0001445546-15-001426.txt : 20150309 0001445546-15-001426.hdr.sgml : 20150309 20150309101314 ACCESSION NUMBER: 0001445546-15-001426 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20141231 FILED AS OF DATE: 20150309 DATE AS OF CHANGE: 20150309 EFFECTIVENESS DATE: 20150309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST TRUST EXCHANGE-TRADED FUND CENTRAL INDEX KEY: 0001329377 IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-21774 FILM NUMBER: 15683863 BUSINESS ADDRESS: STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400 CITY: WHEATON STATE: IL ZIP: 60187 BUSINESS PHONE: 630-765-8000 MAIL ADDRESS: STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400 CITY: WHEATON STATE: IL ZIP: 60187 0001329377 S000010772 First Trust Dow Select MicroCap Index Fund C000029773 First Trust Dow Select MicroCap Index Fund FDM 0001329377 S000010976 First Trust Morningstar Dividend Leaders Index Fund C000030350 First Trust Morningstar Dividend Leaders Index Fund FDL 0001329377 S000010977 First Trust US IPO Index Fund C000030351 First Trust US IPO Index Fund FPX 0001329377 S000011047 First Trust NASDAQ-100 Equal Weighted Index Fund C000030477 First Trust NASDAQ-100 Equal Weighted Index Fund QQEW 0001329377 S000011048 First Trust NASDAQ-100-Technology Sector Index Fund C000030478 First Trust NASDAQ-100-Technology Sector Index Fund QTEC 0001329377 S000012478 First Trust NYSE Arca Biotechnology Index Fund C000033929 First Trust NYSE Arca Biotechnology Index Fund FBT 0001329377 S000012479 First Trust Dow Jones Internet Index Fund C000033930 First Trust Dow Jones Internet Index Fund FDN 0001329377 S000012555 First Trust Capital Strength ETF C000034137 First Trust Capital Strength ETF FTCS 0001329377 S000013259 First Trust Nasdaq-100 Ex-Technology Sector Index Fund C000035622 First Trust Nasdaq-100 Ex-Technology Sector Index Fund QQXT 0001329377 S000013797 First Trust Total US Market AlphaDEX ETF C000037851 First Trust Total US Market AlphaDEX ETF TUSA 0001329377 S000013817 First Trust Value Line Dividend Index Fund C000037913 First Trust Value Line Dividend Index Fund FVD 0001329377 S000015169 First Trust Nasdaq Clean Edge Green Energy Index Fund C000041643 First Trust Nasdaq Clean Edge Green Energy Index Fund QCLN 0001329377 S000017115 First Trust Value Line 100 Exchange-Traded Fund C000047485 First Trust Value Line 100 Exchange-Traded Fund FVL 0001329377 S000017163 First Trust S&P REIT Index Fund C000047557 First Trust S&P REIT Index Fund FRI 0001329377 S000017177 First Trust ISE-Revere Natural Gas Index Fund C000047627 First Trust ISE-Revere Natural Gas Index Fund FCG 0001329377 S000017178 First Trust ISE Water Index Fund C000047628 First Trust ISE Water Index Fund FIW 0001329377 S000017179 First Trust ISE Chindia Index Fund C000047629 First Trust ISE Chindia Index Fund FNI 0001329377 S000026211 First Trust NASDAQ ABA Community Bank Index Fund C000078718 First Trust NASDAQ ABA Community Bank Index Fund QABA 0001329377 S000035456 First Trust CBOE S&P 500 VIX Tail Hedge Fund C000108867 First Trust CBOE S&P 500 VIX Tail Hedge Fund VIXH N-CSR 1 etf1_ncsr.txt ANNUAL REPORT TO SHAREHOLDERS 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 ----------- First Trust Exchange-Traded Fund ---------------------------------------------------- (Exact name of registrant as specified in charter) 120 East Liberty Drive, Suite 400 Wheaton, IL 60187 ---------------------------------------------------- (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 ---------------------------------------------------- (Name and address of agent for service) registrant's telephone number, including area code: (630) 765-8000 ---------------- Date of fiscal year end: December 31 ------------- Date of reporting period: December 31, 2014 ------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORT TO STOCKHOLDERS. The registrant's annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: FIRST TRUST First Trust Exchange-Traded Fund Book 1 First Trust Dow Jones Select MicroCap Index Fund (FDM) First Trust Morningstar Dividend Leaders Index Fund (FDL) First Trust US IPO Index Fund (FPX) First Trust NYSE Arca Biotechnology Index Fund (FBT) First Trust Dow Jones Internet Index Fund (FDN) First Trust Capital Strength ETF (FTCS) First Trust Value Line(R) Equity Allocation Index Fund (FVI) First Trust Value Line(R) Dividend Index Fund (FVD) First Trust Value Line(R) 100 Exchange-Traded Fund (FVL) Annual Report December 31, 2014 -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 Shareholder Letter.......................................................... 2 Market Overview............................................................. 3 Fund Performance Overview First Trust Dow Jones Select MicroCap Index Fund (FDM)................... 4 First Trust Morningstar Dividend Leaders Index Fund (FDL)................ 6 First Trust US IPO Index Fund (FPX)...................................... 8 First Trust NYSE Arca Biotechnology Index Fund (FBT)..................... 10 First Trust Dow Jones Internet Index Fund (FDN).......................... 12 First Trust Capital Strength ETF (FTCS).................................. 14 First Trust Value Line(R) Equity Allocation Index Fund (FVI)............. 16 First Trust Value Line(R) Dividend Index Fund (FVD)...................... 18 First Trust Value Line(R) 100 Exchange-Traded Fund (FVL)................. 20 Notes to Fund Performance Overview.......................................... 22 Understanding Your Fund Expenses............................................ 23 Portfolio of Investments First Trust Dow Jones Select MicroCap Index Fund (FDM)................... 25 First Trust Morningstar Dividend Leaders Index Fund (FDL)................ 29 First Trust US IPO Index Fund (FPX)...................................... 31 First Trust NYSE Arca Biotechnology Index Fund (FBT)..................... 35 First Trust Dow Jones Internet Index Fund (FDN).......................... 37 First Trust Capital Strength ETF (FTCS).................................. 39 First Trust Value Line(R) Equity Allocation Index Fund (FVI)............. 41 First Trust Value Line(R) Dividend Index Fund (FVD)...................... 44 First Trust Value Line(R) 100 Exchange-Traded Fund (FVL)................. 47 Statements of Assets and Liabilities........................................ 50 Statements of Operations.................................................... 52 Statements of Changes in Net Assets......................................... 54 Financial Highlights........................................................ 58 Notes to Financial Statements............................................... 63 Report of Independent Registered Public Accounting Firm..................... 73 Additional Information...................................................... 74 Board of Trustees and Officers.............................................. 77 Privacy Policy.............................................................. 79 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- CAUTION REGARDING FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. ("First Trust" or the "Advisor") and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as "anticipate," "estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or other words that convey uncertainty of future events or outcomes. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of any series of First Trust Exchange-Traded Fund (the "Trust") described in this report (each such series is referred to as a "Fund" and collectively, as the "Funds") to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof. PERFORMANCE AND RISK DISCLOSURE There is no assurance that any Fund described in this report will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in a Fund. See "Risk Considerations" in the Additional Information Section of this report for a discussion of other risks of investing in the Funds. Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit http://www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost. HOW TO READ THIS REPORT This report contains information that may help you evaluate your investment. It includes details about each Fund's portfolio and presents data and analysis that provide insight into each Fund's performance and investment approach. By reading the market overview by Robert F. Carey, Chief Market Strategist, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund's performance compared to that of relevant market benchmarks. It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The risks of investing in each Fund are spelled out in its prospectus, statement of additional information, this report and other Fund regulatory filings. Page 1 -------------------------------------------------------------------------------- SHAREHOLDER LETTER -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL LETTER FROM THE CHAIRMAN AND CEO DECEMBER 31, 2014 Dear Shareholders: I am pleased to present you with the annual report for your investment in First Trust Exchange-Traded Fund (the "Trust"). This report provides detailed information about the Trust, including a performance review and the financial statements for the 12 months ended December 31, 2014. I encourage you to read this document and discuss it with your financial advisor. Although markets have seemed choppy over the past 12 months, the U.S. has shown sustained growth over the period. In fact, the S&P 500(R) Index, as measured on a total return basis, rose 13.69% in the time covered by this report. First Trust Advisors L.P. ("First Trust") believes that staying invested in quality products through different types of markets can benefit investors over the long term. First Trust is pleased to offer a variety of products that we believe could fit the financial plans for many investors seeking long-term investment success. We invite you to look at our investment products with your financial advisor to determine if any of them might fit your financial goals. We believe that regularly discussing your financial objectives and investment options with your financial advisor can help keep you on track. First Trust will continue to make available up-to-date information about your investments so you and your financial advisor are current on any First Trust investments you own. We value our relationship with you, and thank you for the opportunity to assist you in achieving your financial goals. Sincerely, /s/ James A. Bowen James A. Bowen Chairman of the Board of Trustees Chief Executive Officer of First Trust Advisors L.P. Page 2 -------------------------------------------------------------------------------- MARKET OVERVIEW -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL REPORT DECEMBER 31, 2014 ROBERT F. CAREY, CFA SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST FIRST TRUST ADVISORS L.P. Mr. Carey is responsible for the overall management of research and analysis of the First Trust product line. Mr. Carey has 24 years of experience as an Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial Analyst ("CFA") designation. He is a graduate of the University of Illinois at Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been quoted by several publications, including The Wall Street Journal, The Wall Street Reporter, Bloomberg News Service, and Registered Rep. STATE OF THE ECONOMY/INVESTING The current U.S. economic recovery is 66 months old (June 2009 - December 2014). From June 2009 - December 2014, GDP growth averaged 2.2%, according to the Bureau of Economic Analysis. Following what had been characterized as a weather-induced slowdown in the first quarter of 2014 (GDP was -2.1% annualized), the rate of GDP growth bounced back markedly in the second quarter (GDP was 4.6% annualized) and in the third quarter (GDP was 5.0% annualized). The U.S. GDP forecast for 2015 from the International Monetary Fund (IMF) calls for a 3.1% growth rate, which is stronger than the 2.2% growth rate posted so far in the current economic recovery. The last time U.S. GDP growth was 3.0% or higher was in 2005 (3.3%). The IMF sees the global economy growing by 3.8% in 2015. In 2014, the combination of a pickup in job growth (nonfarm payrolls) and GDP growth in the U.S. failed to ignite any meaningful inflationary pressures. Nonfarm payrolls grew by an average of 233,540 per month in 2014, up from an average of 195,770 in 2013 and 187,080 in 2012, according to data from the Bureau of Labor Statistics. At the beginning of the recovery in 2009, many economists stated that the U.S. would need to create roughly 250,000 new jobs per month to make a serious dent in unemployment. While the 233,540 average posted in 2014 falls a bit short of that demarcation line, the number of jobs created in each the last four months of the year did eclipse that mark. One of the areas of the U.S. economy to monitor in 2015 is manufacturing. While it has helped drive the U.S. economic recovery to date, one key indicator, capacity utilization, has yet to ascend to the levels maintained in 2006 and 2007, when it averaged 80.4% for the year, according to data from the Federal Reserve. Only once in this 66-month recovery has it topped 80%, and that was in November 2014. U.S. STOCKS AND BONDS In 2014, all of the major U.S. stock indices posted positive total returns. The S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index were up 13.69%, 9.77% and 5.76%, respectively, according to Bloomberg. All but one of the 10 major S&P 500(R) Index sectors posted positive total returns. The top-performing sector indices were the S&P 500(R) Utilities Index, S&P 500(R) Health Care Index and the S&P 500(R) Information Technology Index, up 28.98%, 25.34% and 20.12%, respectively. The only sector index down in 2014 was the S&P 500(R) Energy Index, which posted a total return of -7.79%. Volatility in the equities markets, which has been relatively subdued over the past couple of years, did spike a bit in the second half of 2014. The Chicago Board Options Exchange Market Volatility Index (the "VIX Index"), which tracks the S&P 500(R) Index, rose from a reading of 11.57 on June 30, 2014 to 19.20 on December 31, 2014. Over the past 25 years, the VIX Index has averaged 19.97, according to data from Bloomberg. The estimated earnings growth rates for 2015 for the S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index were 12.19%, 29.78% and 30.90%, respectively, as of December 31, 2014, according to S&P Dow Jones Indices. We believe that corporate earnings drive the direction of stock prices over time, especially when the market is setting record highs. The all-time high (2090.57) for the S&P 500(R) Index was set on December 29, 2014. The potential for higher corporate earnings and GDP growth in 2015 are reasons to be optimistic, in our opinion. In the U.S. bond market, the top-performing major debt group in 2014 was municipal bonds. The Barclays Municipal Bond: Long Bond 22+ Index posted a total return of 15.39%. The next closest domestic category was mortgages, up 6.03%, as measured by the Barclays GNMA (30 Year) Index. Fixed-income securities benefited from the retrenchment in interest rates in 2014. The yield on the benchmark 10-Year Treasury note, which had spiked 127 basis points in 2013, declined by 86 basis points in 2014, from 3.03% to 2.17%. Investors should take note that many economists believe the Federal Reserve could begin raising interest rates in 2015, perhaps by midyear. FOREIGN STOCKS AND BONDS The U.S. dollar ("USD") rose 12.79% against a basket of major currencies in 2014, as measured by the U.S. Dollar Index. The entire move up came in the second half of the year. That strong of a move certainly had a major impact on the returns for those U.S. investors holding foreign securities. Foreign bond indices generated modest returns in 2014. The Barclays EM Hard Currency Aggregate Index of emerging markets debt posted a total return of 3.13% (USD), while the Barclays Global Aggregate Index of higher quality debt rose by 0.59% (USD). Foreign equities did not perform as well. The MSCI Emerging Markets Index of stocks posted a total return of -2.19% (USD), while the MSCI World Index (excluding the U.S.) posted a total return of -4.32% (USD). Page 3 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) The First Trust Dow Jones Select MicroCap Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Dow Jones Select MicroCap Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index measures the performance of selected U.S. micro-capitalization companies chosen from all common stocks traded on the New York Stock Exchange ("NYSE"), NYSE Amex and The NASDAQ Stock Market, Inc. ("NASDAQ(R)") that are comparatively liquid and have strong fundamentals relative to the micro-capitalization segment as a whole. The Fund's shares are listed for trading on the NYSE Arca, Inc. ("NYSE Arca"). The first day of secondary market trading in shares of the Fund was September 30, 2005.
---------------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (9/27/05) Ended (9/27/05) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 3.08% 14.47% 6.46% 96.57% 78.62% Market Value 3.59% 14.51% 6.47% 96.92% 78.64% INDEX PERFORMANCE Dow Jones Select MicroCap Index(SM) 3.67% 15.17% 7.20% 102.64% 90.34% Russell 2000(R) Index 4.89% 15.55% 8.18% 105.95% 107.14% ---------------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a net asset value ("NAV") return of 3.08% during the 12-month period covered by this report. During the same period, the Russell 2000(R) Index ("benchmark") generated a return of 4.89%. The Health Care sector was the top-performing and top-contributing sector in the Fund. The Fund's holdings in the sector comprised 8.4% of the Fund's average weight and returned 28.7%, resulting in a 2.2% contribution. The Health Care Providers & Services industry was the main driver of performance. About half of the Health Care sector's weight was allocated to the industry, which returned 29.8%. The Industrials sector was second-best in terms of contribution. The Fund's holdings returned 10.4% and comprised 21.9% of the Fund's average weight, resulting in a 2.1% contribution. The Energy sector was a large drag on the Fund's absolute performance. For the year, the Fund's holdings in the sector returned -24.4% and detracted -1.5% from the Fund's return. Falling energy prices were the main headwinds against the Energy sector's return. Relative to its benchmark, the Fund underperformed. The major source of the underperformance was from the Financials sector where the Fund's holdings returned 1.8% vs. 8.9% for the Financials holdings in the benchmark. The reason for the performance difference came from the Index not holding real estate investment trusts ("REITs"). The benchmark had an 8.4% allocation to REITs, which returned 23.3%. ------------------- 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 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Financials 28.49% Industrials 19.56 Consumer Discretionary 16.54 Information Technology 12.37 Health Care 7.49 Materials 4.37 Energy 3.86 Consumer Staples 2.68 Telecommunication Services 2.52 Utilities 2.12 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Depomed, Inc. 0.95% AMN Healthcare Services, Inc. 0.92 Denny's Corp. 0.88 Blount International, Inc. 0.87 Strayer Education, Inc. 0.82 Rofin-Sinar Technologies, Inc. 0.81 Ethan Allen Interiors, Inc. 0.81 AMERISAFE, Inc. 0.80 ICF International, Inc. 0.80 Newport Corp. 0.77 ------- Total 8.43% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT SEPTEMBER 27, 2005 - DECEMBER 31, 2014 First Trust Dow Jones Select Dow Jones Select Russell 2000(R) MicroCap Index Fund MicroCap Index(SM) Index 09/05 $10,000 $10,000 $10,000 12/05 10,374 10,397 10,252 06/06 10,968 11,033 11,094 12/06 12,001 12,115 12,134 06/07 12,746 12,910 12,917 12/07 11,278 11,474 11,944 06/08 9,896 10,100 10,825 12/08 7,520 7,707 7,909 06/09 7,362 7,568 8,118 12/09 9,087 9,393 10,058 06/10 8,833 9,153 9,862 12/10 11,427 11,876 12,759 06/11 11,811 12,319 13,551 12/11 10,435 10,907 12,227 06/12 11,107 11,648 13,270 12/12 12,091 12,728 14,225 06/13 14,055 14,840 16,481 12/13 17,328 18,360 19,748 06/14 17,212 18,294 20,378 12/14 17,861 19,033 20,714
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 169 0 0 0 01/01/11 - 12/31/11 87 2 0 0 01/01/12 - 12/31/12 70 0 0 0 01/01/13 - 12/31/13 151 1 0 0 01/01/14 - 12/31/14 93 1 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 83 0 0 0 01/01/11 - 12/31/11 161 2 0 0 01/01/12 - 12/31/12 179 1 0 0 01/01/13 - 12/31/13 98 2 0 0 01/01/14 - 12/31/14 158 0 0 0 Page 5 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL) The First Trust Morningstar Dividend Leaders Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Morningstar(R) Dividend Leaders Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index offers investors a benchmark for dividend portfolios as well as a means to invest in a portfolio of stocks that have a consistent record of growing dividends as well as the ability to sustain them. The Index consists of the top 100 stocks, based on dividend yield, of the securities listed on one of the three major exchanges (NYSE, NYSE Amex or NASDAQ(R)) that have been selected through the application of Morningstar, Inc.'s proprietary multi-step screening process. The Index is rebalanced four times annually in March, June, September and December. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was March 15, 2006.
---------------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (3/9/06) Ended (3/9/06) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 12.96% 14.97% 6.15% 100.91% 69.18% Market Value 12.96% 14.97% 6.14% 100.91% 69.12% INDEX PERFORMANCE Morningstar(R) Dividend Leaders Index(SM) 13.55% 15.59% 6.68% 106.31% 76.74% S&P 500(R) Index 13.69% 15.45% 7.88% 105.14% 95.13% ---------------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 12.96% during the 12-month period covered by this report. During the same period, the S&P 500(R) Index ("benchmark") generated a return of 13.69%. The Utilities sector separated itself as the leading contributor to the Fund's return. Strong dividend yields in a low-rate environment along with some large M&A activity helped the sector return 29.9%. Since the Fund is dividend-yield focused, the Utilities sector comprised 24.9% of the Fund's average weight, resulting in a 7.2% contribution to return. The Health Care sector was second-best in terms of contribution with 3.0%. Strong performance from large Pharmaceutical companies boosted the sector's return to 30.6%, and the sector's average weight in the Fund was 10.3%. On a relative basis, the Fund slightly underperformed its benchmark. The Fund's overweight position in the weak-performing Telecommunication Services sector relative to the benchmark (20.0% vs. 2.4%) caused the most underperformance. Additional underperformance was caused by the Fund's overweight position in the Energy sector (15.3% vs. 10.0%). In the Materials sector, the Fund's overweight position in Freeport-McMoRan, Inc., which returned -35.8%, added even more underperformance. The previously mentioned Utilities sector reversed much of the Fund's underperformance. Relative to the benchmark, the Fund was overweight the strong-performing sector 24.9% vs. 3.1%. ------------------- 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 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Utilities 23.29% Telecommunication Services 19.66 Energy 16.63 Consumer Staples 13.55 Health Care 9.37 Information Technology 6.15 Industrials 3.57 Financials 3.17 Consumer Discretionary 2.82 Materials 1.79 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS AT&T, Inc. 10.13% Verizon Communications, Inc. 9.53 Chevron Corp. 9.04 Pfizer, Inc. 6.86 Philip Morris International, Inc. 6.38 Intel Corp. 4.96 Altria Group, Inc. 4.69 ConocoPhillips 4.65 Duke Energy Corp. 3.08 Southern (The) Co. 2.61 ------- Total 61.93% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT MARCH 9, 2006 - DECEMBER 31, 2014 First Trust Morningstar Morningstar(R) Dividend S&P 500(R) Dividend Leaders Index Fund Leaders Index(SM) Index 03/06 $10,000 $10,000 $10,000 12/06 12,077 12,110 11,317 06/07 12,392 12,462 12,104 12/07 10,793 10,870 11,939 06/08 7,995 8,069 10,516 12/08 7,371 7,462 7,522 06/09 6,961 7,067 7,760 12/09 8,420 8,567 9,512 06/10 8,039 8,197 8,879 12/10 9,771 9,995 10,945 06/11 10,535 10,806 11,604 12/11 11,182 11,498 11,176 06/12 12,107 12,491 12,236 12/12 12,204 12,620 12,964 06/13 13,908 14,421 14,756 12/13 14,978 15,569 17,163 06/14 16,519 17,221 18,388 12/14 16,919 17,679 19,513
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 185 0 0 0 01/01/11 - 12/31/11 219 0 0 0 01/01/12 - 12/31/12 171 0 0 0 01/01/13 - 12/31/13 171 0 0 0 01/01/14 - 12/31/14 190 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 66 1 0 0 01/01/11 - 12/31/11 33 0 0 0 01/01/12 - 12/31/12 79 0 0 0 01/01/13 - 12/31/13 81 0 0 0 01/01/14 - 12/31/14 62 0 0 0 Page 7 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST US IPO INDEX FUND (FPX) The First Trust US IPO Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the IPOX(R)-100 U.S. Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is a modified value-weighted price index measuring the performance of the top 100 U.S. companies ranked quarterly by market capitalization in the IPOX Global Composite Index. The Index utilizes a 10% capping on all constituents and includes the 100 largest, typically best performing and most liquid initial public offerings ("IPOs") of the U.S. companies in the IPOX Global Composite Index. The IPOX Global Composite Index is reconstituted regularly with IPOs being added to the IPOX Global Composite Index at their seventh trading day upon "going public" and automatically exiting after 1,000 trading days or approximately four years thereafter. The Index is reconstituted quarterly to reflect changes in the stock market values of the IPOX Global Composite Index constituents and IPO activity during the past quarter, with potential new companies entering the Index while other companies reaching 1,000 days in the Index and automatically dropping out. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was April 13, 2006.
---------------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (4/12/06) Ended (4/12/06) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 11.91% 21.30% 12.13% 162.56% 171.47% Market Value 11.86% 21.31% 12.13% 162.69% 171.47% INDEX PERFORMANCE IPOX(R)-100 U.S. Index 12.60% 22.06% 12.83% 170.93% 186.51% Russell 3000(R) Index 12.56% 15.63% 7.86% 106.72% 93.49% ---------------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 11.91% during the 12-month period covered by this report. During the same period, the Russell 3000(R) Index ("benchmark") generated a return of 12.56%. The Information Technology sector led all other sectors in contribution to the Fund's return with 6.0%. The Fund allocated 22.0% of its average weight to the sector, which returned 28.2%. Much of the performance came from Facebook, Inc. which had an average Fund weight of 10.4%, returned 42.7% and individually contributed 4.4% to the Fund's return. The Health Care sector was the second-best contributor with 4.5%. No other sector in the Fund topped Health Care's performance of 28.6%, and the Fund allocated an average of 16.8% of its weight to the sector. Pharmaceutical company AbbVie, Inc. was responsible for much of the sector's performance. The company had an average Fund weight of 9.2% and returned 28.0%, resulting in a 2.4% contribution to the Fund's return. Relative to its benchmark, the Fund underperformed. The underperformance came from the Fund being overweight the Consumer Discretionary (23.7% vs. 12.7% average weight) and Energy (15.1% vs. 9.1% average weight) sectors, as both sectors had below-average returns. Within the Energy sector, Antero Resources Corp. was the Fund's worst individual contributor with a -36.0% return and a -0.6% contribution. Further underperformance came from the Financials sector where the Fund's holdings returned 1.1% vs. 14.4% for the benchmark's constituents from the sector. A majority of the Financials underperformance came from the Fund being underweight the strong-performing REIT industry. Most of the previously mentioned underperformance was reversed by the Fund's strong performance in the Information Technology sector. Within the sector the Fund returned 28.2% vs. 17.8% for the benchmark. ------------------- The Fund is not sponsored, endorsed, sold or promoted by IPOX(R). IPOX(R) makes no representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of trading in the Fund. Page 8 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST US IPO INDEX FUND (FPX) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Consumer Discretionary 22.15% Information Technology 21.43 Health Care 19.40 Energy 11.67 Financials 9.80 Industrials 8.02 Consumer Staples 5.63 Materials 0.96 Telecommunication Services 0.73 Utilities 0.21 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Facebook, Inc., Class A 9.98% AbbVie, Inc. 9.58 Phillips 66 3.98 Kraft Foods Group, Inc. 3.69 General Motors Co. 3.33 HCA Holdings, Inc. 3.16 Kinder Morgan, Inc. 2.91 Hilton Worldwide Holdings, Inc. 2.55 Marathon Petroleum Corp. 2.54 Synchrony Financial 2.46 ------- Total 44.18% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 12, 2006 - DECEMBER 31, 2014 First Trust US IPO IPOX(R)-100 Russell 3000(R) Index Fund U.S. Index Index 04/06 $10,000 $10,000 $10,000 12/06 11,100 11,154 11,064 06/07 12,385 12,481 11,851 12/07 12,712 12,844 11,633 06/08 11,784 11,941 10,348 12/08 7,134 7,245 7,293 06/09 8,087 8,248 7,599 12/09 10,339 10,575 9,360 06/10 9,726 9,980 8,794 12/10 12,228 12,594 10,945 06/11 13,439 13,889 11,640 12/11 12,607 13,071 11,057 06/12 14,314 14,885 12,088 12/12 16,391 17,092 12,873 06/13 19,143 20,011 14,683 12/13 24,256 25,446 17,192 06/14 25,859 27,214 18,385 12/14 27,144 28,651 19,350
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 149 0 0 0 01/01/11 - 12/31/11 135 0 0 0 01/01/12 - 12/31/12 149 2 0 0 01/01/13 - 12/31/13 220 0 0 0 01/01/14 - 12/31/14 158 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 103 0 0 0 01/01/11 - 12/31/11 116 1 0 0 01/01/12 - 12/31/12 97 2 0 0 01/01/13 - 12/31/13 32 0 0 0 01/01/14 - 12/31/14 94 0 0 0 Page 9 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) The First Trust NYSE Arca Biotechnology Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NYSE Arca Biotechnology Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equal dollar-weighted index designed to measure the performance of a cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services. Such processes include, but are not limited to, recombinant DNA technology, molecular biology, genetic engineering, monoclonal antibody-based technology, lipid/liposome technology and genomics. This Index is rebalanced quarterly based on closing prices on the third Friday in January, April, July and October to ensure that each component stock continues to represent approximately equal weight in the Index. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was June 23, 2006.
---------------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (6/19/06) Ended (6/19/06) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 47.63% 29.02% 21.21% 257.54% 416.31% Market Value 47.66% 29.02% 21.21% 257.49% 416.41% INDEX PERFORMANCE NYSE Arca Biotechnology Index(SM) 47.91% 29.69% 21.88% 266.83% 441.37% NASDAQ(R) Biotechnology Index 34.40% 30.69% 19.24% 281.20% 349.02% S&P 500(R) Index 13.69% 15.45% 8.41% 105.14% 99.22% S&P Composite 1500 Health Care Index 24.79% 19.84% 12.59% 147.18% 175.16% ---------------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 47.63% during the 12-month period covered by this report. During the same period, the S&P Composite 1500 Health Care Index ("benchmark") generated a return of 24.79%. InterMune, Inc. was the standout performer in the Fund this reporting period. From the beginning of the period through the date the company was acquired by Roche Holding AG, InterMune returned 401.6%, resulting in an 11.3% contribution to the Fund's return. Exact Sciences Corp. was the second-best performing stock in the Fund. The company returned 134.7% and contributed 5.2% to the Fund's return. The company's strong return was partially aided by a ruling stating that its Cologuard DNA test will be covered by Medicare Part B for certain beneficiaries. Relative to its benchmark, the Fund outperformed. The Fund's heavy concentration in pure Biotechnology companies, along with its overweight position in stocks with exceptional performance, caused the outperformance. ------------------- The NYSE Arca Biotechnology Index(SM) is a trademark of NYSE Euronext or its affiliates ("NYSE Euronext") and is licensed for use by First Trust on behalf of the Fund. The Fund is not sponsored or endorsed by NYSE Euronext. NYSE Euronext makes no representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of investing in the Fund or the ability of the Fund to track the performance of the various sectors represented in the stock market. Page 10 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) (CONTINUED) ----------------------------------------------------------- PORTFOLIO INDUSTRY ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL INDUSTRY LONG-TERM INVESTMENTS Biotechnology 80.82% Life Sciences Tools & Services 15.53 Pharmaceuticals 3.65 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Isis Pharmaceuticals, Inc. 4.53% Cubist Pharmaceuticals, Inc. 4.47 Incyte Corp. 4.27 NPS Pharmaceuticals, Inc. 4.00 Alkermes PLC 3.97 BioMarin Pharmaceutical, Inc. 3.75 Celgene Corp. 3.71 Nektar Therapeutics 3.66 Amgen, Inc. 3.49 Cepheid, Inc. 3.41 ------- Total 39.26% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT JUNE 19, 2006 - DECEMBER 31, 2014 First Trust NYSE Arca NYSE Arca Biotechnology NASDAQ(R) S&P 500(R) S&P Composite 1500 Biotechnology Index Fund Index(SM) Biotechnology Index Index Health Care Index 06/06 $10,000 $10,000 $10,000 $10,000 $10,000 12/06 11,775 11,815 11,114 11,554 11,194 06/07 12,105 12,179 11,177 12,358 11,919 12/07 12,205 12,320 11,630 12,189 12,092 06/08 11,410 11,557 11,086 10,736 10,593 12/08 9,968 10,138 10,200 7,679 9,218 06/09 10,722 10,921 10,491 7,922 9,305 12/09 14,441 14,758 11,828 9,711 11,132 06/10 15,629 16,026 11,227 9,065 10,324 12/10 19,768 20,327 13,726 11,174 11,712 06/11 22,182 22,880 15,694 11,847 13,374 12/11 16,534 17,096 15,385 11,410 13,104 06/12 22,185 23,013 19,204 12,493 14,610 12/12 23,299 24,233 20,352 13,236 15,510 06/13 29,413 30,705 25,829 15,066 18,703 12/13 34,975 36,600 33,787 17,523 22,049 06/14 41,655 43,638 38,352 18,774 24,298 12/14 51,636 54,137 44,902 19,923 27,515
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 165 1 0 1 01/01/11 - 12/31/11 151 1 0 0 01/01/12 - 12/31/12 121 0 0 0 01/01/13 - 12/31/13 204 0 0 0 01/01/14 - 12/31/14 183 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 83 1 0 1 01/01/11 - 12/31/11 100 0 0 0 01/01/12 - 12/31/12 128 1 0 0 01/01/13 - 12/31/13 48 0 0 0 01/01/14 - 12/31/14 69 0 0 0 Page 11 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) The First Trust Dow Jones Internet Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Dow Jones Internet Composite Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index represents companies that generate the majority of their revenues via the Internet. The Index was designed and is maintained according to a set of rules that were devised with the goal of providing clear and accurate views of the growing Internet market segment. The Index aims to consistently represent 80% of the float-adjusted Internet equity universe. The Index contains two sub-indices, the Dow Jones Internet Commerce Index and the Dow Jones Internet Services Index. For its stock to be eligible for the "universe," a company must generate at least 50% of annual sales/revenues from the Internet, and be currently included in the Dow Jones U.S. Index. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was June 23, 2006.
---------------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (6/19/06) Ended (6/19/06) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 2.42% 19.58% 14.08% 144.52% 207.77% Market Value 2.44% 19.58% 14.08% 144.50% 207.87% INDEX PERFORMANCE Dow Jones Internet Composite Index(SM) 2.79% 20.24% 14.70% 151.35% 222.36% S&P 500(R) Index 13.69% 15.45% 8.41% 105.14% 99.22% S&P Composite 1500 Information Technology Index 18.95% 14.83% 11.09% 99.64% 145.28% ---------------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 2.42% during the 12-month period covered by this report. During the same period, the S&P Composite 1500 Information Technology Index ("benchmark") generated a return of 18.95%. The Internet Software & Services industry was the top-contributing industry in the Fund with a 4.1% contribution. The industry did not have strong performance (7.3%) but it was by far the heaviest-weighted industry at 55.7% of the Fund's average weight. Allocations to Twitter, Inc. (-29.6% return) and Pandora Media, Inc. (-47.6%) tempered the industry's return. The Internet & Catalog Retail industry was the worst-contributing industry of the Consumer Discretionary sector with a contribution to the Fund's return of -2.4%. The Fund's holdings in the industry comprised 23.4% of the Fund's weight and returned -9.8%. Groupon, Inc. (-29.8% return) and Amazon.com, Inc. (-22.2%) were the largest drags on the industry's return. Relative to its benchmark, the Fund underperformed. The Fund's focus on the Internet Software & Services industry was the primary cause of underperformance, as other Information Technology industries performed much better. Additionally, the Fund underperformed because the benchmark did not have any exposure to the previously mentioned Internet & Catalog Retail industry, which is classified as being part of the Consumer Discretionary sector by the Global Industry Classification Standard ("GICS(R)"). ------------------- Dow Jones and Dow Jones Internet Composite Index(SM) are products of S&P Dow Jones Indices ("SPDJI") and have been licensed for use by First Trust on behalf of the Fund. The Fund, based on the Dow Jones Internet Composite Index(SM), is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones Trademark Holdings LLC ("Dow Jones") or their respective affiliates and SPDJI, Dow Jones and their respective affiliates make no representation regarding the advisability of trading in the Fund. Page 12 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 70.85% Consumer Discretionary 22.33 Financials 4.61 Health Care 2.21 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Facebook, Inc., Class A 8.34% Amazon.com, Inc. 7.21 eBay, Inc. 5.53 Priceline Group (The), Inc. 5.41 Google, Inc., Class A 4.91 Google, Inc., Class C 4.86 Yahoo!, Inc. 4.78 salesforce.com, Inc. 4.40 LinkedIn Corp., Class A 3.76 Netflix, Inc. 3.42 ------- Total 52.62% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT JUNE 19, 2006 - DECEMBER 31, 2014 First Trust Dow Jones Dow Jones Internet S&P 500(R) S&P Composite 1500 Internet Index Fund Composite Index(SM) Index Information Technology Index 06/06 $10,000 $10,000 $10,000 $10,000 12/06 11,285 11,315 11,554 11,574 06/07 12,975 13,044 12,358 12,716 12/07 12,545 12,651 12,189 13,360 06/08 11,203 11,327 10,736 11,638 12/08 7,023 7,114 7,679 7,629 06/09 9,374 9,524 7,922 9,506 12/09 12,587 12,825 9,711 12,286 06/10 11,980 12,222 9,065 11,055 12/10 17,197 17,603 11,174 13,776 06/11 18,186 18,661 11,847 14,115 12/11 16,209 16,702 11,410 13,930 06/12 17,741 18,335 12,493 15,702 12/12 19,590 20,315 13,236 15,985 06/13 22,779 23,687 15,065 17,061 12/13 30,050 31,357 17,523 20,620 06/14 29,906 31,260 18,773 22,362 12/14 30,779 32,232 19,922 24,527
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 189 0 0 0 01/01/11 - 12/31/11 151 0 0 0 01/01/12 - 12/31/12 122 0 0 0 01/01/13 - 12/31/13 200 0 0 0 01/01/14 - 12/31/14 148 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 63 0 0 0 01/01/11 - 12/31/11 101 0 0 0 01/01/12 - 12/31/12 128 0 0 0 01/01/13 - 12/31/13 52 0 0 0 01/01/14 - 12/31/14 104 0 0 0 Page 13 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CAPITAL STRENGTH ETF (FTCS) The First Trust Capital Strength ETF (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called The Capital Strength Index(TM) (the "Index"). The Index is initially equally-weighted and is made up of the top 50 stocks out of the universe of the largest 500 U.S. companies included in the NASDAQ US Benchmark Index, ranked by one- and three-year daily volatility. Companies with less than $1 billion in cash and short term investments, companies with long-term debt divided by market capitalization greater than 30%, and companies with return on equity less than 15% are excluded from the Index. The Index is reconstituted and rebalanced on a quarterly basis. The Fund's shares are listed for trading on the NASDAQ. The first day of secondary market trading in shares of the Fund was July 11, 2006.
---------------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (7/6/06) Ended (7/6/06) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 15.46% 15.32% 9.62% 103.98% 117.99% Market Value 15.44% 15.35% 9.63% 104.25% 118.28% INDEX PERFORMANCE The Capital Strength Index(TM)* 16.25% N/A N/A N/A N/A S&P 500 Value Index 12.36% 14.86% 6.42% 99.90% 69.59% S&P 500(R) Index 13.69% 15.45% 8.10% 105.14% 93.71% ---------------------------------------------------------------------------------------------------------------------------------- * On June 18, 2010, the Fund's underlying index changed from the Deutsche Bank CROCI(R) US+ Index(TM) to the Credit Suisse U.S. Value Index, Powered by HOLT(TM). On June 4, 2013, the Fund's underlying index changed from the Credit Suisse U.S. Value Index, Powered by HOLT(TM) to The Capital Strength Index(TM). Therefore, the Fund's performance and total returns shown for the period prior to June 4, 2013, are not necessarily indicative of the performance of the Fund based on its current index, would have generated. Since the Fund's new underlying index had an inception date of March 20, 2013, it was not in existence for any of the periods disclosed, other than for the one-year period. (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 15.46% during the 12-month period covered by this report. During the same period, the S&P 500 Value Index ("benchmark") generated a return of 12.36%. The Industrials sector was the top-contributing sector with a 4.1% contribution to the Fund's return. The Fund's holdings from the sector returned 18.0% and comprised an average of 20.8% of the Fund's weight. The sector's strong performance came partially from the Aerospace & Defense industry which returned 22.3%. The Health Care sector was the second-best contributing, and best-performing, sector in the Fund. The Fund's holdings in the sector comprised 14.0% of the Fund's average weight and returned 25.0%, resulting in a 3.6% contribution. Eli Lilly & Co. and Covidien Plc were the Fund's top individual performers from the industry with returns of 39.8% and 31.2%, respectively. Relative to its benchmark, the Fund outperformed. The largest source of outperformance was the Fund's underweight position in the weak-performing Energy sector (5.1% vs. 14.7% average weight). Additional outperformance came from the previously mentioned Industrials sector where the Fund was overweight (20.8% vs. 9.1% average weight) and outperformed (18.0% vs. 3.0% return) relative to the benchmark. ------------------- "Credit Suisse," "HOLT" and "Credit Suisse U.S. Value Index, Powered by HOLT(TM)," are trademarks of Credit Suisse Group AG, Credit Suisse Securities (USA) LLC or one of their affiliates (collectively, "Credit Suisse"), and have been licensed for use for certain purposes by First Trust on behalf of the Fund. The Fund IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY CREDIT SUISSE, AND CREDIT SUISSE MAKEs NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, REGARDING THE ADVISABILITY OF INVESTING OR TRADING IN the Fund. The Capital Strength Index(TM) is the trademark (the "Mark") of the NASDAQ OMX Group ("NASDAQ OMX"). The Mark is licensed for use by First Trust Portfolios L.P. The Fund has not been passed on by NASDAQ OMX as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by NASDAQ OMX. The Fund should not be construed in any way as investment advice by NASDAQ OMX. NASDAQ OMX MAKES NO WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE FUND OR THE CAPITAL STRENGTH INDEX(TM). Page 14 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CAPITAL STRENGTH ETF (FTCS) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Industrials 24.01% Consumer Staples 17.52 Information Technology 16.25 Health Care 12.03 Financials 11.84 Consumer Discretionary 10.41 Materials 6.12 Energy 1.82 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Lowe's Cos., Inc. 2.35% KLA-Tencor Corp. 2.29 PPG Industries, Inc. 2.21 Texas Instruments, Inc. 2.20 3M Co. 2.15 Ralph Lauren Corp. 2.13 Northrop Grumman Corp. 2.13 Accenture PLC, Class A 2.09 Medtronic, Inc. 2.09 Wal-Mart Stores, Inc. 2.08 ------- Total 21.72% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT JULY 6, 2006 - DECEMBER 31, 2014 First Trust Capital S&P 500 Value S&P 500(R) Strength ETF Index Index 07/06 $10,000 $10,000 $10,000 12/06 11,074 11,294 11,235 06/07 12,444 12,126 12,016 12/07 12,210 11,519 11,852 06/08 11,253 9,671 10,440 12/08 7,665 7,002 7,467 06/09 8,640 6,903 7,703 12/09 10,686 8,484 9,443 06/10 9,880 8,034 8,815 12/10 12,185 9,765 10,866 06/11 13,144 10,276 11,520 12/11 11,827 9,718 11,095 06/12 12,469 10,585 12,148 12/12 13,890 11,436 12,871 06/13 16,203 13,235 14,650 12/13 18,876 15,093 17,039 06/14 19,929 16,143 18,256 12/14 21,794 16,957 19,373
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 152 0 0 0 01/01/11 - 12/31/11 129 0 0 0 01/01/12 - 12/31/12 147 0 0 0 01/01/13 - 12/31/13 134 0 0 0 01/01/14 - 12/31/14 108 9 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 100 0 0 0 01/01/11 - 12/31/11 123 0 0 0 01/01/12 - 12/31/12 103 0 0 0 01/01/13 - 12/31/13 117 1 0 0 01/01/14 - 12/31/14 131 4 0 0 Page 15 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) The First Trust Value Line(R) Equity Allocation Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) Equity Allocation Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is designed to objectively identify and select those stocks from the 1,700-stock Value Line(R) universe across market capitalizations and investment styles for growth and value that appear to have the greatest potential for capital appreciation. The Index is rebalanced on a semi-annual basis in February and August. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was December 7, 2006. Effective January 9, 2015, the Fund changed its name to First Trust Total US Market AlphaDEX(R) ETF (TUSA). See Subsequent Events in the Notes to Financial Statements.
---------------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (12/5/06) Ended (12/5/06) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 2.36% 10.19% 4.76% 62.45% 45.59% Market Value 2.36% 10.19% 4.77% 62.45% 45.62% INDEX PERFORMANCE Value Line(R) Equity Allocation Index 3.25% 11.11% 5.64% 69.38% 55.70% Russell 3000(R) Index 12.56% 15.63% 7.18% 106.72% 75.02% ---------------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 2.36% during the 12-month period covered by this report. During the same period, the Russell 3000(R) Index ("benchmark") generated a return of 12.56%. The Information Technology sector was the best-contributing sector in the Fund, adding 3.5% to the Fund's return. The Fund's holdings in the sector comprised 20.0% of the Fund's average weight and returned 18.6%. Within the Information Technology sector, the Semiconductor industry stood out with a 41.0% return. The Utilities sector was the best-performing sector in the Fund. High dividend yields attracted investors and helped the Fund's holdings in the sector return 38.5%. However, the sector had a low allocation of 4.1% of the Fund's average weight, resulting in only a 0.8% contribution to return. The Energy sector was the largest drag on the Fund's performance. The Fund's holdings in the sector comprised 7.6% of the Fund's average weight and returned -35.4%, resulting in a -5.5% contribution to return. Relative to its benchmark, the Fund underperformed. The Energy sector caused the most underperformance as the Fund's holdings returned -35.4% vs. -8.4% for the benchmark's Energy constituents. Some of the performance difference is due to the Fund not holding large Energy companies ExxonMobil Corp. (-6.1% return) and Chevron Corp. (-7.0%). These companies were the benchmark's largest Energy holdings and the companies outperformed the broader Energy sector. The Fund also suffered underperformance from being underweight the strong-performing Heath Care sector (7.8% vs. 13.3% average weight), and from underperforming in the Financials sector (8.3% vs. 14.5% return). Much of the underperformance in the Financials sector came from the Fund being underweight the strong-performing REIT industry relative to the benchmark. ------------------- Value Line is a registered trademark of Value Line, Inc. that is licensed to First Trust on behalf of the Fund. The Fund is not sponsored, recommended, sold, or promoted by Value Line Publishing LLC, Value Line, Inc. or any of their affiliates. Page 16 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Financials 19.49% Consumer Discretionary 18.32 Information Technology 18.27 Industrials 10.90 Energy 9.68 Health Care 7.28 Consumer Staples 6.77 Materials 4.67 Utilities 3.13 Telecommunication Services 1.49 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Southwest Airlines Co. 1.78% Royal Caribbean Cruises Ltd. 1.64 Kroger (The) Co. 1.56 Dollar Tree, Inc. 1.54 Bed Bath & Beyond, Inc. 1.47 NetApp, Inc. 1.41 Travelers (The) Cos., Inc. 1.41 Apple, Inc. 1.39 ACE Ltd. 1.38 Hewlett-Packard Co. 1.38 ------- Total 14.96% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 5, 2006 - DECEMBER 31, 2014 First Trust Value Line(R) Value Line(R) Equity Russell 3000(R) Equity Allocation Index Fund Allocation Index Index 12/5/06 $10,000 $10,000 $10,000 12/06 9,890 9,897 10,008 06/07 10,610 10,623 10,720 12/07 10,350 10,398 10,522 06/08 9,470 9,551 9,360 12/08 6,681 6,772 6,597 06/09 7,037 7,177 6,874 12/09 8,962 9,192 8,466 06/10 8,831 9,104 7,954 12/10 10,741 11,125 9,900 06/11 10,976 11,405 10,529 12/11 9,714 10,132 10,001 06/12 9,883 10,350 10,933 12/12 10,563 11,109 11,643 06/13 12,087 12,764 13,280 12/13 14,223 15,078 15,550 06/14 14,940 15,906 16,629 12/14 14,559 15,569 17,502
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 156 0 0 0 01/01/11 - 12/31/11 146 1 0 0 01/01/12 - 12/31/12 124 1 0 0 01/01/13 - 12/31/13 140 0 0 0 01/01/14 - 12/31/14 178 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 95 1 0 0 01/01/11 - 12/31/11 105 0 0 0 01/01/12 - 12/31/12 122 3 0 0 01/01/13 - 12/31/13 104 8 0 0 01/01/14 - 12/31/14 68 6 0 0 Page 17 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) The First Trust Value Line(R) Dividend Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) Dividend Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is designed to objectively identify and select those stocks from the universe of stocks which Value Line, Inc.(R) gives a Safety(TM) Ranking of #1 or #2 in the Value Line(R) Safety(TM) Ranking System and have the potential to pay above-average dividends and achieve capital appreciation. The Index is rebalanced on a monthly basis. The Fund's shares are listed for trading on the NYSE Arca.
---------------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (8/19/03) Ended Ended (8/19/03) 12/31/14 12/31/14 12/31/14 to 12/31/14 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 15.94% 15.61% 8.76% 9.88% 106.50% 131.52% 191.82% Market Value 15.83% 15.59% 9.90% 9.88% 106.34% 157.02% 191.82% INDEX PERFORMANCE Value Line(R) Dividend Index 16.92% 16.54% N/A N/A 143.75% N/A N/A S&P 500(R) Index 13.69% 15.45% 7.67% 8.75% 105.14% 109.47% 159.34% Dow Jones U.S. Select Dividend Index(SM) 15.36% 17.03% 7.08% N/A 119.49% 98.10% N/A ---------------------------------------------------------------------------------------------------------------------------------- On December 15, 2006, the Fund acquired the assets and adopted the financial and performance history of First Trust Value Line(R) Dividend Fund (the "Predecessor FVD Fund," a closed-end fund), which had an inception date of August 19, 2003. The inception date total returns at net asset value ("NAV") include the sales load of $0.675 per share on the initial offering. The investment goals, strategies and policies of the Fund are substantially similar to those of the Predecessor FVD Fund. The inception date of the Index was July 3, 2006. Returns for the Index are only disclosed for those periods in which the Index was in existence for the entire period. The cumulative total returns for the period from the reorganization date (12/15/06) through period end (12/31/14) were 80.42% and 81.28% at NAV and Market Value, respectively. That compares to an Index return of 92.13% for the same period. The average annual total returns for the period from the reorganization date (12/15/06) through period end (12/31/14) were 7.61% and 7.68% at NAV and Market Value, respectively. That compares to an Index return of 8.46% for the same period. NAV and Market Value returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Value, respectively. Prior to December 15, 2006, NAV and Market Value returns assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of the Predecessor FVD Fund and the price used to calculate Market Value return was the AMEX (now known as the NYSE Mkt) closing market price of the Predecessor FVD Fund. (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 15.94% during the 12-month period covered by this report. During the same period, the S&P 500(R) Index ("benchmark") generated a return of 13.69%. The Utilities sector topped all other sectors in the Fund in average weight (24.7%), performance (26.6%), and contribution to the Fund's return (6.6%). Strong dividend yields in a low-rate environment along with some large mergers and acquisitions activity helped boost the sector's returns. The Consumer Discretionary sector was the second-best performer with a 19.8% return, but its low average weight of 7.1% limited its contribution to return to 1.5%. Relative to its benchmark, the Fund outperformed. The main driver of the Fund's excess return was its overweight position in the previously mentioned Utilities sector. The Fund had an average weight of 24.7% in the sector compared to 3.1% for the benchmark. ------------------- Value Line is a registered trademark of Value Line, Inc. that is licensed to First Trust on behalf of the Fund. The Fund is not sponsored, recommended, sold, or promoted by Value Line Publishing LLC, Value Line, Inc. or any of their affiliates. Page 18 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Utilities 26.38% Financials 14.11 Consumer Staples 13.90 Industrials 11.81 Information Technology 9.05 Health Care 7.44 Consumer Discretionary 7.13 Energy 4.90 Materials 2.68 Telecommunication Services 2.60 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Mattel, Inc. 0.57% American States Water Co. 0.57 New Jersey Resources Corp. 0.57 AGL Resources, Inc. 0.56 Vectren Corp. 0.56 WGL Holdings, Inc. 0.56 TransCanada Corp. 0.56 MGE Energy, Inc. 0.56 Enbridge, Inc. 0.56 TECO Energy, Inc. 0.56 ------- Total 5.63% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2004 - DECEMBER 31, 2014 First Trust Value Line(R) S&P 500(R) Dow Jones U.S. Select Dividend Index Fund Index Dividend Index(SM) 12/04 $10,000 $10,000 $10,000 06/05 10,304 9,919 10,222 12/05 10,659 10,491 10,379 06/06 11,272 10,775 10,899 12/06 12,802 12,149 12,408 06/07 13,146 12,995 12,927 12/07 12,364 12,816 11,767 06/08 11,160 11,290 9,248 12/08 9,376 8,075 8,122 06/09 9,263 8,330 7,104 12/09 11,212 10,211 9,026 06/10 10,889 9,532 8,909 12/10 13,015 11,750 10,679 06/11 14,073 12,457 11,575 12/11 14,190 11,997 12,005 06/12 15,089 13,136 12,790 12/12 15,776 13,918 13,306 06/13 17,967 15,841 15,149 12/13 19,967 18,425 17,173 06/14 21,669 19,741 18,867 12/14 23,151 20,949 19,810
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 180 0 0 0 01/01/11 - 12/31/11 218 1 0 0 01/01/12 - 12/31/12 205 0 0 0 01/01/13 - 12/31/13 238 0 0 0 01/01/14 - 12/31/14 223 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 72 0 0 0 01/01/11 - 12/31/11 33 0 0 0 01/01/12 - 12/31/12 44 1 0 0 01/01/13 - 12/31/13 14 0 0 0 01/01/14 - 12/31/14 29 0 0 0 Page 19 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) The First Trust Value Line(R) 100 Exchange-Traded Fund seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) 100 Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equal-dollar weighted index that is designed to objectively identify and select 100 stocks from the universe of stocks to which Value Line(R) assigns a #1 ranking in the Value Line(R) Timeliness(TM) Ranking System (the "Ranking System"). At any one time only 100 stocks are assigned a #1 ranking in the Ranking System. The Index is rebalanced quarterly. The Fund's shares are listed for trading on the NYSE Arca.
---------------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (6/12/03) Ended Ended (6/12/03) 12/31/14 12/31/14 12/31/14 to 12/31/14 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 11.33% 14.98% 5.09% 6.44% 100.92% 64.31% 105.70% Market Value 11.22% 14.96% 5.66% 6.43% 100.82% 73.35% 105.60% INDEX PERFORMANCE Value Line(R) 100 Index 12.35% 16.05% N/A N/A 110.49% N/A N/A Russell 3000(R)- Index 12.56% 15.63% 7.94% 9.09% 106.72% 114.75% 173.27% ---------------------------------------------------------------------------------------------------------------------------------- On June 15, 2007, the Fund acquired the assets and adopted the financial and performance history of First Trust Value Line(R) 100 Fund (the "Predecessor FVL Fund," a closed-end fund), which had an inception date of June 12, 2003. The inception date total returns at NAV include the sales load of $0.675 per share on the initial offering. The investment goals, strategies and policies of the Fund are substantially similar to those of the Predecessor FVL Fund. The inception date of the Index was January 16, 2007. Returns for the Index are only disclosed for those periods in which the Index was in existence for the entire period. The cumulative total returns for the period from the reorganization date (06/15/07) through period end (12/31/14) were 24.86% and 24.80% at NAV and Market Value, respectively. That compares to an Index return of 33.17% for that same period. The average annual total returns for the period from the reorganization date (6/15/07) through period end (12/31/14) were 2.99% and 2.98% at NAV and Market Value, respectively. That compares to an Index return of 3.87% for the same period. NAV and Market Value returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Value, respectively. Prior to June 15, 2007, NAV and Market Value returns assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of the Predecessor FVL Fund and the price used to calculate Market Value return was the AMEX (now known as the NYSE Mkt) closing market price of the Predecessor FVL Fund. (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 11.33% during the 12-month period covered by this report. During the same period, the Russell 3000(R) Index ("benchmark") generated a return of 12.56%. The Industrials sector led all sectors in contribution to the Fund's return with 4.8%. The Fund's holdings in the sector returned 27.2% and comprised 18.8% of the Fund's average weight. The sector's strong performance came particularly from the Fund's 6.6% allocation to the Airlines industry, which returned 64.5%. Southwest Airlines Co. (126.3% return) and JetBlue Airways Corp. (85.5%) were the top performers from the industry. The Information Technology sector was the second-best contributing sector at 3.5%. The Fund's holdings from the sector returned 18.2% and comprised 17.0% of the Fund's weight. The Financials sector was the best-performing sector in the Fund with a return of 32.7%, however the sector's low average Fund weight of 6.6% limited the sector's contribution to 1.5%. The Energy sector was the largest detractor from the Fund's return with a contribution of -3.8%. The Fund's Energy holdings returned -33.9% and comprised an average of 11.9% of the Fund's weight. Relative to its benchmark, the Fund underperformed. Most of the underperformance came from the Energy sector where the Fund's holdings underperformed the benchmark's constituents -33.9% vs. -10.0%. Additional underperformance came from the Fund being underweight the strong-performing Health Care sector (5.7% vs. 13.3% average weight). The Fund was able to reverse much of the previously mentioned underperformance in the Industrials sector where the Fund's holdings outperformed the benchmark's constituents 27.2% vs. 8.0%. The Fund's overweight position in the Airlines industry was the primary cause of the performance difference in the sector. ------------------- Value Line is a registered trademark of Value Line, Inc. that is licensed to First Trust on behalf of the Fund. The Fund is not sponsored, recommended, sold, or promoted by Value Line Publishing LLC, Value Line, Inc. or any of their affiliates. Page 20 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Consumer Discretionary 27.57% Industrials 26.94 Information Technology 10.51 Materials 9.12 Energy 7.38 Health Care 7.35 Consumer Staples 4.28 Financials 2.90 Telecommunication Services 1.99 Utilities 1.96 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS JetBlue Airways Corp. 1.56% United Continental Holdings, Inc. 1.52 Goodyear Tire & Rubber (The) Co. 1.48 Sanmina Corp. 1.45 Avis Budget Group, Inc. 1.34 Kroger (The) Co. 1.29 Actavis PLC 1.27 Alaska Air Group, Inc. 1.26 Micron Technology, Inc. 1.24 Outerwall, Inc. 1.24 ------- Total 13.65% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2004 - DECEMBER 31, 2014 First Trust Value Line(R) 100 Russell 3000(R) Exchange-Traded Fund Index 12/04 $10,000 $10,000 06/05 10,104 9,999 12/05 11,185 10,613 06/06 11,426 10,956 12/06 11,699 12,281 06/07 13,065 13,155 12/07 14,028 12,913 06/08 12,830 11,486 12/08 7,253 8,095 06/09 6,971 8,434 12/09 8,177 10,388 06/10 8,107 9,760 12/10 10,590 12,147 06/11 11,190 12,918 12/11 9,751 12,271 06/12 10,023 13,415 12/12 10,582 14,286 06/13 12,159 16,295 12/13 14,756 19,080 06/14 16,353 20,404 12/14 16,430 21,475
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 149 0 0 0 01/01/11 - 12/31/11 137 2 0 0 01/01/12 - 12/31/12 73 0 0 0 01/01/13 - 12/31/13 100 0 0 0 01/01/14 - 12/31/14 165 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 103 0 0 0 01/01/11 - 12/31/11 111 2 0 0 01/01/12 - 12/31/12 177 0 0 0 01/01/13 - 12/31/13 152 0 0 0 01/01/14 - 12/31/14 87 0 0 0 Page 21 -------------------------------------------------------------------------------- NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- Total returns for the periods since inception are calculated from the inception date of each Fund. "Average annual total returns" represent the average annual change in value of an investment over the periods indicated. "Cumulative total returns" represent the total change in value of an investment over the periods indicated. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the Advisor. Each Fund's per share net asset value ("NAV") is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return ("Market Value") is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund are listed for trading as of the time that the Fund's NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund's inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and Market Value returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Value, respectively. An index is a statistical composite that tracks a specified financial market or sector. Unlike a Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund's past performance is no guarantee of future results. Page 22 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES DECEMBER 31, 2014 (UNAUDITED) As a shareholder of First Trust Dow Jones Select MicroCap Index Fund, First Trust Morningstar Dividend Leaders Index Fund, First Trust US IPO Index Fund, First Trust NYSE Arca Biotechnology Index Fund, First Trust Dow Jones Internet Index Fund, First Trust Capital Strength ETF, First Trust Value Line(R) Equity Allocation Index Fund, First Trust Value Line(R) Dividend Index Fund and First Trust Value Line(R) 100 Exchange-Traded Fund (each a "Fund" and collectively, the "Funds"), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service fees, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended December 31, 2014. ACTUAL EXPENSES The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Six-Month Period" to estimate the expenses you paid on your account during this six-month period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line in the following table provides information about hypothetical account values and hypothetical expenses based on each Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
--------------------------------------------------------------------------------------------------------------------------- ANNUALIZED EXPENSE RATIO EXPENSES PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH JULY 1, 2014 DECEMBER 31, 2014 PERIOD (a) PERIOD (b) --------------------------------------------------------------------------------------------------------------------------- FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) Actual $1,000.00 $1,037.70 0.60% $3.08 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL) Actual $1,000.00 $1,024.20 0.45% $2.30 Hypothetical (5% return before expenses) $1,000.00 $1,022.94 0.45% $2.29 FIRST TRUST US IPO INDEX FUND (FPX) Actual $1,000.00 $1,049.70 0.60% $3.10 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) Actual $1,000.00 $1,239.60 0.57% $3.22 Hypothetical (5% return before expenses) $1,000.00 $1,022.33 0.57% $2.91 FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) Actual $1,000.00 $1,029.20 0.55% $2.81 Hypothetical (5% return before expenses) $1,000.00 $1,022.43 0.55% $2.80 FIRST TRUST CAPITAL STRENGTH ETF (FTCS) Actual $1,000.00 $1,093.60 0.65% $3.43 Hypothetical (5% return before expenses) $1,000.00 $1,021.93 0.65% $3.31
Page 23 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES (CONTINUED) DECEMBER 31, 2014 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------- ANNUALIZED EXPENSE RATIO EXPENSES PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH JULY 1, 2014 DECEMBER 31, 2014 PERIOD (a) PERIOD (b) --------------------------------------------------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) Actual $1,000.00 $ 974.50 0.70% $3.48 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) Actual $1,000.00 $1,068.40 0.70% $3.65 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) Actual $1,000.00 $1,004.70 0.70% $3.54 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57
(a) These expense ratios reflect expense caps for certain Funds. See Note 3 in Notes to Financial Statements. (b) Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (July 1, 2014 through December 31, 2014), multiplied by 184/365 (to reflect the one-half year period). Page 24 FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 1.6% 5,235 Ducommun, Inc. (a) $ 132,341 9,145 Engility Holdings, Inc. (a) 391,406 2,552 National Presto Industries, Inc. 148,118 4,498 Sparton Corp. (a) 127,473 -------------- 799,338 -------------- AIR FREIGHT & LOGISTICS -- 0.5% 27,010 Air Transport Services Group, Inc. (a) 231,206 -------------- AIRLINES -- 0.7% 25,881 Republic Airways Holdings, Inc. (a) 377,604 -------------- AUTO COMPONENTS -- 3.1% 4,675 China Automotive Systems, Inc. 33,146 9,247 Fox Factory Holding Corp. (a) 150,079 24,888 Modine Manufacturing Co. (a) 338,477 7,485 Remy International, Inc. 156,586 4,291 Shiloh Industries, Inc. (a) 67,497 13,497 Stoneridge, Inc. (a) 173,571 1,864 Strattec Security Corp. 153,929 12,044 Superior Industries International, Inc. 238,351 10,787 Tower International, Inc. (a) 275,608 -------------- 1,587,244 -------------- AUTOMOBILES -- 0.6% 14,013 Winnebago Industries, Inc. 304,923 -------------- BANKS -- 16.3% 6,822 1st Source Corp. 234,063 14,639 Ameris Bancorp 375,344 6,639 Bryn Mawr Bank Corp. 207,801 23,506 Centerstate Banks, Inc. 279,956 14,185 Central Pacific Financial Corp. 304,977 7,911 City Holding Co. 368,099 8,521 Community Trust Bancorp, Inc. 311,954 12,029 ConnectOne Bancorp, Inc. 228,551 13,061 Customers Bancorp, Inc. (a) 254,167 6,816 Financial Institutions, Inc. 171,422 37,474 First Busey Corp. 243,956 8,208 First NBC Bank Holding Co. (a) 288,922 14,643 Flushing Financial Corp. 296,814 16,580 Hanmi Financial Corp. 361,610 15,728 Heritage Financial Corp. 276,026 10,658 HomeTrust Bancshares, Inc. (a) 177,562 11,931 Independent Bank Corp. 155,700 18,131 Lakeland Bancorp, Inc. 212,133 8,602 Lakeland Financial Corp. 373,929 8,240 Mercantile Bank Corp. 173,205 6,795 Metro Bancorp, Inc. (a) 176,126 8,782 Pacific Premier Bancorp, Inc. (a) 152,192 13,017 Sandy Spring Bancorp, Inc. 339,483 8,244 Simmons First National Corp., Class A 335,119 11,455 Southside Bancshares, Inc. 331,164 9,103 Southwest Bancorp, Inc. 158,028 16,776 State Bank Financial Corp. 335,184 7,189 Stock Yards Bancorp, Inc. 239,681 5,234 Stonegate Bank 155,031 SHARES DESCRIPTION VALUE ------------------------------------------------------------- BANKS (CONTINUED) 6,140 Tompkins Financial Corp. $ 339,542 10,391 TriCo Bancshares 256,658 7,390 Washington Trust Bancorp, Inc. 296,930 -------------- 8,411,329 -------------- BEVERAGES -- 0.4% 2,404 Coca-Cola Bottling Co. Consolidated 211,624 -------------- BUILDING PRODUCTS -- 1.8% 6,501 American Woodmark Corp. (a) 262,900 8,884 Insteel Industries, Inc. 209,485 5,019 Patrick Industries, Inc. (a) 220,735 24,755 PGT, Inc. (a) 238,391 -------------- 931,511 -------------- CAPITAL MARKETS -- 3.0% 8,859 Calamos Asset Management, Inc., Class A 118,002 54,937 Cowen Group, Inc., Class A (a) 263,697 3,924 FBR & Co. (a) 96,491 7,950 INTL FCStone, Inc. (a) 163,531 18,085 Investment Technology Group, Inc. (a) 376,530 7,124 Manning & Napier, Inc. 98,454 17,428 RCS Capital Corp., Class A 213,319 3,791 Westwood Holdings Group, Inc. 234,360 -------------- 1,564,384 -------------- CHEMICALS -- 2.8% 11,592 FutureFuel Corp. 150,928 4,914 Hawkins, Inc. 212,924 17,066 Kraton Performance Polymers, Inc. (a) 354,802 2,599 OCI Resources, L.P. (b) 66,794 24,652 OMNOVA Solutions, Inc. (a) 200,667 13,301 Tredegar Corp. 299,140 12,002 Zep, Inc. 181,830 -------------- 1,467,085 -------------- COMMERCIAL SERVICES & SUPPLIES -- 2.4% 9,950 CECO Environmental Corp. 154,623 13,548 Ennis, Inc. 182,491 14,985 Kimball International, Inc., Class B 136,663 6,540 Multi-Color Corp. 362,447 14,872 Performant Financial Corp. (a) 98,899 10,433 Viad Corp. 278,144 -------------- 1,213,267 -------------- COMMUNICATIONS EQUIPMENT -- 0.5% 7,369 Alliance Fiber Optic Products, Inc. 106,924 5,558 Bel Fuse, Inc., Class B 151,956 -------------- 258,880 -------------- CONSTRUCTION & ENGINEERING -- 1.3% 6,306 Argan, Inc. 212,134 19,585 Furmanite Corp. (a) 153,154 10,802 MYR Group, Inc. (a) 295,975 -------------- 661,263 -------------- See Notes to Financial Statements Page 25 FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) CONSUMER FINANCE -- 0.7% 9,892 Consumer Portfolio Services, Inc. (a) $ 72,805 25,348 EZCORP, Inc., Class A (a) 297,839 -------------- 370,644 -------------- CONTAINERS & PACKAGING -- 0.4% 12,941 Myers Industries, Inc. 227,762 -------------- DIVERSIFIED CONSUMER SERVICES -- 2.2% 8,975 American Public Education, Inc. (a) 330,908 2,845 Liberty Tax, Inc. (a) 101,680 6,488 Steiner Leisure Ltd. (a) 299,811 5,668 Strayer Education, Inc. (a) 421,019 -------------- 1,153,418 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4% 17,215 Inteliquent, Inc. 337,930 9,813 Lumos Networks Corp. 165,055 22,272 Premiere Global Services, Inc. (a) 236,529 -------------- 739,514 -------------- ELECTRIC UTILITIES -- 0.5% 6,724 Unitil Corp. 246,569 -------------- ELECTRICAL EQUIPMENT -- 0.5% 4,816 Powell Industries, Inc. 236,321 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 5.8% 21,728 Checkpoint Systems, Inc. (a) 298,325 17,401 CTS Corp. 310,260 8,934 DTS, Inc. (a) 274,721 15,424 Fabrinet (a) 273,622 15,828 GSI Group, Inc. (a) 232,988 20,714 Newport Corp. (a) 395,845 19,203 Orbotech Ltd. (a) 284,204 10,891 Park Electrochemical Corp. 271,513 9,024 PC Connection, Inc. 221,539 14,582 Rofin-Sinar Technologies, Inc. (a) 419,524 -------------- 2,982,541 -------------- ENERGY EQUIPMENT & SERVICES -- 1.2% 10,061 Era Group, Inc. (a) 212,790 6,508 Natural Gas Services Group, Inc. (a) 149,944 6,761 PHI, Inc. (a) 252,862 -------------- 615,596 -------------- FOOD & STAPLES RETAILING -- 0.5% 6,389 Ingles Markets, Inc., Class A 236,968 -------------- FOOD PRODUCTS -- 1.6% 9,090 Amira Nature Foods Ltd. (a) 130,442 8,001 Calavo Growers, Inc. 378,447 13,966 Landec Corp. (a) 192,870 SHARES DESCRIPTION VALUE ------------------------------------------------------------- FOOD PRODUCTS (CONTINUED) 11,218 Omega Protein Corp. (a) $ 118,574 -------------- 820,333 -------------- GAS UTILITIES -- 0.7% 7,581 Chesapeake Utilities Corp. 376,472 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 2.4% 800 Atrion Corp. 272,008 11,254 Cynosure, Inc., Class A (a) 308,585 5,168 Exactech, Inc. (a) 121,810 22,563 Merit Medical Systems, Inc. (a) 391,017 6,684 SurModics, Inc. (a) 147,716 -------------- 1,241,136 -------------- HEALTH CARE PROVIDERS & SERVICES -- 3.7% 3,085 Addus HomeCare Corp. (a) 74,873 5,580 Alliance HealthCare Services, Inc. (a) 117,124 24,241 AMN Healthcare Services, Inc. (a) 475,123 4,965 Landauer, Inc. 169,505 6,384 LHC Group, Inc. (a) 199,053 6,181 Providence Service (The) Corp. (a) 225,236 10,638 Skilled Healthcare Group, Inc., Class A (a) 91,168 12,614 Triple-S Management Corp., Class B (a) 301,601 6,378 U.S. Physical Therapy, Inc. 267,621 -------------- 1,921,304 -------------- HOTELS, RESTAURANTS & LEISURE -- 2.3% 12,173 Del Frisco's Restaurant Group, Inc. (a) 288,987 44,045 Denny's Corp. (a) 454,104 9,541 Marcus (The) Corp. 176,604 18,380 Ruth's Hospitality Group, Inc. 275,700 -------------- 1,195,395 -------------- HOUSEHOLD DURABLES -- 2.9% 13,534 Ethan Allen Interiors, Inc. 419,148 2,848 Flexsteel Industries, Inc. 91,848 7,663 LGI Homes, Inc. (a) 114,332 11,237 Libbey, Inc. (a) 353,291 12,723 M/I Homes, Inc. (a) 292,120 10,916 SodaStream International Ltd. (a) 219,630 -------------- 1,490,369 -------------- HOUSEHOLD PRODUCTS -- 0.2% 3,825 Orchids Paper Products Co. 111,346 -------------- INSURANCE -- 3.2% 9,785 AMERISAFE, Inc. 414,493 16,369 Employers Holdings, Inc. 384,835 6,700 Federated National Holding Co. 161,872 4,741 HCI Group, Inc. 205,001 8,368 United Insurance Holdings Corp. 183,678 15,139 Universal Insurance Holdings, Inc. 309,592 -------------- 1,659,471 -------------- Page 26 See Notes to Financial Statements FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) INTERNET & CATALOG RETAIL -- 1.0% 9,871 FTD Cos., Inc. (a) $ 343,708 10,536 PetMed Express, Inc. 151,402 -------------- 495,110 -------------- INTERNET SOFTWARE & SERVICES -- 1.7% 19,340 Dice Holdings, Inc. (a) 193,593 17,895 Perficient, Inc. (a) 333,384 7,610 Stamps.com, Inc. (a) 365,204 -------------- 892,181 -------------- IT SERVICES -- 1.9% 4,789 Cass Information Systems, Inc. 255,014 7,330 Computer Task Group, Inc. 69,855 34,076 Global Cash Access Holdings, Inc. (a) 243,643 29,841 Lionbridge Technologies, Inc. (a) 171,586 21,652 Net 1 UEPS Technologies, Inc. (a) 246,833 -------------- 986,931 -------------- LEISURE PRODUCTS -- 0.5% 27,781 Smith & Wesson Holding Corp. (a) 263,086 -------------- MACHINERY -- 4.8% 4,822 Alamo Group, Inc. 233,578 25,688 Blount International, Inc. (a) 451,338 10,377 Columbus McKinnon Corp. 290,971 11,584 Douglas Dynamics, Inc. 248,245 6,904 Dynamic Materials Corp. 110,602 5,264 Graham Corp. 151,445 5,660 Kadant, Inc. 241,625 5,112 L.B. Foster Co., Class A 248,290 8,918 Lydall, Inc. (a) 292,689 9,855 NN, Inc. 202,619 -------------- 2,471,402 -------------- MEDIA -- 1.5% 10,006 A. H. Belo Corp., Class A 103,862 10,770 Entercom Communications Corp., Class A (a) 130,963 22,263 Harte-Hanks, Inc. 172,316 22,232 Journal Communications, Inc., Class A (a) 254,112 32,468 McClatchy (The) Co., Class A (a) 107,794 -------------- 769,047 -------------- METALS & MINING -- 0.7% 10,477 Materion Corp. 369,105 -------------- MULTILINE RETAIL -- 0.6% 18,023 Fred's, Inc., Class A 313,780 -------------- OIL, GAS & CONSUMABLE FUELS -- 2.7% 49,853 Abraxas Petroleum Corp. (a) 146,568 6,982 Crossamerica Partners, L.P. (b) 281,305 30,545 PetroQuest Energy, Inc. (a) 114,238 2,637 REX American Resources Corp. (a) 163,415 4,413 Sprague Resources, L.P. (b) 103,485 19,901 StealthGas, Inc. (a) 125,575 32,624 Teekay Tankers Ltd., Class A 165,078 SHARES DESCRIPTION VALUE ------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS (CONTINUED) 6,622 TransMontaigne Partners, L.P. (b) $ 208,659 41,976 Warren Resources, Inc. (a) 67,581 -------------- 1,375,904 -------------- PERSONAL PRODUCTS -- 0.4% 5,831 Medifast, Inc. (a) 195,630 -------------- PHARMACEUTICALS -- 1.4% 30,536 Depomed, Inc. (a) 491,935 24,019 SciClone Pharmaceuticals, Inc. (a) 210,406 -------------- 702,341 -------------- PROFESSIONAL SERVICES -- 4.2% 22,307 CBIZ, Inc. (a) 190,948 6,228 Franklin Covey Co. (a) 120,574 8,886 GP Strategies Corp. (a) 301,502 8,536 Heidrick & Struggles International,Inc. 196,755 10,084 ICF International, Inc. (a) 413,242 13,993 Kforce, Inc. 337,651 8,480 Mistras Group, Inc. (a) 155,438 19,797 Resources Connection, Inc. 325,661 2,144 VSE Corp. 141,290 -------------- 2,183,061 -------------- ROAD & RAIL -- 1.3% 11,433 Celadon Group, Inc. 259,415 12,330 Marten Transport Ltd. 269,534 14,586 Quality Distribution, Inc. (a) 155,195 -------------- 684,144 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.3% 15,964 Integrated Silicon Solution, Inc. 264,524 14,182 Nova Measuring Instruments Ltd. (a) 147,351 32,110 Photronics, Inc. (a) 266,834 -------------- 678,709 -------------- SOFTWARE -- 1.1% 15,253 Ebix, Inc. 259,148 3,077 ePlus, Inc. (a) 232,898 12,586 Sapiens International Corp. N.V. (a) 92,759 -------------- 584,805 -------------- SPECIALTY RETAIL -- 1.4% 19,197 Christopher & Banks Corp. (a) 109,615 10,732 Haverty Furniture Cos., Inc. 236,211 7,732 Kirkland's, Inc. (a) 182,785 14,718 Stein Mart, Inc. 215,177 -------------- 743,788 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 0.4% 7,468 Unifi, Inc. (a) 222,024 -------------- THRIFTS & MORTGAGE FINANCE -- 5.2% 4,492 BBX Capital Corp., Class A (a) 73,893 13,091 Berkshire Hills Bancorp, Inc. 349,006 36,265 Brookline Bancorp, Inc. 363,738 15,709 Dime Community Bancshares, Inc. 255,742 See Notes to Financial Statements Page 27 FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) THRIFTS & MORTGAGE FINANCE (CONTINUED) 6,951 HomeStreet, Inc. $ 121,017 49,330 TrustCo Bank Corp. 358,136 26,550 United Financial Bancorp, Inc. 381,258 10,632 Walker & Dunlop, Inc. (a) 186,485 17,893 Waterstone Financial, Inc. 235,293 4,886 WSFS Financial Corp. 375,685 -------------- 2,700,253 -------------- TRADING COMPANIES & DISTRIBUTORS -- 0.6% 8,535 CAI International, Inc. (a) 198,012 9,109 Houston Wire & Cable Co. 108,853 -------------- 306,865 -------------- WATER UTILITIES -- 0.9% 5,777 Connecticut Water Service, Inc. 209,647 8,206 SJW Corp. 263,577 -------------- 473,224 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 1.1% 11,783 Shenandoah Telecommunications Co. 368,219 11,272 Spok Holdings, Inc. 195,682 -------------- 563,901 -------------- TOTAL INVESTMENTS -- 99.9% 51,620,108 (Cost $46,281,942) (c) NET OTHER ASSETS AND LIABILITIES -- 0.1% 27,776 -------------- NET ASSETS -- 100.0% $ 51,647,884 ============== (a) Non-income producing security. (b) Master Limited Partnership ("MLP"). (c) Aggregate cost for federal income tax purposes is $46,489,760. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $7,280,977 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $2,150,629. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $ 51,620,108 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. Page 28 See Notes to Financial Statements FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 99.8% AEROSPACE & DEFENSE -- 2.2% 113,548 Lockheed Martin Corp. $ 21,865,938 -------------- BANKS -- 1.1% 18,141 Bank of Hawaii Corp. 1,075,943 87,876 F.N.B. Corp. 1,170,508 77,794 FirstMerit Corp. 1,469,529 71,271 National Penn Bancshares, Inc. 750,127 43,705 Old National Bancorp 650,330 7,569 Park National Corp. 669,705 65,521 Susquehanna Bancshares, Inc. 879,947 35,130 Trustmark Corp. 862,090 101,788 Umpqua Holdings Corp. 1,731,414 30,640 United Bankshares, Inc. 1,147,468 -------------- 10,407,061 -------------- CAPITAL MARKETS -- 0.1% 38,819 Federated Investors, Inc., Class B 1,278,310 -------------- CHEMICALS -- 0.0% 13,547 Kronos Worldwide, Inc. 176,382 -------------- COMMERCIAL SERVICES & SUPPLIES -- 1.2% 175,379 R.R. Donnelley & Sons Co. 2,947,244 173,881 Waste Management, Inc. 8,923,573 -------------- 11,870,817 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 19.6% 2,965,798 AT&T, Inc. 99,621,155 2,004,641 Verizon Communications, Inc. 93,777,106 -------------- 193,398,261 -------------- ELECTRIC UTILITIES -- 12.7% 19,045 ALLETE, Inc. 1,050,141 235,880 American Electric Power Co., Inc. 14,322,634 362,129 Duke Energy Corp. 30,252,257 95,498 Entergy Corp. 8,354,165 74,730 Great Plains Energy, Inc. 2,123,079 51,189 Hawaiian Electric Industries, Inc. 1,713,808 127,684 Northeast Utilities 6,833,648 19,899 Otter Tail Corp. 616,073 133,934 Pepco Holdings, Inc. 3,606,843 53,335 Pinnacle West Capital Corp. 3,643,314 30,856 Portland General Electric Co. 1,167,282 375,155 PPL Corp. 13,629,381 522,187 Southern (The) Co. 25,644,603 30,340 UIL Holdings Corp. 1,321,004 61,521 Westar Energy, Inc. 2,537,126 231,786 Xcel Energy, Inc 8,325,753 -------------- 125,141,111 -------------- ENERGY EQUIPMENT & SERVICES -- 1.6% 331,028 Ensco PLC, Class A 9,914,289 329,500 Noble Corp. PLC 5,459,815 -------------- 15,374,104 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- FOOD PRODUCTS -- 0.1% 33,572 B&G Foods, Inc. $ 1,003,803 7,233 Cal-Maine Foods, Inc. 282,304 -------------- 1,286,107 -------------- GAS UTILITIES -- 0.9% 59,240 AGL Resources, Inc. 3,229,173 19,676 Laclede Group (The), Inc. 1,046,763 14,166 Northwest Natural Gas Co. 706,883 34,724 Piedmont Natural Gas Co., Inc. 1,368,473 14,362 South Jersey Industries, Inc. 846,353 21,718 WGL Holdings, Inc. 1,186,237 -------------- 8,383,882 -------------- HOTELS, RESTAURANTS & LEISURE -- 0.5% 67,211 Darden Restaurants, Inc. 3,940,581 84,846 International Game Technology 1,463,593 -------------- 5,404,174 -------------- HOUSEHOLD DURABLES -- 0.5% 54,507 Leggett & Platt, Inc. 2,322,543 20,300 M.D.C. Holdings, Inc. 537,341 28,281 Tupperware Brands Corp. 1,781,703 -------------- 4,641,587 -------------- INSURANCE -- 1.0% 66,540 Cincinnati Financial Corp. 3,448,768 9,007 Erie Indemnity Co., Class A 817,565 21,295 Mercury General Corp. 1,206,788 162,771 Old Republic International Corp. 2,381,340 16,225 OneBeacon Insurance Group Ltd., Class A 262,845 35,067 Validus Holdings Ltd. 1,457,384 -------------- 9,574,690 -------------- IT SERVICES -- 0.7% 141,018 Paychex, Inc. 6,510,801 -------------- LEISURE PRODUCTS -- 0.7% 225,387 Mattel, Inc. 6,974,601 4,011 Sturm, Ruger & Co., Inc. 138,901 -------------- 7,113,502 -------------- MEDIA -- 0.4% 85,174 Cablevision Systems Corp., Class A 1,757,992 15,826 Meredith Corp. 859,668 44,475 Regal Entertainment Group, Class A 949,986 -------------- 3,567,646 -------------- METALS & MINING -- 1.7% 717,895 Freeport-McMoRan, Inc. 16,770,027 -------------- MULTI-UTILITIES -- 9.7% 47,003 Alliant Energy Corp. 3,121,939 119,364 Ameren Corp. 5,506,261 28,100 Avista Corp. 993,335 238,721 CenterPoint Energy, Inc. 5,593,233 117,606 CMS Energy Corp. 4,086,809 154,115 Consolidated Edison, Inc. 10,173,131 258,183 Dominion Resources, Inc. 19,854,273 78,910 DTE Energy Co. 6,815,457 38,107 Integrys Energy Group, Inc. 2,966,630 See Notes to Financial Statements Page 29 FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) MULTI-UTILITIES (CONTINUED) 18,149 NorthWestern Corp. $ 1,026,870 220,834 PG&E Corp. 11,757,202 242,254 Public Service Enterprise Group, Inc. 10,031,738 69,941 SCANA Corp. 4,224,436 140,977 TECO Energy, Inc. 2,888,619 37,415 Vectren Corp. 1,729,696 91,492 Wisconsin Energy Corp. 4,825,288 -------------- 95,594,917 -------------- OIL, GAS & CONSUMABLE FUELS -- 15.0% 792,466 Chevron Corp. 88,898,836 661,949 ConocoPhillips 45,714,198 374,247 Spectra Energy Corp. 13,585,166 -------------- 148,198,200 -------------- PAPER & FOREST PRODUCTS -- 0.1% 14,974 Schweitzer-Mauduit International, Inc. 633,400 -------------- PHARMACEUTICALS -- 9.4% 357,942 Eli Lilly & Co. 24,694,418 2,167,580 Pfizer, Inc. 67,520,117 -------------- 92,214,535 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.0% 1,344,618 Intel Corp. 48,796,187 62,699 Intersil Corp., Class A 907,255 -------------- 49,703,442 -------------- SOFTWARE -- 0.4% 140,930 CA, Inc. 4,291,318 -------------- SPECIALTY RETAIL -- 0.7% 89,364 American Eagle Outfitters, Inc. 1,240,372 37,198 Guess?, Inc. 784,134 274,514 Staples, Inc. 4,974,194 -------------- 6,998,700 -------------- THRIFTS & MORTGAGE FINANCE -- 1.0% 375,038 New York Community Bancorp, Inc. 6,000,608 52,306 Northwest Bancshares, Inc. 655,394 184,614 People's United Financial, Inc. 2,802,441 24,469 Provident Financial Services, Inc. 441,910 -------------- 9,900,353 -------------- TOBACCO -- 13.4% 935,721 Altria Group, Inc. 46,102,974 186,104 Lorillard, Inc. 11,713,386 770,752 Philip Morris International, Inc. 62,777,750 166,529 Reynolds American, Inc. 10,702,819 15,034 Universal Corp. 661,195 -------------- 131,958,124 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- TRADING COMPANIES & DISTRIBUTORS -- 0.1% 32,105 TAL International Group, Inc. $ 1,398,815 -------------- TOTAL INVESTMENTS -- 99.8% 983,656,204 (Cost $918,397,781) (a) NET OTHER ASSETS AND LIABILITIES -- 0.2% 1,495,265 -------------- NET ASSETS -- 100.0% $ 985,151,469 ============== (a) Aggregate cost for federal income tax purposes is $923,654,789. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $89,060,058 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $29,058,643. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $ 983,656,204 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. Page 30 See Notes to Financial Statements FIRST TRUST US IPO INDEX FUND (FPX) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.1% AEROSPACE & DEFENSE -- 0.9% 99,336 Exelis, Inc. $ 1,741,360 25,686 Huntington Ingalls Industries, Inc. 2,888,648 -------------- 4,630,008 -------------- AIRLINES -- 0.5% 38,696 Spirit Airlines, Inc. (a) 2,924,644 -------------- AUTO COMPONENTS -- 2.1% 157,492 Delphi Automotive PLC 11,452,818 -------------- AUTOMOBILES -- 5.3% 901,007 Fiat Chrysler Automobiles NV (a) (b) 10,433,661 512,142 General Motors Co. 17,878,877 -------------- 28,312,538 -------------- BANKS -- 2.4% 54,072 BankUnited, Inc. 1,566,466 290,272 Citizens Financial Group, Inc. 7,216,162 73,442 First Republic Bank 3,827,797 -------------- 12,610,425 -------------- BUILDING PRODUCTS -- 0.5% 50,920 Allegion PLC 2,824,023 -------------- CHEMICALS -- 0.6% 121,848 Axalta Coating Systems Ltd. (a) 3,170,485 -------------- COMMERCIAL SERVICES & SUPPLIES -- 1.4% 92,559 ADT (The) Corp. (b) 3,353,413 74,757 KAR Auction Services, Inc. 2,590,330 44,776 West Corp. 1,477,608 -------------- 7,421,351 -------------- COMMUNICATIONS EQUIPMENT -- 1.8% 34,269 Arista Networks, Inc. (a) (b) 2,082,184 99,832 CommScope Holding Co., Inc. (a) 2,279,165 42,844 Palo Alto Networks, Inc. (a) 5,251,389 -------------- 9,612,738 -------------- CONSUMER FINANCE -- 4.9% 255,227 Ally Financial, Inc. (a) 6,028,462 223,110 Navient Corp. 4,821,407 61,082 Springleaf Holdings, Inc. (a) 2,209,336 443,500 Synchrony Financial (a) 13,194,125 -------------- 26,253,330 -------------- CONTAINERS & PACKAGING -- 0.4% 62,874 Berry Plastics Group, Inc. (a) 1,983,675 -------------- DIVERSIFIED CONSUMER SERVICES -- 1.0% 35,118 Bright Horizons Family Solutions, Inc. (a) 1,650,897 75,257 Houghton Mifflin Harcourt Co. (a) 1,558,572 71,062 ServiceMaster Global Holdings, Inc. (a) 1,902,330 -------------- 5,111,799 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES -- 1.6% 45,325 CBOE Holdings, Inc. $ 2,874,511 135,083 Voya Financial, Inc. 5,724,818 -------------- 8,599,329 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.7% 127,135 Zayo Group Holdings, Inc. (a) (b) 3,886,517 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 1.2% 91,604 CDW Corp. 3,221,713 88,831 Keysight Technologies, Inc. (a) 2,999,823 -------------- 6,221,536 -------------- FOOD & STAPLES RETAILING -- 0.1% 27,341 Diplomat Pharmacy, Inc. (a) 748,323 -------------- FOOD PRODUCTS -- 4.7% 315,948 Kraft Foods Group, Inc. 19,797,302 62,379 Pinnacle Foods, Inc. 2,201,979 92,745 WhiteWave Foods (The) Co. (a) 3,245,147 -------------- 25,244,428 -------------- GAS UTILITIES -- 0.2% 27,689 ONE Gas, Inc. 1,141,341 -------------- HEALTH CARE PROVIDERS & SERVICES -- 3.8% 97,621 Envision Healthcare Holdings, Inc. (a) 3,386,472 230,623 HCA Holdings, Inc. (a) 16,925,422 -------------- 20,311,894 -------------- HEALTH CARE TECHNOLOGY -- 0.8% 177,252 IMS Health Holdings, Inc. (a) 4,544,741 -------------- HOTELS, RESTAURANTS & LEISURE -- 7.1% 124,716 Aramark 3,884,903 55,631 Dunkin' Brands Group, Inc. 2,372,662 523,742 Hilton Worldwide Holdings, Inc. (a) 13,664,429 69,535 La Quinta Holdings, Inc. (a) 1,533,942 17,347 Marriott Vacations Worldwide Corp. 1,293,045 118,938 Norwegian Cruise Line Holdings Ltd. (a) 5,561,541 248,568 Restaurant Brands International, Inc. (a) (b) 9,704,095 -------------- 38,014,617 -------------- INSURANCE -- 0.4% 57,057 First American Financial Corp 1,934,232 -------------- INTERNET & CATALOG RETAIL -- 1.7% 355,835 Groupon, Inc. (a) 2,939,197 16,998 Lands' End, Inc. (a) 917,212 69,142 TripAdvisor, Inc. (a) 5,162,142 -------------- 9,018,551 -------------- See Notes to Financial Statements Page 31 FIRST TRUST US IPO INDEX FUND (FPX) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) INTERNET SOFTWARE & SERVICES -- 12.3% 686,017 Facebook, Inc., Class A (a) $ 53,523,046 42,597 GrubHub, Inc. (a) 1,547,123 196,845 LendingClub Corp. (a) 4,980,179 53,192 Twitter, Inc. (a) 1,907,997 32,817 Yelp, Inc. (a) 1,796,074 18,321 Zillow, Inc., Class A (a) (b) 1,940,011 -------------- 65,694,430 -------------- IT SERVICES -- 1.4% 76,939 Booz Allen Hamilton Holding Corp. 2,041,192 141,154 Sabre Corp. (b) 2,861,191 77,730 Vantiv, Inc., Class A (a) 2,636,602 -------------- 7,538,985 -------------- LIFE SCIENCES TOOLS & SERVICES -- 1.2% 69,226 Quintiles Transnational Holdings, Inc. (a) 4,075,335 31,809 PRA Health Sciences, Inc. (a) 770,414 69,873 VWR Corp. (a) 1,807,615 -------------- 6,653,364 -------------- MACHINERY -- 1.6% 94,431 Allison Transmission Holdings, Inc. 3,201,211 54,093 Rexnord Corp. (a) 1,525,964 96,744 Xylem, Inc. 3,683,044 -------------- 8,410,219 -------------- MEDIA -- 1.6% 32,248 AMC Networks, Inc., Class A (a) 2,056,455 55,572 Liberty Media Corp., Class A (a) 1,960,025 201,815 News Corp., Class A (a) 3,166,477 57,994 Time, Inc. 1,427,232 -------------- 8,610,189 -------------- MULTILINE RETAIL -- 0.4% 39,676 Burlington Stores, Inc. (a) 1,875,088 -------------- OIL, GAS & CONSUMABLE FUELS -- 11.7% 139,391 Antero Resources Corp. (a) (b) 5,656,487 123,247 Cheniere Energy Partners, L.P. Holdings LLC 2,776,755 369,156 Kinder Morgan, Inc. 15,618,990 150,708 Marathon Petroleum Corp. 13,602,904 102,959 Memorial Resource Development Corp. (a) 1,856,351 297,287 Phillips 66 21,315,478 83,130 Rice Energy, Inc. (a) 1,743,236 -------------- 62,570,201 -------------- PERSONAL PRODUCTS -- 0.8% 201,827 Coty, Inc., Class A 4,169,746 -------------- PHARMACEUTICALS -- 13.5% 785,265 AbbVie, Inc 51,387,742 65,860 Catalent, Inc. (a) 1,836,177 61,852 Mallinckrodt PLC (a) 6,125,203 SHARES DESCRIPTION VALUE ------------------------------------------------------------- PHARMACEUTICALS (CONTINUED) 19,179 Pacira Pharmaceuticals, Inc. (a) $ 1,700,410 266,667 Zoetis, Inc. 11,474,681 -------------- 72,524,213 -------------- PROFESSIONAL SERVICES -- 1.9% 199,853 Nielsen N.V. 8,939,425 37,020 TriNet Group, Inc. (a) 1,157,985 -------------- 10,097,410 -------------- REAL ESTATE INVESTMENT TRUSTS -- 0.4% 71,197 Outfront Media, Inc. 1,910,928 -------------- ROAD & RAIL -- 0.4% 75,383 Swift Transportation Co. (a) 2,158,215 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.2% 161,693 Freescale Semiconductor Ltd. (a) (b) 4,079,514 100,435 NXP Semiconductors N.V. (a) 7,673,234 -------------- 11,752,748 -------------- SOFTWARE -- 2.6% 37,016 Guidewire Software, Inc. (a) 1,874,120 77,501 ServiceNow, Inc. (a) 5,258,443 64,503 Splunk, Inc. (a) 3,802,452 36,881 Tableau Software, Inc., Class A (a) 3,126,033 -------------- 14,061,048 -------------- SPECIALTY RETAIL -- 1.5% 41,311 CST Brands, Inc. 1,801,573 108,665 Michaels Cos., (The), Inc. (a) 2,687,285 24,324 Murphy USA, Inc. (a) 1,674,951 21,052 Restoration Hardware Holdings, Inc. (a) 2,021,202 -------------- 8,185,011 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 1.5% 109,282 Michael Kors Holdings Ltd. (a) 8,207,078 -------------- THRIFTS & MORTGAGE FINANCE -- 0.2% 65,390 EverBank Financial Corp. 1,246,333 -------------- TRADING COMPANIES & DISTRIBUTORS -- 0.8% 104,144 HD Supply Holdings, Inc. (a) 3,071,207 56,947 NOW, Inc. (a) (b) 1,465,246 -------------- 4,536,453 -------------- TOTAL COMMON STOCKS -- 100.1% 536,175,002 (Cost $463,993,063) -------------- Page 32 See Notes to Financial Statements FIRST TRUST US IPO INDEX FUND (FPX) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- MONEY MARKET FUNDS -- 0.3% 1,742,450 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.01% (c) (d) $ 1,742,450 (Cost $1,742,450) -------------- PRINCIPAL VALUE ------------ REPURCHASE AGREEMENTS -- 3.8% $ 3,825,573 JPMorgan Chase & Co., 0.06% (c), dated 12/31/14, due 01/02/15, with a maturity value of $3,825,585. Collateralized by U.S. Treasury Notes, interest rates of 0.750% to 1.250%, due 01/15/17 to 11/30/18. The value of the collateral including accrued interest is $3,914,410. (d) 3,825,573 16,622,094 RBC Capital Markets LLC, 0.06% (c), dated 12/31/14, due 01/02/15, with a maturity value of $16,622,150. Collateralized by U.S. Treasury Notes, interest rates of 0.250% to 1.750%, due 12/31/15 to 09/30/19. The value of the collateral including accrued interest is $17,003,759. (d) 16,622,094 -------------- TOTAL REPURCHASE AGREEMENTS --3.8% 20,447,667 (Cost $20,447,667) -------------- TOTAL INVESTMENTS -- 104.2% 558,365,119 (Cost $486,183,180) (e) NET OTHER ASSETS AND LIABILITIES -- (4.2)% (22,421,867) -------------- NET ASSETS -- 100.0% $ 535,943,252 ============== (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2E - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $21,492,229 and the total value of the collateral held by the Fund is $22,190,117. (c) Interest rate shown reflects yield as of December 31, 2014. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $488,089,848. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $81,601,936 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $11,326,665. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $ 536,175,002 $ -- $ -- Money Market Funds 1,742,450 -- -- Repurchase Agreements -- 20,447,667 -- ----------------------------------------------- Total Investments $ 537,917,452 $ 20,447,667 $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. See Notes to Financial Statements Page 33 FIRST TRUST US IPO INDEX FUND (FPX) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 ----------------------------- OFFSETTING ASSETS AND LIABILITIES Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 21,492,229 Non-cash Collateral(2) (21,492,229) ------------------------------------------------------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities is not offset and is shown on a gross basis. (2) At December 31, 2014, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed in the Portfolio of Investments. The Fund's investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows: REPURCHASE AGREEMENTS ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(3) $ 20,447,667 Non-cash Collateral(4) (20,447,667) ------------------------------------------------------------- Net Amount $ -- ============== (3) The amount is included in "Investments, at value" on the Statements of Assets and Liabilities. (4) At December 31, 2014, the value of collateral received from the seller exceeded the value of the repurchase agreements. Page 34 See Notes to Financial Statements FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.0% BIOTECHNOLOGY -- 80.8% 377,308 Alexion Pharmaceuticals, Inc. (a) $ 69,813,299 1,442,735 Alkermes PLC (a) 84,486,562 721,787 Alnylam Pharmaceuticals, Inc. (a) 70,013,339 465,381 Amgen, Inc 74,130,539 202,928 Biogen Idec, Inc. (a) 68,883,910 882,394 BioMarin Pharmaceutical, Inc. (a) 79,768,418 705,417 Celgene Corp. (a) 78,907,946 1,338,221 Cepheid, Inc. (a) 72,451,285 943,702 Cubist Pharmaceuticals, Inc. (a) (b) 94,983,606 2,615,338 Exact Sciences Corp. (a) (b) 71,764,875 617,288 Gilead Sciences, Inc. (a) 58,185,567 1,886,618 Grifols SA, ADR 64,126,146 1,241,508 Incyte Corp. (a) 90,766,650 277,185 Intercept Pharmaceuticals, Inc. (a) (b) 43,240,860 1,559,143 Isis Pharmaceuticals, Inc. (a) 96,261,489 659,653 Medivation, Inc. (a) 65,708,035 1,775,189 Myriad Genetics, Inc. (a) (b) 60,462,937 2,375,580 NPS Pharmaceuticals, Inc. (a) 84,974,497 7,531,412 PDL BioPharma, Inc. (b) 58,067,186 554,284 Pharmacyclics, Inc. (a) 67,766,762 168,381 Regeneron Pharmaceuticals, Inc. (a) 69,078,305 1,794,046 Seattle Genetics, Inc. (a) (b) 57,642,698 499,055 United Therapeutics Corp. (a) 64,622,632 607,874 Vertex Pharmaceuticals, Inc. (a) 72,215,431 -------------- 1,718,322,974 -------------- LIFE SCIENCES TOOLS & SERVICES -- 15.5% 684,694 Bio-Techne Corp. 63,265,725 1,013,656 Charles River Laboratories International, Inc. (a) 64,509,068 377,319 Illumina, Inc. (a) 69,645,541 2,836,350 QIAGEN N.V. (a) 66,540,771 1,124,169 Quintiles Transnational Holdings, Inc. (a) 66,179,829 -------------- 330,140,934 -------------- PHARMACEUTICALS -- 3.7% 5,013,721 Nektar Therapeutics (a) 77,712,676 -------------- TOTAL COMMON STOCKS -- 100.0% 2,126,176,584 (Cost $1,711,868,930) -------------- MONEY MARKET FUNDS -- 0.7% 15,240,579 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.01% (c) (d) 15,240,579 (Cost $15,240,579) -------------- PRINCIPAL VALUE DESCRIPTION VALUE ------------------------------------------------------------- REPURCHASE AGREEMENTS -- 8.4% $ 33,460,903 JPMorgan Chase & Co., 0.06% (c), dated 12/31/14, due 01/02/15, with a maturity value of $33,461,015. Collateralized by U.S. Treasury Notes, interest rates of 0.750% to 1.250%, due 01/15/17 to 11/30/18. The value of the collateral including accrued interest is $34,237,936. (d) $ 33,460,903 145,387,461 RBC Capital Markets LLC, 0.06% (c), dated 12/31/14, due 01/02/15, with a maturity value of $145,387,946. Collateralized by U.S. Treasury Notes, interest rates of 0.250% to 1.750%, due 12/31/15 to 09/30/19. The value of the collateral including accrued interest is $148,725,742. (d) 145,387,461 -------------- TOTAL REPURCHASE AGREEMENTS (Cost $178,848,364) 178,848,364 -------------- TOTAL INVESTMENTS -- 109.1% 2,320,265,527 (Cost $1,905,957,873) (e) NET OTHER ASSETS AND LIABILITIES -- (9.1)% (193,684,239) -------------- NET ASSETS -- 100.0% $2,126,581,288 ============== (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2E - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $186,131,568 and the total value of the collateral held by the Fund is $194,088,943. (c) Interest rate shown reflects yield as of December 31, 2014. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $1,924,793,872. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $422,833,666 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $27,362,011. ADR - American Depositary Receipt See Notes to Financial Statements Page 35 FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $ 2,126,176,584 $ -- $ -- Money Market Funds 15,240,579 -- -- Repurchase Agreements -- 178,848,364 -- ------------------------------------------------ Total Investments $ 2,141,417,163 $178,848,364 $ -- ================================================ * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. ----------------------------- OFFSETTING ASSETS AND LIABILITIES Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 186,131,568 Non-cash Collateral(2) (186,131,568) ------------------------------------------------------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities is not offset and is shown on a gross basis. (2) At December 31, 2014, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. The Fund's investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows: REPURCHASE AGREEMENTS ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(3) $ 178,848,364 Non-cash Collateral(4) (178,848,364) ------------------------------------------------------------- Net Amount $ -- ============== (3) The amount is included in "Investments, at value" on the Statements of Assets and Liabilities. (4) At December 31, 2014, the value of collateral received from the seller exceeded the value of the repurchase agreements. Page 36 See Notes to Financial Statements FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.0% CAPITAL MARKETS -- 4.6% 1,769,192 E*TRADE Financial Corp. (a) $ 42,911,752 1,348,327 TD Ameritrade Holding Corp. 48,243,140 -------------- 91,154,892 -------------- COMMUNICATIONS EQUIPMENT -- 4.3% 2,102,801 Juniper Networks, Inc. 46,934,518 559,374 NETGEAR, Inc. (a) 19,902,527 4,729,536 Sonus Networks, Inc. (a) 18,776,258 -------------- 85,613,303 -------------- HEALTH CARE TECHNOLOGY -- 2.2% 2,072,109 Allscripts Healthcare Solutions, Inc. (a) 26,460,832 652,819 Veeva Systems, Inc., Class A (a) 17,240,950 -------------- 43,701,782 -------------- INTERNET & CATALOG RETAIL -- 22.3% 459,356 Amazon.com, Inc. (a) 142,561,135 524,293 Expedia, Inc. 44,753,650 4,078,414 Groupon, Inc. (a) (b) 33,687,700 197,850 Netflix, Inc. (a) 67,587,538 93,720 Priceline Group (The), Inc. (a) 106,860,481 616,379 TripAdvisor, Inc. (a) 46,018,856 -------------- 441,469,360 -------------- INTERNET SOFTWARE & SERVICES -- 57.7% 830,636 Akamai Technologies, Inc. (a) 52,296,843 1,047,279 Blucora, Inc. (a) 14,504,814 661,129 Cornerstone OnDemand, Inc. (a) 23,271,741 542,048 Dealertrack Technologies, Inc. (a) 24,018,147 427,525 Demandware, Inc. (a) 24,599,789 809,895 Digital River, Inc. (a) 20,028,703 2,955,962 EarthLink Holdings Corp. 12,976,673 1,947,312 eBay, Inc. (a) 109,283,150 235,249 Equinix, Inc. 53,338,006 2,112,672 Facebook, Inc., Class A (a) 164,830,669 182,850 Google, Inc., Class A (a) 97,031,181 182,681 Google, Inc., Class C (a) 96,163,278 570,388 IAC/InterActiveCorp 34,673,887 466,170 j2 Global, Inc. 28,902,540 323,785 LinkedIn Corp., Class A (a) 74,376,652 1,144,247 LivePerson, Inc. (a) 16,133,883 1,706,348 Pandora Media, Inc. (a) 30,424,185 825,236 Rackspace Hosting, Inc. (a) 38,629,297 1,761,770 Twitter, Inc. (a) 63,194,690 652,182 United Online, Inc. (a) 9,489,248 702,225 VeriSign, Inc. (a) (b) 40,026,825 987,857 Web.com Group, Inc. (a) 18,759,404 1,869,138 Yahoo!, Inc. (a) 94,410,160 -------------- 1,141,363,765 -------------- IT SERVICES -- 1.5% 1,144,201 Sapient Corp. (a) (b) 28,467,721 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- SOFTWARE -- 7.4% 813,624 Ebix, Inc. (b) $ 13,823,472 304,546 NetSuite, Inc. (a) 33,247,287 1,468,104 salesforce.com, Inc. (a) 87,073,248 2,002,558 VirnetX Holding Corp. (a) (b) 10,994,043 -------------- 145,138,050 -------------- TOTAL COMMON STOCKS -- 100.0% 1,976,908,873 (Cost $1,883,884,647) -------------- MONEY MARKET FUNDS -- 0.2% 2,149,789 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.01% (c) (d) 2,149,789 1,395,155 Morgan Stanley Institutional Liquidity Fund - Treasury Portfolio - Institutional Class - 0.03% (c) 1,395,155 -------------- TOTAL MONEY MARKET FUNDS -- 0.2% 3,544,944 (Cost $3,544,944) -------------- PRINCIPAL VALUE ------------ REPURCHASE AGREEMENTS -- 1.3% $ 4,719,892 JPMorgan Chase & Co., 0.06% (c), dated 12/31/14, due 01/02/15, with a maturity value of $4,719,908. Collateralized by U.S. Treasury Notes, interest rates of 0.750% to 1.250%, due 01/15/17 to 11/30/18. The value of the collateral including accrued interest is $4,829,498. (d) 4,719,892 20,507,907 RBC Capital Markets LLC, 0.06% (c), dated 12/31/14, due 01/02/15, with a maturity value of $20,507,976. Collateralized by U.S. Treasury Notes, interest rates of 0.250% to 1.750%, due 12/31/15 to 09/30/19. The value of the collateral including accrued interest is $21,004,258. (d) 20,507,907 -------------- TOTAL REPURCHASE AGREEMENTS (Cost $25,227,799) 25,227,799 -------------- TOTAL INVESTMENTS -- 101.5% 2,005,681,616 (Cost $1,912,657,390) (e) NET OTHER ASSETS AND LIABILITIES -- (1.5)% (28,888,738) -------------- NET ASSETS -- 100.0% $1,976,792,878 ============== See Notes to Financial Statements Page 37 FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2E - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $26,760,969 and the total value of the collateral held by the Fund is $27,377,588. (c) Interest rate shown reflects yield as of December 31, 2014. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $1,949,722,333. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $162,220,772 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $106,261,489. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $ 1,976,908,873 $ -- $ -- Money Market Funds 3,544,944 -- -- Repurchase Agreements -- 25,227,799 -- ------------------------------------------------ Total Investment $ 1,980,453,817 $ 25,227,799 $ -- ================================================ * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. ----------------------------- OFFSETTING ASSETS AND LIABILITIES Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 26,760,969 Non-cash Collateral(2) (26,760,969) ------------------------------------------------------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities is not offset and is shown on a gross basis. (2) At December 31, 2014, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. The Fund's investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows: REPURCHASE AGREEMENTS ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(3) $ 25,227,799 Non-cash Collateral(4) (25,227,799) ------------------------------------------------------------- Net Amount $ -- ============== (3) The amount is included in "Investments, at value" on the Statements of Assets and Liabilities. (4) At December 31, 2014, the value of collateral received from the seller exceeded the value of the repurchase agreements. Page 38 See Notes to Financial Statements FIRST TRUST CAPITAL STRENGTH ETF (FTCS) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 10.2% 12,716 General Dynamics Corp. $ 1,749,976 17,066 Honeywell International, Inc. 1,705,235 8,721 Lockheed Martin Corp. 1,679,403 12,351 Northrop Grumman Corp. 1,820,414 15,138 United Technologies Corp. 1,740,870 -------------- 8,695,898 -------------- AIR FREIGHT & LOGISTICS -- 2.1% 15,803 United Parcel Service, Inc., Class B 1,756,820 -------------- BEVERAGES -- 3.6% 35,844 Coca-Cola (The) Co. 1,513,333 16,796 PepsiCo, Inc. 1,588,230 -------------- 3,101,563 -------------- CAPITAL MARKETS -- 2.0% 20,120 T. Rowe Price Group, Inc. 1,727,503 -------------- CHEMICALS -- 6.1% 22,947 E.I. du Pont de Nemours & Co. 1,696,701 13,812 Monsanto Co. 1,650,120 8,208 PPG Industries, Inc. 1,897,279 -------------- 5,244,100 -------------- COMMERCIAL SERVICES & SUPPLIES -- 2.0% 38,243 Tyco International PLC 1,677,338 -------------- COMMUNICATIONS EQUIPMENT -- 2.0% 25,283 Motorola Solutions, Inc. 1,695,984 -------------- DIVERSIFIED FINANCIAL SERVICES -- 2.0% 19,321 McGraw Hill Financial, Inc. 1,719,183 -------------- ELECTRICAL EQUIPMENT -- 1.8% 25,106 Emerson Electric Co. 1,549,793 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 2.0% 32,000 Amphenol Corp., Class A 1,721,920 -------------- FOOD & STAPLES RETAILING -- 4.1% 12,330 Costco Wholesale Corp. 1,747,777 20,742 Wal-Mart Stores, Inc. 1,781,323 -------------- 3,529,100 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 8.2% 22,858 Baxter International, Inc. 1,675,263 12,626 Becton, Dickinson and Co. 1,757,034 10,580 C. R. Bard, Inc. 1,762,839 24,794 Medtronic, Inc. 1,790,127 -------------- 6,985,263 -------------- HOTELS, RESTAURANTS & LEISURE -- 1.9% 16,882 McDonald's Corp. 1,581,843 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- HOUSEHOLD PRODUCTS -- 5.9% 24,117 Colgate-Palmolive Co. $ 1,668,655 15,092 Kimberly-Clark Corp. 1,743,730 18,458 Procter & Gamble (The) Co. 1,681,339 -------------- 5,093,724 -------------- INDUSTRIAL CONGLOMERATES -- 2.1% 11,186 3M Co. 1,838,084 -------------- INSURANCE -- 7.8% 26,960 Aflac, Inc. 1,646,986 9,600 Everest Re Group, Ltd. 1,634,880 30,357 Marsh & McLennan Cos., Inc. 1,737,635 62,075 Progressive (The) Corp. 1,675,404 -------------- 6,694,905 -------------- IT SERVICES -- 5.7% 20,060 Accenture PLC, Class A 1,791,559 21,147 Automatic Data Processing, Inc. 1,763,025 8,443 International Business Machines Corp. 1,354,595 -------------- 4,909,179 -------------- MACHINERY -- 2.0% 18,431 Illinois Tool Works, Inc. 1,745,416 -------------- MEDIA -- 4.1% 22,902 Omnicom Group, Inc. 1,774,218 18,334 Walt Disney (The) Co. 1,726,879 -------------- 3,501,097 -------------- OIL, GAS & CONSUMABLE FUELS -- 1.8% 16,851 Exxon Mobil Corp. 1,557,875 -------------- PERSONAL PRODUCTS -- 1.9% 21,294 Estee Lauder (The) Cos., Inc., Class A 1,622,603 -------------- PHARMACEUTICALS -- 3.9% 24,560 Eli Lilly & Co. 1,694,394 15,572 Johnson & Johnson 1,628,364 -------------- 3,322,758 -------------- ROAD & RAIL -- 3.9% 14,426 Norfolk Southern Corp. 1,581,234 14,445 Union Pacific Corp. 1,720,833 -------------- 3,302,067 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.5% 27,932 KLA-Tencor Corp. 1,964,178 35,195 Texas Instruments, Inc. 1,881,701 -------------- 3,845,879 -------------- SOFTWARE -- 2.0% 18,968 Intuit, Inc. 1,748,660 -------------- SPECIALTY RETAIL -- 2.4% 29,270 Lowe's Cos., Inc. 2,013,776 -------------- See Notes to Financial Statements Page 39 FIRST TRUST CAPITAL STRENGTH ETF (FTCS) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) TEXTILES, APPAREL & LUXURY GOODS -- 2.1% 9,837 Ralph Lauren Corp. $ 1,821,419 -------------- TOBACCO -- 1.9% 33,661 Altria Group, Inc. 1,658,478 -------------- TOTAL INVESTMENTS -- 100.0% 85,662,228 (Cost $74,738,935) (a) NET OTHER ASSETS AND LIABILITIES -- 0.0% 23,712 -------------- NET ASSETS -- 100.0% $ 85,685,940 ============== (a) Aggregate cost for federal income tax purposes is $74,957,826. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $11,174,607 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $470,205. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $ 85,662,228 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. Page 40 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 99.7% AEROSPACE & DEFENSE -- 0.3% 600 AAR Corp. $ 16,668 -------------- AIR FREIGHT & LOGISTICS -- 0.9% 351 C.H. Robinson Worldwide, Inc. 26,286 325 Park-Ohio Holdings Corp. 20,485 -------------- 46,771 -------------- AIRLINES -- 3.2% 139 Allegiant Travel Co. 20,896 197 Copa Holdings S.A., Class A 20,417 2,144 JetBlue Airways Corp. (a) 34,004 2,197 Southwest Airlines Co. 92,977 -------------- 168,294 -------------- AUTO COMPONENTS -- 0.6% 771 American Axle & Manufacturing Holdings, Inc. (a) 17,417 1,021 Federal-Mogul Holdings Corp. (a) 16,428 -------------- 33,845 -------------- AUTOMOBILES -- 1.0% 1,849 Honda Motor Co., Ltd., ADR 54,582 -------------- BANKS -- 0.5% 820 Popular, Inc. (a) 27,921 -------------- BEVERAGES -- 1.2% 875 Molson Coors Brewing Co., Class B 65,205 -------------- BIOTECHNOLOGY -- 2.8% 198 Biogen Idec, Inc. (a) 67,211 677 Gilead Sciences, Inc. (a) 63,814 1,775 PDL BioPharma, Inc. 13,685 -------------- 144,710 -------------- BUILDING PRODUCTS -- 0.5% 718 Owens Corning 25,711 -------------- CAPITAL MARKETS -- 2.5% 1,944 Apollo Investment Corp. (b) 14,425 365 Goldman Sachs Group (The), Inc. 70,748 314 Piper Jaffray Cos. (a) 18,240 702 SEI Investments Co. 28,108 -------------- 131,521 -------------- CHEMICALS -- 2.5% 425 Celanese Corp., Series A 25,483 415 Innospec, Inc. 17,720 581 LyondellBasell Industries N.V., Class A 46,126 717 Westlake Chemical Corp. 43,802 -------------- 133,131 -------------- COMMERCIAL SERVICES & SUPPLIES -- 2.2% 428 Cintas Corp. 33,572 1,635 Republic Services, Inc. 65,809 412 United Stationers, Inc. 17,370 -------------- 116,751 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMUNICATIONS EQUIPMENT -- 1.0% 2,715 Brocade Communications Systems, Inc. $ 32,146 339 EchoStar Corp., Class A (a) 17,797 -------------- 49,943 -------------- CONSTRUCTION & ENGINEERING -- 0.6% 721 AECOM (a) 21,897 587 Aegion Corp. (a) 10,924 -------------- 32,821 -------------- CONTAINERS & PACKAGING -- 0.6% 379 Packaging Corp. of America 29,581 -------------- DIVERSIFIED CONSUMER SERVICES -- 0.4% 1,142 Regis Corp. (a) 19,140 -------------- DIVERSIFIED FINANCIAL SERVICES -- 1.9% 466 Berkshire Hathaway, Inc., Class B (a) 69,970 600 NASDAQ OMX Group (The), Inc. 28,776 -------------- 98,746 -------------- ELECTRIC UTILITIES -- 1.3% 673 Empire District Electric (The) Co. 20,015 493 Hawaiian Electric Industries, Inc. 16,506 721 Pepco Holdings, Inc. 19,416 274 UIL Holdings Corp. 11,930 -------------- 67,867 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 1.6% 689 Benchmark Electronics, Inc. (a) 17,528 2,359 Flextronics International Ltd. (a) 26,374 904 Ingram Micro, Inc., Class A (a) 24,987 1,122 Vishay Intertechnology, Inc. 15,876 -------------- 84,765 -------------- ENERGY EQUIPMENT & SERVICES -- 2.2% 906 Halliburton Co. 35,633 576 Schlumberger Ltd. 49,196 1,590 Transocean Ltd. 29,145 -------------- 113,974 -------------- FOOD & STAPLES RETAILING -- 1.6% 1,269 Kroger (The) Co. 81,482 -------------- FOOD PRODUCTS -- 2.5% 1,263 Archer-Daniels-Midland Co. 65,676 441 Cal-Maine Foods, Inc. 17,212 533 Fresh Del Monte Produce, Inc. 17,882 132 Lancaster Colony Corp. 12,360 182 Sanderson Farms, Inc. 15,293 -------------- 128,423 -------------- See Notes to Financial Statements Page 41 FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) GAS UTILITIES -- 0.7% 347 Laclede Group (The), Inc. $ 18,461 326 New Jersey Resources Corp. 19,951 -------------- 38,412 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 1.3% 422 C. R. Bard, Inc. 70,314 -------------- HEALTH CARE PROVIDERS & SERVICES -- 3.1% 660 Cigna Corp. 67,921 201 Laboratory Corp. of America Holdings (a) 21,688 412 Quest Diagnostics, Inc. 27,629 408 Tenet Healthcare Corp. (a) 20,673 235 Universal Health Services, Inc., Class B 26,146 -------------- 164,057 -------------- HOTELS, RESTAURANTS & LEISURE -- 2.4% 143 Cracker Barrel Old Country Store, Inc. 20,129 1,035 Royal Caribbean Cruises Ltd. 85,315 560 Texas Roadhouse, Inc. 18,905 -------------- 124,349 -------------- INSURANCE -- 11.7% 626 ACE Ltd. 71,915 60 Alleghany Corp. (a) 27,810 386 Aspen Insurance Holdings Ltd. 16,895 297 Endurance Specialty Holdings Ltd. 17,772 157 Everest Re Group, Ltd. 26,737 509 Greenlight Capital Re, Ltd., Class A (a) 16,619 408 Hanover Insurance Group (The), Inc. 29,098 1,146 Lincoln National Corp. 66,090 495 Mercury General Corp. 28,052 1,246 Principal Financial Group, Inc. 64,717 722 Prudential Financial, Inc. 65,312 306 Reinsurance Group of America, Inc. 26,812 256 RenaissanceRe Holdings Ltd. 24,888 694 Travelers (The) Cos., Inc. 73,460 557 W. R. Berkley Corp. 28,552 783 XL Group PLC 26,912 -------------- 611,641 -------------- INTERNET & CATALOG RETAIL -- 0.9% 139 Netflix, Inc. (a) 47,484 -------------- INTERNET SOFTWARE & SERVICES -- 1.1% 111 Google, Inc., Class C (a) 58,430 -------------- IT SERVICES -- 3.9% 279 DST Systems, Inc. 26,268 2,152 Infosys Ltd., ADR 67,702 336 International Business Machines Corp. 53,908 590 NeuStar, Inc., Class A (a) 16,402 SHARES DESCRIPTION VALUE ------------------------------------------------------------- IT SERVICES (CONTINUED) 584 TeleTech Holdings, Inc. (a) $ 13,829 590 Teradata Corp. (a) 25,771 -------------- 203,880 -------------- LEISURE PRODUCTS -- 0.2% 330 Sturm, Ruger & Co., Inc. 11,428 -------------- MACHINERY -- 1.1% 227 American Railcar Industries, Inc. 11,691 535 ITT Corp. 21,646 820 Trinity Industries, Inc. 22,968 -------------- 56,305 -------------- MEDIA -- 1.1% 321 Scripps Networks Interactive, Inc., Class A 24,162 520 Sinclair Broadcast Group, Inc., Class A 14,227 234 Time Warner, Inc. 19,988 -------------- 58,377 -------------- METALS & MINING -- 0.8% 923 Cliffs Natural Resources, Inc. 6,590 1,725 Silver Wheaton Corp. 35,069 -------------- 41,659 -------------- MULTILINE RETAIL -- 3.4% 1,142 Dollar Tree, Inc. (a) 80,374 327 Family Dollar Stores, Inc. 25,902 1,047 Macy's, Inc. 68,840 -------------- 175,116 -------------- MULTI-UTILITIES -- 0.8% 502 Ameren Corp. 23,157 451 Avista Corp. 15,943 -------------- 39,100 -------------- OIL, GAS & CONSUMABLE FUELS -- 7.5% 4,184 Alpha Natural Resources, Inc. (a) 6,987 1,154 Canadian Natural Resources Ltd. 35,635 779 ConocoPhillips 53,798 848 Devon Energy Corp. 51,906 581 EOG Resources, Inc. 53,493 1,609 Marathon Oil Corp. 45,519 426 Murphy Oil Corp. 21,522 624 Newfield Exploration Co. (a) 16,923 525 Oasis Petroleum, Inc. (a) 8,683 657 Occidental Petroleum Corp. 52,961 3,823 Petroleo Brasileiro S.A., ADR 27,908 733 QEP Resources, Inc. 14,821 -------------- 390,156 -------------- PAPER & FOREST PRODUCTS -- 0.7% 308 Neenah Paper, Inc. 18,563 483 Schweitzer-Mauduit International, Inc. 20,431 -------------- 38,994 -------------- Page 42 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) PERSONAL PRODUCTS -- 1.2% 833 Estee Lauder (The) Cos., Inc., Class A $ 63,475 -------------- PROFESSIONAL SERVICES -- 0.7% 595 Robert Half International, Inc. 34,736 -------------- REAL ESTATE INVESTMENT TRUSTS -- 0.6% 477 Digital Realty Trust, Inc. 31,625 -------------- REAL ESTATE MANAGEMENT & DEVELOPMENT -- 1.3% 1,348 Brookfield Asset Management, Inc., Class A 67,575 -------------- ROAD & RAIL -- 0.9% 399 Avis Budget Group, Inc. (a) 26,466 737 Heartland Express, Inc. 19,906 -------------- 46,372 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.1% 2,047 Micron Technology, Inc. (a) 71,666 698 OmniVision Technologies, Inc. (a) 18,148 3,138 Taiwan Semiconductor Manufacturing Co., Ltd., ADR 70,228 -------------- 160,042 -------------- SOFTWARE -- 1.9% 206 FactSet Research Systems, Inc. 28,995 1,456 Microsoft Corp. 67,631 -------------- 96,626 -------------- SPECIALTY RETAIL -- 6.4% 466 ANN, Inc. (a) 16,999 1,005 Bed Bath & Beyond, Inc. (a) 76,551 1,177 Express, Inc. (a) 17,290 506 Foot Locker, Inc. 28,427 1,488 Gap (The), Inc. 62,660 282 Outerwall, Inc. (a) 21,212 367 PetSmart, Inc. 29,835 1,337 Pier 1 Imports, Inc. 20,590 2,206 Staples, Inc. 39,973 554 Zumiez, Inc. (a) 21,401 -------------- 334,938 -------------- TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 5.7% 655 Apple, Inc. 72,299 1,902 CANON, Inc., ADR 60,218 1,787 Hewlett-Packard Co. 71,712 501 Lexmark International, Inc., Class A 20,676 1,774 NetApp, Inc. 73,532 -------------- 298,437 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 1.8% 694 NIKE, Inc., Class B 66,728 155 Ralph Lauren Corp. 28,700 -------------- 95,428 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE -- 0.9% 1,392 Capitol Federal Financial, Inc. $ 17,790 1,872 People's United Financial, Inc. 28,417 -------------- 46,207 -------------- TOBACCO -- 0.3% 320 Universal Corp. 14,074 -------------- TRADING COMPANIES & DISTRIBUTORS -- 0.5% 230 United Rentals, Inc. (a) 23,462 -------------- WATER UTILITIES -- 0.3% 465 American States Water Co. 17,512 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 1.5% 2,681 America Movil SAB de C.V., Class L, ADR 59,464 461 United States Cellular Corp. (a) 18,362 -------------- 77,826 -------------- TOTAL INVESTMENTS -- 99.7% 5,209,889 (Cost $5,018,345) (c) NET OTHER ASSETS AND LIABILITIES -- 0.3% 15,206 -------------- NET ASSETS -- 100.0% $ 5,225,095 ============== (a) Non-income producing security. (b) Business Development Company. (c) Aggregate cost for federal income tax purposes is $5,023,242. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $516,893 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $330,246. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $ 5,209,889 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. See Notes to Financial Statements Page 43 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 2.7% 46,103 Boeing (The) Co. $ 5,992,468 58,408 Honeywell International, Inc. 5,836,127 30,089 Lockheed Martin Corp. 5,794,239 53,790 Raytheon Co. 5,818,464 50,464 United Technologies Corp. 5,803,360 -------------- 29,244,658 -------------- AIR FREIGHT & LOGISTICS -- 1.1% 76,959 C.H. Robinson Worldwide, Inc. 5,763,460 52,778 United Parcel Service, Inc., Class B 5,867,330 -------------- 11,630,790 -------------- AUTOMOBILES -- 0.5% 195,740 Honda Motor Co., Ltd., ADR 5,778,245 -------------- BANKS -- 3.8% 85,127 Bank of Montreal 6,021,033 105,088 Bank of Nova Scotia 5,998,423 97,354 BOK Financial Corp. 5,845,134 68,340 Canadian Imperial Bank of Commerce 5,873,823 84,205 Cullen/Frost Bankers, Inc. 5,948,241 86,626 Royal Bank of Canada 5,983,258 126,472 Toronto-Dominion (The) Bank 6,042,832 -------------- 41,712,744 -------------- BEVERAGES -- 2.7% 51,617 Anheuser-Busch InBev N.V., ADR 5,797,621 139,585 Coca-Cola (The) Co. 5,893,279 51,028 Diageo PLC, ADR 5,821,784 81,244 Dr Pepper Snapple Group, Inc. 5,823,570 61,182 PepsiCo, Inc. 5,785,370 -------------- 29,121,624 -------------- CHEMICALS -- 1.6% 39,986 Air Products & Chemicals, Inc. 5,767,181 79,730 E.I. du Pont de Nemours & Co. 5,895,236 45,009 Praxair, Inc. 5,831,366 -------------- 17,493,783 -------------- COMMERCIAL SERVICES & SUPPLIES -- 1.6% 188,739 Healthcare Services Group, Inc. 5,837,697 145,925 Republic Services, Inc. 5,873,481 115,636 Waste Management, Inc. 5,934,440 -------------- 17,645,618 -------------- COMMUNICATIONS EQUIPMENT -- 2.1% 209,472 Cisco Systems, Inc. 5,826,464 80,219 Harris Corp. 5,761,328 88,850 Motorola Solutions, Inc. 5,960,058 79,284 QUALCOMM, Inc. 5,893,180 -------------- 23,441,030 -------------- CONTAINERS & PACKAGING -- 1.1% 130,090 Bemis Co., Inc. 5,881,369 133,290 Sonoco Products Co. 5,824,773 -------------- 11,706,142 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- DISTRIBUTORS -- 0.5% 55,530 Genuine Parts Co. $ 5,917,832 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.6% 174,630 AT&T, Inc. 5,865,822 163,792 TELUS Corp. 5,903,063 124,424 Verizon Communications, Inc. 5,820,555 -------------- 17,589,440 -------------- ELECTRIC UTILITIES -- 10.9% 107,052 ALLETE, Inc. 5,902,847 98,277 American Electric Power Co., Inc. 5,967,379 107,537 Cleco Corp. 5,865,068 70,699 Duke Energy Corp. 5,906,194 90,607 Edison International 5,932,946 150,260 El Paso Electric Co. 6,019,416 202,303 Empire District Electric (The) Co. 6,016,491 178,644 Hawaiian Electric Industries, Inc. 5,981,001 90,003 IDACORP, Inc. 5,957,299 133,380 MGE Energy, Inc. 6,083,462 55,800 NextEra Energy, Inc. 5,930,982 111,406 Northeast Utilities 5,962,449 168,942 OGE Energy Corp. 5,994,062 86,942 Pinnacle West Capital Corp. 5,939,008 153,501 Portland General Electric Co. 5,806,943 164,113 PPL Corp. 5,962,225 119,761 Southern (The) Co. 5,881,463 136,144 UIL Holdings Corp. 5,927,710 145,348 Westar Energy, Inc. 5,994,152 165,817 Xcel Energy, Inc. 5,956,147 -------------- 118,987,244 -------------- ELECTRICAL EQUIPMENT -- 1.6% 85,586 Eaton Corp. PLC 5,816,425 94,432 Emerson Electric Co. 5,829,287 54,681 Hubbell, Inc., Class B 5,841,571 -------------- 17,487,283 -------------- FOOD & STAPLES RETAILING -- 1.6% 144,495 Sysco Corp. 5,735,007 68,435 Wal-Mart Stores, Inc. 5,877,198 125,109 Weis Markets, Inc. 5,982,712 -------------- 17,594,917 -------------- FOOD PRODUCTS -- 4.8% 132,838 Campbell Soup Co. 5,844,872 160,374 ConAgra Foods, Inc. 5,818,369 108,702 General Mills, Inc. 5,797,078 56,291 Hershey (The) Co. 5,850,323 57,306 JM Smucker (The) Co. 5,786,760 88,427 Kellogg Co. 5,786,663 91,920 Kraft Foods Group, Inc. 5,759,707 77,206 McCormick & Co., Inc. 5,736,406 142,648 Unilever PLC, ADR 5,774,391 -------------- 52,154,569 -------------- GAS UTILITIES -- 5.6% 112,598 AGL Resources, Inc. 6,137,717 108,345 Atmos Energy Corp. 6,039,150 113,484 Laclede Group (The), Inc. 6,037,349 100,599 New Jersey Resources Corp. 6,156,659 Page 44 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) GAS UTILITIES (CONTINUED) 119,882 Northwest Natural Gas Co. $ 5,982,112 153,224 Piedmont Natural Gas Co., Inc. 6,038,558 236,453 Questar Corp. 5,977,532 102,522 South Jersey Industries, Inc. 6,041,621 157,090 UGI Corp. 5,966,278 111,957 WGL Holdings, Inc. 6,115,091 -------------- 60,492,067 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 1.1% 127,481 Abbott Laboratories 5,739,195 79,136 Baxter International, Inc. 5,799,877 -------------- 11,539,072 -------------- HEALTH CARE PROVIDERS & SERVICES -- 1.1% 168,416 Owens & Minor, Inc. 5,913,086 87,523 Quest Diagnostics, Inc. 5,869,292 -------------- 11,782,378 -------------- HOTELS, RESTAURANTS & LEISURE -- 1.1% 62,962 McDonald's Corp. 5,899,540 81,578 Yum! Brands, Inc. 5,942,957 -------------- 11,842,497 -------------- HOUSEHOLD DURABLES -- 0.6% 142,206 Leggett & Platt, Inc. 6,059,398 -------------- HOUSEHOLD PRODUCTS -- 2.1% 56,688 Clorox (The) Co. 5,907,457 84,134 Colgate-Palmolive Co. 5,821,231 50,762 Kimberly-Clark Corp. 5,865,041 63,839 Procter & Gamble (The) Co. 5,815,095 -------------- 23,408,824 -------------- INDUSTRIAL CONGLOMERATES -- 0.5% 35,339 3M Co. 5,806,904 -------------- INSURANCE -- 7.1% 51,252 ACE Ltd. 5,887,830 124,215 Arthur J. Gallagher & Co. 5,848,042 115,143 Axis Capital Holdings Ltd. 5,882,656 113,701 Cincinnati Financial Corp. 5,893,123 100,514 Endurance Specialty Holdings Ltd. 6,014,758 66,033 Erie Indemnity Co., Class A 5,993,815 34,648 Everest Re Group, Ltd. 5,900,554 84,039 Hanover Insurance Group (The), Inc. 5,993,661 109,999 HCC Insurance Holdings, Inc. 5,887,147 107,071 Mercury General Corp. 6,067,714 51,988 PartnerRe Ltd. 5,933,390 55,607 Travelers (The) Cos., Inc. 5,886,001 131,273 Willis Group Holdings PLC 5,882,343 -------------- 77,071,034 -------------- IT SERVICES -- 2.1% 64,832 Accenture PLC, Class A 5,790,146 68,975 Automatic Data Processing, Inc. 5,750,446 SHARES DESCRIPTION VALUE ------------------------------------------------------------- IT SERVICES (CONTINUED) 36,618 International Business Machines Corp. $ 5,874,992 125,691 Paychex, Inc. 5,803,153 -------------- 23,218,737 -------------- LEISURE PRODUCTS -- 1.1% 108,808 Hasbro, Inc. 5,983,352 199,981 Mattel, Inc. 6,188,412 -------------- 12,171,764 -------------- MACHINERY -- 2.7% 64,031 Caterpillar, Inc. 5,860,757 65,509 Deere & Co. 5,795,581 80,090 Dover Corp. 5,744,055 61,088 Illinois Tool Works, Inc. 5,785,034 60,895 Stanley Black & Decker, Inc. 5,850,792 -------------- 29,036,219 -------------- MEDIA -- 1.6% 76,770 Omnicom Group, Inc. 5,947,372 222,395 Shaw Communications, Inc., Class B 6,002,441 146,247 Thomson Reuters Corp. 5,899,604 -------------- 17,849,417 -------------- MULTILINE RETAIL -- 1.1% 97,594 Kohl's Corp. 5,957,138 79,347 Target Corp. 6,023,231 -------------- 11,980,369 -------------- MULTI-UTILITIES -- 8.8% 89,429 Alliant Energy Corp. 5,939,874 130,175 Ameren Corp. 6,004,973 169,134 Avista Corp. 5,978,887 254,029 CenterPoint Energy, Inc. 5,951,899 169,913 CMS Energy Corp. 5,904,477 89,645 Consolidated Edison, Inc. 5,917,466 77,264 Dominion Resources, Inc. 5,941,602 68,553 DTE Energy Co. 5,920,923 76,573 Integrys Energy Group, Inc. 5,961,208 257,126 MDU Resources Group, Inc. 6,042,461 140,947 Public Service Enterprise Group, Inc. 5,836,615 98,887 SCANA Corp. 5,972,775 53,452 Sempra Energy 5,952,415 296,453 TECO Energy, Inc. 6,074,322 132,630 Vectren Corp. 6,131,485 113,048 Wisconsin Energy Corp. 5,962,151 -------------- 95,493,533 -------------- OIL, GAS & CONSUMABLE FUELS -- 4.9% 52,763 Chevron Corp. 5,918,953 85,029 ConocoPhillips 5,872,103 118,226 Enbridge, Inc. 6,077,999 63,337 Exxon Mobil Corp. 5,855,506 142,272 Kinder Morgan, Inc. 6,019,528 73,169 Occidental Petroleum Corp. 5,898,153 83,589 Royal Dutch Shell PLC, Class B, ADR 5,814,451 See Notes to Financial Statements Page 45 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) OIL, GAS & CONSUMABLE FUELS (CONTINUED) 112,598 Total S.A., ADR $ 5,765,017 124,166 TransCanada Corp. 6,096,551 -------------- 53,318,261 -------------- PHARMACEUTICALS -- 5.3% 88,269 AbbVie, Inc. 5,776,323 82,000 AstraZeneca PLC, ADR 5,771,160 96,810 Bristol-Myers Squibb Co. 5,714,694 82,770 Eli Lilly & Co. 5,710,302 136,081 GlaxoSmithKline PLC, ADR 5,816,102 55,379 Johnson & Johnson 5,790,982 100,260 Merck & Co., Inc. 5,693,766 62,030 Novartis AG, ADR 5,747,700 184,211 Pfizer, Inc. 5,738,173 128,616 Sanofi, ADR 5,866,176 -------------- 57,625,378 -------------- PROFESSIONAL SERVICES -- 0.5% 132,512 Nielsen N.V. 5,927,262 -------------- REAL ESTATE INVESTMENT TRUSTS -- 2.1% 43,171 Federal Realty Investment Trust 5,761,601 31,361 Public Storage 5,797,081 120,003 Realty Income Corp. 5,725,343 31,534 Simon Property Group, Inc. 5,742,657 -------------- 23,026,682 -------------- ROAD & RAIL -- 0.5% 53,732 Norfolk Southern Corp. 5,889,565 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.7% 102,824 Analog Devices, Inc. 5,708,788 158,864 Intel Corp. 5,765,175 129,518 Microchip Technology, Inc. 5,842,557 107,829 Texas Instruments, Inc. 5,765,078 134,745 Xilinx, Inc. 5,833,111 -------------- 28,914,709 -------------- SOFTWARE -- 1.6% 189,587 CA, Inc. 5,772,924 123,202 Microsoft Corp. 5,722,733 83,625 SAP SE, ADR 5,824,481 -------------- 17,320,138 -------------- SPECIALTY RETAIL -- 0.6% 143,861 Gap (The), Inc. 6,057,987 -------------- TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 0.5% 177,143 CANON, Inc., ADR 5,608,347 -------------- THRIFTS & MORTGAGE FINANCE -- 1.1% 461,281 Capitol Federal Financial, Inc. 5,895,171 389,929 People's United Financial, Inc. 5,919,122 -------------- 11,814,293 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- TOBACCO -- 2.7% 117,753 Altria Group, Inc. $ 5,801,690 53,553 British American Tobacco PLC, ADR 5,774,084 93,756 Lorillard, Inc. 5,901,003 71,247 Philip Morris International, Inc. 5,803,068 90,373 Reynolds American, Inc. 5,808,273 -------------- 29,088,118 -------------- TRADING COMPANIES & DISTRIBUTORS -- 0.5% 123,925 Fastenal Co. 5,893,873 -------------- WATER UTILITIES -- 1.1% 164,295 American States Water Co. 6,187,350 225,709 Aqua America, Inc. 6,026,430 -------------- 12,213,780 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 1.0% 697,088 Mobile TeleSystems OJSC, ADR 5,005,092 168,655 Vodafone Group PLC, ADR 5,762,941 -------------- 10,768,033 -------------- TOTAL INVESTMENTS -- 99.9% 1,088,724,558 (Cost $952,694,601) (a) NET OTHER ASSETS AND LIABILITIES -- 0.1% 574,215 -------------- NET ASSETS -- 100.0% $1,089,298,773 ============== (a) Aggregate cost for federal income tax purposes is $965,988,769. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $133,436,381 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $10,700,592. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $1,088,724,558 $ -- $ -- ================================================ * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. Page 46 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.1% AEROSPACE & DEFENSE -- 4.1% 4,946 Boeing (The) Co. $ 642,881 15,383 Hexcel Corp. (a) 638,241 6,267 Honeywell International, Inc. 626,199 5,199 Huntington Ingalls Industries, Inc. 584,679 -------------- 2,492,000 -------------- AIRLINES -- 4.3% 12,685 Alaska Air Group, Inc. 758,055 59,250 JetBlue Airways Corp. (a) 939,705 13,684 United Continental Holdings, Inc. (a) 915,323 -------------- 2,613,083 -------------- AUTO COMPONENTS -- 10.5% 31,392 American Axle & Manufacturing Holdings, Inc. (a) 709,145 11,561 BorgWarner, Inc. 635,277 27,054 Dana Holding Corp. 588,154 8,627 Delphi Automotive PLC 627,355 16,225 Gentherm, Inc. (a) 594,160 31,113 Goodyear Tire & Rubber (The) Co. 888,898 11,149 Johnson Controls, Inc. 538,943 5,549 Lear Corp. 544,246 5,452 Magna International, Inc. 592,578 9,817 Tenneco, Inc. (a) 555,740 -------------- 6,274,496 -------------- AUTOMOBILES -- 1.0% 14,230 Tata Motors Ltd., ADR 601,644 -------------- CAPITAL MARKETS -- 1.0% 17,034 Blackstone Group (The) LP (b) 576,260 -------------- CHEMICALS -- 7.2% 16,101 A. Schulman, Inc. 652,574 10,491 Cabot Corp. 460,135 8,081 Celanese Corp., Series A 484,537 6,735 Eastman Chemical Co. 510,917 5,937 Ecolab, Inc. 620,535 21,231 Huntsman Corp. 483,642 5,955 LyondellBasell Industries N.V., Class A 472,767 16,695 PolyOne Corp. 632,908 -------------- 4,318,015 -------------- COMMUNICATIONS EQUIPMENT -- 1.9% 18,998 ARRIS Group, Inc. (a) 573,550 11,123 EchoStar Corp., Class A (a) 583,957 -------------- 1,157,507 -------------- CONSTRUCTION & ENGINEERING -- 2.9% 9,380 Chicago Bridge & Iron Co. N.V. 393,772 19,395 Dycom Industries, Inc. (a) 680,571 23,113 Quanta Services, Inc. (a) 656,178 -------------- 1,730,521 -------------- CONTAINERS & PACKAGING -- 1.0% 7,924 Packaging Corp. of America 618,468 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.9% 8,733 BT Group PLC, ADR $ 541,359 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 5.6% 10,101 Arrow Electronics, Inc. (a) 584,747 20,754 Ingram Micro, Inc., Class A (a) 573,640 25,951 PC Connection, Inc. 637,097 37,011 Sanmina Corp. (a) 870,869 8,561 SYNNEX Corp. 669,128 -------------- 3,335,481 -------------- ENERGY EQUIPMENT & SERVICES -- 4.2% 12,828 Cameron International Corp. (a) 640,759 10,514 Halliburton Co. 413,516 5,710 Helmerich & Payne, Inc. 384,968 10,755 Oceaneering International, Inc. 632,501 34,598 RPC, Inc. 451,158 -------------- 2,522,902 -------------- FOOD & STAPLES RETAILING -- 2.4% 12,088 Kroger (The) Co. 776,170 88,703 Rite Aid Corp. (a) 667,047 -------------- 1,443,217 -------------- FOOD PRODUCTS -- 1.9% 6,358 Sanderson Farms, Inc. 534,231 14,810 Tyson Foods, Inc., Class A 593,733 -------------- 1,127,964 -------------- HEALTH CARE PROVIDERS & SERVICES -- 3.2% 5,922 Cigna Corp. 609,433 9,988 HCA Holdings, Inc. (a) 733,020 4,955 Universal Health Services, Inc., Class B 551,293 -------------- 1,893,746 -------------- HEALTH CARE TECHNOLOGY -- 1.1% 32,896 MedAssets, Inc. (a) 650,025 -------------- HOTELS, RESTAURANTS & LEISURE -- 3.1% 11,106 Brinker International, Inc. 651,811 8,265 Red Robin Gourmet Burgers, Inc. (a) 636,198 6,927 Wyndham Worldwide Corp. 594,060 -------------- 1,882,069 -------------- HOUSEHOLD DURABLES -- 1.1% 4,104 Mohawk Industries, Inc. (a) 637,597 -------------- INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 0.9% 24,236 Calpine Corp. (a) 536,343 -------------- INSURANCE -- 1.9% 6,536 Aon PLC 619,809 3,212 Everest Re Group, Ltd. 547,003 -------------- 1,166,812 -------------- See Notes to Financial Statements Page 47 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) IT SERVICES -- 0.9% 26,694 Convergys Corp. $ 543,757 -------------- LIFE SCIENCES TOOLS & SERVICES -- 1.8% 24,394 Cambrex Corp. (a) 527,398 4,604 Thermo Fisher Scientific, Inc. 576,835 -------------- 1,104,233 -------------- MACHINERY -- 8.3% 17,073 Barnes Group, Inc. 631,872 10,908 Crane Co. 640,300 13,031 Greenbrier (The) Cos., Inc. 700,156 15,753 ITT Corp. 637,366 9,486 Pentair PLC 630,060 7,481 SPX Corp. 642,767 15,186 Trinity Industries, Inc. 425,360 52,589 Wabash National Corp. (a) 650,000 -------------- 4,957,881 -------------- MEDIA -- 4.2% 33,858 Cablevision Systems Corp., Class A 698,829 10,836 Comcast Corp., Class A 628,597 21,398 Sinclair Broadcast Group, Inc., Class A 585,449 8,304 Viacom, Inc., Class B 624,876 -------------- 2,537,751 -------------- MULTILINE RETAIL -- 1.0% 4,946 Dillard's, Inc., Class A 619,140 -------------- MULTI-UTILITIES -- 1.1% 12,067 Black Hills Corp. 640,034 -------------- OIL, GAS & CONSUMABLE FUELS -- 3.2% 11,026 Alliance Resource Partners LP (b) 474,669 10,149 Continental Resources, Inc. (a) 389,316 5,512 EOG Resources, Inc. 507,490 7,236 Tesoro Corp. 537,996 -------------- 1,909,471 -------------- PAPER & FOREST PRODUCTS -- 0.9% 13,357 Domtar Corp. 537,219 -------------- PHARMACEUTICALS -- 1.3% 2,968 Actavis PLC (a) 763,993 -------------- PROFESSIONAL SERVICES -- 2.0% 21,698 Korn/Ferry International (a) 624,035 12,533 Nielsen N.V. 560,601 -------------- 1,184,636 -------------- ROAD & RAIL -- 2.4% 12,130 Avis Budget Group, Inc. (a) 804,583 6,686 Ryder System, Inc. 620,795 -------------- 1,425,378 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.1% 21,346 Micron Technology, Inc. (a) $ 747,324 23,677 Taiwan Semiconductor Manufacturing Co., Ltd., ADR 529,891 -------------- 1,277,215 -------------- SPECIALTY RETAIL -- 4.5% 10,817 AutoNation, Inc. (a) 653,455 20,973 Brown Shoe Co., Inc. 674,282 9,886 Outerwall, Inc. (a) 743,625 13,107 Penske Automotive Group, Inc. 643,160 -------------- 2,714,522 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 2.1% 5,835 Fossil Group, Inc. (a) 646,168 8,529 Michael Kors Holdings Ltd. (a) 640,528 -------------- 1,286,696 -------------- TRADING COMPANIES & DISTRIBUTORS -- 3.0% 8,891 GATX Corp. 511,588 6,249 United Rentals, Inc. (a) 637,461 8,214 WESCO International, Inc. (a) 625,989 -------------- 1,775,038 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 1.1% 20,841 Shenandoah Telecommunications Co. 651,281 -------------- TOTAL INVESTMENTS -- 100.1% 60,047,754 (Cost $57,642,471) (c) NET OTHER ASSETS AND LIABILITIES -- (0.1)% (39,682) -------------- NET ASSETS -- 100.0% $ 60,008,072 ============== (a) Non-income producing security. (b) Master Limited Partnership ("MLP"). (c) Aggregate cost for federal income tax purposes is $57,837,880. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $4,178,899 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,969,025. ADR - American Depositary Receipt Page 48 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $ 60,047,754 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. See Notes to Financial Statements Page 49 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2014
FIRST TRUST FIRST TRUST DOW JONES SELECT MORNINGSTAR FIRST TRUST MICROCAP DIVIDEND LEADERS US IPO INDEX FUND INDEX FUND INDEX FUND (FDM) (FDL) (FPX) ---------------- ------------------- --------------- ASSETS: Investments, at value............................................... $ 51,620,108 $ 983,656,204 $ 558,365,119 Cash................................................................ 23,558 247,510 -- Due from custodian.................................................. -- -- -- Receivables: Capital shares sold........................................... -- 6,108,419 -- Investment securities sold.................................... -- -- 67,598 Dividends..................................................... 54,733 2,017,618 237,427 Currency...................................................... -- -- 63 Interest...................................................... -- -- -- Securities lending income..................................... -- -- 41,609 From investment advisor....................................... -- -- -- Reclaims...................................................... -- -- -- Prepaid expenses.................................................... 18,731 14,004 8,674 -------------- -------------- -------------- TOTAL ASSETS.................................................. 51,717,130 992,043,755 558,720,490 -------------- -------------- -------------- LIABILITIES: Due to custodian.................................................... -- -- 48,391 Payables: Investment securities purchased............................... -- 6,098,595 -- Audit and tax fees............................................ 22,925 22,925 22,925 Investment advisory fees...................................... 18,434 194,589 172,117 Printing fees................................................. 5,349 38,351 26,194 Trustees' fees................................................ 1 103 -- Collateral for securities on loan............................. -- -- 22,190,117 Licensing fees................................................ -- 204,529 118,146 Other liabilities................................................... 22,537 333,194 199,348 -------------- -------------- -------------- TOTAL LIABILITIES............................................. 69,246 6,892,286 22,777,238 -------------- -------------- -------------- NET ASSETS.......................................................... $ 51,647,884 $ 985,151,469 $ 535,943,252 ============== ============== ============== NET ASSETS CONSIST OF: Paid-in capital..................................................... $ 65,413,652 $ 964,096,168 $ 479,295,151 Par value........................................................... 15,550 411,500 106,500 Accumulated net investment income (loss)............................ 2,224 -- 32,444 Accumulated net realized gain (loss) on investments and foreign currency transactions......................................... (19,121,708) (44,614,622) (15,672,728) Net unrealized appreciation (depreciation) on investments and foreign currency translations................................. 5,338,166 65,258,423 72,181,885 -------------- -------------- -------------- NET ASSETS.......................................................... $ 51,647,884 $ 985,151,469 $ 535,943,252 ============== ============== ============== NET ASSET VALUE, per share.......................................... $ 33.21 $ 23.94 $ 50.32 ============== ============== ============== Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)....................................... 1,555,000 41,150,002 10,650,002 -------------- -------------- -------------- Investments, at cost................................................ $ 46,281,942 $ 918,397,781 $ 486,183,180 ============== ============== ============== Securities on loan, at value........................................ $ -- $ -- $ 21,492,229 ============== ============== ==============
Page 50 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NYSE ARCA DOW JONES CAPITAL VALUE LINE(R) EQUITY VALUE LINE(R) VALUE LINE(R) 100 BIOTECHNOLOGY INTERNET STRENGTH ALLOCATION DIVIDEND EXCHANGE-TRADED INDEX FUND INDEX FUND ETF INDEX FUND INDEX FUND FUND (FBT) (FDN) (FTCS) (FVI) (FVD) (FVL) --------------- --------------- --------------- -------------------- --------------- ----------------- $ 2,320,265,527 $ 2,005,681,616 $ 85,662,228 $ 5,209,889 $ 1,088,724,558 $ 60,047,754 1,299,905 -- -- -- -- 29,698 -- -- -- -- 3,227,400 -- 25,581,836 -- -- -- 8,607,220 -- -- -- -- 53,989 -- -- -- 118,349 145,088 6,559 2,261,075 32,301 -- -- -- -- -- -- -- 8 -- -- -- -- 795,760 80,248 -- -- -- -- -- -- -- 71,293 -- -- 33,096 -- -- 437 55,512 -- 24,944 34,276 1,355 97 16,299 1,112 --------------- --------------- --------------- --------------- --------------- --------------- 2,348,001,068 2,005,914,497 85,808,671 5,342,264 1,102,892,064 60,110,865 --------------- --------------- --------------- --------------- --------------- --------------- -- 99,726 22,706 36,172 3,787,916 -- 25,579,115 -- -- 53,942 8,606,249 -- 22,925 22,925 22,925 22,925 22,925 22,925 699,458 662,390 38,919 -- 399,118 17,320 67,604 83,556 4,851 1,462 39,922 4,361 -- -- 5 -- 57 -- 194,088,943 27,377,588 -- -- -- -- 371,187 265,211 2,041 1,972 382,702 23,226 590,548 610,223 31,284 696 354,402 34,961 --------------- --------------- --------------- --------------- --------------- --------------- 221,419,780 29,121,619 122,731 117,169 13,593,291 102,793 --------------- --------------- --------------- --------------- --------------- --------------- $ 2,126,581,288 $1,976,792,878 $ 85,685,940 $ 5,225,095 $ 1,089,298,773 $ 60,008,072 =============== =============== =============== =============== =============== =============== $ 1,743,731,337 $1,944,418,037 $ 99,413,863 $ 10,101,279 $ 1,005,110,932 $ 141,720,611 208,500 322,500 22,500 2,000 451,380 29,400 -- -- -- -- -- -- (31,666,203) (60,971,885) (24,673,716) (5,069,728) (52,293,496) (84,147,222) 414,307,654 93,024,226 10,923,293 191,544 136,029,957 2,405,283 --------------- --------------- --------------- --------------- --------------- --------------- $ 2,126,581,288 $ 1,976,792,878 $ 85,685,940 $ 5,225,095 $ 1,089,298,773 $ 60,008,072 =============== =============== =============== =============== =============== =============== $ 101.99 $ 61.30 $ 38.08 $ 26.13 $ 24.13 $ 20.41 =============== =============== =============== =============== =============== =============== 20,850,002 32,250,002 2,250,002 200,002 45,137,986 2,939,982 --------------- --------------- --------------- --------------- --------------- --------------- $ 1,905,957,873 $ 1,912,657,390 $ 74,738,935 $ 5,018,345 $ 952,694,601 $ 57,642,471 =============== =============== =============== =============== =============== =============== $ 186,131,568 $ 26,760,969 $ -- $ -- $ -- $ -- =============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 51 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2014
FIRST TRUST FIRST TRUST DOW JONES SELECT MORNINGSTAR FIRST TRUST MICROCAP DIVIDEND LEADERS US IPO INDEX FUND INDEX FUND INDEX FUND (FDM) (FDL) (FPX) ---------------- ------------------- --------------- INVESTMENT INCOME: Dividends........................................................... $ 903,735 $ 30,740,582 $ 6,972,831 Foreign tax withholding............................................. (202) -- (28,278) Securities lending income (net of fees)............................. -- -- 250,866 Interest............................................................ -- -- -- -------------- -------------- -------------- Total investment income....................................... 903,533 30,740,582 7,195,419 -------------- -------------- -------------- EXPENSES: Investment advisory fees............................................ 346,164 2,307,048 1,931,677 Accounting and administration fees.................................. 39,262 387,065 243,943 Licensing fees...................................................... 34,218 695,604 482,919 Audit and tax fees.................................................. 23,082 24,114 23,532 Custodian fees...................................................... 9,257 96,776 75,804 Listing fees........................................................ 8,044 10,544 7,645 Printing fees....................................................... 6,202 63,008 64,027 Trustees' fees and expenses......................................... 5,134 16,384 11,916 Transfer agent fees................................................. 3,455 38,363 24,143 Legal fees.......................................................... 2,618 39,316 28,523 Expenses previously waived or reimbursed............................ -- -- -- Registration and filing fees........................................ (1,153) 29,075 18,524 Other expenses...................................................... 5,398 26,422 7,905 -------------- -------------- -------------- Total expenses................................................ 481,681 3,733,719 2,920,558 Less fees waived and expenses reimbursed by the investment advisor.................................................... (66,284) (273,147) (23,043) -------------- -------------- -------------- Net expenses.................................................. 415,397 3,460,572 2,897,515 -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS)........................................ 488,136 27,280,010 4,297,904 -------------- -------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments................................................... 3,982,588 (2,128,539) (9,065,905) In-kind redemptions........................................... 5,792,097 57,230,569 31,073,291 Foreign currency transactions................................. -- -- -- -------------- -------------- -------------- Net realized gain (loss)............................................ 9,774,685 55,102,030 22,007,386 -------------- -------------- -------------- Net change in unrealized appreciation (depreciation) on............. Investments................................................... (10,331,091) 6,605,707 22,326,995 Foreign currency transactions................................. -- -- (54) -------------- -------------- -------------- Net change in unrealized appreciation (depreciation)................ (10,331,091) 6,605,707 22,326,941 -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS)............................. (556,406) 61,707,737 44,334,327 -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................... $ (68,270) $ 88,987,747 $ 48,632,231 ============== ============== ==============
Page 52 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NYSE ARCA DOW JONES CAPITAL VALUE LINE(R) VALUE LINE(R) VALUE LINE(R) 100 BIOTECHNOLOGY INTERNET STRENGTH EQUITY ALLOCATION DIVIDEND EXCHANGE-TRADED INDEX FUND INDEX FUND ETF INDEX FUND INDEX FUND FUND (FBT) (FDN) (FTCS) (FVI) (FVD) (FVL) --------------- --------------- --------------- -------------------- --------------- ----------------- $ 3,552,270 $ 4,680,764 $ 2,072,378 $ 92,602 $ 30,122,283 $ 768,538 (82,741) -- -- (1,345) (456,716) (15,733) 5,453,529 3,196,776 -- -- -- -- -- 211 -- 3 -- -- --------------- --------------- --------------- --------------- --------------- --------------- 8,923,058 7,877,751 2,072,378 91,260 29,665,567 752,805 --------------- --------------- --------------- --------------- --------------- --------------- 5,567,678 7,589,073 380,466 26,091 4,459,329 296,647 658,208 834,176 39,845 5,707 448,248 32,088 1,113,536 1,146,252 15,105 8,041 1,351,785 93,280 24,574 26,262 23,038 22,933 24,302 23,021 167,940 254,515 9,518 652 111,624 7,416 8,044 10,544 2,627 22,645 25,145 22,645 151,066 180,840 10,200 7,195 71,809 8,208 26,712 34,658 5,260 4,139 18,434 4,969 59,764 65,755 3,800 260 44,395 2,960 76,557 98,173 4,231 63,389 46,206 3,044 75,700 -- -- -- -- -- 66,612 16,805 1,245 (56) 21,971 652 28,326 49,864 3,340 4,221 28,746 6,049 --------------- --------------- --------------- --------------- --------------- --------------- 8,024,717 10,306,917 498,675 165,217 6,651,994 500,979 -- -- (4,069) (128,690) (408,933) (85,675) --------------- --------------- --------------- --------------- --------------- --------------- 8,024,717 10,306,917 494,606 36,527 6,243,061 415,304 --------------- --------------- --------------- --------------- --------------- --------------- 898,341 (2,429,166) 1,577,772 54,733 23,422,506 337,501 --------------- --------------- --------------- --------------- --------------- --------------- 42,305,355 (32,034,034) (387,250) 362,938 (3,038,320) 6,154,537 265,295,393 373,734,802 5,778,656 309,500 95,623,685 605,009 -- -- -- -- (752) -- --------------- --------------- --------------- --------------- --------------- --------------- 307,600,748 341,700,768 5,391,406 672,438 92,584,613 6,759,546 --------------- --------------- --------------- --------------- --------------- --------------- 218,034,539 (345,960,771) 4,781,081 (596,858) 20,655,635 (1,112,537) -- -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- --------------- 218,034,539 (345,960,771) 4,781,081 (596,858) 20,655,635 (1,112,537) --------------- --------------- --------------- --------------- --------------- --------------- 525,635,287 (4,260,003) 10,172,487 75,580 113,240,248 5,647,009 --------------- --------------- --------------- --------------- --------------- --------------- $ 526,533,628 $ (6,689,169) $ 11,750,259 $ 130,313 $ 136,662,754 $ 5,984,510 =============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 53 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST DOW JONES SELECT MORNINGSTAR MICROCAP DIVIDEND LEADERS INDEX FUND INDEX FUND (FDM) (FDL) ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended 12/31/2014 12/31/2013 12/31/2014 12/31/2013 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss)........................... $ 488,136 $ 906,466 $ 27,280,010 $ 22,539,320 Net realized gain (loss)............................... 9,774,685 19,676,173 55,102,030 56,031,348 Net change in unrealized appreciation (depreciation)... (10,331,091) 12,455,819 6,605,707 42,242,896 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations..................................... (68,270) 33,038,458 88,987,747 120,813,564 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.................................. (512,148) (986,641) (27,604,717) (22,580,041) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.............................. -- 123,859,631 494,651,004 404,778,385 Cost of shares redeemed................................ (38,851,754) (106,112,766) (258,319,285) (361,092,133) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions....................... (38,851,754) 17,746,865 236,331,719 43,686,252 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets................ (39,432,172) 49,798,682 297,714,749 141,919,775 NET ASSETS: Beginning of period.................................... 91,080,056 41,281,374 687,436,720 545,516,945 ------------- ------------- ------------- ------------- End of period.......................................... $ 51,647,884 $ 91,080,056 $ 985,151,469 $ 687,436,720 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period.................................... $ 2,224 $ -- $ -- $ -- ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period................ 2,805,000 1,805,000 31,350,002 29,550,002 Shares sold............................................ -- 4,650,000 20,700,000 19,350,000 Shares redeemed........................................ (1,250,000) (3,650,000) (10,900,000) (17,550,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period...................... 1,555,000 2,805,000 41,150,002 31,350,002 ============= ============= ============= =============
Page 54 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST NYSE ARCA DOW JONES US IPO BIOTECHNOLOGY INTERNET INDEX FUND INDEX FUND INDEX FUND (FPX) (FBT) (FDN) ----------------------------- ------------------------------ ------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended 12/31/2014 12/31/2013 12/31/2014 12/31/2013 12/31/2014 12/31/2013 ------------- ------------- -------------- ------------- -------------- -------------- $ 4,297,904 $ 867,950 $ 898,341 $ (1,398,537) $ (2,429,166) $ (3,407,246) 22,007,386 (617,310) 307,600,748 (23,658,670) 341,700,768 120,583,987 22,326,941 47,510,415 218,034,539 214,346,364 (345,960,771) 401,945,182 ------------- ------------- -------------- ------------- -------------- -------------- 48,632,231 47,761,055 526,533,628 189,289,157 (6,689,169) 519,121,923 ------------- ------------- -------------- ------------- -------------- -------------- (4,268,031) (957,120) (1,076,820) -- -- -- ------------- ------------- -------------- ------------- -------------- -------------- 267,156,832 282,040,963 1,228,321,602 611,554,944 1,280,119,495 1,166,724,606 (126,953,339) (2,128,720) (581,107,220) (86,379,184) (1,226,489,727) (313,875,794) ------------- ------------- -------------- ------------- -------------- -------------- 140,203,493 279,912,243 647,214,382 525,175,760 53,629,768 852,848,812 ------------- ------------- -------------- ------------- -------------- -------------- 184,567,693 326,716,178 1,172,671,190 714,464,917 46,940,599 1,371,970,735 351,375,559 24,659,381 953,910,098 239,445,181 1,929,852,279 557,881,544 ------------- ------------- -------------- ------------- -------------- -------------- $ 535,943,252 $ 351,375,559 $2,126,581,288 $ 953,910,098 $1,976,792,878 $1,929,852,279 ============= ============= ============== ============= ============== ============== $ 32,444 $ -- $ -- $ -- $ -- $ -- ============= ============= ============== ============= ============== ============== 7,750,002 800,002 13,800,002 5,200,002 32,250,002 14,300,002 5,650,000 7,000,000 14,150,000 10,050,000 21,250,000 24,000,000 (2,750,000) (50,000) (7,100,000) (1,450,000) (21,250,000) (6,050,000) ------------- ------------- -------------- ------------- -------------- -------------- 10,650,002 7,750,002 20,850,002 13,800,002 32,250,002 32,250,002 ============= ============= ============== ============= ============== ==============
See Notes to Financial Statements Page 55 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST FIRST TRUST CAPITAL STRENGTH VALUE LINE(R) EQUITY ETF ALLOCATION INDEX FUND (FTCS) (FVI) ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended 12/31/2014 12/31/2013 12/31/2014 12/31/2013 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss)........................... $ 1,577,772 $ 690,767 $ 54,733 $ 41,442 Net realized gain (loss)............................... 5,391,406 7,688,429 672,438 703,502 Net change in unrealized appreciation (depreciation)... 4,781,081 4,261,985 (596,858) 589,610 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations..................................... 11,750,259 12,641,181 130,313 1,334,554 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.................................. (1,680,216) (684,781) (55,881) (43,260) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.............................. 53,160,607 67,370,800 1,262,594 -- Cost of shares redeemed................................ (43,250,832) (46,328,268) (1,271,557) -- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions....................... 9,909,775 21,042,532 (8,963) -- ------------- ------------- ------------- ------------- Total increase (decrease) in net assets................ 19,979,818 32,998,932 65,469 1,291,294 NET ASSETS: Beginning of period.................................... 65,706,122 32,707,190 5,159,626 3,868,332 ------------- ------------- ------------- ------------- End of period.......................................... $ 85,685,940 $ 65,706,122 $ 5,225,095 $ 5,159,626 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period.................................... $ -- $ 13,050 $ -- $ -- ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period................ 1,950,002 1,300,002 200,002 200,002 Shares sold............................................ 1,550,000 2,200,000 50,000 -- Shares redeemed........................................ (1,250,000) (1,550,000) (50,000) -- ------------- ------------- ------------- ------------- Shares outstanding, end of period...................... 2,250,002 1,950,002 200,002 200,002 ============= ============= ============= =============
Page 56 See Notes to Financial Statements
FIRST TRUST FIRST TRUST VALUE LINE(R) DIVIDEND VALUE LINE(R) 100 INDEX FUND EXCHANGE-TRADED FUND (FVD) (FVL) ------------------------------ ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended 12/31/2014 12/31/2013 12/31/2014 12/31/2013 -------------- ------------- ------------- ------------- $ 23,422,506 $ 17,276,342 $ 337,501 $ 172,218 92,584,613 61,770,695 6,759,546 14,165,321 20,655,635 70,064,896 (1,112,537) 2,221,485 -------------- ------------- ------------- ------------- 136,662,754 149,111,933 5,984,510 16,559,024 -------------- ------------- ------------- ------------- (24,031,395) (16,843,619) (352,430) (179,357) -------------- ------------- ------------- ------------- 722,167,468 499,922,070 8,785,008 54,675,682 (541,861,484) (343,932,195) (10,466,963) (60,632,280) -------------- ------------- ------------- ------------- 180,305,984 155,989,875 (1,681,955) (5,956,598) -------------- ------------- ------------- ------------- 292,937,343 288,258,189 3,950,125 10,423,069 796,361,430 508,103,241 56,057,947 45,634,878 -------------- ------------- ------------- ------------- $1,089,298,773 $ 796,361,430 $ 60,008,072 $ 56,057,947 ============== ============= ============= ============= $ -- $ 300,846 $ -- $ -- ============== ============= ============= ============= 37,287,986 29,387,986 3,039,982 3,439,982 31,750,000 25,300,000 450,000 3,300,000 (23,900,000) (17,400,000) (550,000) (3,700,000) -------------- ------------- ------------- ------------- 45,137,986 37,287,986 2,939,982 3,039,982 ============== ============= ============= =============
See Notes to Financial Statements Page 57 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 32.47 $ 22.87 $ 20.09 $ 22.17 $ 17.70 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.23 0.25 0.35 0.10 0.09 Net realized and unrealized gain (loss) 0.76 9.62 2.83 (2.02) 4.46 ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.99 9.87 3.18 (1.92) 4.55 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.25) (0.27) (0.40) (0.16) (0.08) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 33.21 $ 32.47 $ 22.87 $ 20.09 $ 22.17 ========== ========== ========== ========== ========== TOTAL RETURN (a) 3.08% 43.32% 15.86% (8.69)% 25.77% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 51,648 $ 91,080 $ 41,281 $ 52,328 $ 153,050 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.70% 0.72% 0.76% 0.71% 0.86% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.71% 0.93% 1.38% 0.40% 0.94% Portfolio turnover rate (b) 49% 70% 71% 59% 86%
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 21.93 $ 18.46 $ 17.57 $ 15.92 $ 14.27 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.80 0.69 0.71 0.61 0.57 Net realized and unrealized gain (loss) 2.01 3.47 0.89 1.65 1.66 ---------- ---------- ---------- ---------- ---------- Total from investment operations 2.81 4.16 1.60 2.26 2.23 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.80) (0.69) (0.71) (0.61) (0.58) Return of capital -- -- -- -- (0.00) (c) ---------- ---------- ---------- ---------- ---------- Total distributions (0.80) (0.69) (0.71) (0.61) (0.58) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 23.94 $ 21.93 $ 18.46 $ 17.57 $ 15.92 ========== ========== ========== ========== ========== TOTAL RETURN (a) 12.96% 22.71% 9.14% 14.44% 16.05% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 985,151 $ 687,437 $ 545,517 $ 447,030 $ 143,294 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.49% 0.49% 0.51% 0.56% 0.66% Ratio of net expenses to average net assets 0.45% 0.45% 0.45% 0.45% 0.45% Ratio of net investment income (loss) to average net assets 3.55% 3.61% 3.88% 3.98% 4.22% Portfolio turnover rate (b) 40% 35% 31% 27% 30%
(a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (b) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (c) Amount represents less than $0.01 per share. Page 58 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST US IPO INDEX FUND (FPX) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 45.34 $ 30.82 $ 23.99 $ 23.51 $ 20.08 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.41 0.22 0.31 0.18 0.20 Net realized and unrealized gain (loss) 4.97 14.53 6.87 0.55 3.45 ---------- ---------- ---------- ---------- ---------- Total from investment operations 5.38 14.75 7.18 0.73 3.65 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.40) (0.23) (0.35) (0.25) (0.22) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 50.32 $ 45.34 $ 30.82 $ 23.99 $ 23.51 ========== ========== ========== ========== ========== TOTAL RETURN (a) 11.91% 47.98% 30.01% 3.11% 18.28% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 535,943 $ 351,376 $ 24,659 $ 15,594 $ 15,283 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.66% 1.01% 1.01% 1.32% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.89% 0.69% 1.27% 0.70% 1.28% Portfolio turnover rate (b) 46% 30% 48% 44% 43%
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 69.12 $ 46.05 $ 32.68 $ 39.07 $ 28.54 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.04) (0.10) (0.22) (0.30) (0.17) Net realized and unrealized gain (loss) 23.17 13.59 (6.09) 10.70 ---------- ---------- ---------- ---------- ---------- Total from investment operations 32.92 23.07 13.37 (6.39) 10.53 ========== ========== ========== ========== ========== DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.05) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 101.99 $ 69.12 $ 46.05 $ 32.68 $ 39.07 ========== ========== ========== ========== ========== TOTAL RETURN (a) 47.63% 50.10% 40.91% (16.36)% 36.90% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $2,126,581 $ 953,910 $ 239,445 $ 183,030 $ 201,220 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.58% 0.60% 0.61% 0.61% 0.66% Ratio of net expenses to average net assets 0.58% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.06% (0.26)% (0.48)% (0.54)% (0.60)% Portfolio turnover rate (b) 58% 48% 39% 44% 35%
(a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (b) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. See Notes to Financial Statements Page 59 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 59.84 $ 39.01 $ 32.28 $ 34.27 $ 25.11 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.08) (0.11) (0.08) (0.10) 0.04 Net realized and unrealized gain (loss) 1.54 20.94 6.81 (1.87) 9.16 ---------- ---------- ---------- ---------- ---------- Total from investment operations 1.46 20.83 6.73 (1.97) 9.20 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income -- -- -- (0.02) (0.04) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 61.30 $ 59.84 $ 39.01 $ 32.28 $ 34.27 ========== ========== ========== ========== ========== TOTAL RETURN (a) 2.42% 53.40% 20.85% (5.74)% 36.63% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,976,793 $1,929,852 $ 557,882 $ 519,683 $ 589,480 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.54% 0.57% 0.60% 0.60% 0.66% Ratio of net expenses to average net assets 0.54% 0.57% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets (0.13)% (0.28)% (0.23)% (0.25)% 0.26% Portfolio turnover rate (b) 27% 17% 33% 18% 16%
FIRST TRUST CAPITAL STRENGTH EFT (FTCS) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 33.70 $ 25.16 $ 21.82 $ 22.90 $ 20.47 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.72 0.45 0.45 0.35 0.39 Net realized and unrealized gain (loss) 4.43 8.54 3.34 (1.01) 2.44 ---------- ---------- ---------- ---------- ---------- Total from investment operations 5.15 8.99 3.79 (0.66) 2.83 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.77) (0.45) (0.45) (0.42) (0.40) Return of capital -- -- -- -- (0.00) (c) ---------- ---------- ---------- ---------- ---------- Total distributions (0.77) (0.45) (0.45) (0.42) (0.40) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 38.08 $ 33.70 $ 25.16 $ 21.82 $ 22.90 ========== ========== ========== ========== ========== TOTAL RETURN (a) 15.46% 35.90% 17.45% (2.94)% 14.04% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 85,686 $ 65,706 $ 32,707 $ 31,643 $ 36,633 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.66% 0.76% 0.83% 0.82% 0.86% Ratio of net expenses to average net assets 0.65% 0.65% 0.65% 0.65% 0.65% Ratio of net investment income (loss) to average net assets 2.07% 1.59% 1.84% 1.51% 1.58% Portfolio turnover rate (b) 89% 156% 84% 114% 197%
(a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (b) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (c) Amount represents less than $0.01 per share. Page 60 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 25.80 $ 19.34 $ 18.16 $ 20.30 $ 17.21 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.27 0.21 0.34 0.21 0.29 Net realized and unrealized gain (loss) 0.34 6.47 1.24 (2.14) 3.09 ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.61 6.68 1.58 (1.93) 3.38 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.28) (0.22) (0.40) (0.21) (0.29) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 26.13 $ 25.80 $ 19.34 $ 18.16 $ 20.30 ========== ========== ========== ========== ========== TOTAL RETURN (a) 2.36% 34.65% 8.74% (9.56)% 19.85% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 5,225 $ 5,160 $ 3,868 $ 6,357 $ 7,106 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 3.17% 2.01% 1.85% 1.39% 1.35% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net investment income (loss) to average net assets 1.05% 0.91% 1.64% 1.05% 1.29% Portfolio turnover rate (b) 183% 186% 203% 184% 205%
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 21.36 $ 17.29 $ 16.01 $ 15.08 $ 13.37 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.58 0.50 0.50 0.42 0.41 (c) Net realized and unrealized gain (loss) 2.78 4.06 1.28 0.93 1.71 ---------- ---------- ---------- ---------- ---------- Total from investment operations 3.36 4.56 1.78 1.35 2.12 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.59) (0.49) (0.50) (0.42) (0.40) Return of capital -- -- -- -- (0.01) ---------- ---------- ---------- ---------- ---------- Total distributions (0.59) (0.49) (0.50) (0.42) (0.41) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 24.13 $ 21.36 $ 17.29 $ 16.01 $ 15.08 ========== ========== ========== ========== ========== TOTAL RETURN (a) 15.94% 26.57% 11.17% 9.03% 16.08% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,089,299 $ 796,361 $ 508,103 $ 366,399 $ 218,510 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.75% 0.76% 0.78% 0.79% 0.84% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net investment income (loss) to average net assets 2.63% 2.57% 3.03% 2.84% 2.94% Portfolio turnover rate (b) 63% 71% 54% 53% 55%
(a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (b) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (c) Per share amounts have been calculated using the average share method. See Notes to Financial Statements Page 61 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 18.44 $ 13.27 $ 12.37 $ 13.52 10.44 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.11 0.06 0.15 0.08 0.00 (a) Net realized and unrealized gain (loss) 1.98 5.17 0.90 (1.15) 3.08 ---------- ---------- ---------- ---------- ---------- Total from investment operations 2.09 5.23 1.05 (1.07) 3.08 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.12) (0.06) (0.15) (0.08) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 20.41 $ 18.44 $ 13.27 $ 12.37 $ 13.52 ========== ========== ========== ========== ========== TOTAL RETURN (b) 11.33% 39.44% 8.53% (7.92)% 29.50% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 60,008 $ 56,058 $ 45,635 $ 55,543 $ 88,431 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.84% 0.87% 0.87% 0.82% 0.87% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net investment income (loss) to average net assets 0.57% 0.35% 1.03% 0.47% 0.01% Portfolio turnover rate (c) 325% 350% 304% 202% 266%
(a) Amount represents less than $0.01 per share. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. Page 62 See Notes to Financial Statements -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 1. ORGANIZATION First Trust Exchange-Traded Fund (the "Trust") is an open-end management investment company organized as a Massachusetts business trust on August 8, 2003, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust currently consists of nineteen exchange-traded funds. This report covers the nine funds listed below: First Trust Dow Jones Select MicroCap Index Fund - (NYSE Arca, Inc. ("NYSE Arca") ticker "FDM") First Trust Morningstar Dividend Leaders Index Fund - (NYSE Arca ticker "FDL") First Trust US IPO Index Fund - (NYSE Arca ticker "FPX") First Trust NYSE Arca Biotechnology Index Fund - (NYSE Arca ticker "FBT") First Trust Dow Jones Internet Index Fund - (NYSE Arca ticker "FDN") First Trust Capital Strength ETF - (The NASDAQ(R) Stock Market, LLC ("NASDAQ") ticker "FTCS") First Trust Value Line(R) Equity Allocation Index Fund - (NYSE Arca ticker "FVI")(1) First Trust Value Line(R) Dividend Index Fund - (NYSE Arca ticker "FVD") First Trust Value Line(R) 100 Exchange-Traded Fund - (NYSE Arca ticker "FVL") (1) Effective January 9, 2015, First Trust Value Line(R) Equity Allocation Index Fund changed its name and ticker symbol to First Trust Total US Market AlphaDEX(R) ETF (NASDAQ ticker "TUSA") Each fund represents a separate series of shares of beneficial interest in the Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value ("NAV"), only in large specified blocks consisting of 50,000 shares called a "Creation Unit." Creation Units are issued and redeemed principally in-kind for securities included in a Fund's relevant index. Except when aggregated in Creation Units, shares are not redeemable securities of a Fund. The investment objective of each Fund is to seek investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of the following indices:
FUND INDEX First Trust Dow Jones Select MicroCap Index Fund Dow Jones Select MicroCap Index(SM) First Trust Morningstar Dividend Leaders Index Fund Morningstar(R) Dividend Leaders Index(SM) First Trust US IPO Index Fund IPOX(R)-100 U.S. Index First Trust NYSE Arca Biotechnology Index Fund NYSE Arca Biotechnology Index(SM) First Trust Dow Jones Internet Index Fund Dow Jones Internet Composite Index(SM) First Trust Capital Strength ETF The Capital Strength Index(TM) First Trust Value Line(R) Equity Allocation Index Fund Value Line(R) Equity Allocation Index First Trust Value Line(R) Dividend Index Fund Value Line(R) Dividend Index(TM) First Trust Value Line(R) 100 Exchange-Traded Fund Value Line(R) 100 Index
2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. PORTFOLIO VALUATION Each Fund's NAV is determined daily as of the close of regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. The NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding. Each Fund's investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent last sale or official closing prices from a national or foreign exchange (i.e. a regulated market) and are primarily obtained from third party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third party pricing service or are determined by the Pricing Committee of the Fund's investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor") in accordance with valuation procedures adopted by the Trust's Board of Trustees, and in accordance with provisions of the 1940 Act. Investments valued by the Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund's investments will be valued as follows: Page 63 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 Common stocks and other equity securities listed on any national or foreign exchange (excluding NASDAQ and the London Stock Exchange Alternative Investment Market ("AIM")) are valued at the last sale price on the exchange on which they are principally traded or, for NASDAQ and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the principal market for such securities. Securities traded in an over-the-counter market are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. Repurchase agreements will be fair valued as follows: Overnight repurchase agreements will be fair valued at cost. Term repurchase agreements (i.e., those whose maturity exceeds seven days) will be fair valued by the Pricing Committee at the average of the bid quotations obtained daily from at least two recognized dealers. Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Trust's Board of Trustees or its delegate, the Advisor's Pricing Committee, at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund's NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, does not reflect the security's fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following: 1) the type of security; 2) the size of the holding; 3) the initial cost of the security; 4) transactions in comparable securities; 5) price quotes from dealers and/or pricing services; 6) relationships among various securities; 7) information obtained by contacting the issuer, analysts, or the appropriate stock exchange; 8) an analysis of the issuer's financial statements; and 9) the existence of merger proposals or tender offers that might affect the value of the security. In addition, differences between the prices used to calculate a Fund's NAV and the prices used by such Fund's corresponding index could result in a difference between the Fund's performance and the performance of its underlying index. The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows: o Level 1 - Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. o Level 2 - Level 2 inputs are observable inputs, either directly or indirectly, and include the following: o Quoted prices for similar investments in active markets. o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o Level 3 - Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the investment. Page 64 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund's investments as of December 31, 2014, is included with each Fund's Portfolio of Investments. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis. Distributions received from the Fund's investments in Master Limited Partnerships ("MLPs") generally are comprised of return of capital and investment income. The Fund records estimated return of capital and investment income based on historical information available from each MLP. These estimates may subsequently be revised based on information received from the MLPs after their tax reporting periods are concluded. Distributions received from a Fund's investments in real estate investment trust ("REITs") may be comprised of return of capital, capital gains and income. The actual character of the amounts received during the year is not known until after the REITs' fiscal year end. A Fund records the character of distributions received from REITs during the year based on estimates available. The characterization of distributions received by a Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude. C. OFFSETTING ON THE STATEMENTS OF ASSETS AND LIABILITIES Accounting Standards Update No. 2011-11 "Disclosures about Offsetting Assets and Liabilities" ("ASU 2011-11") requires entities to disclose both gross and net information about instruments and transactions eligible for offset on the Statements of Assets and Liabilities, and disclose instruments and transactions subject to master netting or similar agreements. These disclosure requirements are intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on a fund's financial position. In addition, Accounting Standards Update No. 2013-1 "Clarifying the Scope of Offsetting Assets and Liabilities" ("ASU 2013-1"), specifies exactly which transactions are subject to offsetting disclosures. The scope of the disclosure requirements is limited to derivative instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions. This disclosure, if applicable, is included within each Fund's Portfolio of Investments under the heading "Offsetting Assets and Liabilities." For financial reporting purposes, the Funds do not offset financial assets and financial liabilities that are subject to master netting arrangements ("MNAs") or similar agreements on the Statements of Assets and Liabilities. MNAs provide the right, in the event of default (including bankruptcy and insolvency) for the non-defaulting counterparty to liquidate the collateral and calculate the net exposure to the defaulting party or request additional collateral. D. REPURCHASE AGREEMENTS Repurchase agreements involve the purchase of securities subject to the seller's agreement to repurchase the securities at a mutually agreed upon date and price, under the terms of a Master Repurchase Agreement ("MRA"). During the term of a repurchase agreement, the value of the underlying securities held as collateral on behalf of a Fund, including accrued interest, is required to exceed the value of the repurchase agreement, including accrued interest. The underlying securities for all repurchase agreements are held at the Funds' custodian or designated sub-custodians under tri-party repurchase agreements. MRAs govern transactions between a Fund and select counterparties. The MRAs contain provisions for, among other things, initiation, income payments, events of default, and maintenance of collateral for repurchase agreements. If the seller defaults, a Fund could suffer a loss to the extent that the proceeds from the sale of the underlying securities and other collateral held by the Fund are less than the repurchase price and the Fund's costs associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer additional losses if a court determines that the Fund's interest in the collateral is not enforceable. While the Funds may invest in repurchase agreements, any repurchase agreements held by the Funds during the year ended December 31, 2014, were received as collateral for lending securities. E. SECURITIES LENDING The Funds may lend securities representing up to 33 1/3% of the value of their total assets to broker-dealers, banks and other institutions to generate additional income. When a Fund loans its portfolio securities, it will receive, at the inception of each loan, collateral equal to at least 102% (for domestic securities) or 105% (for international securities) of the market value of the loaned Page 65 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 securities. The collateral amount is valued at the beginning of each business day and is compared to the market value of the loaned securities from the prior business day to determine if additional collateral is required. If additional collateral is required, a request is sent to the borrower. Securities lending involves the risk that the Fund may lose money because the borrower of the Fund's loaned securities fails to return the securities in a timely manner or at all. The Fund could also lose money in the event of (i) a decline in the value of the collateral provided for the loaned securities, (ii) a decline in the value of any investments made with cash collateral or (iii) an increase in the value of the loaned securities if the borrower does not increase the collateral accordingly and the borrower fails to return the securities. These events could also trigger adverse tax consequences for the Funds. Under the Funds' Securities Lending Agency Agreement, the securities lending agent will generally bear the risk that a borrower may default on its obligation to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the Funds' securities lending agent and is responsible for executing the lending of the portfolio securities to creditworthy borrowers. The Funds, however, will be responsible for the risks associated with the investment of cash collateral. A Fund may lose money on its investment of cash collateral, which may affect its ability to repay the collateral to the borrower without the use of other Fund assets. Each Fund that engages in securities lending receives compensation (net of any rebate and securities lending agent fees) for lending its securities. Compensation can be in the form of fees received from the securities lending agent or dividends or interest earned from the investment of cash collateral. The dividend and interest earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At December 31, 2014, only FPX, FBT and FDN have securities in the securities lending program. During the year ended December 31, 2014, FPX, FBT and FDN participated in the securities lending program. In the event of a default by a borrower with respect to any loan, BBH will exercise any and all remedies provided under the applicable borrower agreement to make the Funds whole. These remedies include purchasing replacement securities by applying the collateral held from the defaulting broker against the purchase cost of the replacement securities. If, despite such efforts by BBH to exercise these remedies, a Fund sustains losses as a result of a borrower's default, BBH will indemnify the Fund by purchasing replacement securities at its own expense, or paying the Fund an amount equal to the market value of the replacement securities, subject to certain limitations which are set forth in detail in the Securities Lending Agency Agreement between the Trust on behalf of the Funds and BBH. F. DIVIDENDS AND DISTRIBUTION TO SHAREHOLDERS Dividends from net investment income of each Fund, if any, are declared and paid quarterly or as the Board of Trustees may determine from time to time. Distributions of net realized gains earned by each Fund, if any, are distributed at least annually. Distributions from income and capital gains are determined in accordance with income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Funds and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future. The tax character of distributions paid by each Fund during the fiscal year ended December 31, 2014 was as follows:
Distributions Distributions Distributions paid paid paid from Ordinary from Capital from Return Income Gains of Capital --------------- --------------- --------------- First Trust Dow Jones Select MicroCap Index Fund $ 512,148 $ -- $ -- First Trust Morningstar Dividend Leaders Index Fund 27,604,717 -- -- First Trust US IPO Index Fund 4,268,031 -- -- First Trust NYSE Arca Biotechnology Index Fund 1,076,820 -- -- First Trust Dow Jones Internet Index Fund -- -- -- First Trust Capital Strength ETF 1,680,216 -- -- First Trust Value Line(R) Equity Allocation Index Fund 55,881 -- -- First Trust Value Line(R) Dividend Index Fund 24,031,395 -- -- First Trust Value Line(R) 100 Exchange-Traded Fund 352,430 -- --
Page 66 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 The tax character of distributions paid by each Fund during the fiscal year ended December 31, 2013 was as follows:
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS PAID PAID PAID FROM FROM CAPITAL FROM RETURN ORDINARY INCOME GAINS OF CAPITAL --------------- --------------- --------------- First Trust Dow Jones Select MicroCap Index Fund $ 986,641 $ -- $ -- First Trust Morningstar Dividend Leaders Index Fund 22,580,041 -- -- First Trust US IPO Index Fund 957,120 -- -- First Trust NYSE Arca Biotechnology Index Fund -- -- -- First Trust Dow Jones Internet Index Fund -- -- -- First Trust Capital Strength ETF 684,781 -- -- First Trust Value Line(R) Equity Allocation Index Fund 43,260 -- -- First Trust Value Line(R) Dividend Index Fund 16,843,619 -- -- First Trust Value Line(R) 100 Exchange-Traded Fund 179,357 -- --
As of December 31, 2014, the components of distributable earnings on a tax basis for each Fund were as follows:
ACCUMULATED UNDISTRIBUTED CAPITAL AND NET UNREALIZED ORDINARY OTHER APPRECIATION INCOME GAIN (LOSS) (DEPRECIATION) --------------- --------------- --------------- First Trust Dow Jones Select MicroCap Index Fund $ 2,224 $ (18,913,890) $ 5,130,348 First Trust Morningstar Dividend Leaders Index Fund -- (39,357,614) 60,001,415 First Trust US IPO Index Fund 32,444 (13,766,060) 70,275,217 First Trust NYSE Arca Biotechnology Index Fund -- (12,830,204) 395,471,655 First Trust Dow Jones Internet Index Fund -- (23,906,942) 55,959,283 First Trust Capital Strength ETF -- (24,454,825) 10,704,402 First Trust Value Line(R) Equity Allocation Index Fund -- (5,064,831) 186,647 First Trust Value Line(R) Dividend Index Fund -- (38,999,328) 122,735,789 First Trust Value Line(R) 100 Exchange-Traded Fund -- (83,951,813) 2,209,874
G. INCOME TAXES Each Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund's taxable income exceeds the distributions from such taxable income for the calendar year. The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ending 2011, 2012, 2013 and 2014 remain open to federal and state audit. As of December 31, 2014, management has evaluated the application of these standards to the Funds, and has determined that no provision for income tax is required in the Funds' financial statements for uncertain tax positions. Under the Regulated Investment Company Modernization Act of 2010 (the "Act"), net capital losses arising in taxable years after December 22, 2010, may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for up to eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses. At December 31, 2014, the Funds had pre-enactment and post-enactment net capital losses for federal income tax purposes as shown in the following table. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to Fund shareholders. The Funds are subject to certain limitations, under U.S. tax rules, on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. Page 67 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014
CAPITAL LOSS CAPITAL LOSS CAPITAL LOSS CAPITAL LOSS POST- TOTAL AVAILABLE AVAILABLE AVAILABLE AVAILABLE ENACTMENT - CAPITAL THROUGH THROUGH THROUGH THROUGH NO LOSS 2015 2016 2017 2018 EXPIRATION AVAILABLE ------------ ------------ ------------ ------------ ----------- ----------- First Trust Dow Jones Select MicroCap Index Fund $ 910,503 $ 902,807 $ 3,227,616 $ 5,096,533 $ 8,776,431 $18,913,890 First Trust Morningstar Dividend Leaders Index Fund 198,670 14,962,284 16,831,977 473,435 6,891,248 39,357,614 First Trust US IPO Index Fund 740,683 2,682,788 1,127,563 65,058 9,149,968 13,766,060 First Trust NYSE Arca Biotechnology Index Fund -- 2,061,136 5,787,577 1,039,054 3,942,437 12,830,204 First Trust Dow Jones Internet Index Fund -- 6,295,170 1,163,966 -- 16,447,806 23,906,942 First Trust Capital Strength ETF 180,261 11,401,861 11,336,270 1,367,556 168,877 24,454,825 First Trust Value Line(R) Equity Allocation Index Fund 1,392,919 1,168,041 2,421,122 -- 82,749 5,064,831 First Trust Value Line(R) Dividend Index Fund -- 18,915,138 19,646,203 437,987 -- 38,999,328 First Trust Value Line(R) 100 Exchange-Traded Fund 1,905,072 47,805,834 29,477,928 -- 4,762,979 83,951,813
During the taxable year ended December 31, 2014, the following Funds utilized capital loss carryforwards in the following amounts:
PRE-ENACTMENT CAPITAL LOSS POST-ENACTMENT CAPITAL LOSS CARRYFORWARD UTILIZED CARRYFORWARD UTILIZED -------------------------- -------------------------- First Trust Dow Jones Select MicroCap Index Fund $ -- $ 3,882,825 First Trust NYSE Arca Biotechnology Index Fund -- 59,987,496 First Trust Dow Jones Internet Index Fund -- 2,392,511 First Trust Value Line(R) Equity Allocation Index Fund -- 368,963 First Trust Value Line(R) Dividend Index Fund 3,727,147 -- First Trust Value Line(R) 100 Exchange-Traded Fund -- 6,155,428 During the taxable year ended December 31, 2014, the following Fund capital loss carryforwards expired in the following amount: CAPITAL LOSS CARRYFORWARD EXPIRED -------------------------- First Trust Dow Jones Select MicroCap Index Fund $ 1,604,481 First Trust Morningstar Dividend Leaders Index Fund 202,279 First Trust US IPO Index Fund 303,759
In order to present paid-in capital and accumulated net realized gain (loss) on investments on the Statements of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Funds and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended December 31, 2014, the adjustments for each Fund were as follows:
ACCUMULATED ACCUMULATED NET NET INVESTMENT REALIZED GAIN (LOSS) PAID-IN INCOME (LOSS) ON INVESTMENTS CAPITAL --------------- --------------- --------------- First Trust Dow Jones Select MicroCap Index Fund $ 26,236 $ (3,932,420) $ 3,906,184 First Trust Morningstar Dividend Leaders Index Fund 324,707 (56,401,956) 56,077,249 First Trust US IPO Index Fund 2,571 (29,554,519) 29,551,948 First Trust NYSE Arca Biotechnology Index Fund 178,479 (249,336,725) 249,158,246 First Trust Dow Jones Internet Index Fund 2,429,166 (348,347,597) 345,918,431 First Trust Capital Strength ETF 89,394 (5,668,691) 5,579,297 First Trust Value Line(R) Equity Allocation Index Fund 1,148 (304,242) 303,094 First Trust Value Line(R) Dividend Index Fund 308,043 (89,756,540) 89,448,497 First Trust Value Line(R) 100 Exchange-Traded Fund 14,929 (580,955) 566,026
Page 68 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 H. EXPENSES Expenses that are directly related to one of the Funds are charged directly to the respective Fund. General expenses of the Trust are allocated to all the Funds based upon the net assets of each Fund. The Advisor has entered into licensing agreements with each of the following "Licensors" for the respective Funds:
FUND LICENSOR First Trust Dow Jones Select MicroCap Index Fund Dow Jones & Company, Inc. First Trust Morningstar Dividend Leaders Index Fund Morningstar, Inc. First Trust US IPO Index Fund IPOX Schuster LLC First Trust NYSE Arca Biotechnology Index Fund NYSE Euronext First Trust Dow Jones Internet Index Fund Dow Jones & Company, Inc. First Trust Capital Strength ETF The NASDAQ OMX Group, Inc. First Trust Value Line(R) Equity Allocation Index Fund Value Line Publishing, Inc.(R) First Trust Value Line(R) Dividend Index Fund Value Line Publishing, Inc.(R) First Trust Value Line(R)100 Exchange-Traded Fund Value Line Publishing, Inc.(R)
The respective license agreements allow for the use by First Trust of certain trademarks and trade names of the respective Licensors. The Funds are sub-licensees to the applicable license agreement. The respective Funds are required to pay licensing fees, which are shown on the Statements of Operations. I. ACCOUNTING PRONOUNCEMENT In June 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. A repurchase-to-maturity transaction is one where the repurchase agreement settles at the same time as the maturity of the transferred financial asset. These transactions, unlike other repurchase agreements, were accounted for as sales and purchases instead of being treated as secured borrowings. This ASU changes that accounting practice and treats all repurchase agreements as secured borrowings. The ASU additionally requires two new disclosures which are intended to: a) disclose information on transferred assets accounted for as sales in transactions that are economically similar to repurchase agreements, and b) provide increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The ASU impacts all entities that enter into repurchase-to-maturity transactions, entities that account for these transactions as a sale and a purchase, and entities that engage in repurchase agreements and securities lending transactions. The ASU is effective for financial statements with fiscal years beginning on or after December 15, 2014 and interim periods within those fiscal years. Management is evaluating the impact, if any, of this guidance on the Funds' financial statement disclosures. 3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in each Fund's portfolio, managing the Funds' business affairs and providing certain administrative services necessary for the management of the Funds. For these services, First Trust is entitled to receive monthly fees from each Fund calculated at the following annual rates: % OF AVERAGE DAILY NET ASSETS ---------------- First Trust Dow Jones Select MicroCap Index Fund 0.50% First Trust Morningstar Dividend Leaders Index Fund 0.30% First Trust US IPO Index Fund 0.40% First Trust NYSE Arca Biotechnology Index Fund 0.40% First Trust Dow Jones Internet Index Fund 0.40% First Trust Capital Strength ETF 0.50% First Trust Value Line(R) Equity Allocation Index Fund 0.50% First Trust Value Line(R) Dividend Index Fund 0.50% First Trust Value Line(R) 100 Exchange-Traded Fund 0.50% Page 69 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 The Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver and Recovery Agreement ("Recovery Agreement") in which the Advisor has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of each Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceed the below amount as a percentage of average daily net assets per year (the "Expense Cap"). The Expense Cap will be in effect until at least April 30, 2015. EXPENSE CAP ---------------- First Trust Dow Jones Select MicroCap Index Fund 0.60% First Trust Morningstar Dividend Leaders Index Fund 0.45% First Trust US IPO Index Fund 0.60% First Trust NYSE Arca Biotechnology Index Fund 0.60% First Trust Dow Jones Internet Index Fund 0.60% First Trust Capital Strength ETF 0.65% First Trust Value Line(R) Equity Allocation Index Fund 0.70% First Trust Value Line(R) Dividend Index Fund 0.70% First Trust Value Line(R) 100 Exchange-Traded Fund 0.70% Expenses reimbursed and fees waived by First Trust under the Recovery Agreement are subject to recovery by First Trust for up to three years from the date the fee was waived or expense was reimbursed, but no reimbursement payment will be made by a Fund if it results in the Fund exceeding an expense ratio equal to the Expense Cap in place at the time the expenses were reimbursed or fees were waived by First Trust. These amounts would be included in "Expenses previously waived or reimbursed" on the Statements of Operations. The advisory fee waivers and expense reimbursements for the year ended December 31, 2014 and the fees waived or expenses borne by the Advisor subject to recovery from each applicable Fund for the periods indicated were as follows:
Fees Waived or Expenses Borne by Advisor Subject to Recovery -------------------------------------------------------- ADVISORY YEAR YEAR YEAR FEE EXPENSE ENDED ENDED ENDED WAIVERS REIMBURSEMENT 12/31/2012 12/31/2013 12/31/2014 TOTAL ---------- ------------- ------------ ------------ ------------ ------------ First Trust Dow Jones Select MicroCap Index Fund $ 66,284 $ -- $ 79,603 $ 115,749 $ 66,284 $ 261,636 First Trust Morningstar Dividend Leaders Index Fund 273,147 -- 322,632 269,543 273,147 865,322 First Trust US IPO Index Fund 23,043 -- 76,150 70,526 23,043 169,719 First Trust NYSE Arca Biotechnology Index Fund -- -- -- -- -- -- First Trust Dow Jones Internet Index Fund -- -- -- -- -- -- First Trust Capital Strength ETF 4,069 -- 59,498 49,536 4,069 113,103 First Trust Value Line(R) Equity Allocation Index Fund 26,091 102,599 59,245 59,346 128,690 247,281 First Trust Value Line(R) Dividend Index Fund 408,933 -- 350,127 391,960 408,933 1,151,020 First Trust Value Line(R) 100 Exchange-Traded Fund 85,675 -- 88,774 81,246 85,675 255,695
The Trust has multiple service agreements with The Bank of New York Mellon ("BNYM"). Under the servicing agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for the Trust. As custodian, BNYM is responsible for custody of the Trust's assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of the Trust's securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for the Trust. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company. Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates ("Independent Trustees") is paid a fixed annual retainer that is allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund or is an index fund. Additionally, the Lead Independent Trustee and the Chairmen of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairmen rotate every three years. The officers and "Interested" Trustee receive no compensation from the Trust for acting in such capacities. Page 70 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 4. PURCHASES AND SALES OF SECURITIES For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
PURCHASES SALES --------------- --------------- First Trust Dow Jones Select MicroCap Index Fund $ 34,829,168 $ 34,761,724 First Trust Morningstar Dividend Leaders Index Fund 313,014,959 311,168,349 First Trust US IPO Index Fund 221,043,446 219,747,735 First Trust NYSE Arca Biotechnology Index Fund 843,642,230 819,286,078 First Trust Dow Jones Internet Index Fund 516,834,272 519,984,897 First Trust Capital Strength ETF 67,528,361 67,463,682 First Trust Value Line(R) Equity Allocation Index Fund 9,548,079 9,557,104 First Trust Value Line(R) Dividend Index Fund 565,821,039 565,071,367 First Trust Value Line(R) 100 Exchange-Traded Fund 192,657,308 192,553,046 For the year ended December 31, 2014, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows: PURCHASES SALES --------------- --------------- First Trust Dow Jones Select MicroCap Index Fund $ -- $ 38,817,640 First Trust Morningstar Dividend Leaders Index Fund 491,808,859 258,465,600 First Trust US IPO Index Fund 266,525,896 127,025,810 First Trust NYSE Arca Biotechnology Index Fund 1,216,581,030 580,925,562 First Trust Dow Jones Internet Index Fund 1,278,624,595 1,223,853,793 First Trust Capital Strength ETF 53,108,855 43,251,372 First Trust Value Line(R) Equity Allocation Index Fund 1,260,694 1,276,717 First Trust Value Line(R) Dividend Index Fund 720,677,479 541,597,412 First Trust Value Line(R) 100 Exchange-Traded Fund 8,781,915 10,465,129
5. CREATION, REDEMPTION & TRANSACTION FEES Shares are created and redeemed by each Fund only in Creation Unit size aggregations of 50,000 shares. Such transactions are generally permitted on an in-kind basis, with a balancing cash component to equate the transaction to the daily NAV per Share of each Fund on the transaction date times the number of Shares in a Creation Unit. Purchasers of Creation Units must pay to BNYM, as transfer agent, a standard creation transaction fee (the "Creation Transaction Fee"), which is based on the number of different securities in a Creation Unit of each Fund according to the fee schedule set forth below: NUMBER OF SECURITIES CREATION IN A CREATION UNIT TRANSACTION FEE ---------------------- ----------------- 1-100 $ 500 101-200 $1,000 201-300 $1,500 301-400 $2,000 401-500 $2,500 501-600 $3,000 601-700 $3,500 The Creation Transaction Fee is applicable to each purchase transaction regardless of the number of Creation Units purchased in the transaction. An additional variable fee of up to three times the Creation Transaction Fee may be charged to approximate additional expenses incurred by a Fund with respect to transactions effected outside of the clearing process (i.e., through a DTC Participant) or to the extent that cash is used in lieu of securities to purchase Creation Units. The price for each Creation Unit will equal the daily NAV per Share of a Fund on the transaction date times the number of Shares in a Creation Unit plus the fees described above and, if applicable, any transfer taxes. Page 71 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 Parties redeeming Creation Units must pay to BNYM, as transfer agent, a standard redemption transaction fee (the "Redemption Transaction Fee"), which is based on the number of different securities in a Creation Unit of each Fund according to the fee schedule set forth below: NUMBER OF SECURITIES REDEMPTION IN A CREATION UNIT TRANSACTION FEE ---------------------- ----------------- 1-100 $ 500 101-200 $1,000 201-300 $1,500 301-400 $2,000 401-500 $2,500 501-600 $3,000 601-700 $3,500 The Redemption Transaction Fee is applicable to each redemption transaction regardless of the number of Creation Units redeemed in the transaction. An additional variable fee of up to three times the Redemption Transaction Fee may be charged to approximate additional expenses incurred by a Fund with respect to redemptions effected outside of the clearing process or to the extent that redemptions are for cash. Each Fund reserves the right to effect redemptions in cash. A shareholder may request cash redemption in lieu of securities; however, a Fund may, in its discretion, reject any such request. 6. DISTRIBUTION PLAN The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services. No 12b-1 fees are currently paid by the Funds, and pursuant to contractual arrangements, no 12b-1 fees will be paid any time before April 30, 2015 (April 30, 2016 for First Trust Total US Market AlphaDEX(R) ETF (TUSA)). 7. INDEMNIFICATION The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust's maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 8. SUBSEQUENT EVENTS Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued, and has determined that there was the following subsequent event: Effective January 9, 2015, the First Trust Value Line(R) Equity Allocation Index Fund changed its name to First Trust Total US Market AlphaDEX(R) ETF and began trading under its new ticker symbol "TUSA" on the NASDAQ. Page 72 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST EXCHANGE-TRADED FUND: We have audited the accompanying statements of assets and liabilities of First Trust Dow Jones Select MicroCap Index Fund, First Trust Morningstar Dividend Leaders Index Fund, First Trust US IPO Index Fund, First Trust NYSE Arca Biotechnology Index Fund, First Trust Dow Jones Internet Index Fund, First Trust Capital Strength ETF, First Trust Value Line(R) Equity Allocation Index Fund, First Trust Value Line(R) Dividend Index Fund, and First Trust Value Line(R) 100 Exchange-Traded Fund (collectively, the "Funds"), each a series of the First Trust Exchange-Traded Fund (the "Trust"), including the portfolios of investments, as of December 31, 2014, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014 by correspondence with the Trust's custodian and brokers; where replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds listed above included in the First Trust Exchange-Traded Fund, as of December 31, 2014, and the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Chicago, Illinois February 25, 2015 Page 73 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 (UNAUDITED) PROXY VOTING POLICIES AND PROCEDURES A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how each Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Fund's website located at http://www.ftportfolios.com; and (3) on the Securities and Exchange Commission's ("SEC") website at http://www.sec.gov. PORTFOLIO HOLDINGS The Trust files its complete schedule of each Fund's portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Trust's Forms N-Q are available (1) by calling (800) 988-5891; (2) on the Fund's website located at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov; and (4) for review and copying at the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding the operation of the PRR may be obtained by calling (800) SEC-0330. FEDERAL TAX INFORMATION For the taxable year ended December 31, 2014, the following percentages of income dividends paid by the Funds qualify for the dividends received deduction available to corporations:
Dividends Received Deduction ------------------------------ First Trust Dow Jones Select MicroCap Index Fund 100.00% First Trust Morningstar Dividend Leaders Index Fund 100.00% First Trust US IPO Index Fund 100.00% First Trust NYSE Arca Biotechnology Index Fund 100.00% First Trust Dow Jones Internet Index Fund -- First Trust Capital Strength ETF 100.00% First Trust Value Line(R) Equity Allocation Index Fund 100.00% First Trust Value Line(R) Dividend Index Fund 93.76% First Trust Value Line(R) 100 Exchange-Traded Fund 100.00%
For the taxable year ended December 31, 2014, the following percentages of income dividends paid by the Funds is hereby designated as qualified dividend income:
Qualified Dividend Income ------------------------------ First Trust Dow Jones Select MicroCap Index Fund 100.00% First Trust Morningstar Dividend Leaders Index Fund 100.00% First Trust US IPO Index Fund 100.00% First Trust NYSE Arca Biotechnology Index Fund 100.00% First Trust Dow Jones Internet Index Fund -- First Trust Capital Strength ETF 100.00% First Trust Value Line(R) Equity Allocation Index Fund 100.00% First Trust Value Line(R) Dividend Index Fund 100.00% First Trust Value Line(R) 100 Exchange-Traded Fund 100.00%
RISK CONSIDERATIONS RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT HTTP://WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND. FOR ADDITIONAL INFORMATION ABOUT THE RISKS ASSOCIATED WITH INVESTING IN THE FUNDS, PLEASE SEE THE FUNDS' STATEMENT OF ADDITIONAL INFORMATION, AS WELL AS OTHER REGULATORY FILINGS. READ THESE DOCUMENTS CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS --THE DISTRIBUTOR OF THE FIRST TRUST EXCHANGE-TRADED FUND. The following summarizes some of the risks that should be considered for the Funds. Each Fund's shares will change in value, and you could lose money by investing in a Fund. Shares are subject to market fluctuations caused by such factors as economic, political, regulatory or market developments, changes in interest rates and perceived trends in stock prices. Overall stock values could decline generally or could underperform other investments. Overall stock market values could decline generally or could underperform other investments. Page 74 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 (UNAUDITED) An investment in a Fund involves risks similar to those of investing in any fund of equity securities traded on an exchange. Investors buying or selling Fund shares on the secondary market may incur brokerage commissions. In addition, investors who sell Fund shares may receive less than the Fund shares' net asset value. Unlike shares of open-end funds, investors are generally not able to purchase exchange-traded fund ("ETF") shares directly from a Fund and individual ETF shares are not redeemable. However, specified large blocks of ETF shares called creation units can be purchased from, or redeemed to, a Fund. Each Fund is subject to index tracking risk. You should anticipate that the value of Fund shares will decline, more or less, in correlation with any decline in the value of the index that the Fund seeks to track. Each Fund's return may not match the return of the index it seeks to track for a number of reasons. While First Trust seeks to have a correlation of 0.95 or better, before expenses, between a Fund's performance and the performance of its corresponding index, there can be no assurance that a Fund will be able to achieve such a correlation. Accordingly, each Fund's performance may correlate to a lesser extent and may possibly vary substantially from the performance of its corresponding index. Each Fund is also exposed to additional market risk due to a policy of investing principally in the securities included in its corresponding index. As a result of such policies, securities held by each Fund will generally not be bought or sold in response to market fluctuations and the securities may be issued by companies concentrated in a particular industry. As a result, each Fund will generally not sell a stock because the stock's issuer is in financial trouble, unless that stock is removed or is anticipated to be removed from the index the Fund seeks to track. Each Fund relies on a license from an index provider that permits the Fund to use its corresponding index and associated trade names and trademarks in connection with the name and investment strategies of the Fund. Such licenses may be terminated by the respective index provider and, as a result, each Fund may lose its ability to use such intellectual property. There is also no guarantee that the index provider has all rights to license the respective intellectual property to First Trust, on behalf of the Fund. Accordingly, in the event the license is terminated or the index provider does not have rights to license the particular intellectual property, it may have a significant effect on the operation of the related Fund. Each Fund is subject to issuer specific changes risk. The value of an individual security or a particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole. Each Fund will be concentrated in the securities of companies of a given industry if the Fund's corresponding index is concentrated in such industry. A concentration makes a Fund more susceptible to any single occurrence affecting the related industry and may subject a Fund to greater market risk than less concentrated funds. With the exception of First Trust Dow Jones Select MicroCap Index Fund, First Trust Value Line(R) Dividend Index Fund, First Trust Value Line(R) Equity Allocation Index Fund and First Trust Value Line(R) 100 Exchange-Traded Fund, each Fund is considered to be non-diversified. As a result, those Funds are exposed to additional market risk. A non-diversified fund may invest a relatively high percentage of its assets in a limited number of issuers. As a result, changes in the market value of a single portfolio security could cause greater fluctuations in share price than would occur in a diversified fund. Furthermore, non-diversified funds are more susceptible to any single political, regulatory or economic occurrence. The Funds are not actively managed. The Funds may be affected by a general decline in certain market segments relating to their corresponding index. The Funds invests in securities included in or representative of their corresponding index regardless of their investment merit. The Funds generally will not attempt to take defensive positions in declining markets. The First Trust Dow Jones Select MicroCap Index Fund invests in micro-capitalization companies. Such companies may be more vulnerable to adverse general market or economic developments, may be less liquid, and may experience greater price volatility than larger, more established companies. The First Trust Dow Jones Internet Index Fund invests in stocks of companies in the technology sector. You should be aware that an investment in a portfolio which invests in a particular sector involves additional risks, including limited diversification. The companies engaged in the technology sector are subject to fierce competition and high research and development costs, and their products and services may be subject to rapid obsolescence. The First Trust NYSE Arca Biotechnology Index Fund is concentrated in stocks of companies in the biotechnology sector. You should be aware that an investment in a portfolio which is concentrated in a particular sector involves additional risks, including limited diversification. The companies engaged in the biotechnology sector are subject to fierce competition, substantial research and development costs, governmental regulations and pricing constraints, and their products and services may be subject to rapid obsolescence. Page 75 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 (UNAUDITED) The First Trust NYSE Arca Biotechnology Index Fund and First Trust Capital Strength ETF invest in the securities of companies in the health care sector. Because companies in the health care sector are involved in medical services or health care including biotechnology research and production, drugs and pharmaceuticals and health care facilities and services, general problems of these companies include extensive competition, generic drug sales or the loss of patent protection, product liability litigation and increased government regulations. The First Trust US IPO Index Fund invests in companies that have recently conducted an initial public offering. The stocks of such companies are often subject to extreme price volatility and speculative trading. The First Trust Value Line(R) Equity Allocation Index Fund and First Trust Dow Jones Select Micro Cap Index Fund invest in securities of companies in the financials sector. Banks, thrifts and their holding companies are especially subject to the adverse effects of economic recession; volatile interest rates; portfolio concentrations in geographic markets and in commercial and residential real estate loans; and competition from new entrants in their fields of business. Although recently enacted legislation repealed most of the barriers which separated the banking, insurance and securities industries, these industries are still extensively regulated at both the federal and state level and may be adversely affected by increased regulations. The downturn in the U.S. and world economies has adversely affected banks, thrifts and other companies in the financials sector. The First Trust Dow Jones Internet Index Fund invests in securities of companies in the information technology industry. Information technology companies are generally subject to the risks of rapidly changing technologies; short product life cycles; fierce competition; and aggressive pricing and reduced profit margins. The First Trust US IPO Index Fund, First Trust Value Line(R) 100 Exchange Traded Fund and First Trust Dow Jones Internet Index Fund invest in the securities of companies in the consumer discretionary sector. Because companies in the consumer discretionary sector manufacture products and provide discretionary services directly to the consumer, the success of these companies is tied closely to the performance of the overall domestic and international economy, interest rates, competition and consumer confidence. Success depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer discretionary products in the marketplace. The First Trust Morningstar Dividend Leaders Index Fund and First Trust Value Line(R) Dividend Index Fund invest in the securities of utilities companies. Utilities companies are subject to the imposition of rate caps, increased competition due to deregulation, the difficulty in obtaining an adequate return on invested capital or in financing large construction projects, the limitations on operations and increased costs and delays attributable to environmental considerations, and the capital market's ability to absorb utility debt. In addition, taxes, government regulation, international politics, price and supply fluctuations, volatile interest rates and energy conservation may cause difficulties for utilities. Utilities issuers have been experiencing certain of these problems to varying degrees. The First Trust Dow Jones Internet Index Fund invests in the securities of Internet companies. Internet companies are subject to rapid changes in technology, worldwide competition, rapid obsolescence of products and services, loss of patent protections, cyclical market patterns, evolving industry standards and frequent new product introductions. The Fund's investment in Internet companies may also be subject to the risk of owning small capitalization companies that have recently begun operations. With the exception of First Trust Capital Strength ETF and First Trust Dow Jones Select MicroCap Index Fund, the Funds may invest in small capitalization and mid-capitalization companies. Such companies' securities may be less liquid and may experience greater price volatility than securities of larger, more established companies. Because a Fund's corresponding index may include American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") and/or stocks of non-U.S. companies, the investments of certain Funds, including but not limited to, the First Trust Value Line(R) 100 Exchange-Traded Fund, involves risks of investing in non-U.S. securities that are in addition to the risk associated with domestic securities. Non-U.S. companies, in general, are not subject to the regulatory requirements of U.S. companies and, as such, there may be less publicly available information about these companies. Moreover, non-U.S. accounting, auditing and financial reporting standards generally are different from those applicable to U.S. companies. In addition, non-U.S. companies are exposed to additional economic, political, social or diplomatic events. ADRs and ADSs also involve substantially identical risks to those associated with investments in non-U.S. securities. In addition, the issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts, or to pass through to them any voting rights with respect to the deposited securities. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE Page 76 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 (UNAUDITED) The Trust's statement of additional information includes additional information about the Trustees and is available, without charge, upon request, by calling (800) 988-5891.
NUMBER OF OTHER PORTFOLIOS IN TRUSTEESHIPS OR THE FIRST TRUST DIRECTORSHIPS NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE DATE OF BIRTH AND AND YEAR FIRST PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST POSITION WITH THE TRUST ELECTED OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton Orthopedics; 114 None c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate 120 East Liberty Drive, o Since Inception Limited Partnership; Member, Sportmed LLC Suite 400 Wheaton, IL 60187 D.O.B.: 04/51 Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), Senior 114 Director of ADM c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services, 120 East Liberty Drive, o Since Inception (May 2007 to March 2010), ADM Investor Inc., and ADM Suite 400 Services, Inc. (Futures Commission Investor Services, Wheaton, IL 60187 Merchant) International and D.O.B.: 11/57 Futures Industry Association Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 114 Director of Trust c/o First Trust Advisors L.P. Enterprises (Financial and Management Company of 120 East Liberty Drive, o Since Inception Consulting) Illinois Suite 400 Wheaton, IL 60187 D.O.B.: 11/56 Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating 114 Director of c/o First Trust Advisors L.P. Officer (January 2015 to Present),Pelita Covenant 120 East Liberty Drive, o Since Inception Harapan Educational Foundation(Educational Transport, Inc. Suite 400 Products and Services); President and Chief (May 2003 to Wheaton, IL 60187 Executive Officer (June 2012 to September May 2014) D.O.B.: 03/54 2014), Servant Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Dew Learning LLC (Educational Products and Services); President (June 2002 to June 2012), Covenant College ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer (December 2010 to 114 None Chairman of the Board Present), President (until December 2010), 120 East Liberty Drive, o Since Inception First Trust Advisors L.P. and First Trust Suite 400 Portfolios L.P.; Chairman of the Board of Wheaton, IL 60187 Directors, BondWave LLC (Software D.O.B.: 09/55 Development Company/Investment Advisor and Stonebridge Advisors LLC (Investment Advisor)
------------------- (1) Mr. Bowen is deemed an "interested person" of the Trust due to his position as Chief Executive Officer of First Trust Advisors L.P., investment advisor of the Trust. Page 77 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 (UNAUDITED)
POSITION AND TERM OF OFFICE NAME, ADDRESS OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS AND DATE OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS(2) ------------------------------------------------------------------------------------------------------------------------------------ Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present) 120 E. Liberty Drive, Executive Officer and Chief Financial Officer, First Trust Advisors Suite 400 o Since January 2012 L.P. and First Trust Portfolios L.P.; Chief Financial Wheaton, IL 60187 Officer, BondWave LLC (Software Development D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge Advisors LLC (Investment Advisor) James M. Dykas Treasurer, Chief o Indefinite Term Controller (January 2011 to Present), Senior Vice 120 E. Liberty Drive, Financial Officer and President (April 2007 to Present), First Trust Suite 400 Chief Accounting Officer o Since January 2012 Advisors L.P. and First Trust Portfolios L.P. Wheaton, IL 60187 D.O.B.: 01/66 W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First 120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General Counsel, Suite 400 o Since Inception BondWave LLC (Software Development Company/ Wheaton, IL 60187 Investment Advisor); Secretary of Stonebridge D.O.B.: 05/60 Advisors LLC (Investment Advisor) Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present), Senior 120 E. Liberty Drive, Vice President (September 2005 to July 2012), Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios Wheaton, IL 60187 L.P. D.O.B.: 02/70 Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors 120 E. Liberty Drive, and Assistant Secretary L.P. and First Trust Portfolios L.P. Suite 400 o Chief Compliance Wheaton, IL 60187 Officer since D.O.B.: 12/66 January 2011 o Assistant Secretary since Inception Roger F. Testin Vice President o Indefinite Term Senior Vice President, (November 2003 to Present), 120 E. Liberty Drive, Vice President (August 2001 to November 2003), Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios Wheaton, IL 60187 L.P. D.O.B.: 06/66 Stan Ueland Vice President o Indefinite Term Senior Vice President (September 2012 to Present), 120 E. Liberty Drive, Vice President (August 2005 to September 2012), Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios Wheaton, IL 60187 L.P. D.O.B.: 11/70
------------------- (2) The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. Page 78 -------------------------------------------------------------------------------- PRIVACY POLICY -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 (UNAUDITED) PRIVACY POLICY First Trust values our relationship with you and considers your privacy an important priority in maintaining that relationship. We are committed to protecting the security and confidentiality of your personal information. SOURCES OF INFORMATION We collect nonpublic personal information about you from the following sources: o Information we receive from you and your broker-dealer, investment advisor or financial representative through interviews, applications, agreements or other forms; o Information about your transactions with us, our affiliates or others; o Information we receive from your inquiries by mail, e-mail or telephone; and o Information we collect on our website through the use of "cookies". For example, we may identify the pages on our website that your browser requests or visits. INFORMATION COLLECTED The type of data we collect may include your name, address, social security number, age, financial status, assets, income, tax information, retirement and estate plan information, transaction history, account balance, payment history, investment objectives, marital status, family relationships and other personal information. DISCLOSURE OF INFORMATION We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. In addition to using this information to verify your identity (as required under law), the permitted uses may also include the disclosure of such information to unaffiliated companies for the following reasons: o In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as trustees, banks, financial representatives, proxy services, solicitors and printers. o We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your account from fraud). In addition, in order to alert you to our other financial products and services, we may share your personal information with affiliates of the Fund. PRIVACY ONLINE We allow third-party companies, including AddThis, to collect certain anonymous information when you visit our website. These companies may use non-personally identifiable information during your visits to this and other websites in order to provide advertisements about goods and services likely to be of greater interest to you. These companies typically use a cookie, third party web beacon or pixel tags, to collect this information. To learn more about this behavioral advertising practice, you can visit www.networkadvertising.org. CONFIDENTIALITY AND SECURITY With regard to our internal security procedures, we restrict access to your nonpublic personal information to those individuals who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information. POLICY UPDATES AND INQUIRIES As required by federal law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however, if we do change it, we will tell you promptly. For questions about our policy, or for additional copies of this notice, please go to www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors). Page 79 This page intentionally left blank. FIRST TRUST First Trust Exchange-Traded Fund INVESTMENT ADVISOR First Trust Advisors L.P. 120 East Liberty Drive, Suite 400 Wheaton, IL 60187 ADMINISTRATOR, CUSTODIAN, FUND ACCOUNTANT & TRANSFER AGENT The Bank of New York Mellon 101 Barclay Street New York, NY 10286 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP 111 S. Wacker Drive Chicago, IL 60606 LEGAL COUNSEL Chapman and Cutler LLP 111 W. Monroe Street Chicago, IL 60603 [BLANK BACK COVER] FIRST TRUST First Trust Exchange-Traded Fund Book 2 First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) First Trust NASDAQ-100-Technology Sector Index Fund (QTEC) First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT) First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN) First Trust S&P REIT Index Fund (FRI) First Trust ISE Water Index Fund (FIW) First Trust ISE-Revere Natural Gas Index Fund (FCG) First Trust ISE Chindia Index Fund (FNI) First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA) First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (VIXH) Annual Report December 31, 2014 -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 Shareholder Letter........................................................... 2 Market Overview.............................................................. 3 Fund Performance Overview First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)................... 4 First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)................ 6 First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)............. 8 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)........ 10 First Trust S&P REIT Index Fund (FRI)..................................... 12 First Trust ISE Water Index Fund (FIW).................................... 14 First Trust ISE-Revere Natural Gas Index Fund (FCG)....................... 16 First Trust ISE Chindia Index Fund (FNI).................................. 18 First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)................ 20 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (VIXH).............. 22 Notes to Fund Performance Overview........................................... 24 Understanding Your Fund Expenses............................................. 25 Portfolio of Investments First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)................... 27 First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)................ 30 First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)............. 31 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)........ 33 First Trust S&P REIT Index Fund (FRI)..................................... 36 First Trust ISE Water Index Fund (FIW).................................... 39 First Trust ISE-Revere Natural Gas Index Fund (FCG)....................... 40 First Trust ISE Chindia Index Fund (FNI).................................. 42 First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)................ 45 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (VIXH).............. 47 Statements of Assets and Liabilities......................................... 54 Statements of Operations..................................................... 56 Statements of Changes in Net Assets.......................................... 58 Financial Highlights......................................................... 62 Notes to Financial Statements................................................ 67 Report of Independent Registered Public Accounting Firm...................... 78 Additional Information ...................................................... 79 Board of Trustees and Officers............................................... 83 Privacy Policy............................................................... 85 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- CAUTION REGARDING FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. ("First Trust" or the "Advisor") and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as "anticipate," "estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or other words that convey uncertainty of future events or outcomes. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of any series of First Trust Exchange-Traded Fund (the "Trust") described in this report (each such series is referred to as a "Fund" and collectively, as the "Funds") to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof. PERFORMANCE AND RISK DISCLOSURE There is no assurance that any Fund described in this report will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in a Fund. See "Risk Considerations" in the Additional Information section of this report for a discussion of other risks of investing in the Funds. Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit http://www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost. HOW TO READ THIS REPORT This report contains information that may help you evaluate your investment. It includes details about each Fund's portfolio and presents data and analysis that provide insight into each Fund's performance and investment approach. By reading the market overview by Robert F. Carey, Chief Market Strategist, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund's performance compared to that of relevant market benchmarks. It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The risks of investing in each Fund are spelled out in its prospectus, statement of additional information, this report and other Fund regulatory filings. Page 1 -------------------------------------------------------------------------------- SHAREHOLDER LETTER -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL LETTER FROM THE CHAIRMAN AND CEO DECEMBER 31, 2014 Dear Shareholders: I am pleased to present you with the annual report for your investment in First Trust Exchange-Traded Fund (the "Trust"). This report provides detailed information about the Trust, including a performance review and the financial statements for the 12 months ended December 31, 2014. I encourage you to read this document and discuss it with your financial advisor. Although markets have seemed choppy over the past 12 months, the U.S. has shown sustained growth over the period. In fact, the S&P 500(R) Index, as measured on a total return basis, rose 13.69% in the time covered by this report. First Trust Advisors L.P. ("First Trust") believes that staying invested in quality products through different types of markets can benefit investors over the long term. First Trust is pleased to offer a variety of products that we believe could fit the financial plans for many investors seeking long-term investment success. We invite you to look at our investment products with your financial advisor to determine if any of them might fit your financial goals. We believe that regularly discussing your financial objectives and investment options with your financial advisor can help keep you on track. First Trust will continue to make available up-to-date information about your investments so you and your financial advisor are current on any First Trust investments you own. We value our relationship with you, and thank you for the opportunity to assist you in achieving your financial goals. Sincerely, /s/ James A. Bowen James A. Bowen Chairman of the Board of Trustees Chief Executive Officer of First Trust Advisors L.P. Page 2 -------------------------------------------------------------------------------- MARKET OVERVIEW -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL REPORT DECEMBER 31, 2014 ROBERT F. CAREY, CFA SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST FIRST TRUST ADVISORS L.P. Mr. Carey is responsible for the overall management of research and analysis of the First Trust product line. Mr. Carey has 24 years of experience as an Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial Analyst ("CFA") designation. He is a graduate of the University of Illinois at Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been quoted by several publications, including The Wall Street Journal, The Wall Street Reporter, Bloomberg News Service, and Registered Rep. STATE OF THE ECONOMY/INVESTING The current U.S. economic recovery is 66 months old (June 2009 - December 2014). From June 2009 - December 2014, GDP growth averaged 2.2%, according to the Bureau of Economic Analysis. Following what had been characterized as a weather-induced slowdown in the first quarter of 2014 (GDP was -2.1% annualized), the rate of GDP growth bounced back markedly in the second quarter (GDP was 4.6% annualized) and in the third quarter (GDP was 5.0% annualized). The U.S. GDP forecast for 2015 from the International Monetary Fund (IMF) calls for a 3.1% growth rate, which is stronger than the 2.2% growth rate posted so far in the current economic recovery. The last time U.S. GDP growth was 3.0% or higher was in 2005 (3.3%). The IMF sees the global economy growing by 3.8% in 2015. In 2014, the combination of a pickup in job growth (nonfarm payrolls) and GDP growth in the U.S. failed to ignite any meaningful inflationary pressures. Nonfarm payrolls grew by an average of 233,540 per month in 2014, up from an average of 195,770 in 2013 and 187,080 in 2012, according to data from the Bureau of Labor Statistics. At the beginning of the recovery in 2009, many economists stated that the U.S. would need to create roughly 250,000 new jobs per month to make a serious dent in unemployment. While the 233,540 average posted in 2014 falls a bit short of that demarcation line, the number of jobs created in each the last four months of the year did eclipse that mark. One of the areas of the U.S. economy to monitor in 2015 is manufacturing. While it has helped drive the U.S. economic recovery to date, one key indicator, capacity utilization, has yet to ascend to the levels maintained in 2006 and 2007, when it averaged 80.4% for the year, according to data from the Federal Reserve. Only once in this 66-month recovery has it topped 80%, and that was in November 2014. U.S. STOCKS AND BONDS In 2014, all of the major U.S. stock indices posted positive total returns. The S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index were up 13.69%, 9.77% and 5.76%, respectively, according to Bloomberg. All but one of the 10 major S&P 500(R) Index sectors posted positive total returns. The top-performing sector indices were the S&P 500(R) Utilities Index, S&P 500(R) Health Care Index and the S&P 500(R) Information Technology Index, up 28.98%, 25.34% and 20.12%, respectively. The only sector index down in 2014 was the S&P 500(R) Energy Index, which posted a total return of -7.79%. Volatility in the equities markets, which has been relatively subdued over the past couple of years, did spike a bit in the second half of 2014. The Chicago Board Options Exchange Market Volatility Index (the "VIX Index"),, which tracks the S&P 500(R) Index, rose from a reading of 11.57 on June 30, 2014 to 19.20 on December 31, 2014. Over the past 25 years, the VIX Index has averaged 19.97, according to data from Bloomberg. The estimated earnings growth rates for 2015 for the S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index were 12.19%, 29.78% and 30.90%, respectively, as of December 31, 2014, according to S&P Dow Jones Indices. We believe that corporate earnings drive the direction of stock prices over time, especially when the market is setting record highs. The all-time high (2090.57) for the S&P 500(R) Index was set on December 29, 2014. The potential for higher corporate earnings and GDP growth in 2015 are reasons to be optimistic, in our opinion. In the U.S. bond market, the top-performing major debt group in 2014 was municipal bonds. The Barclays Municipal Bond: Long Bond 22+ Index posted a total return of 15.39%. The next closest domestic category was mortgages, up 6.03%, as measured by the Barclays GNMA (30 Year) Index. Fixed-income securities benefited from the retrenchment in interest rates in 2014. The yield on the benchmark 10-Year Treasury note, which had spiked 127 basis points in 2013, declined by 86 basis points in 2014, from 3.03% to 2.17%. Investors should take note that many economists believe the Federal Reserve could begin raising interest rates in 2015, perhaps by midyear. FOREIGN STOCKS AND BONDS The U.S. dollar ("USD") rose 12.79% against a basket of major currencies in 2014, as measured by the U.S. Dollar Index. The entire move up came in the second half of the year. That strong of a move certainly had a major impact on the returns for those U.S. investors holding foreign securities. Foreign bond indices generated modest returns in 2014. The Barclays EM Hard Currency Aggregate Index of emerging markets debt posted a total return of 3.13% (USD), while the Barclays Global Aggregate Index of higher quality debt rose by 0.59% (USD). Foreign equities did not perform as well. The MSCI Emerging Markets Index of stocks posted a total return of -2.19% (USD), while the MSCI World Index (excluding the U.S.) posted a total return of -4.32% (USD). Page 3 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) The First Trust NASDAQ-100 Equal Weighted Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Equal Weighted Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is the equal-weighted version of the NASDAQ-100 Index(R) which includes 100 of the largest non-financial securities listed on the NASDAQ(R) based on market capitalization. The Index contains the same securities as the NASDAQ-100 Index(R), but each of the securities is initially set at a weight of 1.00% of the Index and is rebalanced quarterly. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was April 25, 2006.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (4/19/06) Ended (4/19/06) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 19.13% 17.68% 9.65% 125.73% 122.83% Market Value 19.21% 17.68% 9.66% 125.71% 123.03% INDEX PERFORMANCE NASDAQ-100 Equal Weighted Index(SM) 19.84% 18.43% 10.33% 132.96% 135.28% S&P 500(R) Index 13.69% 15.45% 7.61% 105.14% 89.24% NASDAQ-100 Index(R) 19.40% 19.23% 11.79% 140.97% 163.91% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 19.13% during the 12-month period covered by this report. During the same period, the NASDAQ-100 Index(R) ("benchmark") generated a return of 19.40%. The Information Technology sector was the top-contributing sector in the Fund with a 10.3% contribution. The Fund allocated 42.1% of its average weight to the sector, which returned 24.8%. Solid performance from the Health Care sector helped it be the second-best contributing sector with a 5.0% contribution to the Fund's return. The Fund's holdings in the sector returned 35.8% and comprised 14.3% of the Fund's average weight. The Biotechnology industry was the main driver of the Health Care sector's performance. Vertex Pharmaceuticals, Inc. (59.9% return), Regeneron Pharmaceuticals, Inc. (49.1%), and Amgen, Inc. (42.2%) boosted the performance of the Fund's Biotechnology holdings to 41.4%. The Telecommunications sector was a drag on the Fund's return. Due to the performance of VimpelCom Ltd. (-67.6%) and Vodafone Group Plc (-27.8%), the Fund's performance in the Telecommunications sector was -26.1%. However, the Fund's low average weight in the sector (2.9%) limited the damage and the sector only detracted -0.8% from the Fund's return. The Fund and its benchmark had very similar performance as the Fund is an equally weighted version of the benchmark. The Fund's relative performance was hindered by being underweight Apple, Inc. (40.6% return), but benefited from being underweight Amazon, Inc. (-22.1% return), Google, Inc., Class A (-4.9%) and Google, Inc. Class C (-5.7%). ------------------- NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), and NASDAQ-100 Equal Weighted Index(SM) are trademarks of The NASDAQ OMX Group, Inc. (which with its affiliates is referred to as the Corporations) and are licensed for use by First Trust on behalf of the Fund. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 4 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 41.81% Consumer Discretionary 27.49 Health Care 13.70 Industrials 7.06 Consumer Staples 5.95 Telecommunication Services 2.98 Materials 1.01 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Mattel, Inc. 1.06% American Airlines Group, Inc. 1.06 Express Scripts Holding Co. 1.05 Bed Bath & Beyond, Inc. 1.04 Ross Stores, Inc. 1.04 Amazon.com, Inc. 1.04 Whole Foods Market, Inc. 1.04 Starbucks Corp. 1.04 Staples, Inc. 1.04 Tractor Supply Co. 1.03 ------- Total 10.44% ======= Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance.
PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 19, 2006 - DECEMBER 31, 2014 First Trust NASDAQ-100 S&P 500(R) NASDAQ-100 Equal NASDAQ-100 Equal Weighted Index Fund Index Weighted Index(SM) Index(R) 04/06 $10,000 $10,000 $10,000 $10,000 12/06 10,060 10,975 10,097 10,168 06/07 11,050 11,739 11,117 11,217 12/07 11,040 11,579 11,142 12,124 06/08 9,673 10,199 9,785 10,708 12/08 6,187 7,295 6,292 7,084 06/09 7,653 7,526 7,803 8,671 12/09 9,871 9,225 10,100 10954 06/10 9,314 8,612 9,561 10,278 12/10 11,968 10,616 12,321 13,161 06/11 12,867 11,254 13,288 13,849 12/11 11,636 10,839 12,063 13,645 06/12 12,704 11,868 13,203 15,750 12/12 13,365 12,574 13,927 16,145 06/13 15,450 14,312 16,172 17,774 12/13 18,704 16,646 19,636 22,109 06/14 20,197 17,835 21,268 23,849 12/14 22,283 18,927 23,531 26,395
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 155 1 0 0 01/01/11 - 12/31/11 151 0 0 0 01/01/12 - 12/31/12 157 0 0 0 01/01/13 - 12/31/13 203 0 0 0 01/01/14 - 12/31/14 161 3 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 95 1 0 0 01/01/11 - 12/31/11 101 0 0 0 01/01/12 - 12/31/12 92 1 0 0 01/01/13 - 12/31/13 49 0 0 0 01/01/14 - 12/31/14 87 1 0 0 Page 5 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC) The First Trust NASDAQ-100-Technology Sector Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Technology Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equal-weighted index based on the securities of the NASDAQ-100 Index(R) that are classified as "technology" according to the Industry Classification Benchmark classification system. The NASDAQ-100 Index(R), includes 100 of the largest domestic and international non-financial companies listed on the NASDAQ(R) based on market capitalization. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was April 25, 2006.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (4/19/06) Ended (4/19/06) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 24.83% 16.44% 9.86% 114.01% 126.56% Market Value 24.87% 16.42% 9.87% 113.84% 126.82% INDEX PERFORMANCE NASDAQ-100 Technology Sector Index(SM) 25.64% 17.17% 10.55% 120.84% 139.34% S&P 500 Information Technology Index 20.12% 14.86% 9.49% 99.89% 120.10% S&P 500(R) Index 13.69% 15.45% 7.61% 105.14% 89.24% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 24.83% during the 12-month period covered by this report. During the same period, the S&P 500 Information Technology Index ("benchmark") generated a return of 20.12%. The Semiconductor industry was the heaviest-weighted, top-performing, and best-contributing industry in the Fund. The Fund's Semiconductor holdings comprised 34.5% of the Fund's weight and returned 34.3% resulting in an 11.6% contribution to return. The Internet Software & Services industry was the Fund's second best-contributing industry at 4.0%. The Fund's holdings in the industry returned 23.3% and comprised 16.1% of the Fund's average weight. Strong returns from Facebook, Inc., Class A (42.7%), Akamai Technologies, Inc. (33.4%), and Equinix, Inc. (32.7%) helped the industry's return. Relative to its benchmark, the Fund outperformed. The previously mentioned Semiconductor industry was the leading cause of outperformance, as the Fund was overweight the industry 34.5% vs. 12.0%. The Fund gained additional outperformance in the Internet Software & Services industry where the Fund's holdings returned 23.3% vs. 8.0% for the benchmark's constituents. Furthermore, the Fund's relative performance benefited from an underweight position (2.8% vs. 18.4% average weight) in the weak-performing IT Services industry. Some of the Fund's outperformance was reversed in the Technology Hardware Storage & Peripherals industry where the Fund underperformed (28.9% vs. 38.0% return) and was underweight (12.5% vs. 23.3% average weight). Most of the performance and weighting difference in the industry came from the Fund's underweight position in Apple, Inc. (2.6% vs. 17.4% average weight), which returned 40.6%. ------------------- NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), and NASDAQ-100 Technology Sector Index(SM) are trademarks of The NASDAQ OMX Group, Inc. (which with its affiliates is referred to as the Corporations) and are licensed for use by First Trust on behalf of the Fund. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 6 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 92.19% Health Care 5.25 Consumer Discretionary 2.56 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Catamaran Corp. 2.66% Micron Technology, Inc. 2.62 QUALCOMM, Inc. 2.62 Broadcom Corp., Class A 2.61 Citrix Systems, Inc. 2.61 KLA-Tencor Corp. 2.61 Xilinx, Inc. 2.60 Cerner Corp. 2.60 Avago Technologies Ltd. 2.59 Check Point Software Technologies Ltd. 2.59 ------- Total 26.11% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 19, 2006 - DECEMBER 31, 2014 First Trust NASDAQ-100 NASDAQ-100-Technology Technology Sector S&P 500 Information S&P 500(R) Sector Index Fund Index(SM) Technology Index Index 04/06 $10,000 $10,000 $10,000 $10,000 12/06 9,985 10,020 10,296 10,975 06/07 10,925 10,989 11,256 11,739 12/07 10,750 10,847 11,975 11,579 06/08 9,755 9,872 10,409 10,199 12/08 5,885 5,983 6,809 7,295 06/09 7,890 8,048 8,502 7,526 12/09 10,587 10,838 11,011 9,224 06/10 9,782 10,041 9,847 8,611 12/10 12,907 13,293 12,133 10,615 06/11 13,006 13,435 12,383 11,253 12/11 12,165 12,606 12,426 10,839 06/12 12,720 13,222 14,084 11,868 12/12 13,141 13,702 14,269 12,574 06/13 14,681 15,357 15,175 14,312 12/13 18,150 19,047 18,325 16,646 06/14 20,531 21,615 19,963 17,835 12/14 22,656 23,930 22,011 18,927
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 188 0 0 0 01/01/11 - 12/31/11 161 0 0 0 01/01/12 - 12/31/12 132 0 0 0 01/01/13 - 12/31/13 170 0 0 0 01/01/14 - 12/31/14 171 4 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 63 1 0 0 01/01/11 - 12/31/11 91 0 0 0 01/01/12 - 12/31/12 117 1 0 0 01/01/13 - 12/31/13 81 1 0 0 01/01/14 - 12/31/14 76 1 0 0 Page 7 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT) The First Trust NASDAQ-100 Ex-Technology Sector Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Ex-Tech Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index contains securities of the NASDAQ-100 Index(R) that are not classified as "technology" according to the Industry Classification Benchmark classification system and, as a result, is a subset of the NASDAQ-100 Index(R). The NASDAQ-100 Index(R) includes 100 of the largest domestic and international non-financial companies listed on the NASDAQ(R) based on market capitalization. The Index is equally-weighted and is rebalanced four times annually in March, June, September and December. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was February 15, 2007.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (2/8/07) Ended (2/8/07) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 15.35% 18.53% 9.65% 133.93% 106.97% Market Value 15.47% 18.56% 9.67% 134.30% 107.18% INDEX PERFORMANCE NASDAQ-100 Ex-Tech Sector Index(SM) 16.03% 19.28% 10.35% 141.41% 117.58% Russell 1000(R) Index 13.24% 15.64% 6.99% 106.79% 70.42% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 15.35% during the 12-month period covered by this report. During the same period, the Russell 1000(R) Index ("benchmark") generated a return of 13.24%. The Health Care sector was the top-contributing sector in the Fund with a contribution of 7.8%. The Fund's holdings from the sector returned 39.8% and comprised 20.6% of the Fund's average weight. Much of the sector's strong performance came from the Biotechnology industry where the Fund had a 12.1% average weight and received performance of 41.4%. The Consumer Discretionary sector was the Fund's second-best contributing sector with a contribution of 3.7%. The Fund's holdings in the sector had a below average return of 8.8%, but an average of 44.7% of the Fund's weight was allocated to Consumer Discretionary stocks. Relative to its benchmark, the Fund outperformed. The Health Care sector was the largest source of outperformance as the Fund was overweight the sector (20.6% vs. 13.3% average weight) and received outperformance (39.8% vs. 25.7% return) relative to the benchmark. Additional outperformance was gained by the Fund having no exposure to the weak-performing Energy sector. Some of the Fund's outperformance was reversed by the Fund being overweight the weak-performing Consumer Staples sector (44.7% vs. 12.6% average weight) relative to the benchmark. ------------------- NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), and NASDAQ-100 Ex-Tech Sector Index(SM) are trademarks of The NASDAQ OMX Group, Inc. (which with its affiliates is referred to as the Corporations) and are licensed for use by First Trust on behalf of the Fund. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 8 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR (1) LONG-TERM INVESTMENTS Consumer Discretionary 43.34% Health Care 19.08 Industrials 11.55 Information Technology 9.77 Consumer Staples 9.74 Telecommunication Services 4.87 Materials 1.65 ------- Total 100.00% ======= ------------------- (1) The above sector allocation is based on Standard & Poor's Global Industry Classification Standard ("GICS"), and is different than the industry sector classification system used by the Index to select securities, which is the Industry Classification Benchmark ("ICB") system, the joint classification system of Dow Jones Indexes and FTSE Group. ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Mattel, Inc. 1.74% American Airlines Group, Inc. 1.74 Express Scripts Holding Co. 1.72 Bed Bath & Beyond, Inc. 1.70 Ross Stores, Inc. 1.70 Amazon.com, Inc. 1.70 Whole Foods Market, Inc. 1.70 Starbucks Corp. 1.70 Staples, Inc. 1.69 Tractor Supply Co. 1.69 ------- Total 17.08% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT FEBRUARY 8, 2007 - DECEMBER 31, 2014 First Trust NASDAQ-100 Ex-Technology NASDAQ-100 Ex-Tech Russell 1000(R) Sector Index Fund Sector Index(SM) Index 02/07 $10,000 $10,000 $10,000 12/07 10,595 10,653 10,282 06/08 9,057 9,126 9,131 12/08 6,029 6,102 6,417 06/09 7,060 7,165 6,694 12/09 8,848 9,009 8,241 06/10 8,454 8,633 7,714 12/10 10,674 10,935 9,568 06/11 11,961 12,294 10,177 12/11 10,558 10,894 9,711 06/12 11,906 12,317 10,622 12/12 12,703 13,172 11,306 06/13 15,089 15,721 12,879 12/13 17,942 18,744 15,050 06/14 18,764 19,668 16,144 12/14 20,697 21,757 17,043
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 156 0 0 0 01/01/11 - 12/31/11 159 0 0 0 01/01/12 - 12/31/12 127 1 0 0 01/01/13 - 12/31/13 145 13 0 0 01/01/14 - 12/31/14 151 14 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 94 2 0 0 01/01/11 - 12/31/11 93 0 0 0 01/01/12 - 12/31/12 111 11 0 0 01/01/13 - 12/31/13 82 12 0 0 01/01/14 - 12/31/14 79 7 1 0 Page 9 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ(R) Clean Edge(R) Green Energy Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equity index designed to track the performance of clean energy companies that are publicly traded in the United States and includes companies engaged in manufacturing, development, distribution and installation of emerging clean-energy technologies including, but not limited to, solar photovoltaics, biofuels and advanced batteries. The Index is a modified market capitalization weighted index in which larger companies receive a larger Index weighting. The Index weighting methodology also includes caps to prevent high concentrations among larger alternative energy stocks. The Index is reconstituted semi-annually in March and September and rebalanced quarterly. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was February 14, 2007.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (2/8/07) Ended (2/8/07) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV -3.05% 1.89% -1.56% 9.81% -11.66% Market Value -3.05% 1.89% -1.56% 9.82% -11.65% INDEX PERFORMANCE NASDAQ(R) Clean Edge(R) Green Energy Index(SM) -3.13% 1.93% -1.28% 10.02% -9.64% Russell 2000(R) Index 4.89% 15.55% 6.51% 105.95% 64.55% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of -3.05% during the 12-month period covered by this report. During the same period, the Russell 2000(R) Index ("benchmark") generated a return of 4.89%. In general companies involved in solar power were down sharply during the year. Lower demand from China caused major solar providers to cut forward-looking guidance. Most of the Fund's solar holdings are grouped in the Semiconductor industry as part of the Information Technology sector, or in the Electrical Equipment industry as part of the Industrials sector. The Semiconductor industry comprised 56.2% of the Fund's average weight and returned -6.3% resulting in a -3.5% contribution to the Fund's return. The Fund's holdings in the Electrical Equipment industry returned -11.1% and comprised 10.0% of the Fund's average weight resulting in a contribution to return of -1.9%. Real Goods Solar, Inc., Rene Sola Ltd. and Yingli Green Energy Holdings were examples of poor-performing solar companies as they returned -60.6%, -59.1% and -53.4%, respectively, while held in the Fund this reporting period. Tesla Motors, Inc. was a bright spot in the Fund as the company returned 47.9% and had an average weight in the Fund of 8.8%. Relative to its benchmark, the Fund underperformed. The majority of the underperformance came from the previously mentioned Semiconductor and Electrical Equipment industries. In the Electrical Equipment industry, the Fund was hurt mostly by being overweight the weak-performing industry. In the Semiconductor industry, the Fund was overweight, but was hurt most by poor performance. The Semiconductor industry in general had a strong year, but the Fund's focus on solar companies dragged its performance in the industry down to -6.3% vs. 36.6% for the benchmark. ------------------- NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The NASDAQ OMX Group, Inc. ("NASDAQ OMX") and Clean Edge, Inc. ("Clean Edge(R)") respectively. NASDAQ OMX and Clean Edge(R) are, collectively with their affiliates, the "Corporations." The Marks are licensed for use by First Trust on behalf of the Fund. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. The Fund should not be construed in any way as investment advice by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 10 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 61.61% Industrials 17.08 Utilities 10.12 Consumer Discretionary 7.47 Energy 3.10 Financials 0.62 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS ITC Holdings Corp. 8.30% Linear Technology Corp. 8.13 Tesla Motors, Inc. 7.47 SunEdison, Inc. 6.97 SolarCity Corp. 6.77 ON Semiconductor Corp. 4.61 Microsemi Corp. 4.26 Hexcel Corp. 3.94 SunPower Corp. 3.77 First Solar, Inc. 3.75 ------- Total 57.97% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT FEBRUARY 8, 2007 - DECEMBER 31, 2014 First Trust NASDAQ(R) NASDAQ(R) Clean Clean Edge(R) Green Edge(R) Green Energy Russell 2000(R) Energy Index Fund Index(SM) Index 02/07 $10,000 $10,000 $10,000 12/07 15,430 15,522 9,489 06/08 12,350 12,472 8,599 12/08 5,595 5,675 6,283 06/09 6,920 7,038 6,449 12/09 8,045 8,213 7,990 06/10 6,665 6,824 7,834 12/10 8,210 8,434 10,136 06/11 7,640 7,879 10,765 12/11 4,825 4,992 9,713 06/12 4,670 4,822 10,542 12/12 4,801 4,927 11,301 06/13 7,177 7,346 13,093 12/13 9,111 9,329 15,688 06/14 10,479 10,732 16,188 12/14 8,834 9,037 16,455
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 79 0 0 0 01/01/11 - 12/31/11 125 5 0 0 01/01/12 - 12/31/12 37 6 1 0 01/01/13 - 12/31/13 168 5 0 0 01/01/14 - 12/31/14 122 3 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 173 0 0 0 01/01/11 - 12/31/11 116 6 0 0 01/01/12 - 12/31/12 153 52 1 0 01/01/13 - 12/31/13 75 4 0 0 01/01/14 - 12/31/14 124 3 0 0 Page 11 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST S&P REIT INDEX FUND (FRI) The First Trust S&P REIT Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the S&P United States REIT Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index measures the securitized U.S. real estate investment trust ("REIT") market and maintains a constituency that reflects the composition of the overall REIT market. The Index contains securities selected for market representation according to geography and property type. All securities in the Index satisfy the Index's liquidity, price and market capitalization requirements. The Standard & Poor's Index Committee, a team of Standard & Poor's economists and index analysts, maintains the Index. The S&P Index Committee makes constituent changes on an as-needed basis. Share adjustments that exceed 5% are made at the time of the change. Share adjustments of less than 5% are made on a quarterly basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was May 10, 2007.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (5/8/07) Ended (5/8/07) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 29.61% 16.38% 4.02% 113.50% 35.20% Market Value 29.67% 16.39% 4.03% 113.59% 35.27% INDEX PERFORMANCE S&P United States REIT Index* 30.26% 17.01% N/A 119.33% N/A FTSE EPRA/NAREIT North America Index 28.15% 16.37% 4.25% 113.39% 37.47% Russell 3000(R) Index 12.56% 15.63% 6.60% 106.72% 63.08% --------------------------------------------------------------------------------------------------------------------------- * On November 6, 2008, the Fund's underlying index changed from the S&P REIT Composite Index to the S&P United States REIT Index. Effective December 31, 2008, the S&P REIT Composite Index was discontinued. Therefore, the Fund's performance and historical returns shown for the periods prior to November 6, 2008 are not necessarily indicative of the performance that the Fund, based on its current Index, would have generated. The inception date of the Index was June 30, 2008. Returns for the Index are only disclosed for those periods in which the Index was in existence for the whole period. (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 29.61% during the 12-month period covered by this report. During the same period, the Russell 3000(R) Index ("benchmark") generated a return of 12.56%. Overall it was a very strong year for real estate investment trusts ("REITs"). Retail REITs contributed 8.2% to the Fund's return to lead all other REIT categories. The Fund's Retail holdings comprised 25.6% of the Fund's weight and returned 32.3%. Mergers and acquisitions activity among Malls was a driver of the year's strong returns. Residential REITs were the best-performing and second-best contributing REIT category in the Fund with a 38.5% return and a 6.0% contribution. Improving housing markets and continued low interest rates aided the category's returns. Relative to the benchmark, the Fund outperformed due to the Fund being solely concentrated in the strong-performing REIT industry. ------------------- Standard & Poor's(R), S&P(R) and S&P United States REIT Index are registered trademarks of Standard & Poor's Financial Services LLC ("S&P") and have been licensed for use by First Trust on behalf of the Fund. The Fund is not sponsored, endorsed, sold or promoted by S&P or its affiliates, and S&P and its affiliates make no representation, warranty or condition regarding the advisability of buying, selling or holding shares of the Fund. Page 12 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST S&P REIT INDEX FUND (FRI) (CONTINUED) ----------------------------------------------------------- PORTFOLIO REIT CLASS ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL REIT CLASS LONG-TERM INVESTMENTS Retail 25.63% Residential 16.23 Office 13.51 Healthcare 13.35 Diversified 10.01 Specialized 8.64 Hotel & Resort 7.94 Industrials 4.69 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Simon Property Group, Inc. 8.12% Public Storage 3.85 Equity Residential 3.73 Health Care REIT, Inc. 3.56 AvalonBay Communities, Inc. 3.10 Prologis, Inc. 3.09 Ventas, Inc. 3.03 Vornado Realty Trust 2.95 HCP, Inc. 2.90 Boston Properties, Inc. 2.83 ------- Total 37.16% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2014 First Trust S&P REIT FTSE EPRA/NAREIT Russell 3000(R) Index Fund North America Index Index 05/07 $10,000 $10,000 $10,000 12/07 8,093 8,206 9,811 06/08 7,739 7,843 8,728 12/08 4,947 4,872 6,151 06/09 4,319 4,381 6,405 12/09 6,333 6,442 7,889 06/10 6,679 6,772 7,412 12/10 8,090 8,287 9,225 06/11 8,899 9,163 9,811 12/11 8,729 8,965 9,319 06/12 10,007 10,276 10,188 12/12 10,247 10,593 10,849 06/13 10,871 11,091 12,374 12/13 10,434 10,728 14,489 06/14 12,245 12,560 15,495 12/14 13,523 13,748 16,308
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 185 0 0 0 01/01/11 - 12/31/11 149 1 0 0 01/01/12 - 12/31/12 159 0 0 0 01/01/13 - 12/31/13 130 0 0 0 01/01/14 - 12/31/14 193 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 67 0 0 0 01/01/11 - 12/31/11 102 0 0 0 01/01/12 - 12/31/12 91 0 0 0 01/01/13 - 12/31/13 122 0 0 0 01/01/14 - 12/31/14 59 0 0 0 Page 13 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST ISE WATER INDEX FUND (FIW) The First Trust ISE Water Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE Water Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is a modified market capitalization weighted index comprised of 36 stocks that derive a substantial portion of their revenues from the potable and wastewater industries. The Index is rebalanced on a semi-annual basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was May 11, 2007.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (5/8/07) Ended (5/8/07) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 0.36% 13.45% 7.90% 87.92% 78.93% Market Value 0.24% 13.45% 7.90% 87.95% 78.87% INDEX PERFORMANCE ISE Water Index(TM) 0.97% 14.25% 8.64% 94.68% 88.47% Russell 3000(R) Index 12.56% 15.63% 6.60% 106.72% 63.08% --------------------------------------------------------------------------------------------------------------------------- ( See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 0.36% during the 12-month period covered by this report. During the same period, the Russell 3000(R) Index ("benchmark") generated a return of 12.56%. The Materials sector contributed 1.3% to the Fund's return to lead all other sectors. The Fund's holdings in the sector returned 22.1% and had an average Fund weight of 5.9%. Chemical company, Ashland, Inc. (25.0% return) and Metals & Mining company, AMCOL International Corp. (35.2%) were the main drivers of the sector's performance. A majority of the Fund's weight (58.5% average) was allocated to the Industrials sector. For the most part, the performance the Fund received from the sector was flat, except for the Construction & Engineering industry. The Construction and Engineering industry made up 6.9% of the Fund's weight and returned -20.4% resulting in a -1.6% contribution to the Fund's return. Layne Christensen Co. (-44.1%) and Northwest Pipe Co. (-20.2%) were the main causes of the negative return. Relative to its benchmark, the Fund underperformed. Most of the underperformance came from the Industrials sector, where the Fund was overweight (58.5% vs. 11.5% average weight) and underperformed (-2.4% vs. 8.0 return). ------------------- "International Securities Exchange(TM)", "ISE(TM)" and "ISE Water Index(TM)" are trademarks of the International Securities Exchange, LLC and have been licensed for use for certain purposes by First Trust on behalf of the Fund. The Fund, based on the ISE Water Index(TM), is not sponsored, endorsed, sold or promoted by the International Securities Exchange, LLC and the International Securities Exchange, LLC makes no representation regarding the advisability of trading in such product. Page 14 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST ISE WATER INDEX FUND (FIW) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Industrials 61.03% Utilities 23.02 Materials 5.45 Information Technology 5.37 Health Care 3.84 Financials 1.29 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Pentair PLC 4.20% Rexnord Corp. 4.14 Badger Meter, Inc. 4.12 Watts Water Technologies, Inc., Class A 4.00 Xylem, Inc. 3.99 California Water Service Group 3.97 Aqua America, Inc. 3.91 American Water Works Co., Inc. 3.86 Energy Recovery, Inc. 3.70 Northwest Pipe Co. 3.67 ------- Total 39.56% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2014 First Trust ISE ISE Water Russell 3000(R) Water Index Fund Index(TM) Index 05/07 $10,000 $10,000 $10,000 12/07 11,212 11,260 9,811 06/08 10,992 11,056 8,728 12/08 7,915 7,987 6,151 06/09 8,168 8,276 6,405 12/09 9,522 9,681 7,889 06/10 8,989 9,168 7,412 12/10 11,378 11,653 9,225 06/11 11,910 12,243 9,811 12/11 10,738 11,076 9,319 06/12 11,803 12,225 10,188 12/12 13,619 14,153 10,849 06/13 14,585 15,220 12,374 12/13 17,830 18,667 14,489 06/14 18,338 19,251 15,495 12/14 17,894 18,847 16,308
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 146 0 0 0 01/01/11 - 12/31/11 131 0 0 0 01/01/12 - 12/31/12 121 1 0 0 01/01/13 - 12/31/13 197 0 0 0 01/01/14 - 12/31/14 195 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 105 1 0 0 01/01/11 - 12/31/11 121 0 0 0 01/01/12 - 12/31/12 127 1 0 0 01/01/13 - 12/31/13 55 0 0 0 01/01/14 - 12/31/14 56 1 0 0 Page 15 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG) The First Trust ISE-Revere Natural Gas Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE-REVERE Natural Gas Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equal-weighted index comprised of exchange-listed companies that derive a substantial portion of their revenues from the exploration and production of natural gas. The Index is constructed by establishing the universe of stocks listed in the U.S. of companies involved in the natural gas exploration and production industries and then eliminates stocks whose natural gas proven reserves do not meet certain requirements. The Index then ranks all candidate stocks using four different methods and, often averaging the rankings, selects the top 30 stocks based on the final rank. The Index is rebalanced on a quarterly basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was May 11, 2007.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (5/8/07) Ended (5/8/07) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV -42.02% -8.09% -6.79% -34.40% -41.59% Market Value -41.99% -8.10% -6.79% -34.43% -41.59% INDEX PERFORMANCE ISE-REVERE Natural Gas Index(TM) -42.03% -7.50% -6.25% -32.29% -38.95% Russell 3000(R) Index 12.56% 15.63% 6.60% 106.72% 63.08% S&P Composite 1500 Energy Index -9.16% 8.43% 4.13% 49.91% 36.30% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of -42.02% during the 12-month period covered by this report. During the same period, the S&P Composite 1500 Energy Index ("benchmark") generated a return of -9.16%. The Fund's performance was hit hard by falling natural gas prices. Over the year covered by this report, the S&P GSCI Natural Gas Spot Index fell -31.7%. Falling prices specifically impacted exploration and production companies, where an average of 93.9% of the Fund's weight was allocated. In total, the Oil & Gas Exploration and Production industry returned -41.2% and contributed -38.5% to the Fund's return. Relative to the benchmark, the Fund underperformed. The underperformance was caused by the previously mentioned Oil & Gas Exploration & Production industry where the Fund was overweight (93.9% vs. 25.5% average weight) relative to the benchmark. The Fund was significantly underweight other industries such as Oil & Gas Refining & Marketing and Oil & Gas Storage & Transportation that held up much better against the drop in energy prices. ------------------- "International Securities Exchange(TM)", "ISE(TM)" and "ISE-REVERE Natural Gas Index(TM)" are trademarks of the International Securities Exchange, LLC and have been licensed for use for certain purposes by First Trust on behalf of the Fund. The Fund, based on the ISE-REVERE Natural Gas Index(TM), is not sponsored, endorsed, sold or promoted by the International Securities Exchange, LLC and the International Securities Exchange, LLC makes no representation regarding the advisability of trading in such product. Page 16 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SUB-INDUSTRY ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SUB-INDUSTRY LONG-TERM INVESTMENTS Oil & Gas Exploration & Production 96.29% Integrated Oil & Gas 3.71 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Talisman Energy, Inc. 6.24% Matador Resources Co. 4.54 Swift Energy Co. 4.50 Comstock Resources, Inc. 4.43 SM Energy Co. 4.28 Stone Energy Corp. 4.23 Devon Energy Corp. 3.95 Encana Corp. 3.89 Chesapeake Energy Corp. 3.88 Goodrich Petroleum Corp. 3.86 ------- Total 43.80% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2014 First Trust ISE-Revere ISE-REVERE Natural Russell 3000(R) S&P Composite 1500 Natural Gas Index Fund Gas Index(TM) Index Energy Index 05/07 $10,000 $10,000 $10,000 $10,000 12/07 11,166 11,213 9,804 12,170 06/08 15,755 15,942 8,721 13,578 12/08 5,967 6,016 6,147 7,810 06/09 6,454 6,518 6,405 7,740 12/09 8,903 9,017 7,889 9,092 06/10 7,752 7,891 7,412 8,016 12/10 9,992 10,254 9,225 11,036 06/11 11,012 11,342 9,811 12,304 12/11 9,308 9,620 9,319 11,469 06/12 8,426 8,735 10,188 11,132 12/12 8,051 8,375 10,849 11,967 06/13 8,290 8,639 12,374 13,130 12/13 10,075 10,530 14,489 15,006 06/14 12,210 12,790 15,495 16,951 12/14 5,842 6,105 16,308 13,630
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 124 0 0 0 01/01/11 - 12/31/11 151 0 0 0 01/01/12 - 12/31/12 151 0 0 0 01/01/13 - 12/31/13 149 0 0 0 01/01/14 - 12/31/14 140 1 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 127 1 0 0 01/01/11 - 12/31/11 101 0 0 0 01/01/12 - 12/31/12 99 0 0 0 01/01/13 - 12/31/13 103 0 0 0 01/01/14 - 12/31/14 111 0 0 0 Page 17 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST ISE CHINDIA INDEX FUND (FNI) The First Trust ISE Chindia Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE ChIndia Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is a non-market capitalization weighted portfolio of 50 American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") and/or stocks selected from a universe of all listed ADRs, ADSs, and/or stocks of companies from China and India currently trading on a U.S. exchange. The Index is rebalanced on a semi-annual basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was May 11, 2007.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (5/8/07) Ended (5/8/07) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 2.37% 7.37% 5.86% 42.68% 54.61% Market Value 2.19% 7.33% 5.87% 42.40% 54.66% INDEX PERFORMANCE ISE ChIndia Index(TM) 2.75% 7.85% 6.42% 45.91% 60.93% Russell 3000(R) Index 12.56% 15.63% 6.60% 106.72% 63.08% MSCI Emerging Markets Index -2.19% 1.78% 1.93% 9.22% 15.71% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 2.37% during the 12-month period covered by this report. During the same period, the MSCI Emerging Markets Index ("benchmark") generated a return of -2.19%. The Financials sector led all other sectors in the Fund with a 4.9% contribution to the Fund's return. The Fund's holdings from the sector returned 41.3% and comprised 13.1% of the Fund's average weight. The strong performance in the Financials sector came from the Indian stocks ICICI Bank Ltd., which returned 57.7% and contributed 3.3%, and HDFC Bank Ltd., which returned 48.4% and contributed 2.0% to the Fund's return. The Information Technology sector was the largest drag on the Fund's performance. The Fund allocated an average of 44.2% of its weight to the sector, which returned -6.9% and contributed -3.1% to the Fund's return. Despite strong performance from Baidu, Inc. (28.2% return), the Information Technology stocks from China were the source of the sector's poor returns. The Fund's Chinese technology holdings comprised 26.9% of the Fund's average weight and returned -12.7% resulting in a -3.3% contribution to return. NQ Mobile, Inc. and SINA Corp. were examples of poor-performing Chinese tech companies with returns of -72.2% and -55.6%, respectively, while held in the Fund this reporting period. Relative to its benchmark, the Fund outperformed. Most of the outperformance came from the previously mentioned Financials sector where the Fund's holdings returned 41.3% vs. 5.7% for the benchmark's constituents. Additional outperformance was gained by the Fund being underweight the weak-performing Energy and Materials sectors. In total, the Fund had 3.3% of its average weight in the sectors vs. 19.1% for the benchmark. Some of the Fund's outperformance was reversed by the Information Technology sector, where the Fund's concentration in Chinese companies caused it to underperform -6.9% vs. 9.9% for the benchmark's technology constituents. ------------------- "International Securities Exchange(TM)", "ISE(TM)" and "ISE ChIndia Index(TM)" are trademarks of the International Securities Exchange, LLC and have been licensed for use for certain purposes by First Trust on behalf of the Fund. The Fund, based on the ISE ChIndia Index(TM), is not sponsored, endorsed, sold or promoted by the International Securities Exchange, LLC and the International Securities Exchange, LLC makes no representation regarding the advisability of trading in such product. Page 18 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST ISE CHINDIA INDEX FUND (FNI) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 34.21% Consumer Discretionary 32.48 Financials 15.55 Telecommunication Services 5.49 Health Care 5.10 Energy 3.62 Materials 2.05 Utilities 0.75 Industrials 0.75 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS HDFC Bank Ltd., ADR 7.16% Infosys Ltd., ADR 7.06 ICICI Bank Ltd., ADR 7.00 Baidu, Inc., ADR 6.97 Michael Kors Holdings Ltd. 6.85 JD.com, Inc., ADR 6.77 China Mobile Ltd., ADR 4.08 Wipro Ltd., ADR 4.06 Tata Motors Ltd., ADR 3.98 Vipshop Holdings Ltd., ADR 3.98 ------- Total 57.91% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2014 First Trust ISE Chindia ISE ChIndia Russell 3000(R) MSCI Emerging Index Fund Index(TM) Index Markets Index 05/07 $10,000 $10,000 $10,000 $10,000 12/07 13,873 13,952 9,804 12,715 06/08 9,985 10,059 8,721 11,220 12/08 5,968 6,031 6,147 5,934 06/09 8,329 8,451 6,405 8,071 12/09 10,836 11,031 7,889 10,593 06/10 10,540 10,767 7,412 9,939 12/10 12,836 13,175 9,225 12,592 06/11 13,047 13,466 9,811 12,703 12/11 9,497 9,771 9,319 10,273 06/12 10,069 10,375 10,188 10,677 12/12 11,121 11,483 10,849 12,145 06/13 11,258 11,659 12,374 10,983 12/13 15,103 15,665 14,489 11,829 06/14 16,047 16,680 15,495 12,555 12/14 15,461 16,096 16,308 11,571
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- QUARTER ENDED 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 151 2 0 0 01/01/11 - 12/31/11 65 1 0 0 01/01/12 - 12/31/12 63 1 0 0 01/01/13 - 12/31/13 66 0 0 0 01/01/14 - 12/31/14 96 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- QUARTER ENDED 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 99 0 0 0 01/01/11 - 12/31/11 186 0 0 0 01/01/12 - 12/31/12 175 11 0 0 01/01/13 - 12/31/13 185 1 0 0 01/01/14 - 12/31/14 155 1 0 0 Page 19 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) The First Trust NASDAQ(R) ABA Community Bank Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ OMX(R) ABA Community Bank Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index includes a subset of banks and thrifts or their holding companies listed on NASDAQ(R). The Index is jointly owned and was developed by NASDAQ OMX(R) and the American Bankers Association ("ABA"). For the purposes of the Index, a "community bank" is considered to be all U.S. banks and thrifts or their holding companies listed on NASDAQ(R) excluding the 50 largest U.S. banks by asset size. Also excluded are banks that have an international specialization and those banks that have a credit-card specialization, as screened by the ABA based on the most recent data from the FDIC. Banks with an international specialization are those institutions with assets greater than $10 billion and more than 25% of total assets in foreign offices. Banks with a credit-card specialization are those institutions with credit-card loans plus securitized receivables in excess of 50% of total assets plus securitized receivables. Securities in the Index must have a market capitalization of at least $200 million and a three-month average daily trading volume of at least $500 thousand. The Index is rebalanced quarterly and reconstituted semi-annually. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was July 1, 2009.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (6/29/09) Ended (6/29/09) 12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 2.72% 11.94% 13.23% 75.73% 98.23% Market Value 2.55% 11.92% 13.25% 75.63% 98.46% INDEX PERFORMANCE NASDAQ OMX(R) ABA Community Bank Index(SM) 3.34% 12.66% 13.96% 81.48% 105.40% S&P Composite 1500 Financials Sector Index 14.89% 13.53% 16.18% 88.57% 128.38% Russell 3000(R) Index 12.56% 15.63% 18.33% 106.72% 152.70% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 2.72% during the 12-month period covered by this report. During the same period, the S&P Composite 1500 Financials Index ("benchmark") generated a return of 14.89%. The expectation of continued, albeit slow, improvement in GDP through 2016 has banks positioning themselves to benefit from expected rate increases in the future. However, in 2014, the 10-year Treasury yield fell from just over 3.0% to under 2.2%. Consequently, the performance of regional banks measured broadly was slightly positive, but well behind the returns of the greater U.S. equity market. Relative to its benchmark, the Fund underperformed. The underperformance came from the Fund's heavy exposure to regional banks which had tepid returns relative to other financial industries such as REITs, Diversified Financial Services, and Capital Markets. ------------------- NASDAQ(R), OMX(R), NASDAQ OMX(R), and NASDAQ OMX(R) ABA Community Bank Index(SM) are trademarks of The NASDAQ OMX Group, Inc. ("NASDAQ OMX") and American Bankers Association ("ABA") (NASDAQ OMX and ABA, collectively with their affiliates, are referred to as the "Corporations") and are licensed for use by First Trust on behalf of the Fund. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 20 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) (CONTINUED) ----------------------------------------------------------- PORTFOLIO INDUSTRY ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL INDUSTRY LONG-TERM INVESTMENTS Commercial Banks 87.69% Thrifts & Mortgage Finance 11.94 IT Services 0.37 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Signature Bank 3.81% Zions Bancorporation 3.47 East West Bancorp, Inc. 3.34 PacWest Bancorp 2.78 TFS Financial Corp. 2.68 Commerce Bancshares, Inc. 2.52 BOK Financial Corp. 2.50 Investors Bancorp, Inc. 2.41 Umpqua Holdings Corp. 2.22 Popular, Inc. 2.12 ------- Total 27.85% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT JUNE 29, 2009 - DECEMBER 31, 2014 First Trust NASDAQ(R) ABA NASDAQ OMX(R) ABA S&P Composite 1500 Russell 3000(R) Community Bank Index Fund Community Bank Index(SM) Financials Sector Index Index 06/09 $10,000 $10,000 $10,000 $10,000 12/09 11,280 11,318 12,112 12,224 06/10 11,438 11,505 11,744 11,484 12/10 12,721 12,846 13,722 14,293 06/11 12,520 12,688 13,420 15,201 12/11 11,898 12,095 11,662 14,439 06/12 13,081 13,343 13,227 15,785 12/12 13,507 13,817 14,806 16,809 06/13 16,006 16,427 17,584 19,172 12/13 19,302 19,873 19,879 22,448 06/14 19,296 19,929 20,907 24,006 12/14 19,827 20,537 22,839 25,266
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period January 1, 2010 through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- QUARTER ENDED 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 151 1 0 0 01/01/11 - 12/31/11 135 2 0 0 01/01/12 - 12/31/12 100 17 1 0 01/01/13 - 12/31/13 139 24 0 0 01/01/14 - 12/31/14 115 9 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- QUARTER ENDED 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/10 - 12/31/10 98 1 0 1 01/01/11 - 12/31/11 111 4 0 0 01/01/12 - 12/31/12 114 18 0 0 01/01/13 - 12/31/13 72 17 0 0 01/01/14 - 12/31/14 116 12 0 0 Page 21 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the CBOE(R) VIX(R) Tail Hedge Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks and call options included in the Index. The Index is composed of each of the equity securities comprising the S&P 500(R) and an out-of-the-money call option position on the Chicago Board Options Exchange Market Volatility Index (the "VIX Index"). The VIX Index is quoted in percentage points, is calculated and disseminated in real-time by CBOE and is a way of measuring the market's expectation of volatility in the S&P 500(R) over the next 30-day period. The Index, and in turn the Fund, tracks the performance of an S&P 500(R) stock portfolio (with dividends reinvested), and call options on the VIX Index. The amount of the Index allocated to call options on the VIX Index is reevaluated and rebalanced each month, depending on the level of forward expected volatility in the S&P 500(R), as measured by the closest to maturity VIX Index futures. The Index is designed to help cope with extreme downward movements in the market by hedging its portfolio through purchasing call options on the VIX Index, or "tail hedging." The Index is reconstituted and rebalanced monthly. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was August 30, 2012.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (8/29/12) Inception (8/29/12) 12/31/14 to 12/31/14 to 12/31/14 FUND PERFORMANCE NAV 15.22% 13.77% 35.24% Market Value 14.89% 13.69% 35.03% INDEX PERFORMANCE CBOE(R) VIX(R) Tail Hedge Index 15.82% 14.28% 36.66% S&P 500(R) Index 13.69% 20.07% 53.41% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 15.22% during the 12-month period covered by this report. During the same period, the S&P 500(R) Index ("benchmark") generated a return of 13.69%. The Fund is identical to its benchmark except for the Fund's option overlay. Low volatility, as measured by the VIX Index through much of the year had the Fund not invested in any VIX Index options. When the Fund allocates zero weight to options, the Fund tracks the S&P 500(R) Index. In each of the last three months of the period, the Fund allocated 1.00% of its weight to a VIX Index call option at its monthly rebalance. In the last month of the year, an increase in the VIX Index caused the option to be in the money and boosted the Fund's performance past the S&P 500(R) Index's return for the year covered by this report. Page 22 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 19.65% Financials 16.65 Health Care 14.22 Consumer Discretionary 12.15 Industrials 10.41 Consumer Staples 9.80 Energy 8.44 Utilities 3.23 Materials 3.17 Telecommunication Services 2.28 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Apple, Inc. 3.55% Exxon Mobil Corp. 2.15 Microsoft Corp. 2.10 Johnson & Johnson 1.60 Berkshire Hathaway, Inc., Class B 1.50 Wells Fargo & Co. 1.42 General Electric Co. 1.39 Procter & Gamble (The) Co. 1.35 JPMorgan Chase & Co. 1.28 Chevron Corp. 1.16 ------- Total 17.50% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT AUGUST 29, 2012 - DECEMBER 31, 2014 First Trust CBOE(R) S&P 500(R) CBOE(R) VIX(R) S&P 500(R) VIX(R) Tail Hedge Fund Tail Hedge Index Index 08/12 $10,000 $10,000 $10,000 12/12 9,863 9,880 10,193 06/13 10,686 10,719 11,602 12/13 11,738 11,799 13,494 06/14 12,251 12,345 14,457 12/14 13,525 13,666 15,342
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period August 30, 2012 (commencement of trading) through December 31, 2014. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 08/30/12 - 12/31/12 57 3 0 0 01/01/13 - 12/31/13 155 5 0 0 01/01/14 - 12/31/14 152 2 0 1 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 08/30/12 - 12/31/12 21 1 1 0 01/01/13 - 12/31/13 92 0 0 0 01/01/14 - 12/31/14 95 2 0 0 Page 23 -------------------------------------------------------------------------------- NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- Total returns for the periods since inception are calculated from the inception date of each Fund. "Average annual total returns" represent the average annual change in value of an investment over the periods indicated. "Cumulative total returns" represent the total change in value of an investment over the periods indicated. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the Advisor. Each Fund's per share net asset value ("NAV") is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return ("Market Value") is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund are listed for trading as of the time that the Fund's NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund's inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and Market Value returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Value, respectively. An index is a statistical composite that tracks a specified financial market or sector. Unlike a Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund's past performance is no guarantee of future results. Page 24 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES DECEMBER 31, 2014 (UNAUDITED) As a shareholder of First Trust NASDAQ-100 Equal Weighted Index Fund, First Trust NASDAQ-100-Technology Sector Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index Fund, First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, First Trust S&P REIT Index Fund, First Trust ISE Water Index Fund, First Trust ISE-Revere Natural Gas Index Fund, First Trust ISE Chindia Index Fund, First Trust NASDAQ(R) ABA Community Bank Index Fund, or First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (each a "Fund" and collectively, the "Funds"), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service fees, and other Fund expenses. This Example is intended to help you understand your ongoing costs of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended December 31, 2014. ACTUAL EXPENSES The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Six-Month Period" to estimate the expenses you paid on your account during this six-month period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line in the following table provides information about hypothetical account values and hypothetical expenses based on each Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
--------------------------------------------------------------------------------------------------------------------------- ANNUALIZED EXPENSE RATIO EXPENSES PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH JULY 1, 2014 DECEMBER 31, 2014 PERIOD (a) PERIOD (b) --------------------------------------------------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) Actual $1,000.00 $1,103.30 0.60% $3.18 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC) Actual $1,000.00 $1,103.50 0.60% $3.18 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT) Actual $1,000.00 $1,103.00 0.60% $3.18 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) Actual $1,000.00 $ 843.00 0.60% $2.79 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST S&P REIT INDEX FUND (FRI) Actual $1,000.00 $1,104.40 0.50% $2.65 Hypothetical (5% return before expenses) $1,000.00 $1,022.68 0.50% $2.55 FIRST TRUST ISE WATER INDEX FUND (FIW) Actual $1,000.00 $ 975.80 0.58% $2.89 Hypothetical (5% return before expenses) $1,000.00 $1,022.28 0.58% $2.96 FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG) Actual $1,000.00 $ 478.50 0.60% $2.24 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
Page 25 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES (CONTINUED) DECEMBER 31, 2014 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------- ANNUALIZED EXPENSE RATIO EXPENSES PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH JULY 1, 2014 DECEMBER 31, 2014 PERIOD (a) PERIOD (b) --------------------------------------------------------------------------------------------------------------------------- FIRST TRUST ISE CHINDIA INDEX FUND (FNI) Actual $1,000.00 $ 963.50 0.60% $2.97 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) Actual $1,000.00 $1,027.50 0.60% $3.07 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) Actual $1,000.00 $1,104.00 0.60% $3.18 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
(a) These expense ratios reflect expense caps for certain Funds. See Note 3 in Notes to Financial Statements. (b) Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (July 1, 2014 through December 31, 2014), multiplied by 184/365 (to reflect the one-half year period). Page 26 FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AIR FREIGHT & LOGISTICS -- 2.0% 76,038 C.H. Robinson Worldwide, Inc. $ 5,694,486 132,664 Expeditors International of Washington, Inc. 5,918,141 ------------ 11,612,627 ------------ AIRLINES -- 1.1% 114,404 American Airlines Group, Inc. 6,135,487 ------------ AUTOMOBILES -- 1.0% 26,457 Tesla Motors, Inc. (a) 5,884,301 ------------ BEVERAGES -- 1.0% 51,968 Monster Beverage Corp. (a) 5,630,733 ------------ BIOTECHNOLOGY -- 6.7% 30,607 Alexion Pharmaceuticals, Inc. (a) 5,663,213 34,092 Amgen, Inc. 5,430,515 16,090 Biogen Idec, Inc. (a) 5,461,751 49,507 Celgene Corp. (a) 5,537,853 53,494 Gilead Sciences, Inc. (a) 5,042,344 13,564 Regeneron Pharmaceuticals, Inc. (a) 5,564,631 48,792 Vertex Pharmaceuticals, Inc. (a) 5,796,490 ------------ 38,496,797 ------------ CHEMICALS -- 1.0% 42,496 Sigma-Aldrich Corp. 5,833,426 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.0% 43,931 Stericycle, Inc. (a) 5,758,476 ------------ COMMUNICATIONS EQUIPMENT -- 2.0% 208,920 Cisco Systems, Inc. 5,811,110 79,012 QUALCOMM, Inc. 5,872,962 ------------ 11,684,072 ------------ FOOD & STAPLES RETAILING -- 2.0% 40,927 Costco Wholesale Corp. 5,801,402 118,883 Whole Foods Market, Inc. 5,994,081 ------------ 11,795,483 ------------ FOOD PRODUCTS -- 2.9% 42,298 Keurig Green Mountain, Inc. 5,600,044 91,347 Kraft Foods Group, Inc. 5,723,803 155,536 Mondelez International, Inc., Class A 5,649,845 ------------ 16,973,692 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 1.0% 10,903 Intuitive Surgical, Inc. (a) 5,767,033 ------------ HEALTH CARE PROVIDERS & SERVICES -- 3.1% 115,363 Catamaran Corp. (a) 5,970,035 71,646 Express Scripts Holding Co. (a) 6,066,267 42,189 Henry Schein, Inc. (a) 5,744,032 ------------ 17,780,334 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ HEALTH CARE TECHNOLOGY -- 1.0% 90,132 Cerner Corp. (a) $ 5,827,935 ------------ HOTELS, RESTAURANTS & LEISURE -- 3.0% 74,933 Marriott International, Inc., Class A 5,847,022 73,026 Starbucks Corp. 5,991,783 38,648 Wynn Resorts Ltd. 5,749,277 ------------ 17,588,082 ------------ HOUSEHOLD DURABLES -- 1.0% 108,845 Garmin Ltd. (b) 5,750,281 ------------ INTERNET & CATALOG RETAIL -- 5.1% 19,349 Amazon.com, Inc. (a) 6,004,962 101,713 Liberty Interactive Corp., Class A (a) 2,992,397 79,144 Liberty Ventures, Series A (a) 2,985,312 17,056 Netflix, Inc. (a) 5,826,500 5,225 Priceline Group (The), Inc. (a) 5,957,597 76,689 TripAdvisor, Inc. (a) 5,725,601 ------------ 29,492,369 ------------ INTERNET SOFTWARE & SERVICES -- 6.9% 91,798 Akamai Technologies, Inc. (a) 5,779,602 24,772 Baidu, Inc., ADR (a) 5,647,273 101,533 eBay, Inc. (a) 5,698,032 24,786 Equinix, Inc. 5,619,730 72,630 Facebook, Inc., Class A (a) 5,666,592 5,582 Google, Inc., Class A (a) 2,962,144 5,620 Google, Inc., Class C (a) 2,958,368 114,021 Yahoo!, Inc. (a) 5,759,201 ------------ 40,090,942 ------------ IT SERVICES -- 4.0% 68,491 Automatic Data Processing, Inc. 5,710,095 108,464 Cognizant Technology Solutions Corp., Class A (a) 5,711,714 81,344 Fiserv, Inc. (a) 5,772,984 125,302 Paychex, Inc. 5,785,193 ------------ 22,979,986 ------------ LEISURE PRODUCTS -- 1.1% 198,740 Mattel, Inc. 6,150,009 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.0% 30,540 Illumina, Inc. (a) 5,637,073 ------------ MACHINERY -- 1.0% 83,786 PACCAR, Inc. 5,698,286 ------------ MEDIA -- 10.1% 35,246 Charter Communications, Inc., Class A (a) 5,872,689 50,742 Comcast Corp., Class A 2,943,543 50,841 Comcast Corp., Special Class A 2,926,662 67,875 DIRECTV (a) 5,884,762 81,879 Discovery Communications, Inc., Class A (a) 2,820,732 83,991 Discovery Communications, Inc., Class C (a) 2,832,177 See Notes to Financial Statements Page 27 FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) MEDIA (CONTINUED) 79,903 DISH Network Corp., Class A (a) $ 5,824,130 59,768 Liberty Global PLC, Series C (a) 2,887,392 57,414 Liberty Global PLC, Class A (a) 2,882,470 84,387 Liberty Media Corp., Class A (a) 2,976,329 85,349 Liberty Media Corp., Class C (a) 2,989,775 1,671,917 Sirius XM Holdings, Inc. (a) 5,851,710 75,326 Twenty-First Century Fox, Inc., Class A 2,892,895 78,279 Twenty-First Century Fox, Inc., Class B 2,887,712 76,416 Viacom, Inc., Class B 5,750,304 ------------ 58,223,282 ------------ MULTILINE RETAIL -- 1.0% 84,451 Dollar Tree, Inc. (a) 5,943,661 ------------ PHARMACEUTICALS -- 1.0% 100,886 Mylan, Inc. (a) 5,686,944 ------------ PROFESSIONAL SERVICES -- 1.0% 89,667 Verisk Analytics, Inc., Class A (a) 5,743,171 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 14.0% 155,871 Altera Corp. 5,757,875 102,237 Analog Devices, Inc. 5,676,198 233,089 Applied Materials, Inc. 5,808,578 57,935 Avago Technologies Ltd. 5,827,682 135,357 Broadcom Corp., Class A 5,865,019 159,519 Intel Corp. 5,788,945 83,213 KLA-Tencor Corp. 5,851,538 72,067 Lam Research Corp. 5,717,796 126,265 Linear Technology Corp. 5,757,684 168,209 Micron Technology, Inc. (a) 5,888,997 284,122 NVIDIA Corp. 5,696,646 75,851 NXP Semiconductors N.V. (a) 5,795,016 106,981 Texas Instruments, Inc. 5,719,739 134,912 Xilinx, Inc. 5,840,340 ------------ 80,992,053 ------------ SOFTWARE -- 9.9% 286,494 Activision Blizzard, Inc. 5,772,854 77,931 Adobe Systems, Inc. (a) 5,665,584 96,857 Autodesk, Inc. (a) 5,817,231 187,661 CA, Inc. 5,714,277 74,063 Check Point Software Technologies Ltd. (a) 5,819,130 91,890 Citrix Systems, Inc. (a) 5,862,582 122,248 Electronic Arts, Inc. (a) 5,747,490 61,773 Intuit, Inc. 5,694,853 121,729 Microsoft Corp. 5,654,312 224,643 Symantec Corp. 5,763,216 ------------ 57,511,529 ------------ SPECIALTY RETAIL -- 5.2% 78,879 Bed Bath & Beyond, Inc. (a) 6,008,214 30,036 O'Reilly Automotive, Inc. (a) 5,785,534 63,740 Ross Stores, Inc. 6,008,132 SHARES DESCRIPTION VALUE ------------------------------------------------------------ SPECIALTY RETAIL (CONTINUED) 330,570 Staples, Inc. $ 5,989,928 75,951 Tractor Supply Co. 5,986,458 ------------ 29,778,266 ------------ TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 4.9% 51,899 Apple, Inc. 5,728,612 135,105 NetApp, Inc. 5,600,102 58,022 SanDisk Corp. 5,684,995 84,816 Seagate Technology PLC 5,640,264 50,948 Western Digital Corp. 5,639,944 ------------ 28,293,917 ------------ TRADING COMPANIES & DISTRIBUTORS -- 1.0% 122,631 Fastenal Co. 5,832,330 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 3.0% 51,275 SBA Communications Corp., Class A (a) 5,679,219 1,408,313 VimpelCom Ltd., ADR 5,879,707 165,330 Vodafone Group PLC, ADR 5,649,326 ------------ 17,208,252 ------------ TOTAL COMMON STOCKS -- 100.0% 577,780,829 (Cost $526,157,530) ------------ MONEY MARKET FUNDS -- 0.0% 339,899 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 0.01% (c) (d) 339,899 (Cost $339,899) ------------ PRINCIPAL VALUE ------------ REPURCHASE AGREEMENTS -- 0.7% $746,251 JPMorgan Chase & Co., 0.06% (c), dated 12/31/14, due 01/02/15, with a maturity value of $746,254. Collateralized by U.S. Treasury Notes, interest rates of 0.750% to 1.250%, due 01/15/17 to 11/30/18. The value of the collateral including accrued interest is $763,581. (d) 746,251 3,242,458 RBC Capital Markets LLC, 0.06% (c), dated 12/31/14, due 01/02/15, with a maturity value of $3,242,469. Collateralized by U.S. Treasury Notes, interest rates of 0.250% to 1.750%, due 12/31/15 to 09/30/19. The value of the collateral including accrued interest is $3,316,909. (d) 3,242,458 ------------ Page 28 See Notes to Financial Statements FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 DESCRIPTION VALUE ------------------------------------------------------------ TOTAL REPURCHASE AGREEMENTS -- 0.7% $ 3,988,709 (Cost $3,988,709) ------------ TOTAL INVESTMENTS -- 100.7% 582,109,437 (Cost $530,486,138) (e) NET OTHER ASSETS AND LIABILITIES -- (0.7)% (4,281,428) ------------ NET ASSETS -- 100.0% $577,828,009 ============ (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2F - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $4,215,306 and the total value of the collateral held by the Fund is $4,328,608. (c) Interest rate shown reflects yield as of December 31, 2014. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $534,528,185. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $61,176,846 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $13,595,594. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $577,780,829 $ -- $ -- Money Market Funds 339,899 -- -- Repurchase Agreement -- 3,988,709 -- ----------------------------------------------- Total Investments $578,120,728 $ 3,988,709 $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. ----------------------------- OFFSETTING ASSETS AND LIABILITIES -------------------------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2D - Offsetting on the Statements of Assets and Liabilities). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------ Total gross amount presented on the Statements of Assets and Liabilities(1) $ 4,215,306 Non-cash Collateral(2) (4,215,306) ------------------------------------------------------------ Net Amount $ -- ============ (1) The amount presented on the Statements of Assets and Liabilities is not offset and is shown on a gross basis. (2) At December 31, 2014, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. The Fund's investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows: REPURCHASE AGREEMENTS ------------------------------------------------------------ Total gross amount presented on the Statements of Assets and Liabilities(3) $ 3,988,709 Non-cash Collateral(4) (3,988,709) ------------------------------------------------------------ Net Amount $ -- ============ (3) The amount is included in "Repurchase agreements, at value" on the Statements of Assets and Liabilities. (4) At December 31, 2014, the value of the collateral received from the seller exceeded the value of the repurchase agreements. See Notes to Financial Statements Page 29 FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% COMMUNICATIONS EQUIPMENT -- 5.2% 341,231 Cisco Systems, Inc. $ 9,491,340 129,044 QUALCOMM, Inc. 9,591,841 ------------ 19,083,181 ------------ HEALTH CARE PROVIDERS & SERVICES -- 2.7% 188,432 Catamaran Corp. (a) 9,751,356 ------------ HEALTH CARE TECHNOLOGY -- 2.6% 147,210 Cerner Corp. (a) 9,518,598 ------------ HOUSEHOLD DURABLES -- 2.6% 177,777 Garmin Ltd. 9,391,959 ------------ INTERNET SOFTWARE & SERVICES -- 15.3% 149,931 Akamai Technologies, Inc. (a) 9,439,656 40,456 Baidu, Inc., ADR (a) 9,222,754 40,480 Equinix, Inc. 9,178,031 118,628 Facebook, Inc., Class A (a) 9,255,357 9,111 Google, Inc., Class A (a) 4,834,843 9,178 Google, Inc., Class C (a) 4,831,299 186,240 Yahoo!, Inc. (a) 9,406,982 ------------ 56,168,922 ------------ IT SERVICES -- 2.5% 177,149 Cognizant Technology Solutions Corp., Class A (a) 9,328,666 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 36.0% 254,593 Altera Corp. 9,404,666 166,981 Analog Devices, Inc. 9,270,785 380,712 Applied Materials, Inc. 9,487,343 94,619 Avago Technologies Ltd. 9,517,725 221,084 Broadcom Corp., Class A 9,579,570 260,542 Intel Corp. 9,455,069 135,919 KLA-Tencor Corp. 9,557,824 117,704 Lam Research Corp. 9,338,635 206,228 Linear Technology Corp. 9,403,997 274,734 Micron Technology, Inc. (a) 9,618,437 464,075 NVIDIA Corp. 9,304,704 123,887 NXP Semiconductors N.V. (a) 9,464,967 174,737 Texas Instruments, Inc. 9,342,314 220,352 Xilinx, Inc. 9,539,038 ------------ 132,285,074 ------------ SOFTWARE -- 20.5% 127,281 Adobe Systems, Inc. (a) 9,253,329 158,194 Autodesk, Inc. (a) 9,501,131 306,506 CA, Inc. 9,333,108 120,972 Check Point Software Technologies Ltd. (a) 9,504,770 150,085 Citrix Systems, Inc. (a) 9,575,423 100,891 Intuit, Inc. 9,301,141 198,815 Microsoft Corp. 9,234,957 366,909 Symantec Corp. 9,413,050 ------------ 75,116,909 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 12.6% 84,771 Apple, Inc. $ 9,357,023 220,676 NetApp, Inc. 9,147,020 94,766 SanDisk Corp. 9,285,173 138,533 Seagate Technology PLC 9,212,445 83,209 Western Digital Corp. 9,211,236 ------------ 46,212,897 ------------ TOTAL INVESTMENTS -- 100.0% 366,857,562 (Cost 291,460,609) (b) NET OTHER ASSETS AND LIABILITIES -- 0.0% 11,618 ------------ NET ASSETS -- 100.0% $366,869,180 ============ (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $293,992,382. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $73,727,095 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $861,915. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $366,857,562 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. Page 30 See Notes to Financial Statements FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (a) -- 99.9% AIR FREIGHT & LOGISTICS -- 3.3% 25,197 C.H. Robinson Worldwide, Inc. $ 1,887,003 43,968 Expeditors International of Washington, Inc. 1,961,413 ------------ 3,848,416 ------------ AIRLINES -- 1.7% 37,917 American Airlines Group, Inc. 2,033,489 ------------ AUTOMOBILES -- 1.7% 8,769 Tesla Motors, Inc. (b) 1,950,313 ------------ BEVERAGES -- 1.6% 17,225 Monster Beverage Corp. (b) 1,866,329 ------------ BIOTECHNOLOGY -- 10.9% 10,145 Alexion Pharmaceuticals, Inc. (b) 1,877,129 11,300 Amgen, Inc. 1,799,977 5,330 Biogen Idec, Inc. (b) 1,809,269 16,408 Celgene Corp. (b) 1,835,399 17,728 Gilead Sciences, Inc. (b) 1,671,041 4,496 Regeneron Pharmaceuticals, Inc. (b) 1,844,484 16,171 Vertex Pharmaceuticals, Inc. (b) 1,921,115 ------------ 12,758,414 ------------ CHEMICALS -- 1.7% 14,086 Sigma-Aldrich Corp. 1,933,585 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.6% 14,559 Stericycle, Inc. (b) 1,908,394 ------------ FOOD & STAPLES RETAILING -- 3.3% 13,563 Costco Wholesale Corp. 1,922,555 39,401 Whole Foods Market, Inc. 1,986,599 ------------ 3,909,154 ------------ FOOD PRODUCTS -- 4.8% 14,018 Keurig Green Mountain, Inc. 1,855,913 30,275 Kraft Foods Group, Inc. 1,897,032 51,549 Mondelez International, Inc., Class A 1,872,517 ------------ 5,625,462 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 1.6% 3,614 Intuitive Surgical, Inc. (b) 1,911,589 ------------ HEALTH CARE PROVIDERS & SERVICES -- 3.3% 23,746 Express Scripts Holding Co. (b) 2,010,574 13,983 Henry Schein, Inc. (b) 1,903,785 ------------ 3,914,359 ------------ HOTELS, RESTAURANTS & LEISURE -- 5.0% 24,832 Marriott International, Inc., Class A 1,937,641 24,203 Starbucks Corp. 1,985,856 12,809 Wynn Resorts Ltd. 1,905,467 ------------ 5,828,964 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ INTERNET & CATALOG RETAIL -- 8.3% 6,412 Amazon.com, Inc. (b) $ 1,989,964 33,708 Liberty Interactive Corp., Class A (b) 991,689 26,232 Liberty Ventures, Series A (b) 989,471 5,654 Netflix, Inc. (b) 1,931,463 1,732 Priceline Group (The), Inc. (b) 1,974,844 25,417 TripAdvisor, Inc. (b) 1,897,633 ------------ 9,775,064 ------------ INTERNET SOFTWARE & SERVICES -- 1.6% 33,649 eBay, Inc. (b) 1,888,382 ------------ IT SERVICES -- 4.9% 22,699 Automatic Data Processing, Inc. 1,892,416 26,960 Fiserv, Inc. (b) 1,913,351 41,528 Paychex, Inc. 1,917,348 ------------ 5,723,115 ------------ LEISURE PRODUCTS -- 1.7% 65,870 Mattel, Inc. 2,038,347 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.6% 10,122 Illumina, Inc. (b) 1,868,319 ------------ MACHINERY -- 1.6% 27,770 PACCAR, Inc. 1,888,638 ------------ MEDIA -- 16.5% 11,679 Charter Communications, Inc., Class A (b) 1,945,955 33,668 Comcast Corp., Class A 1,945,582 22,496 DIRECTV (b) 1,950,403 27,135 Discovery Communications, Inc., Class A (b) 934,801 27,834 Discovery Communications, Inc., Class C (b) 938,562 26,481 DISH Network Corp., Class A (b) 1,930,200 19,810 Liberty Global PLC, Series C (b) 957,021 19,025 Liberty Global PLC, Class A (b) 955,150 27,963 Liberty Media Corp., Class A (b) 986,255 28,283 Liberty Media Corp., Class C (b) 990,753 554,109 Sirius XM Holdings, Inc. (b) 1,939,382 24,964 Twenty-First Century Fox, Inc., Class A 958,742 25,945 Twenty-First Century Fox, Inc., Class B 957,111 25,326 Viacom, Inc., Class B 1,905,782 ------------ 19,295,699 ------------ MULTILINE RETAIL -- 1.7% 27,987 Dollar Tree, Inc. (b) 1,969,725 ------------ PHARMACEUTICALS -- 1.6% 33,434 Mylan, Inc. (b) 1,884,674 ------------ PROFESSIONAL SERVICES -- 1.6% 29,719 Verisk Analytics, Inc., Class A (b) 1,903,502 ------------ See Notes to Financial Statements Page 31 FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (a) (CONTINUED) SOFTWARE -- 3.3% 94,950 Activision Blizzard, Inc. $ 1,913,242 40,518 Electronic Arts, Inc. (b) 1,904,954 ------------ 3,818,196 ------------ SPECIALTY RETAIL -- 8.4% 26,142 Bed Bath & Beyond, Inc. (b) 1,991,236 9,956 O'Reilly Automotive, Inc. (b) 1,917,725 21,124 Ross Stores, Inc. 1,991,148 109,559 Staples, Inc. 1,985,209 25,174 Tractor Supply Co. 1,984,215 ------------ 9,869,533 ------------ TRADING COMPANIES & DISTRIBUTORS -- 1.7% 40,642 Fastenal Co. 1,932,933 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 4.9% 16,993 SBA Communications Corp., Class A (b) 1,882,145 466,689 VimpelCom Ltd., ADR 1,948,427 54,796 Vodafone Group PLC, ADR 1,872,379 ------------ 5,702,951 ------------ TOTAL COMMON STOCKS -- 99.9% 117,047,546 (Cost $97,620,616) MONEY MARKET FUNDS -- 0.1% 167,268 Morgan Stanley Institutional Liquidity Fund - Treasury Portfolio - Institutional Class - 0.03% (c) 167,268 (Cost $167,268) ------------ TOTAL INVESTMENTS -- 100.0% 117,214,814 (Cost $97,787,884) (d) NET OTHER ASSETS AND LIABILITIES -- (0.0)% (20,130) ------------ NET ASSETS -- 100.0% $117,194,684 ============ (a) The industry allocation is based on Standard & Poor's Global Industry Classification Standard (GICS), and is different than the industry sector classification system used by the Index to select securities, which is the Industry Classification Benchmark (ICB) system, which is maintained by FTSE International Limited. (b) Non-income producing security. (c) Interest rate shown reflects yield as of December 31, 2014. (d) Aggregate cost for federal income tax purposes is $99,083,617. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $20,613,725 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $2,482,528. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $117,047,546 $ -- $ -- Money Market Funds 167,268 -- -- ----------------------------------------------- Total Investments $117,214,814 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014 Page 32 See Notes to Financial Statements FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 3.9% 84,962 Hexcel Corp. (a) $ 3,525,073 ------------ AUTOMOBILES -- 7.5% 30,083 Tesla Motors, Inc. (a) 6,690,760 ------------ CONSTRUCTION & ENGINEERING -- 0.3% 40,142 Ameresco, Inc., Class A (a) 280,994 ------------ ELECTRIC UTILITIES -- 8.3% 183,972 ITC Holdings Corp. 7,437,988 ------------ ELECTRICAL EQUIPMENT -- 11.3% 187,053 Ballard Power Systems, Inc. (a) (b) 370,365 467,571 Capstone Turbine Corp. (a) (b) 345,675 136,243 China Ming Yang Wind Power Group Ltd., ADR (a) (b) 298,372 61,770 Enphase Energy, Inc. (a) (b) 882,693 401,978 FuelCell Energy, Inc. (a) (b) 619,046 14,285 Hydrogenics Corp. (a) (b) 189,848 245,139 Plug Power, Inc. (a) (b) 735,417 31,675 PowerSecure International, Inc. (a) 369,014 183,783 Revolution Lighting Technologies, Inc. (a) (b) 248,107 113,407 SolarCity Corp. (a) (b) 6,065,007 ------------ 10,123,544 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 8.8% 237,821 AVX Corp. 3,329,494 55,306 Itron, Inc. (a) 2,338,891 42,269 Maxwell Technologies, Inc. (a) (b) 385,493 64,666 Universal Display Corp. (a) (b) 1,794,482 ------------ 7,848,360 ------------ INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 1.8% 65,886 Pattern Energy Group, Inc. 1,624,749 ------------ INTERNET SOFTWARE & SERVICES -- 1.1% 70,575 OPOWER, Inc. (a) (b) 1,004,282 ------------ MACHINERY -- 1.5% 37,261 ESCO Technologies, Inc. 1,374,931 ------------ OIL, GAS & CONSUMABLE FUELS -- 3.1% 111,968 Amyris, Inc. (a) (b) 230,654 53,255 Green Plains, Inc. 1,319,659 34,669 Pacific Ethanol, Inc. (a) 358,131 59,904 Renewable Energy Group, Inc. (a) 581,668 112,284 Solazyme, Inc. (a) (b) 289,692 ------------ 2,779,804 ------------ REAL ESTATE INVESTMENT TRUSTS -- 0.6% 38,723 Hannon Armstrong Sustainable Infrastructure Capital, Inc. 551,028 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 50.4% 56,774 Advanced Energy Industries, Inc. (a) $ 1,345,544 77,725 Canadian Solar, Inc. (a) (b) 1,880,168 101,212 Cree, Inc. (a) (b) 3,261,051 168,175 Fairchild Semiconductor International, Inc. (a) 2,838,794 75,369 First Solar, Inc. (a) 3,361,081 44,667 IXYS Corp. 562,804 61,250 JA Solar Holdings Co., Ltd., ADR (a) (b) 501,331 31,817 JinkoSolar Holding Co., Ltd., ADR (a) (b) 627,113 159,810 Linear Technology Corp. 7,287,336 134,575 Microsemi Corp. (a) 3,819,239 407,312 ON Semiconductor Corp. (a) 4,126,071 41,807 Power Integrations, Inc. 2,163,094 116,243 ReneSola Ltd., ADR (a) (b) 163,903 37,030 Rubicon Technology, Inc. (a) (b) 169,227 320,096 SunEdison, Inc. (a) 6,245,073 130,612 SunPower Corp. (a) (b) 3,373,708 106,098 Trina Solar Ltd., ADR (a) (b) 982,467 56,946 Veeco Instruments, Inc. (a) 1,986,276 182,081 Yingli Green Energy Holding Co., Ltd., ADR (a) (b) 427,890 ------------ 45,122,170 ------------ SOFTWARE -- 1.4% 41,311 EnerNOC, Inc. (a) 638,255 69,064 Silver Spring Networks, Inc. (a) (b) 582,209 ------------ 1,220,464 ------------ TOTAL COMMON STOCKS -- 100.0% 89,584,147 (Cost $98,289,196) ------------ MONEY MARKET FUNDS -- 1.4% 1,286,093 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 0.01% (c) (d) 1,286,093 (Cost $1,286,093) ------------ PRINCIPAL VALUE ------------ REPURCHASE AGREEMENTS -- 16.8% $ 2,823,634 JPMorgan Chase & Co., 0.06% (c), dated 12/31/14, due 01/02/15, with a maturity value of $2,823,643. Collateralized by U.S. Treasury Notes, interest rates of 0.750% to 1.250%, due 01/15/17 to 11/30/18. The value of the collateral including accrued interest is $2,889,205. (d) 2,823,634 See Notes to Financial Statements Page 33 FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 PRINCIPAL VALUE DESCRIPTION VALUE ------------------------------------------------------------ $ 12,268,675 RBC Capital Markets LLC, 0.06% (c), dated 12/31/14, due 01/02/15, with a maturity value of $12,268,716. Collateralized by U.S. Treasury Notes, interest rates of 0.250% to 1.750%, due 12/31/15 to 09/30/19. The value of the collateral including accrued interest is $12,550,380. (d) $ 12,268,675 ------------ TOTAL REPURCHASE AGREEMENTS -- 16.8% 15,092,309 (Cost $15,092,309) ------------ TOTAL INVESTMENTS -- 118.2% 105,962,549 (Cost $114,667,598) (e) NET OTHER ASSETS AND LIABILITIES -- (18.2)% (16,346,652) ------------ NET ASSETS -- 100.0% $ 89,615,897 ============ (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2F - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $15,995,198 and the total value of the collateral held by the Fund is $16,378,402. (c) Interest rate shown reflects yield as of December 31, 2014. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $116,093,593. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $6,337,312 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $16,468,356. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $89,584,147 $ -- $ -- Money Market Funds 1,286,093 -- -- Repurchase Agreements -- 15,092,309 -- ----------------------------------------------- Total Investments $90,870,240 $15,092,309 $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. Page 34 See Notes to Financial Statements FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 ----------------------------- OFFSETTING ASSETS AND LIABILITIES -------------------------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2D - Offsetting on the Statements of Assets and Liabilities). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------ Total gross amount presented on the Statements of Assets and Liabilities(1) $ 15,995,198 Non-cash Collateral(2) (15,995,198) ------------------------------------------------------------ Net Amount $ -- ============ (1) The amount presented on the Statements of Assets and Liabilities is not offset and is shown on a gross basis. (2) At December 31, 2014, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. The Fund's investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows: REPURCHASE AGREEMENTS ------------------------------------------------------------ Total gross amount presented on the Statements of Assets and Liabilities(3) $ 15,092,309 Non-cash Collateral(4) (15,092,309) ------------------------------------------------------------ Net Amount $ -- ============ (3) The amount is included in "Repurchase agreements, at value" on the Statements of Assets and Liabilities. (4) At December 31, 2014, the value of the collateral received from the seller exceeded the value of the repurchase agreements. See Notes to Financial Statements Page 35 FIRST TRUST S&P REIT INDEX FUND (FRI) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (a) -- 99.5% DIVERSIFIED REITS -- 10.0% 17,960 American Assets Trust, Inc. $ 714,988 439,932 American Realty Capital Properties, Inc. 3,981,385 12,123 Armada Hoffler Properties, Inc. 115,047 114,796 Chambers Street Properties 925,256 99,659 Cousins Properties, Inc. 1,138,106 165,575 Duke Realty Corp. 3,344,615 47,615 Empire State Realty Trust, Inc., Class A 837,072 28,493 First Potomac Realty Trust 352,173 9,168 Gladstone Commercial Corp. 157,414 55,785 Investors Real Estate Trust 455,763 101,277 Lexington Realty Trust 1,112,021 71,979 Liberty Property Trust 2,708,570 6,600 One Liberty Properties, Inc. 156,222 9,391 PS Business Parks, Inc. 746,960 18,016 Select Income REIT 439,771 193,121 Spirit Realty Capital, Inc. 2,296,209 84,603 Vornado Realty Trust 9,958,619 32,304 Washington Real Estate Investment Trust 893,529 11,067 Whitestone REIT 167,222 46,874 WP Carey, Inc. 3,285,867 ------------ 33,786,809 ------------ HEALTH CARE REITS -- 13.3% 11,902 Aviv REIT, Inc. 410,381 13,547 CareTrust REIT, Inc. 167,034 222,531 HCP, Inc. 9,798,040 158,778 Health Care REIT, Inc. 12,014,731 47,569 Healthcare Realty Trust, Inc. 1,299,585 57,895 Healthcare Trust of America, Inc., Class A 1,559,691 16,886 LTC Properties, Inc. 728,969 83,561 Medical Properties Trust, Inc. 1,151,471 15,920 National Health Investors, Inc. 1,113,763 32,169 New Senior Investment Group, Inc. 529,180 61,743 OMEGA Healthcare Investors, Inc. 2,412,299 22,959 Physicians Realty Trust 381,119 26,419 Sabra Health Care REIT, Inc. 802,345 98,787 Senior Housing Properties Trust 2,184,181 6,270 Universal Health Realty Income Trust 301,712 142,608 Ventas, Inc. 10,224,994 ------------ 45,079,495 ------------ HOTEL & RESORT REITS -- 7.9% 11,446 Ashford Hospitality Prime, Inc. 196,414 37,711 Ashford Hospitality Trust, Inc. 395,211 16,469 Chatham Lodging Trust 477,107 26,592 Chesapeake Lodging Trust 989,488 94,821 DiamondRock Hospitality Co. 1,409,988 53,599 FelCor Lodging Trust, Inc. 579,941 97,264 Hersha Hospitality Trust 683,766 72,632 Hospitality Properties Trust 2,251,592 366,960 Host Hotels & Resorts, Inc. 8,722,639 54,110 LaSalle Hotel Properties 2,189,832 SHARES DESCRIPTION VALUE ------------------------------------------------------------ HOTEL & RESORT REITS (CONTINUED) 34,604 Pebblebrook Hotel Trust $ 1,578,981 63,968 RLJ Lodging Trust 2,144,847 24,723 Ryman Hospitality Properties, Inc. 1,303,891 129,558 Strategic Hotels & Resorts, Inc. (b) 1,714,052 41,673 Summit Hotel Properties, Inc. 518,412 99,525 Sunstone Hotel Investors, Inc. 1,643,158 ------------ 26,799,319 ------------ INDUSTRIAL REITS -- 4.7% 42,673 DCT Industrial Trust, Inc. 1,521,719 15,471 EastGroup Properties, Inc. 979,624 53,569 First Industrial Realty Trust, Inc. 1,101,379 27,364 Monmouth Real Estate Investment Corp. 302,919 242,271 Prologis, Inc. 10,424,921 19,798 Rexford Industrial Realty, Inc. 311,027 31,219 STAG Industrial, Inc. 764,865 20,101 Terreno Realty Corp. 414,684 ------------ 15,821,138 ------------ OFFICE REITS -- 13.4% 34,887 Alexandria Real Estate Equities, Inc. 3,095,872 95,669 BioMed Realty Trust, Inc. 2,060,710 74,182 Boston Properties, Inc. 9,546,482 86,729 Brandywine Realty Trust 1,385,929 60,555 Columbia Property Trust, Inc. 1,535,069 10,524 CoreSite Realty Corp. 410,962 44,830 Corporate Office Properties Trust 1,271,827 17,040 CyrusOne, Inc. 469,452 65,661 Digital Realty Trust, Inc. 4,353,324 65,964 Douglas Emmett, Inc. 1,873,378 31,906 DuPont Fabros Technology, Inc. 1,060,556 62,451 Equity Commonwealth 1,603,117 43,208 Franklin Street Properties Corp. 530,162 34,088 Government Properties Income Trust 784,365 75,781 Gramercy Property Trust, Inc. 522,889 44,223 Highwoods Properties, Inc. 1,958,195 26,639 Hudson Pacific Properties, Inc. 800,768 40,675 Kilroy Realty Corp. 2,809,422 40,551 Mack-Cali Realty Corp. 772,902 78,589 New York REIT, Inc. 832,258 40,797 Parkway Properties, Inc. 750,257 74,776 Piedmont Office Realty Trust, Inc., Class A 1,408,780 5,784 QTS Realty Trust, Inc., Class A 195,731 46,771 SL Green Realty Corp. 5,566,684 ------------ 45,599,091 ------------ RESIDENTIAL REITS -- 16.1% 50,931 American Campus Communities, Inc. 2,106,506 68,655 American Homes 4 Rent, Class A 1,169,195 15,607 American Residential Properties, Inc. (b) 274,215 70,841 Apartment Investment & Management Co., Class A 2,631,743 27,931 Associated Estates Realty Corp. 648,279 63,960 AvalonBay Communities, Inc. 10,450,424 41,860 Camden Property Trust 3,090,942 Page 36 See Notes to Financial Statements FIRST TRUST S&P REIT INDEX FUND (FRI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (a) (CONTINUED) RESIDENTIAL REITS (CONTINUED) 31,372 Campus Crest Communities, Inc. $ 229,329 23,013 Education Realty Trust, Inc. 842,046 38,630 Equity LifeStyle Properties, Inc. 1,991,376 175,580 Equity Residential 12,613,667 30,979 Essex Property Trust, Inc. 6,400,261 27,798 Home Properties, Inc. 1,823,549 11,714 Independence Realty Trust, Inc. 109,057 36,470 Mid-America Apartment Communities, Inc. 2,723,580 26,388 Post Properties, Inc. 1,550,823 9,628 Preferred Apartment Communities, Inc., Class A 87,615 18,109 Silver Bay Realty Trust Corp. 299,885 18,299 Starwood Waypoint Residential Trust 482,545 21,865 Sun Communities, Inc. 1,321,958 6,936 Trade Street Residential, Inc. 53,338 123,668 UDR, Inc. 3,811,448 10,534 UMH Properties, Inc. 100,600 ------------ 54,812,381 ------------ RETAIL REITS -- 25.5% 32,752 Acadia Realty Trust 1,049,047 8,343 Agree Realty Corp. 259,384 1,604 Alexander's, Inc. 701,237 8,776 AmREIT, Inc. 232,915 66,056 Brixmor Property Group, Inc. 1,640,831 82,508 CBL & Associates Properties, Inc. 1,602,305 33,387 Cedar Realty Trust, Inc. 245,061 144,966 DDR Corp. 2,661,576 37,201 Equity One, Inc. 943,417 29,615 Excel Trust, Inc. 396,545 33,012 Federal Realty Investment Trust 4,405,782 304,062 General Growth Properties, Inc. 8,553,264 12,632 Getty Realty Corp. 230,029 70,599 Glimcher Realty Trust 970,030 42,691 Inland Real Estate Corp. 467,467 199,357 Kimco Realty Corp. 5,011,835 40,450 Kite Realty Group Trust 1,162,533 68,181 Macerich (The) Co. 5,686,977 63,905 National Retail Properties, Inc. 2,515,940 33,331 Pennsylvania Real Estate Investment Trust 781,945 37,580 Ramco-Gershenson Properties Trust 704,249 107,907 Realty Income Corp. 5,148,243 45,177 Regency Centers Corp. 2,881,389 45,051 Retail Opportunity Investments Corp. 756,406 114,448 Retail Properties of America, Inc., Class A 1,910,137 16,782 Rouse Properties, Inc. 310,803 5,468 Saul Centers, Inc. 312,715 150,593 Simon Property Group, Inc. 27,424,491 46,471 Tanger Factory Outlet Centers, Inc. 1,717,568 30,679 Taubman Centers, Inc. 2,344,489 13,342 Urstadt Biddle Properties, Inc., Class A 291,923 SHARES DESCRIPTION VALUE ------------------------------------------------------------ RETAIL REITS (CONTINUED) 75,178 Washington Prime Group, Inc. $ 1,294,565 54,507 Weingarten Realty Investors 1,903,384 ------------ 86,518,482 ------------ SPECIALIZED REITS -- 8.6% 56,443 Corrections Corp. of America 2,051,139 78,920 CubeSmart 1,741,764 27,698 EPR Properties 1,596,236 53,551 Extra Space Storage, Inc. 3,140,231 43,588 Gaming and Leisure Properties, Inc. 1,278,872 35,931 Geo Group, (The), Inc. 1,450,175 90,352 Iron Mountain, Inc. 3,493,008 70,298 Public Storage 12,994,585 16,357 Sovran Self Storage, Inc. 1,426,658 ------------ 29,172,668 ------------ TOTAL COMMON STOCKS -- 99.5% 337,589,383 (Cost $321,046,483) ------------ MONEY MARKET FUNDS -- 0.1% 338,626 Morgan Stanley Institutional Liquidity Fund - Treasury Portfolio - Institutional Class - 0.03% (c) 338,626 (Cost $338,626) ------------ TOTAL INVESTMENTS -- 99.6% 337,928,009 (Cost $321,385,109) (d) NET OTHER ASSETS AND LIABILITIES -- 0.4% 1,201,688 ------------ NET ASSETS -- 100.0% $339,129,697 ============ (a) The industry classification is based upon standard & Poor's Global Industry Classification Standard (GICS) Sub-Industry. (b) Non-income producing security. (c) Interest rate shown reflects yield as of December 31, 2014. (d) Aggregate cost for federal income tax purposes is $322,338,768. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $19,157,128 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $3,567,887. See Notes to Financial Statements Page 37 FIRST TRUST S&P REIT INDEX FUND (FRI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $337,589,383 $ -- $ -- Money Market Funds 338,626 -- -- ----------------------------------------------- Total Investments $337,928,009 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. Page 38 See Notes to Financial Statements FIRST TRUST ISE WATER INDEX FUND (FIW) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.1% CHEMICALS -- 5.5% 57,044 Ashland, Inc. $ 6,831,590 193,058 Calgon Carbon Corp. (a) 4,011,745 ------------ 10,843,335 ------------ COMMERCIAL SERVICES & SUPPLIES -- 2.0% 147,092 Tetra Tech, Inc. 3,927,356 ------------ CONSTRUCTION & ENGINEERING -- 8.3% 128,180 AECOM (a) 3,892,827 139,864 Aegion Corp. (a) 2,602,869 286,534 Layne Christensen Co. (a) 2,733,534 242,458 Northwest Pipe Co. (a) 7,302,835 ------------ 16,532,065 ------------ DIVERSIFIED FINANCIAL SERVICES -- 1.3% 135,518 PICO Holdings, Inc. (a) 2,554,514 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 5.4% 138,015 Badger Meter, Inc. 8,191,190 58,912 Itron, Inc. (a) 2,491,389 ------------ 10,682,579 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 1.9% 25,316 IDEXX Laboratories, Inc. (a) 3,753,603 ------------ INDUSTRIAL CONGLOMERATES -- 6.4% 78,735 Danaher Corp. 6,748,377 37,713 Roper Industries, Inc. 5,896,428 ------------ 12,644,805 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.9% 94,876 Agilent Technologies, Inc. 3,884,224 ------------ MACHINERY -- 44.4% 104,390 Crane Co. 6,127,693 1,397,216 Energy Recovery, Inc. (a) 7,363,328 68,680 Flowserve Corp. 4,109,125 225,851 Gorman-Rupp (The) Co. 7,254,334 75,815 IDEX Corp. 5,901,440 85,039 Lindsay Corp. 7,291,244 114,893 Mueller Industries, Inc. 3,922,447 386,116 Mueller Water Products, Inc., Class A 3,953,828 60,606 Pall Corp. 6,133,933 125,575 Pentair PLC 8,340,692 291,792 Rexnord Corp. (a) 8,231,452 29,222 Valmont Industries, Inc. 3,711,194 125,303 Watts Water Technologies, Inc., Class A 7,949,222 208,204 Xylem, Inc. 7,926,326 ------------ 88,216,258 ------------ WATER UTILITIES -- 23.0% 68,668 American States Water Co. 2,586,037 143,918 American Water Works Co., Inc. 7,670,829 290,891 Aqua America, Inc. 7,766,790 SHARES DESCRIPTION VALUE ------------------------------------------------------------ WATER UTILITIES (CONTINUED) 537,571 Cadiz, Inc. (a) $ 6,020,795 320,723 California Water Service Group 7,892,993 1,152,444 Cia de Saneamento Basico do Estado de Sao Paulo, ADR 7,248,873 377,226 Consolidated Water Co., Ltd. 4,028,774 79,011 SJW Corp. 2,537,833 ------------ 45,752,924 ------------ TOTAL COMMON STOCKS -- 100.1% 198,791,663 (Cost $177,199,074) ------------ MONEY MARKET FUNDS -- 0.3% 650,198 Morgan Stanley Institutional Liquidity Fund - Treasury Portfolio - Institutional Class - 0.03% (b) 650,198 (Cost $650,198) ------------ TOTAL INVESTMENTS -- 100.4% 199,441,861 (Cost $177,849,272) (c) NET OTHER ASSETS AND LIABILITIES -- (0.4)% (891,668) ------------ NET ASSETS -- 100.0% $198,550,193 ============ (a) Non-income producing security. (b) Interest rate shown reflects yield as of December 31, 2014. (c) Aggregate cost for federal income tax purposes is $179,094,377. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $28,234,151 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $7,886,667. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $198,791,663 $ -- $ -- Money Market Funds 650,198 -- -- ----------------------------------------------- Total Investments $199,441,861 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. See Notes to Financial Statements Page 39 FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% OIL, GAS & CONSUMABLE FUELS -- 100.0% 115,116 Anadarko Petroleum Corp. $ 9,497,070 149,585 Apache Corp. 9,374,492 280,577 Cabot Oil & Gas Corp. 8,307,885 489,707 Chesapeake Energy Corp. 9,583,566 85,712 Cimarex Energy Co. 9,085,472 1,605,044 Comstock Resources, Inc. (a) 10,930,350 159,264 Devon Energy Corp. 9,748,549 692,582 Encana Corp. 9,606,112 106,813 EQT Corp. 8,085,744 3,769,004 EXCO Resources, Inc. (a) 8,178,739 2,148,236 Goodrich Petroleum Corp. (a) (b) 9,538,168 2,542,942 Magnum Hunter Resources Corp. (a) (b) 7,984,838 553,974 Matador Resources Co. (b) 11,206,894 349,878 Newfield Exploration Co. (b) 9,488,691 192,489 Noble Energy, Inc. 9,129,753 435,857 QEP Resources, Inc. 8,813,029 155,825 Range Resources Corp. 8,328,846 4,716,519 SandRidge Energy, Inc. (a) (b) 8,584,065 273,754 SM Energy Co. 10,561,429 294,065 Southwestern Energy Co. (b) 8,025,034 520,183 Statoil ASA, ADR 9,160,423 618,957 Stone Energy Corp. (b) 10,447,994 2,741,081 Swift Energy Co. (a) (b) 11,101,378 1,967,964 Talisman Energy, Inc. 15,409,158 575,107 Ultra Petroleum Corp. (a) (b) 7,568,408 783,897 WPX Energy, Inc. (b) 9,116,722 ------------ TOTAL COMMON STOCKS -- 100.0% 246,862,809 (Cost $407,809,050) ------------ WARRANTS -- 0.0% OIL, GAS & CONSUMABLE FUELS -- 0.0% 495,122 Magnum Hunter Resources Corp., expiring 04/15/16 @ $0 (a) (b) (c) 0 (Cost $8,995) ------------ MONEY MARKET FUNDS -- 1.5% 3,771,235 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 0.01% (d) (e) 3,771,235 (Cost $3,771,235) ------------ PRINCIPAL VALUE DESCRIPTION VALUE ------------------------------------------------------------ REPURCHASE AGREEMENTS -- 17.9% $ 8,279,800 JPMorgan Chase & Co., 0.06% (d), dated 12/31/14, due 01/02/15, with a maturity value of $8,279,827. Collateralized by U.S. Treasury Notes, interest rates of 0.750% to 1.250%, due 01/15/17 to 11/30/18. The value of the collateral including accrued interest is $8,472,074. (e) $ 8,279,800 35,975,690 RBC Capital Markets LLC, 0.06% (d), dated 12/31/14, due 01/02/15, with a maturity value of $35,975,810. Collateralized by U.S. Treasury Notes, interest rates of 0.250% to 1.750%, due 12/31/15 to 09/30/19. The value of the collateral including accrued interest is $36,801,737. (e) 35,975,690 ------------ TOTAL REPURCHASE AGREEMENTS -- 17.9% 44,255,490 (Cost $44,255,490) ------------ TOTAL INVESTMENTS -- 119.4% 294,889,534 (Cost $455,844,770) (f) NET OTHER ASSETS AND LIABILITIES -- (19.4)% (47,943,974) ------------ NET ASSETS -- 100.0% $246,945,560 ============ (a) All or a portion of this security is on loan. (See Note 2F - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $46,149,597 and the total value of the collateral held by the Fund is $48,026,725. (b) Non-income producing security. (c) This security is fair valued by the Advisor's Pricing Committee in accordance with procedures adopted by the Trust's Board of Trustees and in accordance with the provisions of the Investment Company Act of 1940, as amended. At December 31, 2014, securities noted as such amounted to $0, or 0.00% of net assets. (d) Interest rate shown reflects yield as of December 31, 2014. (e) This security serves as collateral for securities on loan. (f) Aggregate cost for federal income tax purposes is $476,800,078. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $249,586 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $182,160,130. ADR - American Depositary Receipt Page 40 See Notes to Financial Statements FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $246,862,809 $ -- $ -- Money Market Funds 3,771,235 -- -- Repurchase Agreements -- 44,255,490 -- Warrants* -- -- ** -- ----------------------------------------------- Total Investments $250,634,044 $44,255,490 $ -- =============================================== * See Portfolio of Investments for industry breakout. ** Investment is valued at $0. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. ----------------------------- OFFSETTING ASSETS AND LIABILITIES -------------------------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2D - Offsetting on the Statements of Assets and Liabilities). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------ Total gross amount presented on the Statements of Assets and Liabilities(1) $ 46,149,597 Non-cash Collateral(2) (46,149,597) ------------------------------------------------------------ Net Amount $ -- ============ (1) The amount presented on the Statements of Assets and Liabilities is not offset and is shown on a gross basis. (2) At December 31, 2014, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. The Fund's investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows: REPURCHASE AGREEMENTS ------------------------------------------------------------ Total gross amount presented on the Statements of Assets and Liabilities(3) $ 44,255,490 Non-cash Collateral(4) (44,255,490) ------------------------------------------------------------ Net Amount $ -- ============ (3) The amount is included in "Repurchase agreements, at value" on the Statements of Assets and Liabilities. (4) At December 31, 2014, the value of the collateral received from the seller exceeded the value of the repurchase agreements. See Notes to Financial Statements Page 41 FIRST TRUST ISE CHINDIA INDEX FUND (FNI) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AUTOMOBILES -- 4.8% 61,814 Kandi Technologies Group, Inc. (a) (b) $ 866,014 105,108 Tata Motors Ltd., ADR 4,443,966 ------------ 5,309,980 ------------ BANKS -- 14.2% 157,503 HDFC Bank Ltd., ADR 7,993,277 676,666 ICICI Bank Ltd., ADR 7,815,493 ------------ 15,808,770 ------------ DIVERSIFIED CONSUMER SERVICES -- 1.3% 36,595 New Oriental Education & Technology Group, Inc., ADR (b) 746,904 26,150 TAL Education Group, ADR (b) 734,553 ------------ 1,481,457 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4% 13,792 China Telecom Corp., Ltd., ADR 809,729 56,796 China Unicom (Hong Kong) Ltd., ADR 763,906 ------------ 1,573,635 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 0.7% 27,924 Mindray Medical International Ltd., ADR (a) 737,194 ------------ HOTELS, RESTAURANTS & LEISURE -- 2.8% 38,422 500.com Ltd., Class A, ADR (a) (b) 666,622 95,716 Melco Crown Entertainment Ltd., ADR 2,431,186 ------------ 3,097,808 ------------ INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 0.7% 15,457 Huaneng Power International, Inc., ADR 837,306 ------------ INSURANCE -- 0.8% 15,167 China Life Insurance Co., Ltd., ADR (a) 890,455 ------------ INTERNET & CATALOG RETAIL -- 16.8% 49,378 Ctrip.com International Ltd., ADR (b) 2,246,699 82,930 E-Commerce China Dangdang, Inc., Class A, ADR (a) (b) 770,420 326,900 JD.com, Inc., ADR (a) (b) 7,564,466 57,006 Jumei International Holding Ltd., ADR (a) (b) 776,422 81,857 MakeMyTrip Ltd. (b) 2,127,463 SHARES DESCRIPTION VALUE ------------------------------------------------------------ INTERNET & CATALOG RETAIL (CONTINUED) 28,524 Qunar Cayman Islands Ltd., ADR (a) (b) $ 810,937 227,289 Vipshop Holdings Ltd., ADR (b) 4,441,227 ------------ 18,737,634 ------------ INTERNET SOFTWARE & SERVICES -- 19.0% 48,956 21Vianet Group, Inc., ADR (a) (b) 757,349 17,889 58.com, Inc., ADR (a) (b) 743,288 21,360 Autohome, Inc., ADR (b) 776,650 34,170 Baidu, Inc., ADR (b) 7,789,735 11,124 Bitauto Holdings Ltd., ADR (b) 783,241 71,060 Leju Holdings Ltd., ADR (a) (b) 764,606 7,738 NetEase, Inc., ADR 767,145 74,354 Qihoo 360 Technology Co., Ltd., ADR (b) 4,257,510 20,624 SINA Corp. (b) 771,544 16,093 Sohu.com, Inc. (b) 855,826 99,558 SouFun Holdings Ltd., ADR 735,734 48,009 Weibo Corp., ADR (a) (b) 683,648 43,187 Youku Tudou, Inc., ADR (b) 769,160 11,959 YY, Inc., ADR (a) (b) 745,524 ------------ 21,200,960 ------------ IT SERVICES -- 13.1% 250,585 Infosys Ltd., ADR 7,883,404 400,501 Wipro Ltd., ADR (a) 4,533,671 109,103 WNS Holdings Ltd., ADR (b) 2,254,068 ------------ 14,671,143 ------------ LIFE SCIENCES TOOLS & SERVICES -- 0.7% 22,635 WuXi PharmaTech Cayman, Inc., ADR (b) 762,120 ------------ METALS & MINING -- 2.0% 168,331 Sesa Sterlite Ltd., ADR 2,285,935 ------------ OIL, GAS & CONSUMABLE FUELS -- 3.6% 10,110 China Petroleum & Chemical Corp., ADR 819,011 17,634 CNOOC Ltd., ADR (a) 2,388,349 7,544 PetroChina Co., Ltd., ADR (a) 837,082 ------------ 4,044,442 ------------ PHARMACEUTICALS -- 3.8% 83,072 Dr. Reddy's Laboratories Ltd., ADR 4,190,982 ------------ PROFESSIONAL SERVICES -- 0.7% 23,257 51job, Inc., ADR (b) 833,763 ------------ REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.6% 92,945 E-House China Holdings Ltd., ADR 672,922 ------------ Page 42 See Notes to Financial Statements FIRST TRUST ISE CHINDIA INDEX FUND (FNI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.4% 39,285 JinkoSolar Holding Co., Ltd., ADR (a) (b) $ 774,308 87,255 Trina Solar Ltd., ADR (a) (b) 807,981 ------------ 1,582,289 ------------ SOFTWARE -- 0.7% 49,175 Cheetah Mobile, Inc., ADR (a) (b) 743,526 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 6.8% 101,803 Michael Kors Holdings Ltd. (b) 7,645,405 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 4.1% 77,534 China Mobile Ltd., ADR 4,560,550 ------------ TOTAL COMMON STOCKS -- 100.0% 111,668,276 (Cost $102,840,356) ------------ MONEY MARKET FUNDS -- 1.2% 1,325,502 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 0.01% (c) (d) 1,325,502 (Cost $1,325,502) ------------ PRINCIPAL VALUE ------------ REPURCHASE AGREEMENTS -- 13.9% $ 2,910,158 JPMorgan Chase & Co., 0.06% (c), dated 12/31/14, due 01/02/15, with a maturity value of $2,910,167. Collateralized by U.S. Treasury Notes, interest rates of 0.750% to 1.250%, due 01/15/17 to 11/30/18. The value of the collateral including accrued interest is $2,977,737. (d) 2,910,158 12,644,620 RBC Capital Markets LLC, 0.06% (c), dated 12/31/14, due 01/02/15, with a maturity value of $12,644,662. Collateralized by U.S. Treasury Notes, interest rates of 0.250% to 1.750%, due 12/31/15 to 09/30/19. The value of the collateral including accrued interest is $12,934,957. (d) 12,644,620 ------------ TOTAL REPURCHASE AGREEMENTS -- 13.9% 15,554,778 (Cost $15,554,778) ------------ TOTAL INVESTMENTS -- 115.1% 128,548,556 (Cost $119,720,636) (e) NET OTHER ASSETS AND LIABILITIES -- (15.1)% (16,885,212) ------------ NET ASSETS -- 100.0% $111,663,344 ============ (a) All or a portion of this security is on loan. (See Note 2F - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $16,412,925 and the total value of the collateral held by the Fund is $16,880,280. (b) Non-income producing security. (c) Interest rate shown reflects yield as of December 31, 2014. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $121,101,831. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $12,891,636 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $5,444,911. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $111,668,276 $ -- $ -- Money Market Funds 1,325,502 -- -- Repurchase Agreements -- 15,554,778 -- ----------------------------------------------- Total Investments $112,993,778 $15,554,778 $ -- =============================================== All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. COUNTRY ALLOCATIONS AS A PERCENTAGE OF NET ASSETS**: ---------------------------------------------------- Cayman Islands 42.0% India 35.1 United States 16.6 Hong Kong 6.9 British Virgin Islands 6.8 China 3.8 Jersey 2.0 Mauritius 1.9 Net Other Assets and Liabilities (15.1) ------- 100.0% ======= * See Portfolio of Investments for industry breakout. ** Portfolio securities are categorized based on their country of incorporation. See Notes to Financial Statements Page 43 FIRST TRUST ISE CHINDIA INDEX FUND (FNI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 ----------------------------- OFFSETTING ASSETS AND LIABILITIES -------------------------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2D - Offsetting on the Statements of Assets and Liabilities). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------ Total gross amount presented on the Statements of Assets and Liabilities(1) $ 16,412,925 Non-cash Collateral(2) (16,412,925) ------------------------------------------------------------ Net Amount $ -- ============ (1) The amount presented on the Statements of Assets and Liabilities is not offset and is shown on a gross basis. (2) At December 31, 2014, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. The Fund's investments in repurchase agreements were all subject to an enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis were as follows: REPURCHASE AGREEMENTS ------------------------------------------------------------ Total gross amount presented on the Statements of Assets and Liabilities(3) $ 15,554,778 Non-cash Collateral(3) (15,554,778) ------------------------------------------------------------ Net Amount $ -- ============ (3) The amount is included in "Repurchase agreements, at value" on the Statements of Assets and Liabilities. (4) At December 31, 2014, the value of the collateral received from the seller exceeded the value of the repurchase agreements. Page 44 See Notes to Financial Statements FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.9% BANKS -- 87.6% 15,725 1st Source Corp. $ 539,525 18,558 Ameris Bancorp 475,827 8,308 Arrow Financial Corp. 228,387 10,206 BancFirst Corp. 646,958 24,850 Bancorp (The), Inc. (a) 270,616 3,910 Bank of Marin Bancorp 205,627 52,526 Bank of the Ozarks, Inc. 1,991,786 12,898 Banner Corp. 554,872 52,389 BBCN Bancorp, Inc. 753,354 19,438 BNC Bancorp 334,528 45,693 BOK Financial Corp. 2,743,408 54,551 Boston Private Financial Holdings, Inc. 734,802 9,050 Bryn Mawr Bank Corp. 283,265 4,891 Camden National Corp. 194,857 19,782 Capital Bank Financial Corp., Class A (a) 530,158 21,108 Cardinal Financial Corp. 418,572 47,766 Cascade Bancorp (a) 247,906 52,525 Cathay General Bancorp 1,344,115 29,798 Centerstate Banks, Inc. 354,894 21,591 Chemical Financial Corp. 661,548 10,028 City Holding Co. 466,603 26,818 CoBiz Financial, Inc. 352,120 35,078 Columbia Banking System, Inc. 968,504 63,457 Commerce Bancshares, Inc. 2,759,745 11,491 Community Trust Bancorp, Inc. 420,686 19,549 ConnectOne Bancorp, Inc. 371,431 69,739 CVB Financial Corp. 1,117,219 19,799 Eagle Bancorp, Inc. (a) 703,260 94,601 East West Bancorp, Inc. 3,662,005 13,038 Enterprise Financial Services Corp. 257,240 14,055 Fidelity Southern Corp. 226,426 9,291 Financial Institutions, Inc. 233,669 12,986 First Bancorp. 239,851 57,236 First Busey Corp. 372,606 5,658 First Citizens BancShares, Inc., Class A 1,430,286 12,128 First Community Bancshares, Inc. 199,748 40,444 First Financial Bancorp 751,854 42,219 First Financial Bankshares, Inc. 1,261,504 8,505 First Financial Corp. 302,948 14,332 First Interstate BancSystem, Inc., Class A 398,716 24,812 First Merchants Corp. 564,473 49,619 First Midwest Bancorp, Inc. 848,981 12,241 First NBC Bank Holding Co. (a) 430,883 9,134 First of Long Island (The) Corp. 259,132 108,997 FirstMerit Corp. 2,058,953 19,540 Flushing Financial Corp. 396,076 122,090 Fulton Financial Corp. 1,509,032 8,706 German American Bancorp, Inc. 265,707 49,441 Glacier Bancorp, Inc. 1,372,977 9,047 Great Southern Bancorp, Inc. 358,894 53,754 Hancock Holding Co. 1,650,248 21,025 Hanmi Financial Corp. 458,555 SHARES DESCRIPTION VALUE ------------------------------------------------------------ BANKS (CONTINUED) 12,178 Heartland Financial USA, Inc. $ 330,024 19,939 Heritage Financial Corp. 349,929 44,503 Home BancShares, Inc. 1,431,216 13,511 HomeTrust Bancshares, Inc. (a) 225,093 6,070 Horizon Bancorp 158,670 22,041 IBERIABANK Corp. 1,429,359 15,788 Independent Bank Corp./MA 675,884 15,126 Independent Bank Corp./MI 197,394 11,214 Independent Bank Group, Inc. 438,019 43,887 International Bancshares Corp. 1,164,761 235,763 Investors Bancorp, Inc. 2,646,440 24,983 Lakeland Bancorp, Inc. 292,301 10,905 Lakeland Financial Corp. 474,040 26,365 LegacyTexas Financial Group, Inc. (a) 628,805 14,292 MainSource Financial Group, Inc. 298,989 49,272 MB Financial, Inc. 1,619,078 11,113 Mercantile Bank Corp. 233,595 9,362 Metro Bancorp, Inc. (a) 242,663 97,108 National Penn Bancshares, Inc. 1,022,062 28,815 NBT Bancorp, Inc. 756,970 75,116 Old National Bancorp 1,117,726 18,527 Opus Bank (a) 525,611 11,133 Pacific Premier Bancorp, Inc. (a) 192,935 67,160 PacWest Bancorp 3,053,094 29,556 Park Sterling Corp. 217,237 8,099 Peapack-Gladstone Financial Corp. 150,317 3,168 Penns Woods Bancorp, Inc. 156,056 9,325 Peoples Bancorp, Inc. 241,797 4,974 Peoples Financial Services Corp. 247,108 23,500 Pinnacle Financial Partners, Inc. 929,190 68,181 Popular, Inc. (a) 2,321,563 8,893 Preferred Bank 248,026 51,300 PrivateBancorp, Inc. 1,713,420 20,782 Renasant Corp. 601,223 12,238 Republic Bancorp, Inc., Class A 302,523 19,636 S&T Bancorp, Inc. 585,349 16,502 Sandy Spring Bancorp, Inc. 430,372 21,826 Seacoast Banking Corp. of Florida (a) 300,107 16,338 ServisFirst Bancshares, Inc. 538,337 33,158 Signature Bank (a) 4,176,582 11,877 Simmons First National Corp., Class A 482,800 15,908 South State Corp. 1,067,109 12,467 Southside Bancshares, Inc. 360,421 12,821 Southwest Bancorp, Inc. 222,573 18,919 Square 1 Financial, Inc., Class A (a) 467,299 21,267 State Bank Financial Corp. 424,915 9,694 Stock Yards Bancorp, Inc. 323,198 6,751 Stonegate Bank 199,965 12,249 Sun Bancorp, Inc. (a) 237,631 46,462 Talmer Bancorp, Inc., Class A 652,326 30,118 Texas Capital Bancshares, Inc. (a) 1,636,311 23,507 TowneBank 355,426 14,969 TriCo Bancshares 369,734 18,922 Tristate Capital Holdings, Inc. (a) 193,761 See Notes to Financial Statements Page 45 FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) BANKS (CONTINUED) 44,443 Trustmark Corp. $ 1,090,631 29,980 UMB Financial Corp. 1,705,562 143,165 Umpqua Holdings Corp. 2,435,237 29,954 Union Bankshares Corp. 721,292 45,606 United Bankshares, Inc. 1,707,945 39,707 United Community Banks, Inc. 752,051 10,686 Univest Corp. of Pennsylvania 216,285 11,022 Washington Trust Bancorp, Inc. 442,864 19,298 WesBanco, Inc. 671,570 17,060 Westamerica Bancorporation 836,281 51,604 Wilshire Bancorp, Inc. 522,749 30,785 Wintrust Financial Corp. 1,439,507 133,732 Zions Bancorporation 3,812,699 ------------ 96,197,344 ------------ IT SERVICES -- 0.4% 7,589 Cass Information Systems, Inc. 404,114 ------------ THRIFTS & MORTGAGE FINANCE -- 11.9% 30,686 Bank Mutual Corp. 210,506 49,528 Beneficial Mutual Bancorp, Inc. (a) 607,709 9,762 BofI Holding, Inc. (a) 759,581 46,145 Brookline Bancorp, Inc. 462,834 92,691 Capitol Federal Financial, Inc. 1,184,591 12,034 Charter Financial Corp. 137,789 17,580 Clifton Bancorp, Inc. 238,912 24,286 Dime Community Bancshares, Inc. 395,376 6,157 First Defiance Financial Corp. 209,707 9,791 HomeStreet, Inc. 170,461 36,053 Meridian Bancorp, Inc. (a) 404,515 4,066 Meta Financial Group, Inc. 142,473 32,278 Northfield Bancorp, Inc. 477,714 62,566 Northwest Bancshares, Inc. 783,952 11,210 OceanFirst Financial Corp. 192,139 29,538 Oritani Financial Corp. 454,885 197,848 TFS Financial Corp. 2,944,968 62,535 TrustCo Bank Corp. NY 454,004 32,745 United Community Financial Corp. 175,841 33,657 United Financial Bancorp, Inc. 483,315 64,702 Washington Federal, Inc. 1,433,149 22,683 Waterstone Financial, Inc. 298,282 6,194 WSFS Financial Corp. 476,257 ------------ 13,098,960 ------------ TOTAL INVESTMENTS -- 99.9% 109,700,418 (Cost $103,735,850) (b) NET OTHER ASSETS AND LIABILITIES -- 0.1% 117,763 ------------ NET ASSETS -- 100.0% $109,818,181 ============ (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $104,412,928. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $6,978,201 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,690,711. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $109,700,418 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. Page 46 See Notes to Financial Statements FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.4% AEROSPACE & DEFENSE -- 2.7% 141 Boeing (The) Co. $ 18,327 67 General Dynamics Corp. 9,221 166 Honeywell International, Inc. 16,587 18 L-3 Communications Holdings, Inc. 2,272 57 Lockheed Martin Corp. 10,977 43 Northrop Grumman Corp. 6,338 30 Precision Castparts Corp. 7,226 65 Raytheon Co. 7,031 28 Rockwell Collins, Inc. 2,365 59 Textron, Inc. 2,484 180 United Technologies Corp. 20,700 ------------ 103,528 ------------ AIR FREIGHT & LOGISTICS -- 0.8% 31 C.H. Robinson Worldwide, Inc. 2,322 41 Expeditors International of Washington, Inc. 1,829 56 FedEx Corp. 9,725 148 United Parcel Service, Inc., Class B 16,453 ------------ 30,329 ------------ AIRLINES -- 0.4% 178 Delta Air Lines, Inc. 8,756 144 Southwest Airlines Co. 6,094 ------------ 14,850 ------------ AUTO COMPONENTS -- 0.4% 48 BorgWarner, Inc. 2,638 63 Delphi Automotive PLC 4,581 58 Goodyear Tire & Rubber (The) Co. 1,657 141 Johnson Controls, Inc. 6,816 ------------ 15,692 ------------ AUTOMOBILES -- 0.7% 817 Ford Motor Co. 12,664 286 General Motors Co. 9,984 45 Harley-Davidson, Inc. 2,966 ------------ 25,614 ------------ BANKS -- 6.0% 2,232 Bank of America Corp. 39,930 153 BB&T Corp. 5,950 643 Citigroup, Inc. 34,793 38 Comerica, Inc. 1,780 175 Fifth Third Bancorp 3,566 173 Huntington Bancshares, Inc. 1,820 793 JPMorgan Chase & Co. 49,626 184 KeyCorp 2,557 28 M&T Bank Corp. 3,517 112 PNC Financial Services Group (The), Inc. 10,218 292 Regions Financial Corp. 3,083 111 SunTrust Banks, Inc. 4,651 380 U.S. Bancorp 17,081 1,002 Wells Fargo & Co. 54,930 43 Zions Bancorporation 1,226 ------------ 234,728 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ BEVERAGES -- 2.1% 33 Brown-Forman Corp., Class B $ 2,899 837 Coca-Cola (The) Co. 35,338 47 Coca-Cola Enterprises, Inc. 2,078 36 Constellation Brands, Inc., Class A (a) 3,534 41 Dr. Pepper Snapple Group, Inc. 2,939 34 Molson Coors Brewing Co., Class B 2,534 31 Monster Beverage Corp. (a) 3,359 318 PepsiCo, Inc. 30,070 ------------ 82,751 ------------ BIOTECHNOLOGY -- 2.9% 42 Alexion Pharmaceuticals, Inc. (a) 7,771 161 Amgen, Inc. 25,646 50 Biogen Idec, Inc. (a) 16,973 170 Celgene Corp. (a) 19,016 320 Gilead Sciences, Inc. (a) 30,163 16 Regeneron Pharmaceuticals, Inc. (a) 6,564 51 Vertex Pharmaceuticals, Inc. (a) 6,059 ------------ 112,192 ------------ BUILDING PRODUCTS -- 0.1% 20 Allegion PLC 1,109 76 Masco Corp. 1,915 ------------ 3,024 ------------ CAPITAL MARKETS -- 2.3% 12 Affiliated Managers Group, Inc. (a) 2,547 39 Ameriprise Financial, Inc. 5,158 239 Bank of New York Mellon (The) Corp. 9,696 27 BlackRock, Inc. 9,654 244 Charles Schwab (The) Corp. 7,366 61 E*TRADE Financial Corp. (a) 1,480 83 Franklin Resources, Inc. 4,596 86 Goldman Sachs Group (The), Inc. 16,669 91 Invesco Ltd. 3,596 21 Legg Mason, Inc. 1,121 324 Morgan Stanley 12,571 47 Northern Trust Corp. 3,168 89 State Street Corp. 6,987 55 T. Rowe Price Group, Inc 4,722 ------------ 89,331 ------------ CHEMICALS -- 2.4% 41 Air Products & Chemicals, Inc. 5,913 14 Airgas, Inc. 1,613 11 CF Industries Holdings, Inc. 2,998 235 Dow Chemical (The) Co. 10,718 192 E.I. du Pont de Nemours & Co. 14,196 32 Eastman Chemical Co. 2,428 57 Ecolab, Inc. 5,958 28 FMC Corp. 1,597 17 International Flavors & Fragrances, Inc. 1,723 88 LyondellBasell Industries N.V., Class A 6,986 103 Monsanto Co. 12,305 67 Mosaic (The) Co. 3,059 29 PPG Industries, Inc. 6,703 See Notes to Financial Statements Page 47 FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) CHEMICALS (CONTINUED) 62 Praxair, Inc. $ 8,033 17 Sherwin-Williams (The) Co. 4,472 25 Sigma-Aldrich Corp. 3,432 ------------ 92,134 ------------ COMMERCIAL SERVICES & SUPPLIES -- 0.4% 37 ADT (The) Corp. 1,341 21 Cintas Corp. 1,647 43 Pitney Bowes, Inc. 1,048 54 Republic Services, Inc. 2,173 18 Stericycle, Inc. (a) 2,359 89 Tyco International PLC 3,904 90 Waste Management, Inc. 4,619 ------------ 17,091 ------------ COMMUNICATIONS EQUIPMENT -- 1.7% 1,085 Cisco Systems, Inc. 30,179 16 F5 Networks, Inc. (a) 2,087 22 Harris Corp. 1,580 82 Juniper Networks, Inc. 1,830 45 Motorola Solutions, Inc. 3,019 353 QUALCOMM, Inc. 26,239 ------------ 64,934 ------------ CONSTRUCTION & ENGINEERING -- 0.1% 33 Fluor Corp. 2,001 28 Jacobs Engineering Group, Inc. (a) 1,251 46 Quanta Services, Inc. (a) 1,306 ------------ 4,558 ------------ CONSTRUCTION MATERIALS -- 0.1% 13 Martin Marietta Materials, Inc. 1,434 28 Vulcan Materials Co. 1,841 ------------ 3,275 ------------ CONSUMER FINANCE -- 0.9% 189 American Express Co. 17,585 118 Capital One Financial Corp. 9,741 96 Discover Financial Services 6,287 87 Navient Corp. 1,880 ------------ 35,493 ------------ CONTAINERS & PACKAGING -- 0.2% 19 Avery Dennison Corp. 986 29 Ball Corp. 1,977 35 MeadWestvaco Corp. 1,553 35 Owens-Illinois, Inc. (a) 945 45 Sealed Air Corp. 1,909 ------------ 7,370 ------------ DISTRIBUTORS -- 0.1% 32 Genuine Parts Co. 3,410 ------------ DIVERSIFIED CONSUMER SERVICES -- 0.0% 58 H&R Block, Inc. 1,953 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES -- 2.1% 387 Berkshire Hathaway, Inc., Class B (a) $ 58,108 67 CME Group, Inc. 5,939 24 Intercontinental Exchange, Inc. 5,263 67 Leucadia National Corp. 1,502 58 McGraw Hill Financial, Inc. 5,161 39 Moody's Corp. 3,737 25 NASDAQ OMX Group (The), Inc. 1,199 ------------ 80,909 ------------ DIVERSIFIED TELECOMMUNICATION -- 2.3% 1,101 AT&T, Inc. 36,983 121 CenturyLink, Inc. 4,789 213 Frontier Communications Corp. 1,421 59 Level 3 Communications, Inc. (a) 2,913 881 Verizon Communications, Inc. 41,213 128 Windstream Holdings, Inc. 1,055 ------------ 88,374 ------------ ELECTRIC UTILITIES -- 1.8% 104 American Electric Power Co., Inc. 6,315 150 Duke Energy Corp. 12,531 69 Edison International 4,518 38 Entergy Corp. 3,324 182 Exelon Corp. 6,749 89 FirstEnergy Corp. 3,470 93 NextEra Energy, Inc. 9,885 67 Northeast Utilities 3,586 53 Pepco Holdings, Inc. 1,427 23 Pinnacle West Capital Corp. 1,571 141 PPL Corp. 5,123 191 Southern (The) Co. 9,380 107 Xcel Energy, Inc. 3,843 ------------ 71,722 ------------ ELECTRICAL EQUIPMENT -- 0.6% 52 AMETEK, Inc. 2,737 101 Eaton Corp. PLC 6,864 147 Emerson Electric Co. 9,074 29 Rockwell Automation, Inc. 3,225 ------------ 21,900 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.4% 66 Amphenol Corp., Class A 3,551 272 Corning, Inc. 6,237 30 FLIR Systems, Inc. 969 86 TE Connectivity Ltd. 5,440 ------------ 16,197 ------------ ENERGY EQUIPMENT & SERVICES -- 1.3% 92 Baker Hughes, Inc. 5,158 42 Cameron International Corp. (a) 2,098 14 Diamond Offshore Drilling, Inc. 514 50 Ensco PLC, Class A 1,498 50 FMC Technologies, Inc. (a) 2,342 Page 48 See Notes to Financial Statements FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) ENERGY EQUIPMENT & SERVICES (CONTINUED) 180 Halliburton Co. $ 7,079 23 Helmerich & Payne, Inc. 1,551 61 Nabors Industries Ltd. 792 91 National Oilwell Varco, Inc. 5,963 53 Noble Corp. PLC 878 273 Schlumberger Ltd. 23,317 72 Transocean Ltd. 1,320 ------------ 52,510 ------------ FOOD & STAPLES RETAILING -- 2.5% 93 Costco Wholesale Corp. 13,183 243 CVS Health Corp. 23,403 104 Kroger (The) Co. 6,678 49 Safeway, Inc. 1,721 125 Sysco Corp. 4,961 185 Walgreens Boots Alliance, Inc. 14,097 335 Wal-Mart Stores, Inc. 28,770 76 Whole Foods Market, Inc. 3,832 ------------ 96,645 ------------ FOOD PRODUCTS -- 1.6% 137 Archer-Daniels-Midland Co. 7,124 38 Campbell Soup Co. 1,672 90 ConAgra Foods, Inc. 3,265 128 General Mills, Inc. 6,826 31 Hershey (The) Co. 3,222 29 Hormel Foods Corp. 1,511 22 J.M. Smucker (The) Co. 2,222 53 Kellogg Co. 3,468 26 Keurig Green Mountain, Inc. 3,442 125 Kraft Foods Group, Inc. 7,833 27 McCormick & Co., Inc. 2,006 43 Mead Johnson Nutrition Co. 4,323 357 Mondelez International, Inc., Class A 12,968 62 Tyson Foods, Inc., Class A 2,486 ------------ 62,368 ------------ GAS UTILITIES -- 0.0% 25 AGL Resources, Inc. 1,363 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 2.2% 320 Abbott Laboratories 14,406 115 Baxter International, Inc. 8,428 41 Becton, Dickinson and Co. 5,706 282 Boston Scientific Corp. (a) 3,736 16 C. R. Bard, Inc. 2,666 43 CareFusion Corp. (a) 2,552 96 Covidien PLC 9,819 30 DENTSPLY International, Inc. 1,598 23 Edwards Lifesciences Corp. (a) 2,930 8 Intuitive Surgical, Inc. (a) 4,231 209 Medtronic, Inc. 15,090 61 St. Jude Medical, Inc. 3,967 63 Stryker Corp. 5,943 SHARES DESCRIPTION VALUE ------------------------------------------------------------ HEALTH CARE EQUIPMENT & SUPPLIES (CONTINUED) 21 Varian Medical Systems, Inc. (a) $ 1,817 36 Zimmer Holdings, Inc. 4,083 ------------ 86,972 ------------ HEALTH CARE PROVIDERS & SERVICES -- 2.3% 75 Aetna, Inc. 6,662 44 AmerisourceBergen Corp. 3,967 57 Anthem, Inc. 7,163 70 Cardinal Health, Inc. 5,651 56 Cigna Corp. 5,763 36 DaVita HealthCare Partners, Inc. (a) 2,727 156 Express Scripts Holding Co. (a) 13,209 33 Humana, Inc. 4,740 18 Laboratory Corp. of America Holdings (a) 1,942 49 McKesson Corp. 10,171 18 Patterson Cos., Inc. 866 31 Quest Diagnostics, Inc. 2,079 21 Tenet Healthcare Corp. (a) 1,064 204 UnitedHealth Group, Inc. 20,622 19 Universal Health Services, Inc., Class B 2,114 ------------ 88,740 ------------ HEALTH CARE TECHNOLOGY -- 0.1% 65 Cerner Corp. (a) 4,203 ------------ HOTELS, RESTAURANTS & LEISURE -- 1.6% 96 Carnival Corp. 4,352 7 Chipotle Mexican Grill, Inc. (a) 4,791 28 Darden Restaurants, Inc. 1,641 45 Marriott International, Inc., Class A 3,511 207 McDonald's Corp. 19,396 35 Royal Caribbean Cruises Ltd. 2,885 159 Starbucks Corp. 13,046 38 Starwood Hotels & Resorts Worldwide, Inc. 3,081 26 Wyndham Worldwide Corp. 2,230 17 Wynn Resorts Ltd. 2,529 93 Yum! Brands, Inc. 6,775 ------------ 64,237 ------------ HOUSEHOLD DURABLES -- 0.4% 70 D.R. Horton, Inc. 1,770 26 Garmin Ltd. 1,373 15 Harman International Industries, Inc. 1,601 29 Leggett & Platt, Inc. 1,236 38 Lennar Corp., Class A 1,703 13 Mohawk Industries, Inc. (a) 2,020 58 Newell Rubbermaid, Inc. 2,209 71 PulteGroup, Inc. 1,524 17 Whirlpool Corp. 3,293 ------------ 16,729 ------------ See Notes to Financial Statements Page 49 FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) HOUSEHOLD PRODUCTS -- 2.0% 27 Clorox (The) Co. $ 2,814 182 Colgate-Palmolive Co. 12,592 79 Kimberly-Clark Corp. 9,128 573 Procter & Gamble (The) Co. 52,194 ------------ 76,728 ------------ INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 0.1% 139 AES (The) Corp. 1,914 72 NRG Energy, Inc 1,940 ------------ 3,854 ------------ INDUSTRIAL CONGLOMERATES -- 2.3% 136 3M Co. 22,348 130 Danaher Corp. 11,142 2,131 General Electric Co. 53,851 21 Roper Industries, Inc. 3,283 ------------ 90,624 ------------ INSURANCE -- 2.8% 70 ACE Ltd. 8,042 96 Aflac, Inc. 5,865 89 Allstate (The) Corp. 6,252 297 American International Group, Inc. 16,635 61 Aon PLC 5,785 15 Assurant, Inc. 1,026 50 Chubb (The) Corp. 5,173 31 Cincinnati Financial Corp. 1,607 105 Genworth Financial, Inc., Class A (a) 892 92 Hartford Financial Services Group (The), Inc. 3,835 55 Lincoln National Corp. 3,172 64 Loews Corp. 2,689 115 Marsh & McLennan Cos., Inc. 6,583 241 MetLife, Inc. 13,036 58 Principal Financial Group, Inc. 3,012 114 Progressive (The) Corp. 3,077 97 Prudential Financial, Inc. 8,775 27 Torchmark Corp. 1,463 70 Travelers (The) Cos., Inc. 7,409 53 Unum Group 1,849 55 XL Group PLC 1,890 ------------ 108,067 ------------ INTERNET & CATALOG RETAIL -- 1.2% 81 Amazon.com, Inc. (a) 25,138 21 Expedia, Inc. 1,793 13 Netflix, Inc. (a) 4,441 11 Priceline Group (The), Inc. (a) 12,542 24 TripAdvisor, Inc. (a) 1,792 ------------ 45,706 ------------ INTERNET SOFTWARE & SERVICES -- 3.2% 38 Akamai Technologies, Inc. (a) 2,392 240 eBay, Inc. (a) 13,469 444 Facebook, Inc., Class A (a) 34,641 60 Google, Inc., Class A (a) 31,840 SHARES DESCRIPTION VALUE ------------------------------------------------------------ INTERNET SOFTWARE & SERVICES (CONTINUED) 60 Google, Inc., Class C (a) $ 31,584 23 VeriSign, Inc. (a) 1,311 187 Yahoo!, Inc. (a) 9,445 ------------ 124,682 ------------ IT SERVICES -- 3.3% 133 Accenture PLC, Class A 11,878 14 Alliance Data Systems Corp. (a) 4,005 102 Automatic Data Processing, Inc. 8,504 129 Cognizant Technology Solutions Corp., Class A (a) 6,793 30 Computer Sciences Corp. 1,891 60 Fidelity National Information Services, Inc. 3,732 52 Fiserv, Inc. (a) 3,690 195 International Business Machines Corp. 31,286 208 MasterCard, Inc., Class A 17,921 69 Paychex, Inc. 3,186 32 Teradata Corp. (a) 1,398 35 Total System Services, Inc. 1,189 104 Visa, Inc., Class A 27,269 111 Western Union (The) Co. 1,988 228 Xerox Corp. 3,160 ------------ 127,890 ------------ LEISURE PRODUCTS -- 0.1% 24 Hasbro, Inc. 1,320 72 Mattel, Inc. 2,228 ------------ 3,548 ------------ LIFE SCIENCES TOOLS & SERVICES -- 0.4% 71 Agilent Technologies, Inc. 2,907 24 PerkinElmer, Inc. 1,049 85 Thermo Fisher Scientific, Inc. 10,650 18 Waters Corp. (a) 2,029 ------------ 16,635 ------------ MACHINERY -- 1.5% 128 Caterpillar, Inc. 11,716 36 Cummins, Inc. 5,190 76 Deere & Co. 6,724 35 Dover Corp. 2,510 29 Flowserve Corp. 1,735 76 Illinois Tool Works, Inc. 7,197 56 Ingersoll-Rand PLC 3,550 21 Joy Global, Inc. 977 75 PACCAR, Inc. 5,101 23 Pall Corp. 2,328 32 Parker-Hannifin Corp. 4,126 40 Pentair PLC 2,657 12 Snap-on, Inc 1,641 33 Stanley Black & Decker, Inc. 3,170 39 Xylem, Inc. 1,485 ------------ 60,107 ------------ Page 50 See Notes to Financial Statements FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) MEDIA -- 3.5% 46 Cablevision Systems Corp., Class A $ 949 101 CBS Corp., Class B 5,589 547 Comcast Corp., Class A 31,731 107 DIRECTV (a) 9,277 32 Discovery Communications, Inc., Class A (a) 1,102 58 Discovery Communications, Inc., Class C (a) 1,956 48 Gannett Co., Inc. 1,533 89 Interpublic Group of Cos. (The), Inc. 1,849 106 News Corp., Class A (a) 1,663 53 Omnicom Group, Inc. 4,106 22 Scripps Networks Interactive, Inc., Class A 1,656 60 Time Warner Cable, Inc. 9,124 178 Time Warner, Inc. 15,205 394 Twenty-First Century Fox, Inc., Class A 15,132 78 Viacom, Inc., Class B 5,869 331 Walt Disney (The) Co. 31,177 ------------ 137,918 ------------ METALS & MINING -- 0.4% 250 Alcoa, Inc. 3,948 23 Allegheny Technologies, Inc. 800 221 Freeport-McMoRan, Inc. 5,163 106 Newmont Mining Corp. 2,003 68 Nucor Corp. 3,335 ------------ 15,249 ------------ MULTILINE RETAIL -- 0.8% 64 Dollar General Corp. (a) 4,525 44 Dollar Tree, Inc. (a) 3,097 20 Family Dollar Stores, Inc. 1,584 43 Kohl's Corp. 2,625 73 Macy's, Inc. 4,800 30 Nordstrom, Inc. 2,381 135 Target Corp. 10,248 ------------ 29,260 ------------ MULTI-UTILITIES -- 1.2% 51 Ameren Corp. 2,353 91 CenterPoint Energy, Inc. 2,132 58 CMS Energy Corp. 2,015 62 Consolidated Edison, Inc. 4,093 124 Dominion Resources, Inc. 9,536 38 DTE Energy Co. 3,282 17 Integrys Energy Group, Inc. 1,323 67 NiSource, Inc. 2,842 101 PG&E Corp. 5,377 107 Public Service Enterprise Group, Inc. 4,431 30 SCANA Corp. 1,812 49 Sempra Energy 5,457 50 TECO Energy, Inc. 1,024 48 Wisconsin Energy Corp. 2,532 ------------ 48,209 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ OIL, GAS & CONSUMABLE FUELS -- 7.0% 107 Anadarko Petroleum Corp. $ 8,827 80 Apache Corp. 5,014 88 Cabot Oil & Gas Corp. 2,606 110 Chesapeake Energy Corp. 2,153 401 Chevron Corp. 44,984 19 Cimarex Energy Co. 2,014 261 ConocoPhillips 18,025 49 CONSOL Energy, Inc. 1,657 75 Denbury Resources, Inc. 610 82 Devon Energy Corp. 5,019 116 EOG Resources, Inc. 10,680 32 EQT Corp. 2,422 899 Exxon Mobil Corp. 83,113 54 Hess Corp. 3,986 361 Kinder Morgan, Inc. 15,274 143 Marathon Oil Corp. 4,045 59 Marathon Petroleum Corp. 5,325 35 Murphy Oil Corp. 1,768 29 Newfield Exploration Co. (a) 786 76 Noble Energy, Inc. 3,605 165 Occidental Petroleum Corp. 13,301 44 ONEOK, Inc. 2,191 117 Phillips 66 8,389 32 Pioneer Natural Resources Co. 4,763 35 QEP Resources, Inc. 708 36 Range Resources Corp. 1,924 75 Southwestern Energy Co. (a) 2,047 142 Spectra Energy Corp. 5,155 27 Tesoro Corp. 2,007 111 Valero Energy Corp. 5,494 143 Williams (The) Cos., Inc. 6,426 ------------ 274,318 ------------ PAPER & FOREST PRODUCTS -- 0.1% 90 International Paper Co. 4,822 ------------ PERSONAL PRODUCTS -- 0.1% 92 Avon Products, Inc. 864 48 Estee Lauder (The) Cos., Inc., Class A 3,657 ------------ 4,521 ------------ PHARMACEUTICALS -- 6.2% 338 AbbVie, Inc. 22,119 56 Actavis PLC (a) 14,415 63 Allergan, Inc. 13,393 352 Bristol-Myers Squibb Co. 20,778 208 Eli Lilly & Co. 14,350 36 Hospira, Inc. (a) 2,205 594 Johnson & Johnson 62,115 25 Mallinckrodt PLC (a) 2,476 605 Merck & Co., Inc. 34,358 79 Mylan, Inc. (a) 4,453 30 Perrigo Co. PLC 5,015 1,337 Pfizer, Inc. 41,647 106 Zoetis, Inc. 4,561 ------------ 241,885 ------------ See Notes to Financial Statements Page 51 FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) PROFESSIONAL SERVICES -- 0.2% 8 Dun & Bradstreet (The) Corp. $ 968 26 Equifax, Inc. 2,103 69 Nielsen N.V. 3,086 29 Robert Half International, Inc. 1,693 ------------ 7,850 ------------ REAL ESTATE INVESTMENT TRUSTS -- 2.4% 84 American Tower Corp. 8,304 31 Apartment Investment & Management Co., Class A 1,152 28 AvalonBay Communities, Inc. 4,575 32 Boston Properties, Inc. 4,118 71 Crown Castle International Corp. 5,588 77 Equity Residential 5,532 14 Essex Property Trust, Inc. 2,893 133 General Growth Properties, Inc. 3,741 97 HCP, Inc. 4,271 70 Health Care REIT, Inc. 5,297 161 Host Hotels & Resorts, Inc. 3,827 40 Iron Mountain, Inc. 1,546 87 Kimco Realty Corp. 2,187 30 Macerich (The) Co. 2,502 37 Plum Creek Timber Co., Inc. 1,583 106 Prologis, Inc. 4,561 31 Public Storage 5,730 66 Simon Property Group, Inc. 12,019 62 Ventas, Inc. 4,445 37 Vornado Realty Trust 4,355 111 Weyerhaeuser Co. 3,984 ------------ 92,210 ------------ REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.1% 59 CBRE Group, Inc., Class A (a) 2,021 ------------ ROAD & RAIL -- 1.1% 211 CSX Corp. 7,644 23 Kansas City Southern 2,807 66 Norfolk Southern Corp. 7,234 11 Ryder System, Inc. 1,021 189 Union Pacific Corp. 22,516 ------------ 41,222 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.4% 65 Altera Corp. 2,401 66 Analog Devices, Inc. 3,664 259 Applied Materials, Inc. 6,454 54 Avago Technologies Ltd. 5,432 114 Broadcom Corp., Class A 4,940 16 First Solar, Inc. (a) 713 1,026 Intel Corp. 37,234 35 KLA-Tencor Corp. 2,461 34 Lam Research Corp. 2,698 51 Linear Technology Corp. 2,326 43 Microchip Technology, Inc. 1,940 228 Micron Technology, Inc. (a) 7,982 110 NVIDIA Corp. 2,205 SHARES DESCRIPTION VALUE ------------------------------------------------------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONTINUED) 224 Texas Instruments, Inc. $ 11,976 56 Xilinx, Inc. 2,424 ------------ 94,850 ------------ SOFTWARE -- 3.8% 101 Adobe Systems, Inc. (a) 7,343 48 Autodesk, Inc. (a) 2,883 68 CA, Inc. 2,070 34 Citrix Systems, Inc. (a) 2,169 66 Electronic Arts, Inc. (a) 3,103 61 Intuit, Inc. 5,623 1,749 Microsoft Corp. 81,241 687 Oracle Corp. 30,894 40 Red Hat, Inc. (a) 2,766 125 salesforce.com, inc. (a) 7,414 146 Symantec Corp. 3,746 ------------ 149,252 ------------ SPECIALTY RETAIL -- 2.4% 16 AutoNation, Inc. (a) 966 7 AutoZone, Inc. (a) 4,334 39 Bed Bath & Beyond, Inc. (a) 2,971 62 Best Buy Co., Inc. 2,417 46 CarMax, Inc. (a) 3,063 23 GameStop Corp., Class A 777 57 Gap (The), Inc. 2,400 280 Home Depot (The), Inc. 29,391 52 L Brands, Inc. 4,500 206 Lowe's Cos., Inc. 14,173 22 O'Reilly Automotive, Inc. (a) 4,238 21 PetSmart, Inc. 1,707 45 Ross Stores, Inc. 4,242 136 Staples, Inc. 2,464 24 Tiffany & Co. 2,565 146 TJX (The) Cos., Inc. 10,013 29 Tractor Supply Co. 2,286 21 Urban Outfitters, Inc. (a) 738 ------------ 93,245 ------------ TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 4.7% 1,245 Apple, Inc. 137,423 432 EMC Corp. 12,848 396 Hewlett-Packard Co. 15,891 66 NetApp, Inc. 2,736 47 SanDisk Corp. 4,605 69 Seagate Technology PLC 4,589 46 Western Digital Corp. 5,092 ------------ 183,184 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 0.9% 58 Coach, Inc. 2,179 10 Fossil Group, Inc. (a) 1,107 44 Michael Kors Holdings Ltd. (a) 3,304 148 NIKE, Inc., Class B 14,230 17 PVH Corp. 2,179 13 Ralph Lauren Corp. 2,407 Page 52 See Notes to Financial Statements FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2014 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) TEXTILES, APPAREL & LUXURY GOODS (CONTINUED) 35 Under Armour, Inc., Class A (a) $ 2,377 73 VF Corp. 5,468 ------------ 33,251 ------------ THRIFTS & MORTGAGE FINANCE -- 0.1% 102 Hudson City Bancorp, Inc. 1,032 65 People's United Financial, Inc. 987 ------------ 2,019 ------------ TOBACCO -- 1.4% 419 Altria Group, Inc. 20,644 76 Lorillard, Inc. 4,783 330 Philip Morris International, Inc. 26,879 65 Reynolds American, Inc. 4,178 ------------ 56,484 ------------ TRADING COMPANIES & DISTRIBUTORS -- 0.2% 58 Fastenal Co. 2,758 21 United Rentals, Inc. (a) 2,142 13 W.W. Grainger, Inc. 3,314 ------------ 8,214 ------------ TOTAL COMMON STOCKS -- 99.4% 3,872,951 (Cost $3,294,321) ------------ CONTRACTS ------------ OPTIONS PURCHASED -- 0.4% CALL OPTIONS -- 0.4% 245 VIX US, expiring 01/21/2015, Strike Price $28 (a) 14,700 (Cost $30,754) ------------ TOTAL INVESTMENTS -- 99.8% 3,887,651 (Cost $3,325,075) (b) NET OTHER ASSETS AND LIABILITIES -- 0.2% 7,224 ------------ NET ASSETS -- 100.0% $ 3,894,875 ============ (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $3,311,111. As of December 31, 2014, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $626,987 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $50,447. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $3,872,951 $ -- $ -- Options Purchased 14,700 -- -- ----------------------------------------------- Total Investments $3,887,651 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2014. See Notes to Financial Statements Page 53 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2014
FIRST TRUST FIRST TRUST NASDAQ-100 FIRST TRUST NASDAQ-100 EQUAL NASDAQ-100- EX-TECHNOLOGY WEIGHTED TECHNOLOGY SECTOR SECTOR INDEX FUND INDEX FUND INDEX FUND (QQEW) (QTEC) (QQXT) ------------------ ------------------ ------------------ ASSETS: Investments, at value................................................. $ 578,120,728 $ 366,857,562 $ 117,214,814 Repurchase agreements, at value....................................... 3,988,709 -- -- Cash.................................................................. 237,261 318,133 -- Receivables: Capital shares sold............................................. -- 6,654,091 -- Investment securities sold...................................... 31 63 -- Dividends....................................................... 352,576 33,283 111,197 Securities lending income....................................... 1,057 -- 23 Interest........................................................ -- -- 3 Prepaid expenses...................................................... 8,060 4,422 1,702 -------------- -------------- -------------- TOTAL ASSETS.................................................... 582,708,422 373,867,554 117,327,739 -------------- -------------- -------------- LIABILITIES: Due to custodian...................................................... -- -- -- Payables: Investment securities purchased................................. -- 6,654,641 -- Collateral for securities on loan............................... 4,328,608 -- -- Investment advisory fees........................................ 176,891 109,518 35,681 Licensing fees.................................................. 126,436 79,988 26,178 Audit and tax fees.............................................. 22,925 22,925 22,925 Printing fees................................................... 24,391 15,515 8,396 Trustees' fees.................................................. -- -- 18 Other liabilities..................................................... 201,162 115,787 39,857 -------------- -------------- -------------- TOTAL LIABILITIES............................................... 4,880,413 6,998,374 133,055 -------------- -------------- -------------- NET ASSETS............................................................ $ 577,828,009 $ 366,869,180 $ 117,194,684 ============== ============== ============== NET ASSETS CONSIST OF: Paid-in capital....................................................... $ 541,644,479 $ 313,303,122 $ 102,424,112 Par value............................................................. 135,000 84,000 29,500 Accumulated net investment income (loss).............................. -- -- -- Accumulated net realized gain (loss) on investments and options....... (15,574,769) (21,914,895) (4,685,858) Net unrealized appreciation (depreciation) on investments and options ........................................................... 51,623,299 75,396,953 19,426,930 -------------- -------------- -------------- NET ASSETS............................................................ $ 577,828,009 $ 366,869,180 $ 117,194,684 ============== ============== ============== NET ASSET VALUE, PER SHARE............................................ $ 42.80 $ 43.67 $ 39.73 ============== ============== ============== Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)................................ 13,500,002 8,400,002 2,950,002 -------------- -------------- -------------- Investments, at cost.................................................. $ 526,497,429 $ 291,460,609 $ 97,787,884 ============== ============== ============== Repurchase agreements, at cost........................................ $ 3,988,709 $ -- $ -- ============== ============== ============== Securities on loan, at value.......................................... $ 4,215,306 $ -- $ -- ============== ============== ==============
Page 54 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ(R) FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ(R) ABA CBOE(R) CLEAN EDGE(R) S&P ISE ISE-REVERE ISE COMMUNITY S&P 500(R) GREEN ENERGY REIT WATER NATURAL GAS CHINDIA BANK VIX(R) INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND TAIL HEDGE FUND (QCLN) (FRI) (FIW) (FCG) (FNI) (QABA) (VIXH) --------------- --------------- --------------- --------------- --------------- --------------- --------------- $ 90,870,240 $ 337,928,009 $ 199,441,861 $ 250,634,044 $ 112,993,778 $ 109,700,418 $ 3,887,651 15,092,309 -- -- 44,255,490 15,554,778 -- -- 163,534 -- -- 1,615,204 -- 110,785 4,288 -- -- -- -- -- -- -- -- -- -- -- 239,751 319,026 -- 35,463 1,619,765 58,112 14,733 17,667 131,274 5,025 53,533 -- -- 364,924 35,966 -- -- -- 18 16 26 -- -- -- 2,342 4,107 3,493 8,565 1,271 1,453 -- --------------- --------------- --------------- --------------- --------------- --------------- --------------- 106,217,421 339,551,899 199,503,482 296,892,986 128,843,211 110,262,956 3,896,964 --------------- --------------- --------------- --------------- --------------- --------------- --------------- -- 124,173 -- -- 172,164 -- -- 83,498 -- 752,516 1,539,887 -- 320,546 153 16,378,402 -- -- 48,026,725 16,880,280 -- -- 28,044 77,109 66,995 79,193 40,360 28,788 1,936 26,181 57,199 24,284 79,266 20,534 22,629 -- 22,925 15,785 16,093 40,910 5,086 7,364 -- 11,814 22,925 22,925 22,925 22,925 22,925 -- -- 81 22 110 13 17 -- 50,660 124,930 70,454 158,410 38,505 42,506 -- --------------- --------------- --------------- --------------- --------------- --------------- --------------- 16,601,524 422,202 953,289 49,947,426 17,179,867 444,775 2,089 --------------- --------------- --------------- --------------- --------------- --------------- --------------- $ 89,615,897 $ 339,129,697 $ 198,550,193 $ 246,945,560 $ 111,663,344 $ 109,818,181 $ 3,894,875 =============== =============== =============== =============== =============== =============== =============== $ 133,587,012 $ 323,387,956 $ 189,149,635 $ 650,483,719 $ 156,452,587 $ 105,478,607 $ 3,803,660 52,000 152,500 59,000 220,000 39,000 30,000 1,500 510 -- -- 307,369 (80,940) 19,925 56 (35,318,576) (953,659) (12,251,031) (243,110,292) (53,575,223) (1,674,919) (472,917) (8,705,049) 16,542,900 21,592,589 (160,955,236) 8,827,920 5,964,568 562,576 --------------- --------------- --------------- --------------- --------------- --------------- --------------- $ 89,615,897 $ 339,129,697 $ 198,550,193 $ 246,945,560 $ 111,663,344 $ 109,818,181 $ 3,894,875 =============== =============== =============== =============== =============== =============== =============== $ 17.23 $ 22.24 $ 33.65 $ 11.22 $ 28.63 $ 36.61 $ 25.97 =============== =============== =============== =============== =============== =============== =============== 5,200,002 15,250,002 5,900,002 22,000,002 3,900,002 3,000,002 150,002 --------------- --------------- --------------- --------------- --------------- --------------- --------------- $ 99,575,289 $ 321,385,109 $ 177,849,272 $ 411,589,280 $ 104,165,858 $ 103,735,850 $ 3,325,075 =============== =============== =============== =============== =============== =============== =============== $ 15,092,309 $ -- $ -- $ 44,255,490 $ 15,554,778 $ -- $ -- =============== =============== =============== =============== =============== =============== =============== $ 15,995,198 $ -- $ -- $ 46,149,597 $ 16,412,925 $ -- $ -- =============== =============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 55 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2014
FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ-100 NASDAQ-100- NASDAQ-100 EQUAL WEIGHTED TECHNOLOGY SECTOR EX-TECHNOLOGY SECTOR INDEX FUND INDEX FUND INDEX FUND (QQEW) (QTEC) (QQXT) ------------------ ------------------ -------------------- INVESTMENT INCOME: Dividends........................................................ $ 7,325,942 $ 4,719,360 $ 1,439,792 Securities lending income (net of fees).......................... 23,022 -- 4,779 Foreign tax withholding.......................................... (3,204) -- (1,095) Interest......................................................... -- -- 26 -------------- -------------- -------------- Total investment income....................................... 7,345,760 4,719,360 1,443,502 -------------- -------------- -------------- EXPENSES: Investment advisory fees......................................... 1,730,741 983,639 383,922 Licensing fees................................................... 432,685 245,910 95,980 Accounting and administration fees............................... 218,833 124,698 49,883 Custodian fees................................................... 68,593 31,209 15,185 Printing fees.................................................... 58,936 36,635 19,861 Registration and filing fees..................................... 29,424 14,764 1,519 Audit and tax fees............................................... 23,424 23,231 23,081 Transfer agent fees.............................................. 21,623 12,278 4,794 Legal fees....................................................... 20,427 13,800 5,153 Trustees' fees and expenses...................................... 11,301 7,975 5,291 Listing fees..................................................... 8,541 7,591 7,350 Expenses previously waived or reimbursed......................... -- -- -- Other expenses................................................... 13,149 7,321 4,126 -------------- -------------- -------------- Total expenses................................................ 2,637,677 1,509,051 616,145 Less fees waived and expenses reimbursed by the investment advisor (41,566) (33,593) (40,262) -------------- -------------- -------------- Net expenses.................................................. 2,596,111 1,475,458 575,883 -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS)..................................... 4,749,649 3,243,902 867,619 -------------- -------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments................................................... (4,902,712) (535,124) (813,445) Options....................................................... -- -- -- In-kind redemptions........................................... 36,756,756 12,560,644 12,367,364 -------------- -------------- -------------- Net realized gain (loss)......................................... 31,854,044 12,025,520 11,553,919 -------------- -------------- -------------- Net change in unrealized appreciation (depreciation) on: Investments................................................... 31,248,859 40,032,392 1,380,688 Options....................................................... -- -- -- -------------- -------------- -------------- Net change in unrealized appreciation (depreciation)............. 31,248,859 40,032,392 1,380,688 -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS).......................... 63,102,903 52,057,912 12,934,607 -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $ 67,852,552 $ 55,301,814 $ 13,802,226 ============== ============== ==============
Page 56 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ(R) FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ(R) ABA CBOE(R) CLEAN EDGE(R) S&P ISE ISE-REVERE ISE COMMUNITY S&P 500(R) GREEN ENERGY REIT WATER NATURAL GAS CHINDIA BANK VIX(R) INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND TAIL HEDGE FUND (QCLN) (FRI) (FIW) (FCG) (FNI) (QABA) (VIXH) --------------- --------------- --------------- --------------- --------------- --------------- --------------- $ 673,487 $ 6,490,677 $ 2,649,783 $ 3,743,607 $ 662,006 $ 1,731,415 $ 106,636 954,677 -- -- 2,634,113 217,602 -- -- -- -- (33,738) (273,143) (20,813) -- (12) -- 95 51 122 -- -- -- --------------- --------------- --------------- --------------- --------------- --------------- -------------- 1,628,164 6,490,772 2,616,096 6,104,699 858,795 1,731,415 106,624 --------------- --------------- --------------- --------------- --------------- --------------- -------------- 537,958 682,225 780,554 1,818,597 299,620 343,729 31,633 (a) 134,489 181,926 97,569 454,649 59,924 77,339 -- 68,882 116,620 99,213 228,830 39,271 45,619 -- 31,420 28,087 24,462 67,217 15,523 10,742 -- 28,554 18,755 40,418 93,470 13,548 19,285 -- 1,008 23,946 267 1,783 5,219 7,112 -- 23,093 23,181 23,266 23,728 23,049 23,015 -- 6,723 11,317 9,748 22,674 3,736 4,295 -- 7,143 12,857 10,523 21,595 5,314 5,068 -- 6,219 8,373 6,975 11,520 4,985 5,380 -- 7,883 7,645 7,645 8,044 8,044 8,135 -- -- 10,421 45,807 -- -- -- -- 5,679 11,688 6,316 18,174 6,321 3,051 -- --------------- --------------- --------------- --------------- --------------- --------------- -------------- 859,051 1,137,041 1,152,763 2,770,281 484,554 552,770 31,633 (50,372) -- -- (42,386) (33,734) (37,176) -- --------------- --------------- --------------- --------------- --------------- --------------- -------------- 808,679 1,137,041 1,152,763 2,727,895 450,820 515,594 31,633 --------------- --------------- --------------- --------------- --------------- --------------- -------------- 819,485 5,353,731 1,463,333 3,376,804 407,975 1,215,821 74,991 --------------- --------------- --------------- --------------- --------------- --------------- -------------- (4,242,393) 339,718 870,577 (107,640,639) (2,363,894) (964,488) 20,404 -- -- -- -- -- -- 10,069 24,233,840 18,507,903 11,954,028 71,378,295 7,376,291 2,850,128 896,295 --------------- --------------- --------------- --------------- --------------- --------------- -------------- 19,991,447 18,847,621 12,824,605 (36,262,344) 5,012,397 1,885,640 926,768 --------------- --------------- --------------- --------------- --------------- --------------- -------------- (30,603,684) 23,109,804 (14,409,829) (163,962,545) (7,267,776) (1,523,495) (443,162) -- -- -- -- -- -- 23,707 --------------- --------------- --------------- --------------- --------------- --------------- -------------- (30,603,684) 23,109,804 (14,409,829) (163,962,545) (7,267,776) (1,523,495) (419,455) --------------- --------------- --------------- --------------- --------------- --------------- -------------- (10,612,237) 41,957,425 (1,585,224) (200,224,889) (2,255,379) 362,145 507,313 --------------- --------------- --------------- --------------- --------------- --------------- -------------- $ (9,792,752) $ 47,311,156 $ (121,891) $ (196,848,085) $ (1,847,404) $ 1,577,966 $ 582,304 =============== =============== =============== =============== =============== =============== ==============
(a) Fund is subject to a Unitary Fee (See Note 3 in the Notes to Financial Statements.) See Notes to Financial Statements Page 57 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST NASDAQ-100 NASDAQ-100- EQUAL WEIGHTED TECHNOLOGY SECTOR INDEX FUND INDEX FUND (QQEW) (QTEC) ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended 12/31/2014 12/31/2013 12/31/2014 12/31/2013 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss)............................... $ 4,749,649 $ 1,133,384 $ 3,243,902 $ 1,048,880 Net realized gain (loss)................................... 31,854,044 34,815,693 12,025,520 3,362,041 Net change in unrealized appreciation (depreciation) ...... 31,248,859 17,842,947 40,032,392 39,185,377 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations......................................... 67,852,552 53,792,024 55,301,814 43,596,298 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income...................................... (5,254,521) (1,151,465) (3,895,191) (1,166,616) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.................................. 477,669,678 357,783,254 181,010,141 41,604,720 Cost of shares redeemed.................................... (251,384,716) (206,293,601) (42,712,206) (12,877,761) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions........................... 226,284,962 151,489,653 138,297,935 28,726,959 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets.................... 288,882,993 204,130,212 189,704,558 71,156,641 NET ASSETS: Beginning of period........................................ 288,945,016 84,814,804 177,164,622 106,007,981 ------------- ------------- ------------- ------------- End of period.............................................. $ 577,828,009 $ 288,945,016 $ 366,869,180 $ 177,164,622 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period........................................ $ -- $ -- $ -- $ -- ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period.................... 7,950,002 3,250,002 5,000,002 4,100,002 Shares sold................................................ 12,150,000 11,000,000 4,450,000 1,350,000 Shares redeemed............................................ (6,600,000) (6,300,000) (1,050,000) (450,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period.......................... 13,500,002 7,950,002 8,400,002 5,000,002 ============= ============= ============= =============
Page 58 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ-100 NASDAQ(R) S&P FIRST TRUST EX-TECHNOLOGY SECTOR CLEAN EDGE(R) GREEN ENERGY REIT ISE WATER INDEX FUND INDEX FUND INDEX FUND INDEX FUND (QQXT) (QCLN) (FRI) (FIW) ----------------------------- ----------------------------- ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended 12/31/2014 12/31/2013 12/31/2014 12/31/2013 12/31/2014 12/31/2013 12/31/2014 12/31/2013 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 867,619 $ 248,433 $ 819,485 $ 312,837 $ 5,353,731 $ 7,522,197 $ 1,463,333 $ 965,772 11,553,919 6,716,677 19,991,447 1,132,939 18,847,621 40,890,475 12,824,605 7,839,752 1,380,688 14,394,518 (30,603,684) 26,679,735 23,109,804 (32,323,997) (14,409,829) 26,156,476 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 13,802,226 21,359,628 (9,792,752) 28,125,511 47,311,156 16,088,675 (121,891) 34,962,000 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (905,596) (225,875) (857,050) (297,165) (6,113,911) (7,854,961) (1,479,820) (973,210) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 45,510,861 44,880,011 99,521,515 62,114,258 370,499,249 80,241,468 41,982,569 127,825,752 (31,608,677) (17,599,619) (96,829,501) (6,109,034) (220,777,099) (343,153,151) (39,473,865) (36,940,729) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 13,902,184 27,280,392 2,692,014 56,005,224 149,722,150 (262,911,683) 2,508,704 90,885,023 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 26,798,814 48,414,145 (7,957,788) 83,833,570 190,919,395 (254,677,969) 906,993 124,873,813 90,395,870 41,981,725 97,573,685 13,740,115 148,210,302 402,888,271 197,643,200 72,769,387 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 117,194,684 $ 90,395,870 $ 89,615,897 $ 97,573,685 $ 339,129,697 $ 148,210,302 $ 198,550,193 $ 197,643,200 ============= ============= ============= ============= ============= ============= ============= ============= $ -- $ 22,558 $ 510 $ 29,696 $ -- $ -- $ -- $ -- ============= ============= ============= ============= ============= ============= ============= ============= 2,600,002 1,700,002 5,450,002 1,450,002 8,450,002 22,700,002 5,850,002 2,800,002 1,200,000 1,450,000 5,050,000 4,450,000 17,850,000 4,200,000 1,250,000 4,200,000 (850,000) (550,000) (5,300,000) (450,000) (11,050,000) (18,450,000) (1,200,000) (1,150,000) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 2,950,002 2,600,002 5,200,002 5,450,002 15,250,002 8,450,002 5,900,002 5,850,002 ============= ============= ============= ============= ============= ============= ============= =============
See Notes to Financial Statements Page 59 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST ISE-REVERE FIRST TRUST NATURAL GAS ISE CHINDIA INDEX FUND INDEX FUND (FCG) (FNI) ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended 12/31/2014 12/31/2013 12/31/2014 12/31/2013 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss)............................... $ 3,376,804 $ 1,808,415 $ 407,975 $ 500,083 Net realized gain (loss)................................... (36,262,344) (7,341,006) 5,012,397 3,207,911 Net change in unrealized appreciation (depreciation) ...... (163,962,545) 102,869,319 (7,267,776) 15,391,317 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations............................................ (196,848,085) 97,336,728 (1,847,404) 19,099,311 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income...................................... (3,518,320) (1,716,075) (666,211) (528,875) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.................................. 391,219,526 195,622,338 62,493,569 2,735,518 Cost of shares redeemed.................................... (408,702,370) (214,347,484) (20,278,569) (15,410,341) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions.............................. (17,482,844) (18,725,146) 42,215,000 (12,674,823) ------------- ------------- ------------- ------------- Total increase (decrease) in net assets.................... (217,849,249) 76,895,507 39,701,385 5,895,613 NET ASSETS: Beginning of period........................................ 464,794,809 387,899,302 71,961,959 66,066,346 ------------- ------------- ------------- ------------- End of period.............................................. $ 246,945,560 $ 464,794,809 $ 111,663,344 $ 71,961,959 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period........................................... $ 307,369 $ 151,483 $ (80,940) $ 9,106 ============= ============= ============= ============= CHANGES IN SHARES OUSTANDING: Shares outstanding, beginning of period.................... 23,800,002 24,750,002 2,550,002 3,150,002 Shares sold................................................ 19,000,000 11,150,000 2,050,000 100,000 Shares redeemed............................................ (20,800,000) (12,100,000) (700,000) (700,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period.......................... 22,000,002 23,800,002 3,900,002 2,550,002 ============= ============= ============= =============
Page 60 See Notes to Financial Statements
FIRST TRUST FIRST TRUST NASDAQ(R) ABA CBOE(R) S&P 500(R) COMMUNITY BANK VIX(R) TAIL INDEX FUND HEDGE FUND (QABA) (VIXH) ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended 12/31/2014 12/31/2013 12/31/2014 12/31/2013 ------------- ------------- ------------- ------------- $ 1,215,821 $ 357,811 $ 74,991 $ 86,613 1,885,640 779,333 926,768 1,712 (1,523,495) 7,480,300 (419,455) 917,769 ------------- ------------- ------------- ------------- 1,577,966 8,617,444 582,304 1,006,094 ------------- ------------- ------------- ------------- (1,203,186) (350,521) (75,215) (85,676) ------------- ------------- ------------- ------------- 70,848,157 38,405,721 1,195,628 4,048,627 (13,767,069) (3,255,400) (3,523,628) (2,180,000) ------------- ------------- ------------- ------------- 57,081,088 35,150,321 (2,328,000) 1,868,627 ------------- ------------- ------------- ------------- 57,455,868 43,417,244 (1,820,911) 2,789,045 52,362,313 8,945,069 5,715,786 2,926,741 ------------- ------------- ------------- ------------- $ 109,818,181 $ 52,362,313 $ 3,894,875 $ 5,715,786 ============= ============= ============= ============= $ 19,925 $ 7,290 $ 56 $ 904 ============= ============= ============= ============= 1,450,002 350,002 250,002 150,002 1,950,000 1,200,000 50,000 200,000 (400,000) (100,000) (150,000) (100,000) ------------- ------------- ------------- ------------- 3,000,002 1,450,002 150,002 250,002 ============= ============= ============= =============
See Notes to Financial Statements Page 61 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 36.35 $ 26.10 $ 22.98 $ 23.74 $ 19.69 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.41 0.17 0.27 0.05 0.15 Net realized and unrealized gain (loss) 6.49 10.25 3.14 (0.70) 4.02 ---------- ---------- ---------- ---------- ---------- Total from investment operations 6.90 10.42 3.41 (0.65) 4.17 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.45) (0.17) (0.29) (0.11) (0.12) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 42.80 $ 36.35 $ 26.10 $ 22.98 $ 23.74 ========== ========== ========== ========== ========== TOTAL RETURN (a) 19.13% 39.95% 14.86% (2.77)% 21.25% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 577,828 $ 288,945 $ 84,815 $ 73,539 $ 75,955 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.61% 0.63% 0.68% 0.68% 0.75% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 1.10% 0.60% 1.01% 0.23% 0.79% Portfolio turnover rate (b) 27% 38% 34% 27% 24% FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 35.43 $ 25.86 $ 24.14 $ 25.69 $ 21.16 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.45 0.24 0.19 0.00 (c) (d) 0.10 Net realized and unrealized gain (loss) 8.32 9.59 1.74 (1.47) 4.53 ---------- ---------- ---------- ---------- ---------- Total from investment operations 8.77 9.83 1.93 (1.47) 4.63 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (loss) (0.53) (0.26) (0.21) (0.08) (0.10) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 43.67 $ 35.43 $ 25.86 $ 24.14 $ 25.69 ========== ========== ========== ========== ========== TOTAL RETURN (a) 24.83% 38.12% 8.02% (5.75)% 21.92% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 366,869 $ 177,165 $ 106,008 $ 149,660 $ 453,416 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.61% 0.62% 0.65% 0.63% 0.70% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 1.32% 0.80% 0.63% (0.02)% 0.71% Portfolio turnover rate (b) 20% 33% 26% 21% 26% (a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (b) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (c) Amount represents less than $0.01 per share. (d) Per share amounts have been calculated using the average share method.
Page 62 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 34.77 $ 24.70 $ 20.80 $ 21.10 $ 17.63 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.32 0.10 0.31 0.06 0.17 Net realized and unrealized gain (loss) 4.97 10.06 3.92 (0.28) 3.46 ---------- ---------- ---------- ---------- ---------- Total from investment operations 5.29 10.16 4.23 (0.22) 3.63 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.33) (0.09) (0.33) (0.08) (0.16) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 39.73 $ 34.77 $ 24.70 $ 20.80 $ 21.10 ========== ========== ========== ========== ========== TOTAL RETURN (a) 15.35% 41.24% 20.31% (1.08)% 20.64% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 117,195 $ 90,396 $ 41,982 $ 30,157 $ 22,151 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.64% 0.67% 0.76% 0.78% 0.94% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.90% 0.38% 1.34% 0.31% 1.02% Portfolio turnover rate (b) 23% 33% 40% 37% 19% FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 17.90 $ 9.48 $ 9.65 $ 16.42 $ 16.09 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.13 0.07 0.13 (0.03) (0.01) Net realized and unrealized gain (loss) (0.66) 8.42 (0.18) (6.74) 0.34 ---------- ---------- ---------- ---------- ---------- Total from investment operations (0.53) 8.49 (0.05) (6.77) 0.33 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.14) (0.07) (0.12) -- -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 17.23 $ 17.90 $ 9.48 $ 9.65 $ 16.42 ========== ========== ========== ========== ========== TOTAL RETURN (a) (3.05)% 89.79% (0.50)% (41.23)% 2.05% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 89,616 $ 97,574 $ 13,740 $ 20,740 $ 36,120 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.64% 0.70% 0.98% 0.77% 0.78% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.61% 0.60% 1.19% (0.18)% (0.07)% Portfolio turnover rate (b) 37% 49% 24% 22% 22% (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 63 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST S&P REIT INDEX FUND (FRI) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 17.54 $ 17.75 $ 15.47 $ 14.65 $ 11.72 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.41 0.52 0.38 0.28 0.29 Net realized and unrealized gain (loss) 4.75 (0.19) 2.30 0.88 2.94 ---------- ---------- ---------- ---------- ---------- Total from investment operations 5.16 0.33 2.68 1.16 3.23 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.46) (0.54) (0.37) (0.34) (0.30) Net realized gain -- -- (0.03) -- -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.46) (0.54) (0.40) (0.34) (0.30) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 22.24 $ 17.54 $ 17.75 $ 15.47 $ 14.65 ========== ========== ========== ========== ========== TOTAL RETURN (a) 29.61% 1.82% 17.39% 7.90% 27.73% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 339,130 $ 148,210 $ 402,888 $ 324,961 $ 71,066 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.50% 0.50% 0.50% 0.57% 0.69% Ratio of net expenses to average net assets 0.50% 0.50% 0.50% 0.50% 0.50% Ratio of net investment income (loss) to average net assets 2.35% 2.31% 2.15% 2.03% 2.60% Portfolio turnover rate (b) 11% 11% 8% 9% 16% FIRST TRUST ISE WATER INDEX FUND (FIW) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 33.79 $ 25.99 $ 20.71 $ 22.13 $ 18.66 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.25 0.21 0.23 0.16 0.18 Net realized and unrealized gain (loss) (0.14) 7.80 5.30 (1.39) 3.43 ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.11 8.01 5.53 (1.23) 3.61 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.25) (0.21) (0.25) (0.19) (0.14) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 33.65 $ 33.79 $ 25.99 $ 20.71 $ 22.13 ========== ========== ========== ========== ========== TOTAL RETURN (a) 0.36% 30.91% 26.83% (5.62)% 19.49% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 198,550 $ 197,643 $ 72,769 $ 57,986 $ 53,111 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.59% 0.60% 0.63% 0.64% 0.69% Ratio of net expenses to average net assets 0.59% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.75% 0.75% 1.02% 0.79% 0.96% Portfolio turnover rate (b) 24% 45% 31% 31% 38% (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 64 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 19.53 $ 15.67 $ 18.19 $ 19.60 $ 17.52 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.14 0.07 0.07 0.08 0.03 Net realized and unrealized gain (loss) (8.30) 3.86 (2.52) (1.41) 2.10 ---------- ---------- ---------- ---------- ---------- Total from investment operations (8.16) 3.93 (2.45) (1.33) 2.13 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.15) (0.07) (0.07) (0.08) (0.05) Return of capital -- -- -- -- (0.00) (a) ---------- ---------- ---------- ---------- ---------- Total distributions (0.15) (0.07) (0.07) (0.08) (0.05) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 11.22 $ 19.53 $ 15.67 $ 18.19 $ 19.60 ========== ========== ========== ========== ========== TOTAL RETURN (b) (42.02)% 25.13% (13.51)% (6.85)% 12.22% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 246,946 $ 464,795 $ 387,899 $ 346,556 $ 396,893 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.61% 0.60% 0.63% 0.63% 0.65% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.74% 0.40% 0.40% 0.39% 0.19% Portfolio turnover rate (c) 42% 49% 41% 43% 93% FIRST TRUST ISE CHINDIA INDEX FUND (FNI) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 28.22 $ 20.97 $ 18.23 $ 25.01 $ 21.28 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.20 0.20 0.35 0.27 0.17 Net realized and unrealized gain (loss) 0.48 7.26 2.74 (6.75) 3.73 ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.68 7.46 3.09 (6.48) 3.90 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.27) (0.21) (0.35) (0.30) (0.17) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 28.63 $ 28.22 $ 20.97 $ 18.23 $ 25.01 ========== ========== ========== ========== ========== TOTAL RETURN (b) 2.37% 35.81% 17.11% (26.02)% 18.46% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 111,663 $ 71,962 $ 66,066 $ 79,287 $ 176,352 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.65% 0.66% 0.73% 0.66% 0.66% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.54% 0.79% 1.60% 1.00% 0.74% Portfolio turnover rate (c) 40% 40% 29% 23% 34% (a) Amount represents less than $0.01 per share. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions.
See Notes to Financial Statements Page 65 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 36.11 $ 25.56 $ 22.97 $ 24.95 $ 22.41 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.47 0.37 0.48 0.37 0.30 Net realized and unrealized gain (loss) 0.50 10.55 2.62 (1.98) 2.55 ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.97 10.92 3.10 (1.61) 2.85 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.47) (0.37) (0.51) (0.37) (0.31) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 36.61 $ 36.11 $ 25.56 $ 22.97 $ 24.95 ========== ========== ========== ========== ========== TOTAL RETURN (a) 2.72% 42.89% 13.52% (6.48)% 12.77% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 109,818 $ 52,362 $ 8,945 $ 12,634 $ 9,979 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.64% 0.76% 1.04% 0.96% 1.16% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 1.41% 1.38% 1.90% 1.62% 1.40% Portfolio turnover rate (b) 26% 29% 17% 29% 26% FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) FOR THE PERIOD FOR THE FOR THE 8/29/2012 (c) YEAR ENDED YEAR ENDED THROUGH 12/31/2014 12/31/2013 12/31/2012 ------------ ------------ ------------ Net asset value, beginning of period $ 22.86 $ 19.51 $ 19.89 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.34 0.34 0.11 Net realized and unrealized gain (loss) 3.11 3.34 (0.38) ---------- ---------- ---------- Total from investment operations 3.45 3.68 (0.27) ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.34) (0.33) (0.11) ---------- ---------- ---------- Net asset value, end of period $ 25.97 $ 22.86 $ 19.51 ========== ========== ========== TOTAL RETURN (a) 15.22% 19.00% (1.37)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 3,895 $ 5,716 $ 2,927 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.60% 0.60% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets 1.42% 1.53% 1.97% (d) Portfolio turnover rate (b) 7% 4% 2% (a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. The total returns for First Trust NASDAQ(R) ABA Community Bank Index Fund would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (b) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (c) Inception date is consistent with the commencement of investment operations and is the date the initial creation units were established. (d) Annualized.
Page 66 See Notes to Financial Statements -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 1. ORGANIZATION First Trust Exchange-Traded Fund (the "Trust") is an open-end management investment company organized as a Massachusetts business trust on August 8, 2003, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust currently consists of nineteen exchange-traded funds. This report covers the ten funds listed below: First Trust NASDAQ-100 Equal Weighted Index Fund - (The NASDAQ(R) Stock Market, LLC ("NASDAQ") ticker "QQEW") First Trust NASDAQ-100-Technology Sector Index Fund - (NASDAQ ticker "QTEC") First Trust NASDAQ-100 Ex-Technology Sector Index Fund - (NASDAQ ticker "QQXT") First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund - (NASDAQ ticker "QCLN") First Trust S&P REIT Index Fund - (NYSE Arca, Inc. ("NYSE Arca") ticker "FRI") First Trust ISE Water Index Fund - (NYSE Arca ticker "FIW") First Trust ISE-Revere Natural Gas Index Fund - (NYSE Arca ticker "FCG") First Trust ISE Chindia Index Fund - (NYSE Arca ticker "FNI") First Trust NASDAQ(R) ABA Community Bank Index Fund - (NASDAQ ticker "QABA") First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund - (NYSE Arca ticker "VIXH") Each fund represents a separate series of shares of beneficial interest in the Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value ("NAV"), only in large specified blocks consisting of 50,000 shares called a "Creation Unit." Creation Units are issued and redeemed principally in-kind for securities included in a Fund's relevant index. Except when aggregated in Creation Units, shares are not redeemable securities of a Fund. The investment objective of each Fund is to seek investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of the following indices:
FUND INDEX First Trust NASDAQ-100 Equal Weighted Index Fund NASDAQ-100 Equal Weighted Index(SM) First Trust NASDAQ-100-Technology Sector Index Fund NASDAQ-100 Technology Sector Index(SM) First Trust NASDAQ-100 Ex-Technology Sector Index Fund NASDAQ-100 Ex-Tech Sector Index(SM) First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund NASDAQ(R) Clean Edge(R) Green Energy Index(SM) First Trust S&P REIT Index Fund S&P United States REIT Index First Trust ISE Water Index Fund ISE Water Index(TM) First Trust ISE-Revere Natural Gas Index Fund ISE-REVERE Natural Gas Index(TM) First Trust ISE Chindia Index Fund ISE ChIndia Index(TM) First Trust NASDAQ(R) ABA Community Bank Index Fund NASDAQ OMX(R) ABA Community Bank Index(SM) First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund CBOE(R) VIX(R) Tail Hedge Index
2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. PORTFOLIO VALUATION Each Fund's NAV is determined daily as of the close of regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined at that time. Foreign securities are priced using the data reflecting the earlier closing of the principal markets for those securities. The NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding. Each Fund's investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third party pricing service or are determined by the Pricing Committee of the Fund's investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor") in accordance with valuation procedures adopted by the Trust's Board of Trustees, and in accordance with the 1940 Act. Investments valued by the Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund's investments are valued as follows: Page 67 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 Common stocks and other equity securities listed on any national or foreign exchange (excluding NASDAQ and the London Stock Exchange Alternative Investment Market ("AIM")) are valued at the last sale price on the exchange on which they are principally traded or, for NASDAQ and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the principal market for such securities. Securities traded in an over-the-counter market are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. Exchange-traded options contracts are valued at the closing price in the market where such contracts are principally traded. If no closing price is available, exchange-traded options contracts are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. Over-the-counter options contracts are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at closing bid price. Repurchase agreements will be fair valued as follows: Overnight repurchase agreements will be fair valued at cost. Term repurchase agreements (i.e., those whose maturity exceeds seven days) will be fair valued by the Pricing Committee at the average of the bid quotations obtained daily from at least two recognized dealers. Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Trust's Board of Trustees or its delegate, the Advisor's Pricing Committee, at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund's NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, does not reflect the security's fair value. As a general principle, the current fair value of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following: 1) the type of security; 2) the size of the holding; 3) the initial cost of the security; 4) transactions in comparable securities; 5) price quotes from dealers and/or pricing services; 6) relationships among various securities; 7) information obtained by contacting the issuer, analysts, or the appropriate stock exchange; 8) an analysis of the issuer's financial statements; and 9) the existence of merger proposals or tender offers that might affect the value of the security. In addition, differences between the prices used to calculate a Fund's NAV and the prices used by such Fund's corresponding index could result in a difference between the Fund's performance and the performance of its underlying index. The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows: o Level 1 - Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. o Level 2 - Level 2 inputs are observable inputs, either directly or indirectly, and include the following: o Quoted prices for similar investments in active markets. o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. Page 68 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 o Level 3 - Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the investment. The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund's investments as of December 31, 2014, is included with each Fund's Portfolio of Investments. B. CALL OPTIONS The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund ("VIXH") is subject to equity price risk in the normal course of pursuing its investment objective and may purchase out-of-the-money call options on the Chicago Board Options Exchange Market Volatility Index (the "VIX Index") to hedge against changes in the value of equities. Also, VIXH may sell call options on the VIX Index in order to close out existing positions. The purchase of call options involves the risk of loss of all or a part of the cash paid for the call options (the premium). The market risk associated with purchasing options on the VIX Index is limited to the premium paid. When VIXH purchases a call option, the premium paid represents the cost of the call option, which is included in "Investments, at cost" on the Statements of Assets and Liabilities. Options are marked-to-market daily and their value will be affected by changes in the market value of the stocks included in the stock index. If VIXH elects to exercise a call option on the VIX Index, settlement does not occur by the delivery of the securities comprising the VIX Index. VIXH, as holder of the stock index option, receives an amount of cash if the closing level of the stock index upon which the option is based is greater than, in the case of a call, or less than in the case of a put, the exercise price of the option. This amount of cash is equal to the difference between the closing price of the stock index and the exercise price of the option expressed in dollars times a specified multiple. If VIXH elects to allow a call option to expire, then the equity price risk for purchased options is limited to the premium initially paid. Gain or loss on options is presented separately as "Net realized gain (loss) on Options" on the Statements of Operations. For the year ended December 31, 2014, VIXH recorded a change in unrealized gain of $23,707 on the options, which is included in the "Net change in unrealized appreciation (depreciation) on Options" on the Statements of Operations. For the year ended December 31, 2014, VIXH recorded a realized gain on options of $10,069, which is included in "Net realized gain (loss) on Options" on the Statements of Operations. At December 31, 2014, VIXH held 245 options contracts with a notional value of $6,860. This is representative of contacts held throughout the year. C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis. Distributions received from a Fund's investments in Master Limited Partnerships ("MLPs") generally are comprised of return of capital and investment income. A Fund records estimated return of capital and investment income based on historical information available from each MLP. The characterization of distributions received by a Fund may be subsequently revised based on information received from the MLPs after their tax reporting periods conclude. Distributions received from a Fund's investments in real estate investment trusts ("REITs") may be comprised of return of capital, capital gains and income. The actual character of the amounts received during the year is not known until after the REITs' fiscal year end. A Fund records the character of distributions received from REITs during the year based on estimates available. The characterization of distributions received by a Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude. D. OFFSETTING ON THE STATEMENTS OF ASSETS AND LIABILITIES Accounting Standards Update No. 2011-11 "Disclosures about Offsetting Assets and Liabilities" ("ASU 2011-11") requires entities to disclose both gross and net information about instruments and transactions eligible for offset on the Statement of Assets and Liabilities, and disclose instruments and transactions subject to master netting or similar agreements. These disclosure requirements are intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on a fund's financial position. In addition, Accounting Standards Update No. 2013-1 "Clarifying the Scope of Offsetting Assets and Liabilities" ("ASU 2013-1"), specifies exactly which transactions are subject to offsetting disclosures. The scope of the disclosure requirements is limited to derivative instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions. Page 69 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 This disclosure, if applicable, is included within each Fund's Portfolio of Investments under the heading "Offsetting Assets and Liabilities". For financial reporting purposes, the Funds do not offset financial assets and financial liabilities that are subject to master netting arrangements ("MNAs") or similar agreements on the Statements of Assets and Liabilities. MNAs provide the right, in the event of default (including bankruptcy and insolvency) for the non-defaulting counterparty to liquidate the collateral and calculate the net exposure to the defaulting party or request additional collateral. E. REPURCHASE AGREEMENTS Repurchase agreements involve the purchase of securities subject to the seller's agreement to repurchase the securities at a mutually agreed upon date and price, under the terms of a Master Repurchase Agreement ("MRA"). During the term of a repurchase agreement, the value of the underlying securities held as collateral on behalf of a Fund, including accrued interest, is required to exceed the value of the repurchase agreement, including accrued interest. The underlying securities for all repurchase agreements are held at the Funds' custodian or designated sub-custodians under tri-party repurchase agreements. MRAs govern transactions between a Fund and select counterparties. The MRAs contain provisions for, among other things, initiation, income payments, events of default, and maintenance of collateral for repurchase agreements. If the seller defaults, a Fund could suffer a loss to the extent that the proceeds from the sale of the underlying securities and other collateral held by the Fund are less than the repurchase price and the Fund's costs associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer additional losses if a court determines that the Fund's interest in the collateral is not enforceable. While the Funds may invest in repurchase agreements, any repurchase agreements held by the Funds during the year ended December 31, 2014, were received as collateral for lending securities. F. SECURITIES LENDING The Funds may lend securities representing up to 33 1/3% of the value of their total assets to broker-dealers, banks and other institutions to generate additional income. When a Fund loans its portfolio securities, it will receive, at the inception of each loan, collateral equal to at least 102% (for domestic securities) or 105% (for international securities) of the market value of the loaned securities. The collateral amount is valued at the beginning of each business day and is compared to the market value of the loaned securities from the prior business day to determine if additional collateral is required. If additional collateral is required, a request is sent to the borrower. Securities lending involves the risk that the Fund may lose money because the borrower of the Fund's loaned securities fails to return the securities in a timely manner or at all. The Fund could also lose money in the event of (i) a decline in the value of the collateral provided for the loaned securities, (ii) a decline in the value of any investments made with cash collateral or (iii) an increase in the value of the loaned securities if the borrower does not increase the collateral accordingly and the borrower fails to return the securities. These events could also trigger adverse tax consequences for the Funds. Under the Funds' Securities Lending Agency Agreement, the securities lending agent will generally bear the risk that a borrower may default on its obligation to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the Funds' securities lending agent and is responsible for executing the lending of the portfolio securities to creditworthy borrowers. The Funds, however, will be responsible for the risks associated with the investment of cash collateral. A Fund may lose money on its investment of cash collateral, which may affect its ability to repay the collateral to the borrower without the use of other Fund assets. Each Fund that engages in securities lending receives compensation (net of any rebate and securities lending agent fees) for lending its securities. Compensation can be in the form of fees received from the securities lending agent or dividends or interest earned from the investment of cash collateral. The dividend and interest earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At December 31, 2014, QQEW, QCLN, FCG and FNI have securities in the securities lending program. During the year ended December 31, 2014, QQEW, QQXT, QCLN, FCG and FNI participated in the securities lending program. In the event of a default by a borrower with respect to any loan, BBH will exercise any and all remedies provided under the applicable borrower agreement to make the Funds whole. These remedies include purchasing replacement securities by applying the collateral held from the defaulting broker against the purchase cost of the replacement securities. If, despite such efforts by BBH to exercise these remedies, a Fund sustains losses as a result of a borrower's default, BBH will indemnify the Fund by purchasing replacement securities at its own expense, or paying the Fund an amount equal to the market value of the replacement securities, subject to certain limitations which are set forth in detail in the Securities Lending Agency Agreement between the Trust on behalf of the Funds and BBH. Page 70 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 G. DIVIDENDS AND DISTRIBUTION TO SHAREHOLDERS Dividends from net investment income of each Fund, if any, are declared and paid quarterly, or as the Board of Trustees may determine from time to time. Distributions of net realized gains earned by each Fund, if any, are distributed at least annually. Distributions from income and capital gains are determined in accordance with income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Funds and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future. The tax character of distributions paid by each Fund during the fiscal year ended December 31, 2014 was as follows:
Distributions Distributions Distributions paid paid paid from Ordinary from Capital from Return Income Gains of Capital ----------------- ---------------- ---------------- First Trust NASDAQ-100 Equal Weighted Index Fund $ 5,254,521 $ -- $ -- First Trust NASDAQ-100-Technology Sector Index Fund 3,895,191 -- -- First Trust NASDAQ-100 Ex-Technology Sector Index Fund 905,596 -- -- First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 857,050 -- -- First Trust S&P REIT Index Fund 6,113,911 -- -- First Trust ISE Water Index Fund 1,479,820 -- -- First Trust ISE-Revere Natural Gas Index Fund 3,518,320 -- -- First Trust ISE Chindia Index Fund 666,211 -- -- First Trust NASDAQ(R)ABA Community Bank Index Fund 1,203,186 -- -- First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 75,215 -- --
The tax character of distributions paid by each Fund during the fiscal year ended December 31, 2013 was as follows:
Distributions Distributions Distributions paid paid paid from Ordinary from Capital from Return Income Gains of Capital ----------------- ---------------- ---------------- First Trust NASDAQ-100 Equal Weighted Index Fund $ 1,151,465 $ -- $ -- First Trust NASDAQ-100-Technology Sector Index Fund 1,166,616 -- -- First Trust NASDAQ-100 Ex-Technology Sector Index Fund 225,875 -- -- First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 297,165 -- -- First Trust S&P REIT Index Fund 7,854,961 -- -- First Trust ISE Water Index Fund 973,210 -- -- First Trust ISE-Revere Natural Gas Index Fund 1,716,075 -- -- First Trust ISE Chindia Index Fund 528,875 -- -- First Trust NASDAQ(R) ABA Community Bank Index Fund 350,521 -- -- First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 85,676 -- --
Page 71 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 As of December 31, 2014, the components of distributable earnings on a tax basis for each Fund were as follows:
Accumulated Undistributed Capital and Net Unrealized Ordinary Other Appreciation Income Gain (Loss) (Depreciation) ----------------- ---------------- ---------------- First Trust NASDAQ-100 Equal Weighted Index Fund $ -- $ (11,532,722) $ 47,581,252 First Trust NASDAQ-100-Technology Sector Index Fund -- (19,383,122) 72,865,180 First Trust NASDAQ-100 Ex-Technology Sector Index Fund -- (3,390,125) 18,131,197 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 510 (33,892,581) (10,131,044) First Trust S&P REIT Index Fund -- -- 15,589,241 First Trust ISE Water Index Fund -- (11,005,926) 20,347,484 First Trust ISE-Revere Natural Gas Index Fund 307,369 (222,154,984) (181,910,544) First Trust ISE Chindia Index Fund (80,940) (52,194,028) 7,446,725 First Trust NASDAQ(R) ABA Community Bank Index Fund 19,925 (997,841) 5,287,490 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 56 (486,881) 576,540
H. INCOME TAXES Each Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund's taxable income exceeds the distributions from such taxable income for the calendar year. The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ending 2011, 2012, 2013 and 2014 remain open to federal and state audit. As of December 31, 2014, management has evaluated the application of these standards to the Funds, and has determined that no provision for income tax is required in the Funds' financial statements for uncertain tax positions. Under the Regulated Investment Company Modernization Act of 2010 (the "Act"), net capital losses arising in taxable years after December 22, 2010, may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for up to eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses. At December 31, 2014, the Funds, except for First Trust S&P REIT Index Fund, had pre-enactment and post-enactment net capital losses for federal income tax purposes as shown in the following table. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to Fund shareholders. The Funds are subject to certain limitations, under U.S. tax rules, on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership.
Capital Capital Capital Capital Loss Loss Loss Loss Post- Total Available Available Available Available Enactment - Capital Through Through Through Through No Loss 2015 2016 2017 2018 Expiration Available ---------- ----------- ----------- ----------- ----------- ------------ First Trust NASDAQ-100 Equal Weighted Index Fund $ 54,385 $ 1,957,170 $ 4,681,103 $ -- $ 4,840,064 $ 11,532,722 First Trust NASDAQ-100-Technology Sector Index Fund 311,155 1,421,664 2,016,911 -- 15,633,392 19,383,122 First Trust NASDAQ-100 Ex-Technology Sector Index Fund 7,779 143,597 1,051,894 80,899 2,105,956 3,390,125 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 141,332 4,246,707 7,483,633 5,884,801 16,136,108 33,892,581 First Trust ISE Water Index Fund 592 318,246 5,768,328 2,198,674 2,720,086 11,005,926 First Trust ISE-Revere Natural Gas Index Fund 5,274 7,264,703 32,569,413 40,089,981 142,225,613 222,154,984 First Trust ISE Chindia Index Fund -- 11,116,593 11,686,955 7,245,147 22,145,333 52,194,028 First Trust NASDAQ(R) ABA Community Bank Index Fund -- -- 4,787 116,604 876,450 997,841 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund -- -- -- -- 486,881 486,881
Page 72 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended December 31, 2014, the following Funds incurred and elected to defer net ordinary and capital losses as follows:
Qualified Late Year Losses --------------------------------- Ordinary Losses Capital Losses --------------- -------------- First Trust ISE Chindia Index Fund $ 80,940 $ --
During the taxable year ended December 31, 2014, the following Funds utilized capital loss carryforwards in the following amounts:
Post-Enactment Capital Loss Carryforward Utilized --------------------- First Trust NASDAQ-100-Technology Sector Index Fund $ 729,315 First Trust ISE Water Index Fund 1,446,319 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 56,236
In order to present paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments on the Statements of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Funds and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended December 31, 2014, the adjustments for each Fund were as follows:
Accumulated Accumulated Net Net Investment Realized Gain (Loss) Paid-in Income (Loss) on Investments Capital -------------- -------------------- ---------------- First Trust NASDAQ-100 Equal Weighted Index Fund $ 504,872 $ (36,011,145) $ 35,506,273 First Trust NASDAQ-100-Technology Sector Index Fund 651,289 (11,971,772) 11,320,483 First Trust NASDAQ-100 Ex-Technology Sector Index Fund 15,419 (12,226,364) 12,210,945 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 8,379 (20,210,093) 20,201,714 First Trust S&P REIT Index Fund 760,180 (17,922,114) 17,161,934 First Trust ISE Water Index Fund 16,487 (11,444,548) 11,428,061 First Trust ISE-Revere Natural Gas Index Fund 297,402 (51,557,631) 51,260,229 First Trust ISE Chindia Index Fund 168,190 (7,524,392) 7,356,202 First Trust NASDAQ(R)ABA Community Bank Index Fund -- (2,736,522) 2,736,522 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (624) (889,781) 890,405
I. EXPENSES Expenses that are directly related to one of the Funds are charged directly to the respective Fund, except for First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (the "Unitary Fee Fund"), for which expenses other than excluded expenses (discussed in Note 3) are paid by the Advisor. General expenses of the Trust are allocated to all the Funds based upon the net assets of each Fund. The Advisor has entered into licensing agreements with each of the following "Licensors" for the respective Funds:
FUND LICENSOR First Trust NASDAQ-100 Equal Weighted Index Fund The NASDAQ Stock Market, LLC First Trust NASDAQ-100-Technology Sector Index Fund The NASDAQ Stock Market, LLC First Trust NASDAQ-100 Ex-Technology Sector Index Fund The NASDAQ Stock Market, LLC First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund The NASDAQ Stock Market, LLC /Clean Edge(R), Inc. First Trust S&P REIT Index Fund Standard & Poor's Financial Services, LLC First Trust ISE Water Index Fund International Securities Exchange, LLC First Trust ISE-Revere Natural Gas Index Fund International Securities Exchange, LLC First Trust ISE Chindia Index Fund International Securities Exchange, LLC First Trust NASDAQ(R) ABA Community Bank Index Fund The NASDAQ Stock Market, LLC First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund Standard & Poor's Financial Services, LLC
Page 73 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 The respective license agreements allow for the use by First Trust of certain trademarks and trade names of the respective Licensors. The Funds are sub-licensees to the applicable license agreement. With the exception of the First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund, the respective Funds are required to pay licensing fees, which are shown on the Statements of Operations. J. ACCOUNTING PRONOUNCEMENT In June 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. A repurchase-to-maturity transaction is one where the repurchase agreement settles at the same time as the maturity of the transferred financial asset. These transactions, unlike other repurchase agreements, were accounted for as sales and purchases instead of being treated as secured borrowings. This ASU changes that accounting practice and treats all repurchase agreements as secured borrowings. The ASU additionally requires two new disclosures which are intended to: a) disclose information on transferred assets accounted for as sales in transactions that are economically similar to repurchase agreements, and b) provide increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The ASU impacts all entities that enter into repurchase-to-maturity transactions, entities that account for these transactions as a sale and a purchase, and entities that engage in repurchase agreements and securities lending transactions. The ASU is effective for financial statements with fiscal years beginning on or after December 15, 2014 and interim periods within those fiscal years. Management is evaluating the impact, if any, of this guidance on the Funds' financial statement disclosures. 3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in each Fund's portfolio, managing the Funds' business affairs and providing certain administrative services necessary for the management of the Funds. For the First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund, First Trust is paid an annual unitary management fee of 0.60% of such Fund's average daily net assets and is responsible for the expenses of such Fund including the cost of transfer agency, custody, fund administration, legal, audit and other services, and excluding distribution and service fees pursuant to a Rule 12b-1 plan, if any, brokerage expenses, taxes, interest, and extraordinary expenses. First Trust is entitled to receive monthly fees from the remaining Funds calculated at the following annual rates:
% of Average Daily Net Assets ---------------- First Trust NASDAQ-100 Equal Weighted Index Fund 0.40% First Trust NASDAQ-100-Technology Sector Index Fund 0.40% First Trust NASDAQ-100 Ex-Technology Sector Index Fund 0.40% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.40% First Trust S&P REIT Index Fund 0.30% First Trust ISE Water Index Fund 0.40% First Trust ISE-Revere Natural Gas Index Fund 0.40% First Trust ISE Chindia Index Fund 0.40% First Trust NASDAQ(R) ABA Community Bank Index Fund 0.40%
For such Funds, the Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver and Recovery Agreement ("Recovery Agreement") in which the Advisor has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of each Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceed the below amount as a percentage of average daily net assets per year (the "Expense Cap"). The Expense Cap will be in effect until at least April 30, 2015. Page 74 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014
Expense Cap ---------------- First Trust NASDAQ-100 Equal Weighted Index Fund 0.60% First Trust NASDAQ-100-Technology Sector Index Fund 0.60% First Trust NASDAQ-100 Ex-Technology Sector Index Fund 0.60% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.60% First Trust S&P REIT Index Fund 0.50% First Trust ISE Water Index Fund 0.60% First Trust ISE-Revere Natural Gas Index Fund 0.60% First Trust ISE Chindia Index Fund 0.60% First Trust NASDAQ(R) ABA Community Bank Index Fund 0.60%
Expenses reimbursed and fees waived by First Trust under the Recovery Agreement are subject to recovery by First Trust for up to three years from the date the fee was waived or expense was reimbursed, but no reimbursement payment will be made by the Fund if it results in the Fund exceeding an expense ratio equal to the Expense Cap in place at the time the expenses were reimbursed or fees were waived by First Trust. These amounts would be included in "Expenses previously waived or reimbursed" on the Statements of Operations. The advisory fee waivers and expense reimbursements for the year ended December 31, 2014 and fees waived or expenses borne by the Advisor subject to recovery from each applicable Fund for the periods indicated were as follows:
Fees Waived or Expenses Borne by Advisor Subject to Recovery --------------------------------------------------- Advisory Year Year Year Fee Expense Ended Ended Ended Waivers Reimbursement 12/31/2012 12/31/2013 12/31/2014 Total --------- ------------- ---------- ---------- ---------- --------- First Trust NASDAQ-100 Equal Weighted Index Fund $ 41,566 $ -- $ 66,409 $ 56,300 $ 41,566 $ 164,275 First Trust NASDAQ-100-Technology Sector Index Fund 33,593 -- 71,070 32,509 33,593 137,172 First Trust NASDAQ-100 Ex-Technology Sector Index Fund 40,262 -- 58,392 44,451 40,262 143,105 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 50,372 -- 63,185 50,502 50,372 164,059 First Trust S&P REIT Index Fund -- -- 4,444 -- -- 4,444 First Trust ISE Water Index Fund -- -- -- -- -- -- First Trust ISE-Revere Natural Gas Index Fund 42,386 -- 100,098 11,985 42,386 154,469 First Trust ISE Chindia Index Fund 33,734 -- 97,245 35,100 33,734 166,079 First Trust NASDAQ(R) ABA Community Bank Index Fund 37,176 -- 46,863 40,775 37,176 124,814
During the year ended December 31, 2014, First Trust S&P REIT Index Fund and First Trust ISE Water Index Fund recovered fees that were previously waived of $10,421 and $45,807, respectively. The Trust has multiple service agreements with The Bank of New York Mellon ("BNYM"). Under the servicing agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for the Trust. As custodian, BNYM is responsible for custody of the Trust's assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of the Trust's securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for the Trust. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company. Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates ("Independent Trustees") is paid a fixed annual retainer that is allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund or is an index fund. Additionally, the Lead Independent Trustee and the Chairmen of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairmen rotate every three years. The officers and "Interested" Trustee receive no compensation from the Trust for acting in such capacities. Page 75 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 4. PURCHASES AND SALES OF SECURITIES For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
Purchases Sales --------------- --------------- First Trust NASDAQ-100 Equal Weighted Index Fund $ 117,129,923 $ 116,420,198 First Trust NASDAQ-100-Technology Sector Index Fund 49,078,840 49,021,602 First Trust NASDAQ-100 Ex-Technology Sector Index Fund 21,977,161 22,017,297 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 49,567,332 49,625,598 First Trust S&P REIT Index Fund 27,195,776 25,248,018 First Trust ISE Water Index Fund 47,533,898 47,476,265 First Trust ISE-Revere Natural Gas Index Fund 188,252,867 188,610,098 First Trust ISE Chindia Index Fund 30,486,490 30,678,465 First Trust NASDAQ(R)ABA Community Bank Index Fund 22,085,500 22,152,198 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 368,429 339,858
For the year ended December 31, 2014, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows:
Purchases Sales --------------- --------------- First Trust NASDAQ-100 Equal Weighted Index Fund $ 477,200,719 $ 251,534,693 First Trust NASDAQ-100-Technology Sector Index Fund 180,847,671 42,650,869 First Trust NASDAQ-100 Ex-Technology Sector Index Fund 45,476,527 31,579,230 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 99,490,139 96,780,966 First Trust S&P REIT Index Fund 369,827,814 220,221,127 First Trust ISE Water Index Fund 41,945,512 39,277,892 First Trust ISE-Revere Natural Gas Index Fund 391,051,955 407,960,750 First Trust ISE Chindia Index Fund 62,461,571 20,267,260 First Trust NASDAQ(R)ABA Community Bank Index Fund 70,798,721 13,741,485 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 1,196,023 3,522,595
5. CREATION, REDEMPTION & TRANSACTION FEES Shares are created and redeemed by each Fund only in Creation Unit size aggregations of 50,000 shares. Such transactions are generally permitted on an in-kind basis, with a balancing cash component to equate the transaction to the daily NAV per Share of each Fund on the transaction date times the number of Shares in a Creation Unit. Purchasers of Creation Units must pay to BNYM, as transfer agent, a standard creation transaction fee (the "Creation Transaction Fee"), which is based on the number of different securities in a Creation Unit of each Fund according to the fee schedule set forth below: Number of Securities Creation in a Creation Unit Transaction Fee -------------------- --------------- 1-100 $ 500 101-200 $1,000 201-300 $1,500 301-400 $2,000 401-500 $2,500 501-600 $3,000 601-700 $3,500 The Creation Transaction Fee is applicable to each purchase transaction regardless of the number of Creation Units purchased in the transaction. An additional variable fee of up to three times the Creation Transaction Fee may be charged to approximate additional expenses incurred by a Fund with respect to transactions effected outside of the clearing process (i.e., through a DTC Participant) or to the extent that cash is used in lieu of securities to purchase Creation Units. The price for each Creation Unit will equal the daily NAV per Share of a Fund on the transaction date times the number of Shares in a Creation Unit plus the fees described above and, if applicable, any transfer taxes. Page 76 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 Parties redeeming Creation Units must pay to BNYM, as transfer agent, a standard redemption transaction fee (the "Redemption Transaction Fee"), which is based on the number of different securities in a Creation Unit of each Fund according to the fee schedule set forth below: Number of Securities Redemption in a Creation Unit Transaction Fee -------------------- --------------- 1-100 $ 500 101-200 $1,000 201-300 $1,500 301-400 $2,000 401-500 $2,500 501-600 $3,000 601-700 $3,500 The Redemption Transaction Fee is applicable to each redemption transaction regardless of the number of Creation Units redeemed in the transaction. An additional variable fee of up to three times the Redemption Transaction Fee may be charged to approximate additional expenses incurred by a Fund with respect to redemptions effected outside of the clearing process or to the extent that redemptions are for cash. Each Fund reserves the right to effect redemptions in cash. A shareholder may request cash redemption in lieu of securities; however, a Fund may, in its discretion, reject any such request. 6. DISTRIBUTION PLAN The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services. No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before April 30, 2015. 7. INDEMNIFICATION The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust's maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 8. SUBSEQUENT EVENTS Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed. Page 77 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Trustees and Shareholders of First Trust Exchange-Traded Fund: We have audited the accompanying statements of assets and liabilities of First Trust NASDAQ-100 Equal Weighted Index Fund, First Trust NASDAQ-100-Technology Sector Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index Fund, First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, First Trust S&P REIT Index Fund, First Trust ISE Water Index Fund, First Trust ISE-Revere Natural Gas Index Fund, First Trust ISE Chindia Index Fund, First Trust NASDAQ(R) ABA Community Bank Index Fund, and First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (collectively, the "Funds"), each a series of the First Trust Exchange-Traded Fund (the "Trust"), including the portfolios of investments, as of December 31, 2014, and the related statements of operations for the year then ended, and the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014 by correspondence with the Trust's custodian and brokers; where replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the funds listed above included in the First Trust Exchange-Traded Fund, as of December 31, 2014, and the results of their operations for the year then ended, and the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Chicago, Illinois February 25, 2015 Page 78 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 (UNAUDITED) PROXY VOTING POLICIES AND PROCEDURES A description of the policies and procedures that the Trust uses to determine how to vote and information on how each Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Fund's website located at http://www.ftportfolios.com; and (3) on the Securities and Exchange Commission's ("SEC") website at http://www.sec.gov. PORTFOLIO HOLDINGS The Trust files its complete schedule of each Fund's portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Trust's Forms N-Q are available (1) by calling (800) 988-5891; (2) on the Fund's website located at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov; and (4) for review and copying at the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding the operation of the PRR may be obtained by calling (800) SEC-0330. FEDERAL TAX INFORMATION For the taxable year ended December 31, 2014, the following percentages of income dividends paid by the Funds qualify for the dividends received deduction available to corporations:
Dividends Received Deduction ---------------------------- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 91.76% First Trust NASDAQ-100-Technology Sector Index(SM) Fund 100.00% First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 73.73% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 76.89% First Trust S&P REIT Index Fund -- First Trust ISE Water Index Fund 100.00% First Trust ISE-Revere Natural Gas Index Fund 23.57% First Trust ISE Chindia Index Fund -- First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00% First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 100.00%
For the taxable year ended December 31, 2014, the following percentages of income dividends paid by the Funds is hereby designated as qualified dividend income:
Qualified Dividend Income ---------------------------- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 100.00% First Trust NASDAQ-100-Technology Sector Index(SM) Fund 100.00% First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 100.00% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 75.89% First Trust S&P REIT Index Fund -- First Trust ISE Water Index Fund 100.00% First Trust ISE-Revere Natural Gas Index Fund 68.40% First Trust ISE Chindia Index Fund 100.00% First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00% First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 100.00%
For the tax year ended December 31, 2014, the First Trust S&P REIT Index Fund designated $1,867,266, or amounts necessary, as long-term capital gain. During the tax year, Fund shareholders redeemed amounts in excess of the Fund's long-term capital gains and of these proceeds, $1,867,266, or amounts necessary, represents long-term capital gain from the Fund. Page 79 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 (UNAUDITED) RISK CONSIDERATIONS RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT HTTP://WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND. FOR ADDITIONAL INFORMATION ABOUT THE RISKS ASSOCIATED WITH INVESTING IN THE FUNDS, PLEASE SEE THE FUNDS' STATEMENT OF ADDITIONAL INFORMATION, AS WELL AS OTHER REGULATORY FILINGS. READ THESE DOCUMENTS CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS THE DISTRIBUTOR OF THE FIRST TRUST EXCHANGE-TRADED FUND. The following summarizes some of the risks that should be considered for the Funds. Each Fund's shares will change in value, and you could lose money by investing in a Fund. Shares are subject to market fluctuations caused by such factors as economic, political, regulatory or market developments, changes in interest rates and perceived trends in stock prices. Overall stock values could decline generally or could underperform other investments. Overall stock market values could decline generally or could underperform other investments. An investment in a Fund involves risks similar to those of investing in any fund of equity securities traded on an exchange. Investors buying or selling Fund shares on the secondary market may incur brokerage commissions. In addition, investors who sell Fund shares may receive less than the Fund shares' net asset value. Unlike shares of open-end funds, investors are generally not able to purchase exchange-traded fund ("ETF") shares directly from a Fund and individual ETF shares are not redeemable. However, specified large blocks of ETF shares called creation units can be purchased from, or redeemed to, a Fund. Each Fund is subject to index tracking risk. You should anticipate that the value of Fund shares will decline, more or less, in correlation with any decline in the value of the index that the Fund seeks to track. Each Fund's return may not match the return of the index it seeks to track for a number of reasons. While First Trust seeks to have a correlation of 0.95 or better, before expenses, between a Fund's performance and the performance of its corresponding index, there can be no assurance that a Fund will be able to achieve such a correlation. Accordingly, each Fund's performance may correlate to a lesser extent and may possibly vary substantially from the performance of its corresponding index. Each Fund is also exposed to additional market risk due to a policy of investing principally in the securities included in its corresponding index. As a result of such policies, securities held by each Fund will generally not be bought or sold in response to market fluctuations and the securities may be issued by companies concentrated in a particular industry. As a result, each Fund will generally not sell a stock because the stock's issuer is in financial trouble, unless that stock is removed or is anticipated to be removed from the index the Fund seeks to track. Each Fund relies on a license from an index provider that permits the Fund to use its corresponding index and associated trade names and trademarks in connection with the name and investment strategies of the Fund. Such licenses may be terminated by the respective index provider and, as a result, each Fund may lose its ability to use such intellectual property. There is also no guarantee that the index provider has all rights to license the respective intellectual property to First Trust, on behalf of the Fund. Accordingly, in the event the license is terminated or the index provider does not have rights to license the particular intellectual property, it may have a significant effect on the operation of the related Fund. Each Fund is subject to issuer specific changes risk. The value of an individual security or a particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole. Each Fund will be concentrated in the securities of companies of a given industry if the Fund's corresponding index is concentrated in such industry. A concentration makes a Fund more susceptible to any single occurrence affecting the related industry and may subject a Fund to greater market risk than less concentrated funds. Each Fund is considered to be non-diversified. As a result, those Funds are exposed to additional market risk. A non-diversified fund may invest a relatively high percentage of its assets in a limited number of issuers. As a result, changes in the market value of a single portfolio security could cause greater fluctuations in share price than would occur in a diversified fund. Furthermore, non-diversified funds are more susceptible to any single political, regulatory or economic occurrence. The Funds are not actively managed. The Funds may be affected by a general decline in certain market segments relating to their corresponding index. The Funds invest in securities included in or representative of their corresponding index regardless of their investment merit. The Funds generally will not attempt to take defensive positions in declining markets. Page 80 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 (UNAUDITED) The First Trust NASDAQ-100 Equal Weighted Index Fund and the First Trust NASDAQ-100-Technology Sector Index Fund invest in stocks of companies in the technology sector. You should be aware that an investment in a portfolio which invests in a particular sector involves additional risks, including limited diversification. The companies engaged in the technology sector are subject to fierce competition and high research and development costs, and their products and services may be subject to rapid obsolescence. First Trust S&P REIT Index Fund and First Trust NASDAQ(R) ABA Community Bank Index Fund invest in securities of companies in the financials sector. Banks, thrifts and their holding companies are especially subject to the adverse effects of economic recession; volatile interest rates; portfolio concentrations in geographic markets and in commercial and residential real estate loans; and competition from new entrants in their fields of business. Although recently enacted legislation repealed most of the barriers which separated the banking, insurance and securities industries, these industries are still extensively regulated at both the federal and state level and may be adversely affected by increased regulations. The downturn in the U.S. and world economies has adversely affected banks, thrifts and other companies in the financials sector. The First Trust ISE Chindia Index Fund, the First Trust NASDAQ-100 Equal Weighted Index Fund, the First Trust NASDAQ-100-Technology Sector Index Fund, the First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund and the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invest in securities of companies in the information technology industry. Information technology companies are generally subject to the risks of rapidly changing technologies; short product life cycles; fierce competition; and aggressive pricing and reduced profit margins. The First Trust NASDAQ-100 Ex-Technology Sector Index Fund and First Trust NASDAQ-100 Equal Weighted Index Fund invest in the securities of companies in the consumer discretionary sector. Because companies in the consumer discretionary sector manufacture products and provide discretionary services directly to the consumer, the success of these companies is tied closely to the performance of the overall domestic and international economy, interest rates, competition and consumer confidence. Success depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer discretionary products in the marketplace. The First Trust ISE-Revere Natural Gas Index Fund invests in the securities of companies in the energy sector. General problems of issuers in the energy sector include volatile fluctuations in price and supply of energy fuels, international politics, terrorist attacks, reduced demand as a result of increases in energy efficiency and energy conservation, the success of exploration projects, clean-up and litigation costs relating to oil spills and environmental damage, and tax and other regulatory policies of various governments. In addition, recent oil prices have been at historic highs and extremely volatile. The First Trust ISE Water Index Fund and the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invest in the securities of companies in the industrials sector. General risks of these companies include the general state of the economy, intense competition, consolidation, domestic and international politics, excess capacity and consumer demand and spending trends. In addition, they may also be significantly affected by overall capital spending levels, economic cycles, technical obsolescence, delays in modernization, labor relations, government regulations and e-commerce initiatives. The First Trust S&P REIT Index Fund invests in companies in the real estate industry, including real estate investment trusts ("REITs") and is subject to the risks associated with investing in real estate (any of which could cause the value of a REIT's stock price to decline), which may include, but are not limited to, possible declines in the value of real estate, adverse general and local economic conditions, possible lack of availability of mortgage funds, overbuilding in a REIT's market, changes in interest rates and environmental problems. Furthermore, increases in interest rates typically lower the present value of a REIT's future earnings stream, and may make financing property purchases and improvements more costly. The First Trust NASDAQ-100 Ex-Technology Sector Index Fund invests in the securities of companies in the health care sector. Because companies in the health care sector are involved in medical services or health care including biotechnology research and production, drugs and pharmaceuticals and health care facilities and services, general problems of these companies include extensive competition, generic drug sales or the loss of patent protection, product liability litigation and increased government regulations. The First Trust ISE Water Index Fund invests in the securities of utilities companies. Utilities companies are subject to the imposition of rate caps, increased competition due to deregulation, the difficulty in obtaining an adequate return on invested capital or in financing large construction projects, the limitations on operations and increased costs and delays attributable to environmental considerations, and the capital market's ability to absorb utility debt. In addition, taxes, government regulation, international politics, price and supply fluctuations, volatile interest rates and energy conservation may cause difficulties for utilities. Utilities issuers have been experiencing certain of these problems to varying degrees. The Funds may invest in small capitalization and mid-capitalization companies. Such companies' securities may be less liquid and may experience greater price volatility than securities of larger, more established companies. Page 81 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 (UNAUDITED) Because a Fund's corresponding index may include American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") and/or stocks of non-U.S. companies, the investments of certain Funds, including but not limited to, the First Trust ISE Chindia Index Fund, the First Trust ISE-Revere Natural Gas Index Fund and the First Trust ISE Water Index Fund involve risks of investing in non-U.S. securities that are in addition to the risk associated with domestic securities. Non-U.S. companies, in general, are not subject to the regulatory requirements of U.S. companies and, as such, there may be less publicly available information about these companies. Moreover, non-U.S. accounting, auditing and financial reporting standards generally are different from those applicable to U.S. companies. In addition, non-U.S. companies are exposed to additional economic, political, social or diplomatic events. ADRs and ADSs also involve substantially identical risks to those associated with investments in non-U.S. securities. In addition, the issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts, or to pass through to them any voting rights with respect to the deposited securities. The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invests in renewable and alternative energy companies. You should be aware that share prices of renewable and alternative energy companies have been significantly more volatile than shares of companies operating in other more established industries and the securities included in the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund may be subject to sharp price declines. This industry is relatively nascent and under-researched in comparison to more established and mature sectors, and should therefore be regarded as having greater investment risk. The First Trust ISE Water Index Fund invests in companies in the potable water and wastewater industries. You should be aware that adverse developments in these industries may significantly affect the value of the shares of the First Trust ISE Water Index Fund. Companies involved in the potable water and wastewater industries are subject to environmental considerations, taxes, government regulation, price and supply fluctuations, competition and conservation. The First Trust ISE-Revere Natural Gas Index Fund invests in companies in the natural gas industry. You should be aware that one of the natural gas industry's primary risks is the competitive risk associated with the prices of alternative fuels, such as coal and oil. Additionally, the natural gas industry is sensitive to increased interest rates because of the industry's capital intensive nature. Furthermore, there are additional risks and hazards that are inherent in the natural gas industry that may cause the price of natural gas to widely fluctuate. The First Trust ISE Chindia Index Fund invests in the securities of Chinese and Indian companies. You should be aware that investments in such companies are subject to additional risks, which are associated with possible adverse economic, political and social developments in those countries. The First Trust NASDAQ(R) ABA Community Bank Index Fund is concentrated in the securities of NASDAQ(R) listed community banks as defined by its corresponding index which involves additional risks, including limited diversification. These companies are subject to certain risks, including the adverse effects of volatile interest rates, economic recession, increased competition from new entrants in the field, and potential increased regulation. The financial performance of these companies may also be highly dependent upon the business environment in certain geographic regions of the United States and may be adversely impacted by any downturn or unfavorable economic or employment developments in their local markets and the United States as a whole. These companies may also be subject to interest rate risks and changes in monetary policy as their earnings are largely dependent upon their net interest income and lending risks that could further increase because of increases in interest rates and/or continuing economic weakness. The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund's use of options and other derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund's portfolio managers use derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The option positions employed, as dictated by the attempt to replicate the Index, may present additional risk. The value of an option may be adversely affected if the market for the option becomes less liquid or smaller, and will be affected by changes in the value and dividend rates of the stock subject to the option, an increase in interest rates, a change in the actual and perceived volatility of the stock market and the common stock and the remaining time to expiration. Additionally, the value of an option does not increase or decrease at the same rate as the underlying stock (although they generally move in the same direction). Unlike most exchange-traded funds, the First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund may effect a portion of creations and redemptions for cash, rather than in-kind securities. Particularly, the call option portion of the Fund's portfolio, if applicable, may be redeemed for cash. As a result, an investment in the Fund may be less tax-efficient than an investment in a more conventional exchange-traded fund. Because the Fund may effect a portion of redemptions for cash, rather than in-kind distributions, it may be required to sell portfolio securities in order to obtain the cash needed to distribute redemption proceeds. A sale of shares may result in capital gains or losses, and may also result in higher brokerage costs. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE Page 82 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 (UNAUDITED) The Trust's statement of additional information includes additional information about the Trustees and is available, without charge, upon request, by calling (800) 988-5891.
NUMBER OF OTHER PORTFOLIOS IN TRUSTEESHIPS OR THE FIRST TRUST DIRECTORSHIPS NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE DATE OF BIRTH AND AND YEAR FIRST PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST POSITION WITH THE TRUST ELECTED OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton Orthopedics; 114 None c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate 120 East Liberty Drive, o Since Inception Limited Partnership; Member, Sportmed LLC Suite 400 Wheaton, IL 60187 D.O.B.: 04/51 Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), Senior 114 Director of ADM c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services, 120 East Liberty Drive, o Since Inception (May 2007 to March 2010), ADM Investor Inc., and ADM Suite 400 Services, Inc. (Futures Commission Investor Services, Wheaton, IL 60187 Merchant) International and D.O.B.: 11/57 Futures Industry Association Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 114 Director of Trust c/o First Trust Advisors L.P. Enterprises (Financial and Management Company of 120 East Liberty Drive, o Since Inception Consulting) Illinois Suite 400 Wheaton, IL 60187 D.O.B.: 11/56 Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating 114 Director of c/o First Trust Advisors L.P. Officer (January 2015 to Present),Pelita Covenant 120 East Liberty Drive, o Since Inception Harapan Educational Foundation(Educational Transport, Inc. Suite 400 Products and Services); President and Chief (May 2003 to Wheaton, IL 60187 Executive Officer (June 2012 to September May 2014) D.O.B.: 03/54 2014), Servant Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Dew Learning LLC (Educational Products and Services); President (June 2002 to June 2012), Covenant College ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer (December 2010 to 114 None Chairman of the Board Present), President (until December 2010), 120 East Liberty Drive, o Since Inception First Trust Advisors L.P. and First Trust Suite 400 Portfolios L.P.; Chairman of the Board of Wheaton, IL 60187 Directors, BondWave LLC (Software D.O.B.: 09/55 Development Company/Investment Advisor and Stonebridge Advisors LLC (Investment Advisor)
------------------- (1) Mr. Bowen is deemed an "interested person" of the Trust due to his position as Chief Executive Officer of First Trust Advisors L.P., investment advisor of the Trust. Page 83 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 (UNAUDITED)
POSITION AND TERM OF OFFICE NAME, ADDRESS OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS AND DATE OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS(2) ------------------------------------------------------------------------------------------------------------------------------------ Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present) 120 E. Liberty Drive, Financial Officer and Chief Financial Officer, First Trust Advisors Suite 400 o Since January 2012 L.P. and First Trust Portfolios L.P.; Chief Financial Wheaton, IL 60187 Officer, BondWave LLC (Software Development D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge Advisors LLC (Investment Advisor) James M. Dykas Treasurer, Chief o Indefinite Term Controller (January 2011 to Present), Senior Vice 120 E. Liberty Drive, Financial Officer and President (April 2007 to Present), First Trust Suite 400 Chief Accounting Officer o Since January 2012 Advisors L.P. and First Trust Portfolios L.P. Wheaton, IL 60187 D.O.B.: 01/66 W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First 120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General Counsel, Suite 400 o Since Inception BondWave LLC (Software Development Company/ Wheaton, IL 60187 Investment Advisor); Secretary of Stonebridge D.O.B.: 05/60 Advisors LLC (Investment Advisor) Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present), Senior 120 E. Liberty Drive, Vice President (September 2005 to July 2012), Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios Wheaton, IL 60187 L.P. D.O.B.: 02/70 Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors 120 E. Liberty Drive, and Assistant Secretary L.P. and First Trust Portfolios L.P. Suite 400 o Chief Compliance Wheaton, IL 60187 Officer since D.O.B.: 12/66 January 2011 o Assistant Secretary since Inception Roger F. Testin Vice President o Indefinite Term Senior Vice President, (November 2003 to Present), 120 E. Liberty Drive, Vice President (August 2001 to November 2003), Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios Wheaton, IL 60187 L.P. D.O.B.: 06/66 Stan Ueland Vice President o Indefinite Term Senior Vice President (September 2012 to Present), 120 E. Liberty Drive, Vice President (August 2005 to September 2012), Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios Wheaton, IL 60187 L.P. D.O.B.: 11/70
------------------- (2) The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. Page 84 -------------------------------------------------------------------------------- PRIVACY POLICY -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2014 (UNAUDITED) PRIVACY POLICY First Trust values our relationship with you and consider your privacy an important priority in maintaining that relationship. We are committed to protecting the security and confidentiality of your personal information. SOURCES OF INFORMATION We collect nonpublic personal information about you from the following sources: o Information we receive from you and your broker-dealer, investment advisor or financial representative through interviews, applications, agreements or other forms; o Information about your transactions with us, our affiliates or others; o Information we receive from your inquiries by mail, e-mail or telephone; and o Information we collect on our website through the use of "cookies". For example, we may identify the pages on our website that your browser requests or visits. INFORMATION COLLECTED The type of data we collect may include your name, address, social security number, age, financial status, assets, income, tax information, retirement and estate plan information, transaction history, account balance, payment history, investment objectives, marital status, family relationships and other personal information. DISCLOSURE OF INFORMATION We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. In addition to using this information to verify your identity (as required under law), the permitted uses may also include the disclosure of such information to unaffiliated companies for the following reasons: o In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as trustees, banks, financial representatives, proxy services, solicitors and printers. o We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your account from fraud). In addition, in order to alert you to our other financial products and services, we may share your personal information with affiliates of the Fund. PRIVACY ONLINE We allow third-party companies, including AddThis, to collect certain anonymous information when you visit our website. These companies may use non-personally identifiable information during your visits to this and other websites in order to provide advertisements about goods and services likely to be of greater interest to you. These companies typically use a cookie, third party web beacon or pixel tags, to collect this information. To learn more about this behavioral advertising practice, you can visit www.networkadvertising.org. CONFIDENTIALITY AND SECURITY With regard to our internal security procedures, we restrict access to your nonpublic personal information to those individuals who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information. POLICY UPDATES AND INQUIRIES As required by federal law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however, if we do change it, we will tell you promptly. For questions about our policy, or for additional copies of this notice, please go to www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors). Page 85 This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. FIRST TRUST First Trust Exchange-Traded Fund INVESTMENT ADVISOR First Trust Advisors L.P. 120 East Liberty Drive, Suite 400 Wheaton, IL 60187 ADMINISTRATOR, CUSTODIAN, FUND ACCOUNTANT & TRANSFER AGENT The Bank of New York Mellon 101 Barclay Street New York, NY 10286 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP 111 S. Wacker Drive Chicago, IL 60606 LEGAL COUNSEL Chapman and Cutler LLP 111 W. Monroe Street Chicago, IL 60603 [BLANK BACK COVER] ITEM 2. CODE OF ETHICS. (a) The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (c) There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. (d) The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item's instructions. (e) Not applicable. (f) The code of ethics is filed as an exhibit to the Registrant's annual report on this Form N-CSR. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. As of the end of the period covered by the report, the registrant's board of trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified to serve as audit committee financial experts serving on its audit committee and that each of them is "independent," as defined by Item 3 of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees -- The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $380,000 for 2013 and $380,000 for 2014. (b) Audit-Related Fees (Registrant) -- The aggregate fees billed in each of the last two fiscal years, for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item were $0 for 2013 and $0 for 2014. Audit-Related Fees (Investment Adviser and Distributor) -- The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item were $0 for 2013 and $0 for 2014. (c) Tax Fees (Registrant) -- The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the registrant were $61,750 for 2013 and $55,575 for 2014. The tax fees were for review of regulated investment company status. Tax Fees (Investment Adviser and Distributor) -- The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the registrant's adviser and distributor were $0 for 2013 and $0 for 2014. (d) All Other Fees (Registrant) -- The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the registrant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for 2013 and $0 for 2014. All Other Fees (Investment Adviser and Distributor) -- The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the registrant's investment adviser and distributor, other than the services reported in paragraphs (a) through (c) of this Item were $ 0 for 2013 and $0 for 2014. (e)(1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee (the "Committee") is responsible for the pre-approval of all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the registrant by its independent auditors. The Chairman of the Committee is authorized to give such pre-approvals on behalf of the Committee up to $25,000 and report any such pre-approval to the full Committee. The Committee is also responsible for the pre-approval of the independent auditor's engagements for non-audit services with the registrant's adviser (not including a sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser) and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant, subject to the de minimis exceptions for non-audit services described in Rule 2-01 of Regulation S-X. If the independent auditor has provided non-audit services to the registrant's adviser (other than any sub-adviser whose role is primarily portfolio management and is sub-contracted with or overseen by another investment adviser) and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to its policies, the Committee will consider whether the provision of such non-audit services is compatible with the auditor's independence. (e)(2) The percentage of services described in each of paragraphs (b) through (d) for the registrant and the registrant's investment adviser of this Item that were approved by the audit committee pursuant to the pre-approval exceptions included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows: (b) 0% (c) 0% (d) 0% (f) The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than fifty percent. (g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for 2013 were $61,750 for the registrant, $38,000 for the registrant's investment adviser and $58,100 for the registrant's distributor and for 2014 were $55,575 for the registrant, $8,500 for the registrant's investment adviser and $43,500 for the registrant's distributor. (h) The registrant's audit committee of its Board of Trustees has determined that the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEMS 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. The Registrant has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 consisting of all the independent directors of the Registrant. The audit committee of the registrant is comprised of: Richard E. Erickson, Thomas R. Kadlec, Robert F. Keith and Niel B. Nielson. ITEM 6. INVESTMENTS. (a) Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. (b) Not applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant's board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407 (c) (2) (iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22 (b) (15) of Schedule 14A (17 CFR 240.14a-101)), or this Item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3 (c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a) (1) Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. (a) (2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. (a) (3) Not Applicable (b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (registrant) First Trust Exchange-Traded Fund ------------------------------------------------------ By (Signature and Title)* /s/ Mark R. Bradley ---------------------------------------- Mark R. Bradley, President and Chief Executive Officer (principal executive officer) Date: February 25, 2015 -------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ Mark R. Bradley ---------------------------------------- Mark R. Bradley, President and Chief Executive Officer (principal executive officer) Date: February 25, 2015 -------------------- By (Signature and Title)* /s/ James M. Dykas ---------------------------------------- James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) Date: February 25, 2015 -------------------- * Print the name and title of each signing officer under his or her signature. EX-99.CERT 2 certs_302.txt SECTION 302 CERTIFICATION CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, Mark R. Bradley, certify that: 1. I have reviewed this report on Form N-CSR of First Trust Exchange-Traded Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 25, 2015 /s/ Mark R. Bradley -------------------- ---------------------------------------- Mark R. Bradley, President and Chief Executive Officer (principal executive officer) CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, James M. Dykas, certify that: 1. I have reviewed this report on Form N-CSR of First Trust Exchange-Traded Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 25, 2015 /s/ James M. Dykas -------------------- ---------------------------------------- James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) EX-99.906 CERT 3 certs_906.txt SECTION 906 CERTIFICATION CERTIFICATION PURSUANT TO RULE 30A-2(B) UNDER THE 1940 ACT AND SECTION 906 OF THE SARBANES-OXLEY ACT I, Mark R. Bradley, President and Chief Executive Officer of First Trust Exchange-Traded Fund (the "Registrant"), certify that: 1. The Form N-CSR of the Registrant (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 25, 2015 /s/ Mark R. Bradley -------------------- ---------------------------------------- Mark R. Bradley, President and Chief Executive Officer (principal executive officer) I, James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer of First Trust Exchange-Traded Fund (the "Registrant"), certify that: 1. The Form N-CSR of the Registrant (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 25, 2015 /s/ James M. Dykas -------------------- ---------------------------------------- James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer)