replacement securities. If, despite such efforts by BBH
to exercise these remedies, a Fund sustains losses as a result of a borrower's
default, BBH will indemnify the Fund by purchasing replacement securities at its
own expense, or paying the Fund an amount equal to the market value of the
replacement securities, subject to certain limitations which are set forth in
detail in the Securities Lending Agency Agreement between the Trust on behalf of
the Funds and BBH.
F. REPURCHASE AGREEMENTS
Repurchase agreements involve the purchase of securities subject to the seller's
agreement to repurchase the securities at a mutually agreed upon date and price,
under the terms of a Master Repurchase Agreement ("MRA"). During the term of a
repurchase agreement, the value of the underlying securities held as collateral
on behalf of a Fund, including accrued interest, is required to exceed the value
of the repurchase agreement, including accrued interest. The underlying
securities for all repurchase agreements are held at the Funds' custodian or
designated sub-custodians under tri-party repurchase agreements.
MRAs govern transactions between a Fund and select counterparties. The MRAs
contain provisions for, among other things, initiation, income payments, events
of default, and maintenance of collateral for repurchase agreements.
Repurchase agreements received for lending securities are collateralized by U.S.
Treasury securities. The U.S. Treasury securities are held in a joint custody
account at BBH on behalf of the Funds participating in the securities lending
program. In the event the counterparty defaults on the repurchase agreement, the
U.S. Treasury securities can either be maintained as part of a Fund's portfolio
or sold for cash. A Fund could suffer a loss to the extent that the proceeds
from the sale of the underlying collateral held by the Fund are less than the
repurchase price and the Fund's costs associated with the delay and enforcement
of the MRA.
While the Funds may invest in repurchase agreements, any repurchase agreements
held by the Funds during the fiscal year ended December 31, 2016, were received
as collateral for lending securities. There were no repurchase agreements held
by the Funds as of December 31, 2016.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income of each Fund, if any, are declared and paid
quarterly, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by each Fund, if any, are distributed
at least annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Funds and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the fiscal year
ended December 31, 2016 was as follows:
Distributions Distributions
Distributions paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
------------------ ---------------- ----------------
First Trust Total US Market AlphaDEX(R) ETF $ 113,796 $ -- $ --
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 59,491 -- --
Page 39
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
The tax character of distributions paid by each Fund during the fiscal year
ended December 31, 2015 was as follows:
Distributions Distributions
Distributions paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
------------------ ---------------- ----------------
First Trust Total US Market AlphaDEX(R) ETF $ 65,921 $ -- $ --
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 56,416 -- --
As of December 31, 2016, the components of distributable earnings on a tax basis
for each Fund were as follows:
Accumulated
Undistributed Capital and Net Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
------------------ ---------------- ----------------
First Trust Total US Market AlphaDEX(R) ETF $ -- $ (3,227,040) $ 423,953
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund -- (1,061,356) 830,220
H. INCOME TAXES
Each Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, each Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2013, 2014,
2015 and 2016 remain open to federal and state audit. As of December 31, 2016,
management has evaluated the application of these standards to the Funds, and
has determined that no provision for income tax is required in the Funds'
financial statements for uncertain tax positions.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses arising in taxable years after December 22, 2010, may be
carried forward indefinitely, and their character is retained as short-term
and/or long-term losses. Previously, net capital losses were carried forward for
up to eight years and treated as short-term losses. As a transition rule, the
Act requires that post-enactment net capital losses be used before pre-enactment
net capital losses. At December 31, 2016, the Funds had pre-enactment and
post-enactment net capital losses for federal income tax purposes as shown in
the following table. To the extent that these loss carryforwards are used to
offset future capital gains, it is probable that the capital gains so offset
will not be distributed to Fund shareholders. The Funds are subject to certain
limitations, under U.S. tax rules, on the use of capital loss carryforwards and
net unrealized built-in losses. These limitations apply when there has been a
50% change in ownership.
Capital Loss Post- Total
Available Enactment - Capital
Through No Loss
2017 Expiration Available
------------------ ---------------- ----------------
First Trust Total US Market AlphaDEX(R) ETF $ 2,421,122 $ 805,918 $ 3,227,040
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund -- 1,061,356 1,061,356
At the taxable year ended December 31, 2016, the following Fund's capital loss
carryforwards expired in the following amount:
Capital Loss Carryforward
Expired
-------------------------
First Trust Total US Market AlphaDEX(R) ETF $ 1,168,041
In order to present paid-in capital, accumulated net investment income (loss)
and accumulated net realized gain (loss) on investments on the Statements of
Assets and Liabilities that more closely represent their tax character, certain
adjustments have been made to paid-in capital, accumulated net investment income
(loss) and accumulated net realized gain (loss) on investments. These
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
adjustments are primarily due to the difference between book and tax treatments
of income and gains on various investment securities held by the Funds and
in-kind transactions. The results of operations and net assets were not affected
by these adjustments. For the fiscal year ended December 31, 2016, the
adjustments for each Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss) Paid-in
Income (Loss) on Investments Capital
------------------ ---------------- ----------------
First Trust Total US Market AlphaDEX(R) ETF $ 9,544 $ (272,431) $ 262,887
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 3,221 393 (3,614)
I. EXPENSES
Expenses that are directly related to First Trust Total US Market AlphaDEX(R)
ETF are charged directly to the Fund. Expenses for First Trust CBOE(R) S&P
500(R) VIX(R) Tail Hedge Fund (the "Unitary Fee Fund"), other than excluded
expenses (discussed in Note 3), are paid by the Advisor. General expenses of the
Trust are allocated to all the Funds based upon the net assets of each Fund.
First Trust has entered into licensing agreements with each of the following
"Licensors" for the respective Funds:
FUND LICENSOR
First Trust Total US Market AlphaDEX(R) ETF Nasdaq, Inc.
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund Standard & Poor's Financial Services, LLC
The respective license agreements allow for the use by First Trust of certain
trademarks and trade names of the respective Licensors. The Funds are
sub-licensees to the applicable license agreement. The First Trust Total US
Market AlphaDEX(R) ETF is required to pay licensing fees, which are shown on the
Statements of Operations.
J. NEW AND AMENDED FINANCIAL REPORTING RULES AND FORMS
On October 13, 2016, the SEC adopted new rules and forms, and amended existing
rules and forms. The new and amended rules and forms are intended to modernize
the reporting of information provided by funds and to improve the quality and
type of information that funds provide to the SEC and investors. The new and
amended rules and forms will be effective for the First Trust funds, including
the Funds, for reporting periods beginning on and after June 1, 2018. Management
is evaluating the new and amended rules and forms to determine the impact to the
Funds.
K. NEW ACCOUNTING PRONOUNCEMENT
In December 2016, FASB released Accounting Standards Update ("ASU") 2016-19 that
makes technical changes to various sections of the ASC, including Topic 820,
Fair Value Measurement. The changes to Topic 820 are intended to clarify the
difference between a valuation approach and a valuation technique. The changes
to ASC 820-10-50-2 require a reporting entity to disclose, for Level 2 and Level
3 fair value measurements, a change in either or both a valuation approach and a
valuation technique and the reason(s) for the change. The changes to Topic 820
are effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2016. At this time, management is evaluating the
implications of the ASU and has not yet determined its impact on the financial
statements and disclosures.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Funds, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in each Fund's portfolio, managing the Funds' business affairs and providing
certain administrative services necessary for the management of the Funds.
For the First Trust Total US Market AlphaDEX(R) ETF, First Trust is paid an
annual management fee of 0.50% of the Fund's average daily net assets. For such
Fund, the Trust and the Advisor have entered into an Expense Reimbursement, Fee
Waiver and Recovery Agreement ("Recovery Agreement") in which First Trust has
agreed to waive fees and/or reimburse Fund expenses to the extent that the
operating expenses of the Fund (excluding interest expense, brokerage
commissions and other trading expenses, acquired fund fees and expenses, taxes
and extraordinary expenses) exceed 0.70% of average daily net assets per year
(the "Expense Cap"). The Expense Cap will be in effect until at least April 30,
2018.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
Expenses reimbursed and fees waived by First Trust under the Recovery Agreement
are subject to recovery by First Trust for up to three years from the date the
fee was waived or expense was incurred, but no reimbursement payment will be
made by the Fund if it results in the Fund exceeding an expense ratio equal to
the Expense Cap in place at the time the expenses were reimbursed or fees were
waived by First Trust. This amount would be included in "Expenses previously
waived or reimbursed" on the Statements of Operations.
The advisory fee waivers and expense reimbursements for the fiscal year ended
December 31, 2016 and fees waived and expenses borne by First Trust subject to
recovery from the Fund for the periods indicated were as follows:
Fees Waived or Expenses Borne
by First Trust Subject to Recovery
------------------------------------------------
Advisory Year Year Year
Fee Expense Ended Ended Ended
Waivers Reimbursement 12/31/2014 12/31/2015 12/31/2016 Total
--------- ------------- ---------- ---------- ---------- ---------
First Trust Total US Market AlphaDEX(R) ETF $ 44,812 $ 67,699 $ 128,690 $ 81,875 $ 112,511 $ 323,076
For the First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund, First Trust is
paid an annual unitary management fee of 0.60% of such Fund's average daily net
assets and is responsible for the expenses of such Fund including the cost of
transfer agency, custody, fund administration, legal, audit and other services,
and excluding distribution and service fees pursuant to a Rule 12b-1 plan, if
any, brokerage expenses, taxes, interest, and extraordinary expenses.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
each Fund. As custodian, BNYM is responsible for custody of each Fund's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of each Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for each Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen rotate every three years. The officers and "Interested" Trustee receive
no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the fiscal year ended December 31, 2016, the cost of purchases and proceeds
from sales of investments for each Fund, excluding short-term investments and
in-kind transactions, were as follows:
Purchases Sales
--------------- ---------------
First Trust Total US Market AlphaDEX(R) ETF $ 10,128,957 $ 10,082,972
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 130,254 468,628
For the fiscal year ended December 31, 2016, the cost of in-kind purchases and
proceeds from in-kind sales for each Fund were as follows:
Purchases Sales
--------------- ---------------
First Trust Total US Market AlphaDEX(R) ETF $ 10,209,780 $ 11,894,602
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund -- --
5. CREATION, REDEMPTION AND TRANSACTION FEES
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker-dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Such transactions are generally permitted on an
in-kind basis, with a balancing cash component to equate the transaction to the
daily NAV per Share of each Fund on the transaction date times the number of
Shares in a Creation Unit. Authorized Participants purchasing First Trust Total
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016
US Market AlphaDEX(R) ETF Creation Units must pay to BNYM, as transfer agent, a
standard creation transaction fee (the "Creation Transaction Fee"), which is
based on the number of different securities in a Creation Unit of the Fund,
according to the fee schedule set forth below:
Number of Securities Creation
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-499 $1,000
500 or more $1,500
The standard creation transaction fee for First Trust CBOE(R) S&P 500(R) VIX(R)
Tail Hedge Fund is currently $1,500.
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by a Fund with respect to
transactions effected outside of the clearing process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. The price for each Creation Unit will equal the daily
NAV per Share of a Fund on the transaction date times the number of Shares in a
Creation Unit plus the fees described above and, if applicable, any transfer
taxes.
Authorized Participants redeeming First Trust Total US Market AlphaDEX(R) ETF
Creation Units must pay to BNYM, as transfer agent, a standard redemption
transaction fee (the "Redemption Transaction Fee"), which is based on the number
of different securities in a Creation Unit of a Fund, according to the fee
schedule set forth below:
Number of Securities Redemption
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-499 $1,000
500 or more $1,500
The standard redemption transaction fee for First Trust CBOE(R) S&P 500(R)
VIX(R) Tail Hedge Fund is currently $1,500.
The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable fee of up to three times the Redemption Transaction Fee may
be charged to approximate additional expenses incurred by a Fund with respect to
redemptions effected outside of the clearing process or to the extent that
redemptions are for cash. Each Fund reserves the right to effect redemptions in
cash. A shareholder may request cash redemption in lieu of securities; however,
a Fund may, in its discretion, reject any such request.
6. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
in the sale of Creation Units or the provision of investor services. FTP may
also use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before April 30, 2018.
7. INDEMNIFICATION
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined that
there were no subsequent events requiring recognition or disclosure in the
financial statements that have not already been disclosed.
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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 Total US Market AlphaDEX(R) ETF and First Trust CBOE(R) S&P 500(R) VIX(R)
Tail Hedge Fund (collectively, the "Funds"), each a series of the First Trust
Exchange-Traded Fund (the "Trust"), including the portfolios of investments, as
of December 31, 2016, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2016 by correspondence with the Trust's
custodian and brokers; when replies were not received from brokers, we performed
other auditing procedures. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds listed above included in the First Trust Exchange-Traded Fund, as
of December 31, 2016, and the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 23, 2017
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ADDITIONAL INFORMATION
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Funds' website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of each Fund's portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q. The
Trust's Form N-Qs are available (1) by calling (800) 988-5891; (2) on the Funds'
website located at http://www.ftportfolios.com; (3) on the SEC's website at
http://www.sec.gov; and (4) for review and copying at the SEC's Public Reference
Room ("PRR") in Washington, DC. Information regarding the operation of the PRR
may be obtained by calling (800) SEC-0330.
FEDERAL TAX INFORMATION
For the taxable year ended December 31, 2016, the following percentages of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
----------------------------
First Trust Total US Market AlphaDEX(R) ETF 100.00%
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 100.00%
For the taxable year ended December 31, 2016, the following percentages of
income dividends paid by the Funds are hereby designated as qualified dividend
income:
Qualified Dividend Income
----------------------------
First Trust Total US Market AlphaDEX(R) ETF 100.00%
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 100.00%
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER EACH FUND'S INVESTMENT
OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN
DOWNLOAD EACH FUND'S PROSPECTUS AT HTTP://WWW.FTPORTFOLIOS.COM OR CONTACT FIRST
TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS
THIS AND OTHER INFORMATION ABOUT EACH FUND. FOR ADDITIONAL INFORMATION ABOUT THE
RISKS ASSOCIATED WITH INVESTING IN THE FUNDS, PLEASE SEE THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION, AS WELL AS OTHER REGULATORY FILINGS. READ THESE
DOCUMENTS CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS THE
DISTRIBUTOR OF THE FIRST TRUST EXCHANGE-TRADED FUND.
The following summarizes some of the risks that should be considered for the
Funds.
Each Fund's shares will change in value, and you could lose money by investing
in a Fund. Shares are subject to market fluctuations caused by such factors as
economic, political, regulatory or market developments, changes in interest
rates and perceived trends in stock prices. Overall stock values could decline
generally or could underperform other investments. Overall stock market values
could decline generally or could underperform other investments.
An investment in a Fund involves risks similar to those of investing in any fund
of equity securities traded on an exchange. Investors buying or selling Fund
shares on the secondary market may incur brokerage commissions. In addition,
investors who sell Fund shares may receive less than the Fund shares' net asset
value. Unlike shares of open-end funds, investors are generally not able to
purchase exchange-traded fund ("ETF") shares directly from a Fund and individual
ETF shares are not redeemable. However, specified large blocks of ETF shares
called creation units can be purchased from, or redeemed to, a Fund.
Each Fund is subject to index tracking risk. You should anticipate that the
value of Fund shares will decline, more or less, in correlation with any decline
in the value of the index that the Fund seeks to track.
Each Fund's return may not match the return of the index it seeks to track for a
number of reasons. While First Trust seeks to have a correlation of 0.95 or
better, before expenses, between a Fund's performance and the performance of its
corresponding index, there can be no assurance that a Fund will be able to
achieve such a correlation. Accordingly, each Fund's performance may correlate
to a lesser extent and may possibly vary substantially from the performance of
its corresponding index.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
Each Fund is also exposed to additional market risk due to a policy of investing
principally in the securities included in its corresponding index. As a result
of such policies, securities held by each Fund will generally not be bought or
sold in response to market fluctuations and the securities may be issued by
companies concentrated in a particular industry. As a result, each Fund will
generally not sell a stock because the stock's issuer is in financial trouble,
unless that stock is removed or is anticipated to be removed from the index the
Fund seeks to track.
Each Fund relies on a license from an index provider that permits the Fund to
use its corresponding index and associated trade names and trademarks in
connection with the name and investment strategies of the Fund. Such licenses
may be terminated by the respective index provider and, as a result, each Fund
may lose its ability to use such intellectual property. There is also no
guarantee that the index provider has all rights to license the respective
intellectual property to First Trust, on behalf of the Fund. Accordingly, in the
event the license is terminated or the index provider does not have rights to
license the particular intellectual property, it may have a significant effect
on the operation of the related Fund.
Each Fund is subject to issuer specific changes risk. The value of an individual
security or a particular type of security can be more volatile than the market
as a whole and can perform differently from the value of the market as a whole.
Each Fund will be concentrated in the securities of companies of a given
industry if the Fund's corresponding index is concentrated in such industry. A
concentration makes a Fund more susceptible to any single occurrence affecting
the related industry and may subject a Fund to greater market risk than less
concentrated funds.
The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund is considered to be
non-diversified. As a result, the Fund is exposed to additional market risk. A
non-diversified fund may invest a relatively high percentage of its assets in a
limited number of issuers. As a result, changes in the market value of a single
portfolio security could cause greater fluctuations in share price than would
occur in a diversified fund. Furthermore, non-diversified funds are more
susceptible to any single political, regulatory or economic occurrence.
The Funds are not actively managed. The Funds may be affected by a general
decline in certain market segments relating to their corresponding index. The
Funds invest in securities included in or representative of their corresponding
index regardless of their investment merit. The Funds generally will not attempt
to take defensive positions in declining markets.
The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund invests in securities
of companies in the information technology industry. Information technology
companies are generally subject to the risks of rapidly changing technologies;
short product life cycles; fierce competition; and aggressive pricing and
reduced profit margins.
The Funds may invest in small capitalization and mid-capitalization companies.
Such companies' securities may be less liquid and may experience greater price
volatility than securities of larger, more established companies.
Because a Fund's corresponding index may include American Depositary Receipts
("ADRs"), American Depositary Shares ("ADSs") and/or stocks of non-U.S.
companies, the investments of the Funds involve risks of investing in non-U.S.
securities that are in addition to the risk associated with domestic securities.
Non-U.S. companies, in general, are not subject to the regulatory requirements
of U.S. companies and, as such, there may be less publicly available information
about these companies. Moreover, non-U.S. accounting, auditing and financial
reporting standards generally are different from those applicable to U.S.
companies. In addition, non-U.S. companies are exposed to additional economic,
political, social or diplomatic events. ADRs and ADSs also involve substantially
identical risks to those associated with investments in non-U.S. securities. In
addition, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities.
Each Fund currently has fewer assets than larger funds and large inflows and
outflows may have a positive or negative impact on the Fund's market exposure
for limited periods of time.
The First Trust Total US Market AlphaDEX(R) ETF invests in consumer
discretionary companies that manufacture products and provide discretionary
services directly to the consumer. The success of these companies is tied
closely to the performance of the overall domestic and international economies,
interest rates, competition, consumer confidence, disposable household income
and consumer spending. Changes in demographics and consumer tastes can affect
the demand for and success of these products.
The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund's use of options and
other derivatives can lead to losses because of adverse movements in the price
or value of the underlying asset, index or rate, which may be magnified by
certain features of the derivatives. These risks are heightened when the First
Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund's portfolio managers use
derivatives to enhance the Fund's return or as a substitute for a position or
security, rather than solely to hedge (or offset) the risk of a position or
security held by the Fund. The option positions employed, as dictated by the
attempt to replicate the Index, may present additional risk. The value of an
option may be adversely affected if the market for the option becomes less
liquid or smaller, and will be affected by changes in the value and dividend
Page 46
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
rates of the stock subject to the option, an increase in interest rates, a
change in the actual and perceived volatility of the stock market and the common
stock and the remaining time to expiration. Additionally, the value of an option
does not increase or decrease at the same rate as the underlying stock (although
they generally move in the same direction).
Unlike most exchange-traded funds, the First Trust CBOE(R) S&P 500(R) VIX(R)
Tail Hedge Fund may effect a portion of creations and redemptions for cash,
rather than in-kind securities. Particularly, the call option portion of the
Fund's portfolio, if applicable, may be redeemed for cash. As a result, an
investment in the Fund may be less tax-efficient than an investment in a more
conventional exchange-traded fund. Because the Fund may effect a portion of
redemptions for cash, rather than in-kind distributions, it may be required to
sell portfolio securities in order to obtain the cash needed to distribute
redemption proceeds. A sale of shares may result in capital gains or losses, and
may also result in higher brokerage costs.
The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund invests in information
technology companies that are generally subject to risks from rapidly changing
technologies, short product life cycles, fierce competition, aggressive pricing,
reduced profit margins, the loss of patent, copyright and trademark protections,
cyclical market patterns, evolving industry standards; and frequent new product
introductions. These companies may be smaller and less experienced, with limited
product lines, markets or financial resources and fewer experienced management
or marketing personnel. Internet related information technology companies, have
experienced extreme price and volume fluctuations that are often unrelated to
their operating performance.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
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BOARD OF TRUSTEES AND OFFICERS
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE
DATE OF BIRTH AND AND YEAR FIRST PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST ELECTED OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
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INDEPENDENT TRUSTEES
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Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 138 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 E. Liberty Drive, o Since Inception Limited Partnership (June 1992 to
Suite 400 December 2016); Member, Sportsmed LLC
Wheaton, IL 60187 (April 2007 to November 2015)
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investor Services, Inc. 138 Director of ADM
c/o First Trust Advisors L.P. (Futures Commission Merchant) Investor Services,
120 E. Liberty Drive, o Since Inception Inc., ADM
Suite 400 Investor Services
Wheaton, IL 60187 International and
D.O.B.: 11/57 Futures Industry
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 138 Director of Trust
c/o First Trust Advisors L.P. Management Consulting) Company of
120 E. Liberty Drive, o Since Inception Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating 138 Director of
c/o First Trust Advisors L.P. Officer (January 2015 to Present), Pelita Covenant
120 E. Liberty Drive, o Since Inception Harapan Educational Foundation (Educational Transport Inc.
Suite 400 Products and Services); President and Chief (May 2003 to
Wheaton, IL 60187 Executive Officer (June 2012 to September May 2014)
D.O.B.: 03/54 2014), Servant Interactive LLC (Educational
Products and Services); President and Chief
Executive Officer (June 2012 to September
2014), Dew Learning LLC (Educational
Products and Services); President (June
2002 to June 2012), Covenant College
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INTERESTED TRUSTEE
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James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 138 None
Chairman of the Board Advisors L.P. and First Trust
120 E. Liberty Drive, o Since Inception Portfolios L.P.; Chairman of the
Suite 400 Board of Directors, BondWave LLC
Wheaton, IL 60187 (Software Development Company)
D.O.B.: 09/55 and Stonebridge Advisors LLC
(Investment Advisor)
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(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 48
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
POSITION AND TERM OF OFFICE
NAME, ADDRESS OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
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OFFICERS(2)
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James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Executive
120 E. Liberty Drive, Executive Officer Officer (January 2016 to Present), Controller (January
Suite 400 o Since January 2016 2011 to January 2016), Senior Vice President (April
Wheaton, IL 60187 2007 to January 2016), First Trust Advisors L.P. and
D.O.B: 01/66 First Trust Portfolios L.P.; Chief Financial Officer
(January 2016 to Present), BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
120 E. Liberty Drive, Officer and Chief President (April 2012 to July 2016), First Trust
Suite 400 Accounting Officer o Since January 2016 Advisors L.P. and First Trust
Portfolios L.P.; Vice
Wheaton, IL 60187 President (September 2006 to April 2012),
D.O.B.: 08/72 Guggenheim Funds Investment Advisors, LLC and
Claymore Securities, Inc.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General Counsel,
Suite 400 o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC
Wheaton, IL 60187
D.O.B.: 05/60
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present), Senior
120 E. Liberty Drive, Vice President (September 2005 to July 2012),
Suite 400 o Since Inception First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.
D.O.B.: 02/70
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
120 E. Liberty Drive, and Assistant Secretary and First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 12/66
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
120 E. Liberty Drive, and First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 06/66
Stan Ueland Vice President o Indefinite Term Senior Vice President (September 2012 to Present),
120 E. Liberty Drive, Vice President (August 2005 to September 2012), First
Suite 400 o Since Inception Trust Advisors L.P. and First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 11/70
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 49
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PRIVACY POLICY
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2016 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following
sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, we restrict access to your
nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
March 2016
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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 2015 and $380,000 for 2016.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in each
of the last two fiscal years, for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported under paragraph
(a) of this Item were $0 for 2015 and $1,746 for 2016.
Audit-Related Fees (Investment Adviser and Distributor) -- The aggregate
fees billed in each of the last two fiscal years for assurance and related
services by the principal accountant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item were $0 for 2015 and $0 for 2016.
(c) Tax Fees (Registrant) -- The aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning to the registrant were $55,575
for 2015 and $55,575 for 2016. The tax fees were for review of regulated
investment company status.
Tax Fees (Investment Adviser and Distributor) -- The aggregate fees billed
in each of the last two fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning to the
registrant's adviser and distributor were $0 for 2015 and $0 for 2016.
(d) All Other Fees (Registrant) -- The aggregate fees billed in each of
the last two fiscal years for products and services provided by the principal
accountant to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 for 2015 and $0 for 2016.
All Other Fees (Investment Adviser and Distributor) -- The aggregate fees
billed in each of the last two fiscal years for products and services provided
by the principal accountant to the registrant's investment adviser and
distributor, other than the services reported in paragraphs (a) through (c) of
this Item were $ 0 for 2015 and $0 for 2016.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the registrant, if the engagement relates
directly to the operations and financial reporting of the registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the registrant and the registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the pre-approval
exceptions included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser),
and any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for 2015 were $55,575
for the registrant, $12,500 for the registrant's investment adviser and $29,000
for the registrant's distributor and for 2016 were $55,575 for the registrant,
$13,000 for the registrant's investment adviser and $32,500 for the registrant's
distributor .
(h) The registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEMS 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has a separately designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934
consisting of all the independent directors of the Registrant. The audit
committee of the registrant is comprised of: Richard E. Erickson, Thomas R.
Kadlec, Robert F. Keith and Niel B. Nielson.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407 (c) (2) (iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22 (b) (15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3 (c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal quarter of
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section
302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not Applicable
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Exchange-Traded Fund
-------------------------------------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: February 23, 2017
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: February 23, 2017
-------------------
By (Signature and Title)* /s/ Donald P. Swade
----------------------------------------
Donald P. Swade, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: February 23, 2017
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* Print the name and title of each signing officer under his or her signature.