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| Name | Symbol | Market | Type |
|---|---|---|---|
| First Trust NYSE Arca Biotechnology Index Fund | AMEX:FBT | AMEX | Exchange Traded Fund |
| Price Change | % Change | Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 165.8513 | 0 | 09:00:10 |
Rule 497(c)
File No. 333-125751
STATEMENT OF ADDITIONAL INFORMATION
INVESTMENT COMPANY ACT FILE NO. 811-21774
FIRST TRUST EXCHANGE-TRADED FUND
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND
FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND
FIRST TRUST IPOX-100 INDEX FUND
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND
FIRST TRUST AMEX(R) BIOTECHNOLOGY INDEX FUND
FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND
FIRST TRUST DB STRATEGIC VALUE INDEX FUND
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND FIRST TRUST NASDAQ(R) CLEAN EDGE(R) U.S. LIQUID SERIES INDEX FUND
FIRST TRUST S&P REIT INDEX FUND
FIRST TRUST ISE WATER INDEX FUND
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND
FIRST TRUST ISE CHINDIA INDEX FUND
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND
DATED MAY 1, 2008
This Statement of Additional Information is not a Prospectus. It should be read in conjunction with the Funds' Prospectus dated May 1, 2008 (the "Prospectus") for each of First Trust Dow Jones Select MicroCap Index(SM) Fund, First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, First Trust IPOX-100 Index Fund, First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust NASDAQ-100-Technology Sector Index(SM) Fund, First Trust Amex(R) Biotechnology Index Fund, First Trust Dow Jones Internet Index(SM) Fund, First Trust DB Strategic Value Index Fund, First Trust Value Line(R) Equity Allocation Index Fund, First Trust Value Line(R) Dividend Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series 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 and First Trust Value Line(R) 100 Exchange-Traded Fund, each a series of First Trust Exchange-Traded Fund (the "Trust"), as it may be revised from time to time. Capitalized terms used herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted. A copy of the Funds' Prospectus may be obtained without charge by writing to the Trust's distributor, First Trust Portfolios L.P., 1001 Warrenville Road, Lisle, Illinois 60532, or by calling toll free at (800) 621-1675.
TABLE OF CONTENTS
GENERAL DESCRIPTION OF THE TRUST AND THE FUNDS................................1 EXCHANGE LISTING AND TRADING..................................................3 INVESTMENT OBJECTIVE AND POLICIES.............................................3 INVESTMENT STRATEGIES.........................................................5 SUBLICENSE AGREEMENTS........................................................15 INVESTMENT RISKS.............................................................25 MANAGEMENT OF THE FUNDS......................................................28 ACCOUNTS MANAGED BY INVESTMENT COMMITTEE.....................................40 BROKERAGE ALLOCATIONS........................................................41 CUSTODIAN, DISTRIBUTOR, TRANSFER AGENT, FUND ACCOUNTING AGENT, INDEX PROVIDERS AND EXCHANGES................................................45 ADDITIONAL INFORMATION.......................................................48 PROXY VOTING POLICIES AND PROCEDURES.........................................50 CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS........................51 FEDERAL TAX MATTERS..........................................................62 DETERMINATION OF NAV.........................................................67 DIVIDENDS AND DISTRIBUTIONS..................................................69 MISCELLANEOUS INFORMATION....................................................69 FINANCIAL STATEMENTS.........................................................69 |
The audited financial statements for the Funds' most recent fiscal year appear in the Funds' Annual Report to Shareholders dated December 31, 2007, which is attached hereto. The Annual Report was filed with the Securities and Exchange Commission ("SEC") on March 10, 2008. The financial statements from such Annual Report are incorporated herein by reference.
GENERAL DESCRIPTION OF THE TRUST AND THE FUNDS
The Trust was organized as a Massachusetts business trust on August 8, 2003 and is authorized to issue an unlimited number of shares in one or more series or "Funds." The Trust is an open-end management investment company, registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust currently offers shares in 17 separate series, including First Trust Dow Jones Select MicroCap Index(SM) Fund (the "MicroCap Fund"), First Trust Morningstar(R) Dividend Leaders(SM) Index Fund (the "Dividend Leaders Fund"), First Trust IPOX-100 Index Fund (the "IPOX Fund"), First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (the "Equal Weighted Fund"), First Trust NASDAQ-100-Technology Sector Index(SM) Fund (the "Technology Fund"), First Trust Amex(R) Biotechnology Index Fund (the "Biotech Fund"), First Trust Dow Jones Internet Index(SM) Fund (the "Internet Fund"), First Trust DB Strategic Value Index Fund (the "Strategic Value Fund"), First Trust Value Line(R) Equity Allocation Index Fund (the "Value Line(R) Equity Allocation Fund"), First Trust Value Line(R) Dividend Index Fund (the "Value Line(R) Dividend Fund"), First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (the "Ex-Technology Fund"), First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund (the "Clean Edge(R) Fund"), First Trust S&P REIT Index Fund (the "S&P REIT Fund"), First Trust ISE Water Index Fund (the "ISE Water Fund"), First Trust ISE-Revere Natural Gas Index Fund (the "ISE Gas Fund"), First Trust ISE Chindia Index Fund (the "ISE Chindia Fund") and First Trust Value Line(R) 100 Exchange-Traded Fund (the "Value Line(R) 100 Fund") (each, a "Fund," and collectively, the "Funds"). The Dividend Leaders Fund, the IPOX Fund, the Equal Weighted Fund, the Technology Fund, the Biotech Fund, the Internet Fund, the Strategic Value Fund, the Ex-Technology Fund, the Clean Edge(R) Fund, the S&P REIT Fund, the ISE Gas Fund, the ISE Water Fund and the ISE Chindia Fund are non-diversified series, while the MicroCap Fund, the Value Line(R) Equity Allocation Fund, the Value Line(R) Dividend Fund and the Value Line(R) 100 Fund are diversified series. This Statement of Additional Information relates to all of the Funds. The shares of the Funds are referred to herein as "Shares" or "Fund Shares." Each Fund as a series of the Trust represents a beneficial interest in a separate portfolio of securities and other assets, with its own objective and policies.
The Board of Trustees of the Trust (the "Board of Trustees" or the "Trustees") has the right to establish additional series in the future, to determine the preferences, voting powers, rights and privileges thereof and to modify such preferences, voting powers, rights and privileges without shareholder approval. Shares of any series may also be divided into one or more classes at the discretion of the Trustees.
The Trust or any series or class thereof may be terminated at any time by the Board of Trustees upon written notice to the shareholders.
Each Share has one vote with respect to matters upon which a shareholder vote is required consistent with the requirements of the 1940 Act and the rules promulgated thereunder. Shares of all series of the Trust vote together as a single class except as otherwise required by the 1940 Act, or if the matter being voted on affects only a particular series, and, if a matter affects a particular series differently from other series, the shares of that series will vote separately on such matter.
The Trust's Declaration of Trust (the "Declaration") provides that by becoming a shareholder of a Fund, each shareholder shall be expressly held to have agreed to be bound by the provisions of the Declaration. The Declaration may, except in limited circumstances, be amended or supplemented by the Trustees without a shareholder vote. The holders of Fund Shares are required to disclose information on direct or indirect ownership of Fund Shares as may be required to comply with various laws applicable to the Funds, and ownership of Fund Shares may be disclosed by the Funds if so required by law or regulation. In addition, pursuant to the Declaration, the Trustees may, in their discretion, require the Trust to redeem Shares held by any shareholder for any reason under terms set by the Trustees. The Declaration also provides that shareholders may not bring suit on behalf of a Fund without first requesting that the Trustees bring such suit unless there would be irreparable injury to the Fund, or if a majority of the Trustees have a personal financial interest in the action. Trustees are not considered to have a personal financial interest by virtue of being compensated for their services as Trustees.
The Trust is not required to and does not intend to hold annual meetings of shareholders.
Under Massachusetts law applicable to Massachusetts business trusts, shareholders of such a trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the Declaration contains an express disclaimer of shareholder liability for acts or obligations of the Trust and requires that notice of this disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the Trustees. The Declaration further provides for indemnification out of the assets and property of the Trust for all losses and expenses of any shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed and the Trust or a Fund itself was unable to meet its obligations.
The Funds are advised by First Trust Advisors L.P. (the "Adviser" or "First Trust").
Each Fund offers and issues Shares at net asset value ("NAV") only in aggregations of a specified number of Shares (each a "Creation Unit" or a "Creation Unit Aggregation"), generally in exchange for a basket of equity securities (the "Deposit Securities") included in each Fund's corresponding Index (as hereinafter defined), together with the deposit of a specified cash payment (the "Cash Component"). The Shares of the MicroCap Fund, the Dividend Leaders Fund, the IPOX Fund, the Biotech Fund, the Internet Fund, the Strategic Value Fund, the Value Line(R) Equity Allocation Fund, the Value Line(R) Dividend Fund, the S&P REIT Fund and the Value Line(R) 100 Fund are listed and trade on the American Stock Exchange LLC (the "AMEX"). The Shares of the Equal Weighted Fund, the Technology Fund, the Ex-Technology Fund and the Clean Edge Fund are listed and trade on The NASDAQ Stock Market, Inc. ("NASDAQ(R)"). The Shares of the ISE Water Fund, the ISE Gas Fund and the ISE Chindia Fund are listed and trade on NYSE Arca, Inc. ("NYSE Arca"). The Shares will trade on the AMEX, NASDAQ(R) or NYSE Arca at market prices that may be below, at or above NAV. Shares are redeemable only in Creation Unit Aggregations and, generally, in exchange for portfolio securities and a specified cash payment. Creation Units are aggregations of 50,000 Shares of a Fund.
The Trust reserves the right to offer a "cash" option for creations and redemptions of Fund Shares. Fund Shares may be issued in advance of receipt of Deposit Securities subject to various conditions including a requirement to maintain on deposit with the applicable Fund cash at least equal to 115% of the market value of the missing Deposit Securities. See the "Creation and Redemption of Creation Unit Aggregations" section. In each instance of such cash creations or redemptions, transaction fees may be imposed that will be higher than the transaction fees associated with in-kind creations or redemptions. In all cases, such fees will be limited in accordance with the requirements of the SEC applicable to management investment companies offering redeemable securities.
EXCHANGE LISTING AND TRADING
There can be no assurance that the requirements of the AMEX, NASDAQ(R) or NYSE Arca necessary to maintain the listing of Shares of a Fund will continue to be met. The AMEX, NASDAQ(R) and NYSE Arca may, but are not required to, remove the Shares of a Fund from listing if (i) following the initial 12-month period beginning at the commencement of trading of a Fund, there are fewer than 50 beneficial owners of such Shares of such Fund for 30 or more consecutive trading days; (ii) the value of such Fund's Index (as defined below) is no longer calculated or available; or (iii) such other event shall occur or condition exist that, in the opinion of the AMEX, NASDAQ(R) or NYSE Arca, makes further dealings on the AMEX, NASDAQ(R) or NYSE Arca, respectively, inadvisable. Please note that the AMEX may have a conflict of interest with respect to the Biotech Fund because Shares of such Fund are listed on the AMEX, and the AMEX is also the Fund's Index Provider. Additionally, NASDAQ(R) may have a conflict of interest with respect to the Equal Weighted Fund, the Technology Fund, the Ex-Technology Fund and the Clean Edge Fund because Shares of such Funds are listed on the NASDAQ(R), and the NASDAQ(R) is also each such Fund's Index Provider. The AMEX, NASDAQ(R) or NYSE Arca will remove the Shares of a Fund from listing and trading upon termination of such Fund.
As in the case of other stocks traded on the AMEX, NASDAQ(R) or NYSE Arca, broker's commissions on transactions will be based on negotiated commission rates at customary levels.
The Funds reserve the right to adjust the price levels of Shares in the future to help maintain convenient trading ranges for investors. Any adjustments would be accomplished through stock splits or reverse stock splits, which would have no effect on the net assets of each Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus describes the investment objective and policies of the Funds. The following supplements the information contained in the Prospectus concerning the investment objective and policies of the Funds.
Each Fund is subject to the following fundamental policies, which may not be changed without approval of the holders of a majority of the outstanding voting securities of such Fund:
(1) A Fund may not issue senior securities, except as permitted under the 1940 Act.
(2) A Fund may not borrow money, except that a Fund may (i) borrow money from banks for temporary or emergency purposes (but not for leverage or the purchase of investments) and (ii) engage in other transactions permissible under the 1940 Act that may involve a borrowing (such as obtaining short-term credits as are necessary for the clearance of transactions, engaging in delayed-delivery transactions, or purchasing certain futures, forward contracts and options), provided that the combination of (i) and (ii) shall not exceed 33-1/3% of the value of a Fund's total assets (including the amount borrowed), less a Fund's liabilities (other than borrowings).
(3) A Fund will not underwrite the securities of other issuers except to the extent the Fund may be considered an underwriter under the Securities Act of 1933, as amended (the "1933 Act") in connection with the purchase and sale of portfolio securities.
(4) A Fund will not purchase or sell real estate or interests therein, unless acquired as a result of ownership of securities or other instruments (but this shall not prohibit a Fund from purchasing or selling securities or other instruments backed by real estate or of issuers engaged in real estate activities).
(5) A Fund may not make loans to other persons, except through (i) the purchase of debt securities permissible under the Fund's investment policies, (ii) repurchase agreements, or (iii) the lending of portfolio securities, provided that no such loan of portfolio securities may be made by a Fund if, as a result, the aggregate of such loans would exceed 33-1/3% of the value of the Fund's total assets.
(6) A Fund may not purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing or selling options, futures contracts, forward contracts or other derivative instruments, or from investing in securities or other instruments backed by physical commodities).
(7) A Fund may not invest 25% or more of the value of its total assets in securities of issuers in any one industry or group of industries, except to the extent that the Index that a Fund is based upon, concentrates in an industry or group of industries. This restriction does not apply to obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
The MicroCap Fund, the Dividend Leaders Fund, the IPOX Fund, the Equal Weighted Fund, the Technology Fund, the Value Line(R) Equity Allocation Fund, the Value Line(R) Dividend Fund and the Value Line(R) 100 Fund have fundamental investment objectives as described in the Prospectus. Additionally, the MicroCap Fund, the Value Line(R) Equity Allocation Fund, the Value Line(R) Dividend Fund and the Value Line(R) 100 Fund are subject to following fundamental policy: A Fund may not, as to 75% of its total assets, (a) invest more than 5% of the
value of its total assets in the securities of any one issuer or (b) hold more than 10% of the outstanding voting securities of that issuer (other than obligations issued or guaranteed by the U.S. Government or any agency or instrumentality thereof).
Except for restriction (2), if a percentage restriction is adhered to at the time of investment, a later increase in percentage resulting from a change in market value of the investment or the total assets will not constitute a violation of that restriction.
The foregoing fundamental policies of each Fund may not be changed
without the affirmative vote of the majority of the outstanding voting
securities of the respective Fund. The 1940 Act defines a majority vote as the
vote of the lesser of (i) 67% or more of the voting securities represented at a
meeting at which more than 50% of the outstanding securities are represented; or
(ii) more than 50% of the outstanding voting securities. With respect to the
submission of a change in an investment policy to the holders of outstanding
voting securities of a Fund, such matter shall be deemed to have been
effectively acted upon with respect to the Fund if a majority of the outstanding
voting securities of the Fund vote for the approval of such matter,
notwithstanding that (1) such matter has not been approved by the holders of a
majority of the outstanding voting securities of any other series of the Trust
affected by such matter, and (2) such matter has not been approved by the vote
of a majority of the outstanding voting securities.
In addition to the foregoing fundamental policies, the Funds are also subject to strategies and policies discussed herein which, unless otherwise noted, are non-fundamental restrictions and policies and may be changed by the Board of Trustees.
INVESTMENT STRATEGIES
Under normal circumstances, each Fund will invest at least 90% of its assets in common stocks that comprise such Fund's corresponding equity index as set forth below (each, an "Index" and together, the "Indices"). Fund Shareholders are entitled to 60 days' notice prior to any change in this non-fundamental investment policy.
FUND INDEX MicroCap Fund Dow Jones Select MicroCap Index(SM) Dividend Leaders Fund Morningstar(R) Dividend Leaders(SM) Index IPOX Fund IPOX-100 U.S. Index Equal Weighted Fund NASDAQ-100 Equal Weighted Index(SM) Technology Fund NASDAQ-100 Technology Sector Index(SM) Biotech Fund Amex(R) Biotechnology Index(SM) Internet Fund Dow Jones Internet Composite Index(SM) Strategic Value Fund Deutsche Bank CROCI(R) US+ Index(TM) Value Line(R) Equity Allocation Fund Value Line(R) Equity Allocation Index Value Line(R) Dividend Fund Value Line(R) Dividend Index Ex-Technology Fund NASDAQ-100 Ex-Tech Sector Index(SM) Clean Edge(R) Fund NASDAQ(R) CleanEdge(R) U.S. Liquid Series |
Index
S&P REIT Fund S&P REIT Corporate Index ISE Water Fund ISE Water Index (TM) ISE Gas Fund ISE-REVERE Natural Gas Index (SM) |
ISE Chindia Fund ISE ChIndia Index (TM) Value Line(R) 100 Fund Value Line(R) 100 Index
TYPES OF INVESTMENTS
WARRANTS: The Funds may invest in warrants. Warrants acquired by a Fund entitle it to buy common stock from the issuer at a specified price and time. They do not represent ownership of the securities but only the right to buy them. Warrants are subject to the same market risks as stocks, but may be more volatile in price. A Fund's investment in warrants will not entitle it to receive dividends or exercise voting rights and will become worthless if the warrants cannot be profitably exercised before their expiration date.
DELAYED-DELIVERY TRANSACTIONS: The Funds may from time to time purchase securities on a "when-issued" or other delayed-delivery basis. The price of securities purchased in such transactions is fixed at the time the commitment to purchase is made, but delivery and payment for the securities take place at a later date. Normally, the settlement date occurs within 45 days of the purchase. During the period between the purchase and settlement, a Fund does not remit payment to the issuer, no interest is accrued on debt securities and dividend income is not earned on equity securities. Delayed-delivery commitments involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of a decline in value of a Fund's other assets. While securities purchased in delayed-delivery transactions may be sold prior to the settlement date, the Funds intend to purchase such securities with the purpose of actually acquiring them. At the time a Fund makes the commitment to purchase a security in a delayed-delivery transaction, it will record the transaction and reflect the value of the security in determining its NAV. The Funds do not believe that NAV will be adversely affected by purchases of securities in delayed-delivery transactions.
The Funds will earmark or maintain in a segregated account cash, U.S. Government securities, and high-grade liquid debt securities equal in value to commitments for delayed-delivery securities. Such earmarked or segregated securities will mature or, if necessary, be sold on or before the settlement date. When the time comes to pay for delayed-delivery securities, a Fund will meet its obligations from then-available cash flow, sale of the securities earmarked or held in the segregated account described above, sale of other securities, or, although it would not normally expect to do so, from the sale of the delayed-delivery securities themselves (which may have a market value greater or less than a Fund's payment obligation).
ILLIQUID SECURITIES: The Funds may invest in illiquid securities (i.e., securities that are not readily marketable). For purposes of this restriction, illiquid securities include, but are not limited to, restricted securities (securities the disposition of which is restricted under the federal securities laws), securities that may only be resold pursuant to Rule 144A under the 1933 Act but that are deemed to be illiquid; and repurchase agreements with maturities in excess of seven days. However, a Fund will not acquire illiquid securities if, as a result, such securities would comprise more than 15% of the value of a Fund's net assets. The Board of Trustees or its delegate has the ultimate authority to determine, to the extent permissible under the federal securities laws, which securities are liquid or illiquid for purposes of this 15% limitation. The Board of Trustees has delegated to First Trust the
day-to-day determination of the illiquidity of any equity or fixed-income security, although it has retained oversight and ultimate responsibility for such determinations. Although no definitive liquidity criteria are used, the Board of Trustees has directed First Trust to look to factors such as (i) the nature of the market for a security (including the institutional private resale market; the frequency of trades and quotes for the security; the number of dealers willing to purchase or sell the security; and the amount of time normally needed to dispose of the security, the method of soliciting offers and the mechanics of transfer), (ii) the terms of certain securities or other instruments allowing for the disposition to a third party or the issuer thereof (e.g., certain repurchase obligations and demand instruments), and (iii) other permissible relevant factors.
Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the 1933 Act. Where registration is required, a Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, a Fund might obtain a less favorable price than that which prevailed when it decided to sell. Illiquid securities will be priced at fair value as determined in good faith under procedures adopted by the Board of Trustees. If, through the appreciation of illiquid securities or the depreciation of liquid securities, a Fund should be in a position where more than 15% of the value of its net assets are invested in illiquid securities, including restricted securities which are not readily marketable, the Fund will take such steps as is deemed advisable, if any, to protect liquidity.
MONEY MARKET FUNDS: The Funds may invest in shares of money market funds to the extent permitted by the 1940 Act.
TEMPORARY INVESTMENTS: The Funds may, without limit as to percentage of assets, purchase U.S. Government securities or short-term debt securities to keep cash on hand fully invested or for temporary defensive purposes. Short-term debt securities are securities from issuers having a long-term debt rating of at least A by Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") or Fitch, Inc. ("Fitch") and having a maturity of one year or less.
Short-term debt securities are defined to include, without limitation, the following:
(1) U.S. Government securities, including bills, notes and bonds differing as to maturity and rates of interest, which are either issued or guaranteed by the U.S. Treasury or by U.S. Government agencies or instrumentalities. U.S. Government agency securities include securities issued by (a) the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of United States, Small Business Administration, and the Government National Mortgage Association, whose securities are supported by the full faith and credit of the United States; (b) the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the Tennessee Valley Authority, whose securities are supported by the right of the agency to borrow from the U.S. Treasury; (c) Fannie Mae, whose securities are supported by the discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality; and (d) the Student Loan
Marketing Association, whose securities are supported only by its credit. While the U.S. Government provides financial support to such U.S. Government-sponsored agencies or instrumentalities, no assurance can be given that it always will do so since it is not so obligated by law. The U.S. Government, its agencies, and instrumentalities do not guarantee the market value of their securities, and consequently, the value of such securities may fluctuate.
(2) Certificates of deposit issued against funds deposited in a bank or savings and loan association. Such certificates are for a definite period of time, earn a specified rate of return, and are normally negotiable. If such certificates of deposit are non-negotiable, they will be considered illiquid securities and be subject to the Fund's 15% restriction on investments in illiquid securities. Pursuant to the certificate of deposit, the issuer agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon. Under current Federal Deposit Insurance Corporation regulations, the maximum insurance payable as to any one certificate of deposit is $100,000; therefore, certificates of deposit purchased by the Funds may not be fully insured.
(3) Bankers' acceptances which are short-term credit instruments used to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an asset or it may be sold in the secondary market at the going rate of interest for a specific maturity.
(4) Repurchase agreements, which involve purchases of debt securities. In such an action, at the time a Fund purchases the security, it simultaneously agrees to resell and redeliver the security to the seller, who also simultaneously agrees to buy back the security at a fixed price and time. This assures a predetermined yield for a Fund during its holding period since the resale price is always greater than the purchase price and reflects an agreed upon market rate. The period of these repurchase agreements will usually be short, from overnight to one week. Such actions afford an opportunity for a Fund to invest temporarily available cash. The Funds may enter into repurchase agreements only with respect to obligations of the U.S. Government, its agencies or instrumentalities; certificates of deposit; or bankers' acceptances in which the Funds may invest. In addition, the Funds may only enter into repurchase agreements where the market value of the purchased securities/collateral equals at least 100% of principal including accrued interest and is marked-to-market daily. The risk to the Funds are limited to the ability of the seller to pay the agreed-upon sum on the repurchase date; in the event of default, the repurchase agreement provides that the affected Fund is entitled to sell the underlying collateral. If the value of the collateral declines after the agreement is entered into, however, and if the seller defaults under a repurchase agreement when the value of the underlying collateral is less than the repurchase price, a Fund could incur a loss of both principal and interest. The Funds, however, intend to enter into repurchase agreements only with financial institutions and dealers
believed by First Trust to present minimal credit risks in accordance with criteria established by the Board of Trustees. First Trust will review and monitor the creditworthiness of such institutions. First Trust monitors the value of the collateral at the time the action is entered into and at all times during the term of the repurchase agreement. First Trust does so in an effort to determine that the value of the collateral always equals or exceeds the agreed-upon repurchase price to be paid to a Fund. If the seller were to be subject to a federal bankruptcy proceeding, the ability of a Fund to liquidate the collateral could be delayed or impaired because of certain provisions of the bankruptcy laws.
(5) Bank time deposits, which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest. There may be penalties for the early withdrawal of such time deposits, in which case the yields of these investments will be reduced.
(6) Commercial paper, which are short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between a Fund and a corporation. There is no secondary market for the notes. However, they are redeemable by a Fund at any time. A Fund's portfolio manager will consider the financial condition of the corporation (e.g., earning power, cash flow, and other liquidity ratios) and will continuously monitor the corporation's ability to meet all of its financial obligations, because a Fund's liquidity might be impaired if the corporation were unable to pay principal and interest on demand. The Funds may only invest in commercial paper rated A-1 or better by S&P, Prime-1 or higher by Moody's or F2 or higher by Fitch.
PORTFOLIO TURNOVER
The Funds buy and sell portfolio securities in the normal course of their investment activities. The proportion of a Fund's investment portfolio that is sold and replaced with new securities during a year is known as the Fund's portfolio turnover rate. A turnover rate of 100% would occur, for example, if a Fund sold and replaced securities valued at 100% of its net assets within one year. Active trading would result in the payment by a Fund of increased brokerage costs and expenses. For the year ended December 31, 2007, the Value Line(R) Equity Allocation Fund had a portfolio turnover rate of 43%, whereas for the period December 5, 2006 through December 31, 2006, it had a portfolio turnover rate of 1%. The difference in the portfolio turnover rate for the two periods is due to the relatively short trading time that was available between December 5, 2006 through December 31, 2006.
HEDGING STRATEGIES
GENERAL DESCRIPTION OF HEDGING STRATEGIES
The Funds may engage in hedging activities. First Trust may cause the Funds to utilize a variety of financial instruments, including options, forward
contracts, futures contracts (hereinafter referred to as "Futures" or "Futures Contracts"), and options on Futures Contracts to attempt to hedge each Fund's holdings.
Hedging or derivative instruments on securities generally are used to hedge against price movements in one or more particular securities positions that a Fund owns or intends to acquire. Such instruments may also be used to "lock-in" realized but unrecognized gains in the value of portfolio securities. Hedging instruments on stock indices, in contrast, generally are used to hedge against price movements in broad equity market sectors in which a Fund has invested or expects to invest. Hedging strategies, if successful, can reduce the risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements in the investments being hedged. However, hedging strategies can also reduce the opportunity for gain by offsetting the positive effect of favorable price movements in the hedged investments. The use of hedging instruments is subject to applicable regulations of the SEC, the several options and Futures exchanges upon which they are traded, the Commodity Futures Trading Commission (the "CFTC") and various state regulatory authorities. In addition, a Fund's ability to use hedging instruments may be limited by tax considerations.
GENERAL LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS
The Trust has filed a notice of eligibility for exclusion from the definition of the term "commodity pool operator" with the National Futures Association, the Futures industry's self-regulatory organization. A Fund will not enter into Futures and options transactions if the sum of the initial margin deposits and premiums paid for unexpired options exceeds 5% of the Fund's total assets. In addition, a Fund will not enter into Futures Contracts and options transactions if more than 30% of its net assets would be committed to such instruments.
The foregoing limitations are not fundamental policies of the Funds and may be changed without shareholder approval as regulatory agencies permit.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS
The Funds will comply with the regulatory requirements of the SEC and the CFTC with respect to coverage of options and Futures positions by registered investment companies and, if the guidelines so require, will earmark or set aside cash, U.S. Government securities, high grade liquid debt securities and/or other liquid assets permitted by the SEC and CFTC in a segregated custodial account in the amount prescribed. Securities earmarked or held in a segregated account cannot be sold while the Futures or options position is outstanding, unless replaced with other permissible assets, and will be marked-to-market daily.
STOCK INDEX OPTIONS
The Funds may purchase stock index options, sell stock index options in order to close out existing positions, and/or write covered options on stock indices for hedging purposes. Stock index options are put options and call options on various stock indices. In most respects, they are identical to listed options on common stocks. The primary difference between stock options and index
options occurs when index options are exercised. In the case of stock options, the underlying security, common stock, is delivered. However, upon the exercise of an index option, settlement does not occur by delivery of the securities comprising the stock index. The option holder who exercises the 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.
A stock index fluctuates with changes in the market values of the stocks included in the index. For example, some stock index options are based on a broad market index, such as the S&P 500 Index or the Value Line(R) Composite Index or a more narrow market index, such as the S&P 100 Index. Indices may also be based on an industry or market segment. Options on stock indices are currently traded on the following exchanges: the Chicago Board Options Exchange, the AMEX, NYSE Arca and the Philadelphia Stock Exchange.
The Funds' use of stock index options is subject to certain risks. Successful use by a Fund of options on stock indices will be subject to the ability of First Trust to correctly predict movements in the directions of the stock market. This requires different skills and techniques than predicting changes in the prices of individual securities. In addition, a Fund's ability to effectively hedge all or a portion of the securities in its portfolio, in anticipation of or during a market decline through transactions in put options on stock indices, depends on the degree to which price movements in the underlying index correlate with the price movements of the securities held by the Fund. Inasmuch as the Funds' securities will not duplicate the components of an index, the correlation will not be perfect. Consequently, a Fund will bear the risk that the prices of its securities being hedged will not move in the same amount as the prices of its put options on the stock indices. It is also possible that there may be a negative correlation between the index and a Fund's securities, which would result in a loss on both such securities and the options on stock indices acquired by the Fund.
The hours of trading for options may not conform to the hours during which the underlying securities are traded. To the extent that the options markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the options markets. The purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The purchase of stock index options involves the risk that the premium and transaction costs paid by a Fund in purchasing an option will be lost as a result of unanticipated movements in prices of the securities comprising the stock index on which the option is based.
CERTAIN CONSIDERATIONS REGARDING OPTIONS
There is no assurance that a liquid secondary market on an options exchange will exist for any particular option, or at any particular time, and for some options no secondary market on an exchange or elsewhere may exist. If a Fund is unable to close out a call option on securities that it has written before the option is exercised, a Fund may be required to purchase the optioned
securities in order to satisfy its obligation under the option to deliver such securities. If a Fund is unable to effect a closing sale transaction with respect to options on securities that it has purchased, it would have to exercise the option in order to realize any profit and would incur transaction costs upon the purchase and sale of the underlying securities.
The writing and purchasing of options is a highly specialized activity, which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. Imperfect correlation between the options and securities markets may detract from the effectiveness of attempted hedging. Options transactions may result in significantly higher transaction costs and portfolio turnover for the Funds.
FUTURES CONTRACTS
The Funds may enter into Futures Contracts, including index Futures as a hedge against movements in the equity markets, in order to hedge against changes on securities held or intended to be acquired by a Fund or for other purposes permissible under the Commodity Exchange Act (the "CEA"). A Fund's hedging may include sales of Futures as an offset against the effect of expected declines in stock prices and purchases of Futures as an offset against the effect of expected increases in stock prices. The Funds will not enter into Futures Contracts which are prohibited under the CEA and will, to the extent required by regulatory authorities, enter only into Futures Contracts that are traded on national Futures exchanges and are standardized as to maturity date and underlying financial instrument. The principal interest rate Futures exchanges in the United States are the Chicago Board of Trade and the Chicago Mercantile Exchange. Futures exchanges and trading are regulated under the CEA by the CFTC.
An interest rate Futures Contract provides for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument (e.g., a debt security) or currency for a specified price at a designated date, time and place. An index Futures Contract is an agreement pursuant to which the parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index Futures Contract was originally written. Transaction costs are incurred when a Futures Contract is bought or sold and margin deposits must be maintained. A Futures Contract may be satisfied by delivery or purchase, as the case may be, of the instrument or by payment of the change in the cash value of the index. More commonly, Futures Contracts are closed out prior to delivery by entering into an offsetting transaction in a matching Futures Contract. Although the value of an index might be a function of the value of certain specified securities, no physical delivery of those securities is made. If the offsetting purchase price is less than the original sale price, a gain will be realized. Conversely, if the offsetting sale price is more than the original purchase price, a gain will be realized; if it is less, a loss will be realized. The transaction costs must also be included in these calculations. There can be no assurance, however, that a Fund will be able to enter into an offsetting transaction with respect to a particular Futures Contract at a particular time. If a Fund is not able to enter into an offsetting transaction, a Fund will continue to be required to maintain the margin deposits on the Futures Contract.
Margin is the amount of funds that must be deposited by a Fund with its custodian in a segregated account in the name of the Futures commission merchant in order to initiate Futures trading and to maintain the Fund's open positions in Futures Contracts. A margin deposit is intended to ensure a Fund's performance of the Futures Contract.
The margin required for a particular Futures Contract is set by the exchange on which the Futures Contract is traded and may be significantly modified from time to time by the exchange during the term of the Futures Contract. Futures Contracts are customarily purchased and sold on margins that may range upward from less than 5% of the value of the Futures Contract being traded.
If the price of an open Futures Contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the Futures Contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the Futures Contract so that the margin deposit exceeds the required margin, the broker will pay the excess to a Fund. In computing daily NAV, a Fund will mark to market the current value of its open Futures Contracts. The Funds expect to earn interest income on their margin deposits.
Because of the low margin deposits required, Futures trading involves an extremely high degree of leverage. As a result, a relatively small price movement in a Futures Contract may result in immediate and substantial loss, as well as gain, to the investor. For example, if at the time of purchase, 10% of the value of the Futures Contract is deposited as margin, a subsequent 10% decrease in the value of the Futures Contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit, if the Future Contracts were closed out. Thus, a purchase or sale of a Futures Contract may result in losses in excess of the amount initially invested in the Futures Contract. However, a Fund would presumably have sustained comparable losses if, instead of the Futures Contract, it had invested in the underlying financial instrument and sold it after the decline.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in Futures Contract prices during a single trading day. The day limit establishes the maximum amount that the price of a Futures Contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of Futures Contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures Contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of Futures positions and subjecting some investors to substantial losses.
There can be no assurance that a liquid market will exist at a time when a Fund seeks to close out a Futures position. A Fund would continue to be required to meet margin requirements until the position is closed, possibly resulting in a decline in the Fund's NAV. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist.
A public market exists in Futures Contracts covering a number of indices, including, but not limited to, the S&P 500 Index, the S&P 100 Index, the NASDAQ-100 Index(R), the Value Line(R) Composite Index and the NYSE Composite Index.
OPTIONS ON FUTURES
The Funds may also purchase or write put and call options on Futures
Contracts and enter into closing transactions with respect to such options to
terminate an existing position. A Futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a Futures Contract at a specified exercise price prior to the
expiration of the option. Upon exercise of a call option, the holder acquires a
long position in the Futures Contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true. Prior to
exercise or expiration, a Futures option may be closed out by an offsetting
purchase or sale of a Futures option of the same series.
The Funds may use options on Futures Contracts in connection with hedging strategies. Generally, these strategies would be applied under the same market and market sector conditions in which the Funds use put and call options on securities or indices. The purchase of put options on Futures Contracts is analogous to the purchase of puts on securities or indices so as to hedge a Fund's securities holdings against the risk of declining market prices. The writing of a call option or the purchasing of a put option on a Futures Contract constitutes a partial hedge against declining prices of securities which are deliverable upon exercise of the Futures Contract. If the price at expiration of a written call option is below the exercise price, a Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Fund's holdings of securities. If the price when the option is exercised is above the exercise price, however, a Fund will incur a loss, which may be offset, in whole or in part, by the increase in the value of the securities held by a Fund that were being hedged. Writing a put option or purchasing a call option on a Futures Contract serves as a partial hedge against an increase in the value of the securities a Fund intends to acquire.
As with investments in Futures Contracts, the Funds are required to deposit and maintain margin with respect to put and call options on Futures Contracts written by them. Such margin deposits will vary depending on the nature of the underlying Futures Contract (and the related initial margin requirements), the current market value of the option, and other Futures positions held by a Fund. A Fund will earmark or set aside in a segregated account at the Fund's custodian, liquid assets, such as cash, U.S. Government securities or other high-grade liquid debt obligations equal in value to the amount due on the underlying obligation. Such segregated assets will be marked-to-market daily, and additional assets will be earmarked or placed in the segregated account whenever the total value of the earmarked or segregated assets falls below the amount due on the underlying obligation.
The risks associated with the use of options on Futures Contracts include the risk that the Funds may close out its position as a writer of an option only if a liquid secondary market exists for such options, which cannot be assured. A Fund's successful use of options on Futures Contracts depends on First Trust's ability to correctly predict the movement in prices of Futures Contracts and the underlying instruments, which may prove to be incorrect. In addition, there may be imperfect correlation between the instruments being hedged and the Futures Contract subject to the option. For additional information, see "Futures Contracts." Certain characteristics of the Futures market might increase the risk that movements in the prices of Futures Contracts or options on Futures Contracts might not correlate perfectly with movements in the prices of the investments being hedged. For example, all participants in the Futures and options on Futures Contracts markets are subject to daily variation margin calls and might be compelled to liquidate Futures or options on Futures Contracts positions whose prices are moving unfavorably to avoid being subject to further calls. These liquidations could increase the price volatility of the instruments and distort the normal price relationship between the Futures or options and the investments being hedged. Also, because of initial margin deposit requirements, there might be increased participation by speculators in the Futures markets. This participation also might cause temporary price distortions. In addition, activities of large traders in both the Futures and securities markets involving arbitrage, "program trading," and other investment strategies might result in temporary price distortions.
SUBLICENSE AGREEMENTS
Each Fund relies on a product license agreement (each, a "Product License Agreement") by and between each provider of each Index (each, an "Index Provider") and First Trust and a related sublicense agreement (the "Sublicense Agreement") with First Trust that grants each Fund a non-exclusive and non-transferable sublicense to use certain intellectual property of the Index Provider as set forth below, in connection with the issuance, distribution, marketing and/or promotion of each Fund. Pursuant to each Sublicense Agreement, each Fund has agreed to be bound by certain provisions of each Product License Agreement. Pursuant to each Product License Agreement, First Trust will pay each Index Provider an annual license fee in the amount set forth below. Each Fund will reimburse First Trust for its costs associated with the respective Product License Agreement; except with respect to the Strategic Value Fund, which will not be obligated to reimburse First Trust in an annual amount of more than 0.10% of the assets of the Fund.
FUND INDEX INDEX PROVIDER ANNUAL LICENSE FEE MicroCap Fund Dow Jones Select MicroCap Dow Jones & Company, Greater of Index(SM) Inc. (i) $25,000 or (ii) 0.08% of the average daily NAV of the Fund. Dividend Leaders Fund Morningstar(R) Dividend Morningstar, Inc. Greater of Leaders(SM) Index (i) $100,000 or (ii) a sum equal to 20% of Fund expenses. -15- |
FUND INDEX INDEX PROVIDER ANNUAL LICENSE FEE IPOX Fund IPOX-100 U.S. Index IPOX Schuster LLC Greater of (i) $50,000 or (ii) 0.10% basis points of the average assets under the management of the Fund. Equal Weighted Fund NASDAQ-100 Equal Weighted The Nasdaq Stock 0.10% of the average Index(SM) Market, Inc. daily NAV of the Fund. Technology Fund NASDAQ-100 Technology Sector The Nasdaq Stock 0.10% of the average Index(SM) Market, Inc. daily NAV of the Fund. Biotech Fund Amex(R) Biotechnology Index(SM) American Stock 0.08% of the average Exchange LLC daily NAV of the Fund. Internet Index Fund Dow Jones Internet Composite Dow Jones & Company, 0.06% of the average Index(SM) Inc. daily NAV of the Fund. Strategic Value Fund Deutsche Bank CROCI(R) US+ Index(TM) Deutsche Bank AG Greater of (i) $25,000 or (ii) the sum of 0.05% per quarter on the first $200 million of assets of the Fund, 0.0625% per quarter for assets in the Fund above $250 million and 0.06875% per quarter for assets in the Fund above $500 million. Value Line(R) Equity Allocation Value Line(R) Equity Allocation Value Line(R) 0.15% of the average Fund Index Publishing, Inc. daily NAV of the Fund Value Line(R) Dividend Fund Value Line(R) Dividend Index Value Line(R) 0.15% of the average Publishing, Inc. daily NAV of the Fund Ex-Technology Fund NASDAQ-100 Ex-Tech Sector The Nasdaq Stock 0.10% of the average Index(SM) Market, Inc. daily NAV of the Fund. -16- |
FUND INDEX INDEX PROVIDER ANNUAL LICENSE FEE Clean Edge(R) Fund NASDAQ(R) CleanEdge(R) The Nasdaq Stock 0.10% of the average U.S. Liquid Series Index Market, Inc. daily NAV of the Fund. S&P REIT Fund S&P REIT Corporate Index Standard & Poor's, a 0.10% of the average division of The daily NAV of the Fund. McGraw-Hill Companies, Inc. ISE Water Fund ISE Water Index (TM) International 0.05% of the average Securities Exchange, daily NAV of the Fund. LLC ISE Gas Fund ISE-REVERE Natural Gas Index (SM) International 0.10% of the average Securities Exchange, daily NAV of the Fund. LLC ISE Chindia Fund ISE ChIndia Index (TM) International 0.08% of the average Securities Exchange, daily NAV of the Fund. LLC Value Line(R) 100 Fund Value Line(R) 100 Index Value Line(R) 0.15% of the average Publishing, Inc. daily NAV of the Fund |
MICROCAP FUND AND INTERNET FUND DISCLAIMER
"Dow Jones," "Dow Jones Select MicroCap Index(SM)" and "Dow Jones Internet Composite Index(SM)" are trademarks of Dow Jones & Company, Inc. and have been licensed for use for certain purposes by First Trust on behalf of the Funds. The Funds are not sponsored, endorsed, sold or promoted by Dow Jones. Dow Jones makes no representation or warranty, express or implied, to the owners of the Funds or any member of the public regarding the advisability of trading in the Funds. Dow Jones' only relationship to First Trust is the licensing of certain trademarks and trade names of Dow Jones, the Dow Jones Select MicroCap Index(SM) and the Dow Jones Internet Composite Index(SM), which are determined, composed and calculated by Dow Jones without regard to First Trust or the Funds. Dow Jones has no obligation to take the needs of First Trust or the owners of the Funds into consideration in determining, composing or calculating the Dow Jones Select MicroCap Index(SM) or the Dow Jones Internet Composite Index(SM). Dow Jones is not responsible for and has not participated in the determination of the timing of, prices at or quantities of the Funds to be listed or in the determination or calculation of the equation by which the Funds are to be converted into cash. Dow Jones has no obligation or liability in connection with the administration, marketing or trading of the Funds.
DOW JONES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE DOW JONES SELECT MICROCAP INDEX(SM) OR THE DOW JONES INTERNET COMPOSITE INDEX(SM) OR ANY DATA INCLUDED THEREIN AND DOW JONES SHALL HAVE NO LIABILITY FOR
ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. DOW JONES MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY FIRST TRUST, OWNERS OF THE FUNDS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE DOW JONES SELECT MICROCAP INDEX(SM) OR THE DOW JONES INTERNET COMPOSITE INDEX(SM) OR ANY DATA INCLUDED THEREIN. DOW JONES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE DOW JONES SELECT MICROCAP INDEX(SM) OR THE DOW JONES INTERNET COMPOSITE INDEX(SM) OR ANY DATA INCLUDED THEREIN, AND WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DOW JONES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN DOW JONES AND FIRST TRUST.
DIVIDEND LEADERS FUND DISCLAIMER
MORNINGSTAR, INC. ("MORNINGSTAR"), DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX OR ANY DATA INCLUDED THEREIN AND MORNINGSTAR SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. MORNINGSTAR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY FIRST TRUST, OWNERS OR USERS OF THE FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX OR ANY DATA INCLUDED THEREIN. MORNINGSTAR MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MORNINGSTAR HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
IPOX FUND DISCLAIMER
The Fund is not sponsored, endorsed, sold or promoted by IPOX. IPOX makes no representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of trading in the Fund. IPOX's only relationship to First Trust is the licensing of certain trademarks and trade names of IPOX and of the U.S. IPOX 100 Index, which is determined, composed and calculated by IPOX without regard to First Trust or the Fund.
IPOX, IPOX SCHUSTER, IPOX-100 AND IPOX-30 ARE TRADEMARKS AND SERVICE MARKS OF IPOX SCHUSTER LLC AND HAVE BEEN LICENSED FOR CERTAIN PURPOSES FROM IPOX SCHUSTER LLC TO FIRST TRUST PURSUANT TO THE PRODUCT LICENSE AGREEMENT. THE INDEX IS PATENT PENDING BY IPOX SCHUSTER LLC.
EQUAL WEIGHTED FUND, TECHNOLOGY FUND AND EX-TECHNOLOGY FUND DISCLAIMER
The Funds are not sponsored, endorsed, sold or promoted by NASDAQ(R) or its affiliates (NASDAQ(R) with its affiliates are referred to as the "Corporations"). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Funds. The Corporations make no representation or warranty, express or implied to the owners of the Funds or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly, or the ability of the NASDAQ-100 Equal Weighted Index(SM), NASDAQ-100 Technology Sector Index(SM) or NASDAQ-100 Ex-Tech Sector Index(SM) to track general stock market performance. The Corporations' only relationship to First Trust with respect to the Fund is in the licensing of the NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), NASDAQ-100 Equal Weighted Index(SM), NASDAQ-100 Technology Sector Index(SM) or NASDAQ-100 Ex-Tech Sector Index(SM) trademarks, and certain trade names of the Corporations and the use of the NASDAQ-100 Equal Weighted Index(SM), NASDAQ-100 Technology Sector Index(SM) or NASDAQ-100 Ex-Tech Sector Index(SM) which is determined, composed and calculated by NASDAQ(R) without regard to First Trust or the Funds. NASDAQ(R) has no obligation to take the needs of First Trust or the owners of the Funds into consideration in determining, composing or calculating the NASDAQ-100 Equal Weighted Index(SM), NASDAQ-100 Technology Sector Index(SM) or NASDAQ-100 Ex-Tech Sector Index(SM). The Corporations are not responsible for and have not participated in the determination of the timing of, prices at, or quantities of Fund Shares to be issued or in the determination or calculation of the equation by which Fund Shares are to be converted into cash. The Corporations have no liability in connection with the administration, marketing or trading of the Funds.
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE NASDAQ-100 EQUAL WEIGHTED INDEX(SM), NASDAQ-100 TECHNOLOGY SECTOR INDEX(SM) OR THE NASDAQ-100 EX-TECH SECTOR INDEX(SM) OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT(S), OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE NASDAQ-100 EQUAL WEIGHTED INDEX(SM), NASDAQ-100 TECHNOLOGY SECTOR INDEX(SM) OR THE NASDAQ-100 EX-TECH SECTOR INDEX(SM) OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NASDAQ-100 EQUAL WEIGHTED INDEX(SM), NASDAQ-100 TECHNOLOGY SECTOR INDEX(SM) OR THE NASDAQ-100 EX-TECH SECTOR INDEX(SM) OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
BIOTECH FUND DISCLAIMER
The Index is a trademark of AMEX and is licensed for use by First Trust. The Fund is not sponsored or endorsed by AMEX. AMEX 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. AMEX has no obligation to take the needs of the owners of the Fund into consideration in determining, composing or calculating the Index. AMEX is not responsible for and has not participated in any determination or calculation made with respect to the issuance or redemption of Shares of the Fund.
AMEX DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN. AMEX MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY FIRST TRUST, OWNERS OF THE FUND OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. AMEX MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL AMEX HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
STRATEGIC VALUE FUND DISCLAIMER
"Deutsche Bank," "DB" and "Deutsche Bank CROCI US+ Index" are service marks of Deutsche Bank. Deutsche Bank has no relationship to First Trust or the Fund, other than the licensing of the Index and its service marks for use in connection with the Fund.
Deutsche Bank does not:
o Sponsor, endorse, sell or promote the Fund or its Shares;
o Recommend that any person invest in the Shares of the Fund or any other securities;
o Have any responsibility or liability for or make any decisions about the timing or amount of the investments of the Fund or the pricing of its Shares;
o Have any responsibility or liability for the administration, management, investments or marketing of the Fund; or
o Consider the needs of the Fund or the owners of Shares of the Fund in determining, composing or calculating the Index or have any obligation to do so.
Deutsche Bank will not have any liability in connection with the Fund. Specifically,
o Deutsche Bank does not make any warranty, express or implied, and Deutsche Bank disclaims any warranty about:
o The results to be obtained by the Index, the Fund, the owner of Shares of the Fund or any other person in connection with the use of the Index and the data included in the Index;
o The accuracy or completeness of the Index and its data; or
o The merchantability and the fitness for a particular purpose or use of the Index and its data and compliance with applicable laws;
o Deutsche Bank will have no liability for any errors, omissions or interruptions in the Index or its data; and
o Under no circumstances will Deutsche Bank be liable for any lost profits or indirect, punitive, special or consequential damages or losses, even if Deutsche Bank knows that they might occur.
The licensing agreement between Deutsche Bank and First Trust is solely for their benefit and not for the benefit of the owners of Shares of the Fund or any other third parties except the Fund.
VALUE LINE(R) EQUITY ALLOCATION FUND DISCLAIMER
VALUE LINE PUBLISHING, INC.'S ("VLPI") ONLY RELATIONSHIP TO FIRST TRUST IS VLPI'S LICENSING TO FIRST TRUST OF CERTAIN VLPI TRADEMARKS AND TRADE NAMES AND THE VALUE LINE(R) EQUITY ALLOCATION INDEX, THE VALUE LINE(R) DIVIDEND INDEX AND VALUE LINE(R) 100 INDEX (THE "INDEXES"), WHICH ARE COMPOSED BY VLPI WITHOUT REGARD TO FIRST TRUST, THE FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND, THE VALUE LINE(R) DIVIDEND INDEX FUND AND VALUE LINE(R) 100 INDEX FUND (THE "PRODUCTS") OR ANY INVESTOR. VLPI HAS NO OBLIGATION TO TAKE THE NEEDS OF FIRST TRUST OR ANY INVESTOR IN THE PRODUCTS INTO CONSIDERATION IN COMPOSING THE INDEXES. THE PRODUCTS RESULTS MAY DIFFER FROM THE HYPOTHETICAL OR PUBLISHED RESULTS OF THE INDEXES. VLPI IS NOT RESPONSIBLE FOR HOW FIRST TRUST MAKES USE OF INFORMATION SUPPLIED BY VLPI. VLPI IS NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE DETERMINATION OF THE PRICES AND COMPOSITION OF THE PRODUCTS OR THE TIMING OF THE ISSUANCE FOR SALE OF THE PRODUCTS OR IN THE CALCULATION OF THE EQUATIONS BY WHICH THE PRODUCTS IS TO BE CONVERTED INTO CASH. VLPI MAKES NO
WARRANTY CONCERNING THE INDEXES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR ANY PERSON'S INVESTMENT PORTFOLIO, OR ANY IMPLIED WARRANTIES ARISING
FROM USAGE OF TRADE, COURSE OF DEALING OR COURSE OF PERFORMANCE, AND VLPI MAKES
NO WARRANTY AS TO THE POTENTIAL PROFITS OR ANY OTHER BENEFITS THAT MAY BE
ACHIEVED BY USING THE INDEX OR ANY INFORMATION OR MATERIALS GENERATED THEREFROM.
VLPI DOES NOT WARRANT THAT THE INDEX WILL MEET ANY REQUIREMENTS OR BE ACCURATE
OR ERROR-FREE. VLPI ALSO DOES NOT GUARANTEE ANY USES, INFORMATION, DATA OR OTHER
RESULTS GENERATED FROM THE INDEX OR PRODUCT. VLPI HAS NO OBLIGATION OR LIABILITY
(I) IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE PRODUCT;
OR (II) FOR ANY LOSS, DAMAGE, COST OR EXPENSE SUFFERED OR INCURRED BY ANY
INVESTOR OR OTHER PERSON OR ENTITY IN CONNECTION WITH THIS PRODUCT, AND IN NO
EVENT SHALL VLPI BE LIABLE FOR ANY LOST PROFITS OR OTHER CONSEQUENTIAL, SPECIAL,
PUNITIVE, INCIDENTAL, INDIRECT OR EXEMPLARY DAMAGES IN CONNECTION WITH THE
INDEXES OR THE PRODUCTS.
VALUE LINE IS A REGISTERED TRADEMARK OF VALUE LINE, INC. OR VALUE LINE PUBLISHING, INC. THAT IS LICENSED TO FIRST TRUST. THE PRODUCTS ARE NOT SPONSORED, RECOMMENDED, SOLD OR PROMOTED BY VALUE LINE PUBLISHING, INC., VALUE LINE, INC., VALUE LINE SECURITIES, INC. OR ANY OF THEIR AFFILIATES. FIRST TRUST IS NOT AFFILIATED WITH ANY VALUE LINE COMPANY.
CLEAN EDGE(R) FUND DISCLAIMER
The Fund is not sponsored, endorsed, sold or promoted by NASDAQ(R), Clean Edge(R) or their affiliates (NASDAQ(R) and Clean Edge(R), collectively with their affiliates, are referred to herein as the "Corporations"). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Fund. The Corporations make 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 securities generally or in the Fund particularly, or the ability of the NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index to track general stock market or sector performance. The Corporations' relationship to First Trust, with respect to the Fund, consists of: (i) the licensing of certain indexes, trade names, trademarks, and service marks and other proprietary data; (ii) the listing and trading of certain exchange-traded funds; and (iii) the calculating of intra-day portfolio values for the Fund's Shares. The Corporations neither recommend nor endorse any investment in the Index or the Fund based thereon. The Corporations are not responsible for and have not participated in the determination of the timing of, prices at, or quantities of the Fund to be issued or in the determination or calculation of the equation by which the Fund is to be converted into cash. The Corporations have no liability in connection with the administration, marketing or trading of the Fund. Neither the Index nor the Fund should be construed as investment advice by the Corporations.
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF THE NASDAQ(R) CLEAN EDGE(R) U.S. LIQUID SERIES INDEX OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE NASDAQ(R) CLEAN EDGE(R) U.S. LIQUID SERIES INDEX OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NASDAQ(R) CLEAN EDGE(R) U.S. LIQUID SERIES INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
NASDAQ(R) and Clean Edge(R) are not affiliates, but jointly own the Index and have cross-licensed to one another the rights in their respective marks in connection with the Index.
S&P REIT FUND DISCLAIMER
Standard & Poor's(R) and S&P(R) are registered trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by First Trust. The First Trust S&P REIT Index Fund is not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation, warranty or condition regarding the advisability of investing in the First Trust S&P REIT Index Fund.
THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR'S(R) AND ITS AFFILIATES ("S&P(R)"). S&P(R) MAKES NO REPRESENTATION, CONDITION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE FUND OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE FUND PARTICULARLY OR THE ABILITY OF THE S&P REIT COMPOSITE
INDEX TO TRACK GENERAL STOCK MARKET PERFORMANCE. S&P'S(R) ONLY RELATIONSHIP TO FIRST TRUST WITH RESPECT TO THE FUND IS THE LICENSING OF CERTAIN TRADEMARKS AND TRADE NAMES AND OF THE S&P REIT COMPOSITE INDEX WHICH IS DETERMINED, COMPOSED AND CALCULATED BY S&P(R) WITHOUT REGARD TO FIRST TRUST OR THE FUND. S&P(R) HAS NO OBLIGATION TO TAKE THE NEEDS OF FIRST TRUST OR THE OWNERS OF THE FUND INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE S&P REIT COMPOSITE INDEX. S&P(R) IS NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE DETERMINATION OF THE PRICES AND AMOUNT OF THE FUND OR THE TIMING OF THE ISSUANCE OR SALE OF THE FUND OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE FUND SHARES ARE TO BE CONVERTED INTO CASH. S&P(R) HAS NO OBLIGATION OR LIABILITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING, OR TRADING OF THE FUND.
S&P(R) DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P REIT COMPOSITE INDEX OR ANY DATA INCLUDED THEREIN AND S&P(R) SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P(R) MAKES NO WARRANTY, CONDITION OR REPRESENTATION, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY FIRST TRUST, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P(R) INDICES OTHER THAN THE S&P U.S. REIT INDEX OR ANY DATA INCLUDED THEREIN. S&P(R) MAKES NO EXPRESS OR IMPLIED WARRANTIES, REPRESENTATIONS OR CONDITIONS, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OR CONDITIONS OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE AND ANY OTHER EXPRESS OR IMPLIED WARRANTY OR CONDITION WITH RESPECT TO THE S&P REIT COMPOSITE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P(R) HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) RESULTING FROM THE USE OF THE S&P REIT COMPOSITE INDEX OR ANY DATA INCLUDED THEREIN, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
ISE WATER FUND, ISE GAS FUND AND ISE CHINDIA FUND DISCLAIMER
The Funds are not sponsored, endorsed, sold or promoted by the Index Provider. The Index Provider makes no representation or warranty, express or implied, to the owners of the Funds or any member of the public regarding the advisability of trading in the Funds. The Index Provider's only relationship to First Trust is the licensing of certain trademarks and trade names of the Index Provider and of the Indexes which are determined, composed and calculated by the Index Provider without regard to First Trust or the Funds. The Index Provider has no obligation to take the needs of First Trust or the owners of the Funds into consideration in determining, composing or calculating the Indexes. The Index Provider is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the Funds to be listed or in the determination or calculation of the equation by which the Funds are to be converted into cash. The Index Provider has no obligation or liability in connection with the administration, marketing or trading of the Funds.
THE INDEX PROVIDER DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEXES OR ANY DATA INCLUDED THEREIN AND THE INDEX PROVIDER SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. THE INDEX PROVIDER MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY FIRST TRUST, OWNERS OF THE FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEXES OR ANY DATA INCLUDED THEREIN. THE INDEX PROVIDER MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE INDEX PROVIDER HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. THERE ARE NO THIRD PARTY BENEFICIARIES, OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN THE INDEX PROVIDER AND FIRST TRUST.
INVESTMENT RISKS
OVERVIEW
An investment in a Fund should be made with an understanding of the risks which an investment in common stocks entails, including the risk that the financial condition of the issuers of the equity securities or the general condition of the common stock market may worsen and the value of the equity securities and therefore the value of a Fund may decline. A Fund may not be an appropriate investment for those who are unable or unwilling to assume the risks involved generally with an equity investment. The past market and earnings performance of any of the equity securities included in a Fund is not predictive of their future performance. Common stocks are especially susceptible to general stock market movements and to volatile increases and decreases of value as market confidence in and perceptions of the issuers change. These perceptions are based on unpredictable factors including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic or banking crises. First Trust cannot predict the direction or scope of any of these factors. Shareholders of common stocks have rights to receive payments from the issuers of those common stocks that are generally subordinate to those of creditors of, or holders of debt obligations or preferred stocks of, such issuers.
Shareholders of common stocks of the type held by the Funds have a right to receive dividends only when and if, and in the amounts, declared by the issuer's board of directors and have a right to participate in amounts available for distribution by the issuer only after all other claims on the issuer have been paid. Common stocks do not represent an obligation of the issuer and, therefore, do not offer any assurance of income or provide the same degree of protection of capital as do debt securities. The issuance of additional debt securities or preferred stock will create prior claims for payment of principal, interest and dividends which could adversely affect the ability and inclination of the issuer to declare or pay dividends on its common stock or the rights of holders of common stock with respect to assets of the issuer upon liquidation or bankruptcy. The value of common stocks is subject to market fluctuations for as long as the common stocks remain outstanding, and thus the value of the equity securities in the Funds will fluctuate over the life of the Funds and may be more or less than the price at which they were purchased by the Funds. The equity securities held in the Funds may appreciate or depreciate in value (or pay dividends) depending on the full range of economic and market influences affecting these securities, including the impact of a Fund's purchase and sale of the equity securities and other factors.
Holders of common stocks incur more risk than holders of preferred stocks and debt obligations because common stockholders, as owners of the entity, have generally inferior rights to receive payments from the issuer in comparison with the rights of creditors of, or holders of debt obligations or
preferred stocks issued by, the issuer. Cumulative preferred stock dividends must be paid before common stock dividends and any cumulative preferred stock dividend omitted is added to future dividends payable to the holders of cumulative preferred stock. Preferred stockholders are also generally entitled to rights on liquidation which are senior to those of common stockholders.
ADDITIONAL RISK OF INVESTING IN THE FUNDS
LIQUIDITY RISK
Whether or not the equity securities in the Funds are listed on a securities exchange, the principal trading market for certain of the equity securities in certain of the Funds may be in the over-the-counter market. As a result, the existence of a liquid trading market for the equity securities may depend on whether dealers will make a market in the equity securities. There can be no assurance that a market will be made for any of the equity securities, that any market for the equity securities will be maintained or that there will be sufficient liquidity of the equity securities in any markets made. The price at which the equity securities are held in the Funds will be adversely affected if trading markets for the equity securities are limited or absent.
RISKS AND SPECIAL CONSIDERATIONS CONCERNING DERIVATIVES
In addition to the foregoing, the use of derivative instruments involves certain general risks and considerations as described below.
(1) MARKET RISK. Market risk is the risk that the value of the underlying assets may go up or down. Adverse movements in the value of an underlying asset can expose the Funds to losses. Market risk is the primary risk associated with derivative transactions. Derivative instruments may include elements of leverage and, accordingly, fluctuations in the value of the derivative instrument in relation to the underlying asset may be magnified. The successful use of derivative instruments depends upon a variety of factors, particularly the portfolio manager's ability to predict movements of the securities, currencies, and commodities markets, which may require different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy adopted will succeed. A decision to engage in a derivative transaction will reflect the portfolio manager's judgment that the derivative transaction will provide value to a Fund and its shareholders and is consistent with the Fund's objective, investment limitations, and operating policies. In making such a judgment, the portfolio manager will analyze the benefits and risks of the derivative transactions and weigh them in the context of a Fund's overall investments and investment objective.
(2) CREDIT RISK. Credit risk is the risk that a loss may be sustained as a result of the failure of a counterparty to comply with the terms of a derivative instrument. The counterparty risk for exchange-traded derivatives is generally less than for privately-negotiated or over-the-counter ("OTC") derivatives, since generally a clearing agency, which is the issuer or counterparty to each exchange-traded instrument, provides a guarantee of performance.
For privately-negotiated instruments, there is no similar clearing agency guarantee. In all transactions, the Funds will bear the risk that the counterparty will default, and this could result in a loss of the expected benefit of the derivative transactions and possibly other losses to the Funds. The Funds will enter into transactions in derivative instruments only with counterparties that First Trust reasonably believes are capable of performing under the contract.
(3) CORRELATION RISK. Correlation risk is the risk that there might be an imperfect correlation, or even no correlation, between price movements of a derivative instrument and price movements of investments being hedged. When a derivative transaction is used to completely hedge another position, changes in the market value of the combined position (the derivative instrument plus the position being hedged) result from an imperfect correlation between the price movements of the two instruments. With a perfect hedge, the value of the combined position remains unchanged with any change in the price of the underlying asset. With an imperfect hedge, the value of the derivative instrument and its hedge are not perfectly correlated. For example, if the value of a derivative instrument used in a short hedge (such as writing a call option, buying a put option or selling a Futures Contract) increased by less than the decline in value of the hedged investments, the hedge would not be perfectly correlated. This might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. The effectiveness of hedges using instruments on indices will depend, in part, on the degree of correlation between price movements in the index and the price movements in the investments being hedged.
(4) LIQUIDITY RISK. Liquidity risk is the risk that a derivative instrument cannot be sold, closed out, or replaced quickly at or very close to its fundamental value. Generally, exchange contracts are very liquid because the exchange clearinghouse is the counterparty of every contract. OTC transactions are less liquid than exchange-traded derivatives since they often can only be closed out with the other party to the transaction. The Funds might be required by applicable regulatory requirements to maintain assets as "cover," maintain segregated accounts, and/or make margin payments when they take positions in derivative instruments involving obligations to third parties (i.e., instruments other than purchase options). If a Fund is unable to close out its positions in such instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expires, matures, or is closed out. These requirements might impair a Fund's ability to sell a security or make an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security at a disadvantageous time. A Fund's ability to sell or close out a position in an instrument prior to expiration or maturity depends upon the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of the counterparty to enter into a transaction closing out the position. Due to liquidity risk, there is no assurance that any derivatives position can be sold or closed out at a time and price that is favorable to a Fund.
(5) LEGAL RISK. Legal risk is the risk of loss caused by the unenforceability of a party's obligations under the derivative. While a party seeking price certainty agrees to surrender the potential upside in exchange for downside protection, the party taking the risk is looking for a positive payoff. Despite this voluntary assumption of risk, a counterparty that has lost money in a derivative transaction may try to avoid payment by exploiting various legal uncertainties about certain derivative products.
(6) SYSTEMIC OR "INTERCONNECTION" Risk. Systemic or interconnection risk is the risk that a disruption in the financial markets will cause difficulties for all market participants. In other words, a disruption in one market will spill over into other markets, perhaps creating a chain reaction. Much of the OTC derivatives market takes place among the OTC dealers themselves, thus creating a large interconnected web of financial obligations. This interconnectedness raises the possibility that a default by one large dealer could create losses for other dealers and destabilize the entire market for OTC derivative instruments.
MANAGEMENT OF THE FUNDS
The general supervision of the duties performed for the Funds under the investment management agreement is the responsibility of the Board of Trustees. There are five Trustees of the Trust, one of whom is an "interested person" (as the term is defined in the 1940 Act) and four of whom are Trustees who are not officers or employees of First Trust or any of its affiliates ("Independent Trustees"). The Trustees set broad policies for the Funds, choose the Trust's officers and hire the Trust's investment adviser. The officers of the Trust manage its day to day operations and are responsible to the Trust's Board of Trustees. The following is a list of the Trustees and officers of the Trust and a statement of their present positions and principal occupations during the past five years, the number of portfolios each Trustee oversees and the other directorships they hold, if applicable.
NUMBER OF PORTFOLIOS IN THE FIRST OTHER TERM OF OFFICE TRUST FUND TRUSTEESHIPS AND YEAR FIRST COMPLEX OR NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE Trustee who is an Interested Person of the Trust ------------------------ James A. Bowen(1) President, o Indefinite President, First 58 Portfolios Trustee of 1001 Warrenville Road, Chairman of the term Trust Advisors L.P. Wheaton Suite 300 Board, Chief and First Trust College Lisle, IL 60532 Executive Officer Portfolios L.P.; D.O.B.: 09/55 and Trustee o 2003 Chairman of the Board of Directors, BondWave, LLC (Software Development Company/Broker-Dealer) and Stonebridge Advisors LLC (Investment Adviser) -28- |
NUMBER OF PORTFOLIOS IN THE FIRST OTHER TERM OF OFFICE TRUST FUND TRUSTEESHIPS AND YEAR FIRST COMPLEX OR NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE Independent Trustees -------------------- Richard E. Erickson Trustee o Indefinite Physician; President, 58 Portfolios None c/o First Trust Advisors term Wheaton Orthopedics; L.P. Co-Owner and 1001 Warrenville Road, Co-Director (January Suite 300 o 2005 1996 to May 2007), Lisle, IL 60532 Sports Med Center for D.O.B.: 04/51 Fitness; Limited Partner, Gundersen Real Estate Partnership; Limited Partner, Sportsmed LLC Thomas R. Kadlec Trustee o Indefinite Senior Vice President 58 Portfolios None c/o First Trust Advisors term and Chief Financial L.P. Officer (May 2007 to 1001 Warrenville Road, o 2005 Present), Vice Suite 300 President and Chief Lisle, IL 60532 Financial Officer D.O.B.: 11/57 (1990 to May 2007), ADM Investor Services, Inc. (Futures Commission Merchant); President (May 2005 to Present), ADM Derivatives, Inc.; Registered Representative (2000 to Present), Segerdahl & Company, Inc., a FINRA member (Broker-Dealer) Robert F. Keith Trustee o Indefinite President (2003 to 58 Portfolios None c/o First Trust Advisors term Present), Hibs L.P. Enterprises Financial 1001 Warrenville Road, o 2006 and Management Suite 300 Consulting; President Lisle, IL 60532 (2001 to 2003), D.O.B.: 11/56 Aramark Service Master Management; President and Chief Operating Officer (1998 to 2003), Service Master Management Services Niel B. Nielson Trustee o Indefinite President (June 2002 58 Portfolios Director of c/o First Trust Advisors term to Present), Covenant Covenant L.P. College Transport Inc. 1001 Warrenville Road, o 2005 Suite 300 Lisle, IL 60532 D.O.B.: 03/54 Officers of the Trust --------------------- Mark R. Bradley Treasurer, o Indefinite Chief Financial N/A N/A 1001 Warrenville Road, Controller, Chief term Officer, First Trust Suite 300 Financial Officer Advisors L.P. and Lisle, IL 60532 and Chief First Trust D.O.B.: 11/57 Accounting Officer o 2005 Portfolios L.P.; Chief Financial Officer, BondWave LLC (Software Development Company/Broker-Dealer) and Stonebridge Advisors LLC (Investment Adviser) Kelley A. Christensen Vice President o Indefinite Assistant Vice N/A N/A 1001 Warrenville Road, term President, First Suite 300 Trust Advisors L.P. Lisle, IL 60532 o 2006 and First Trust D.O.B.: 09/70 Portfolios L.P. -29- |
NUMBER OF PORTFOLIOS IN THE FIRST OTHER TERM OF OFFICE TRUST FUND TRUSTEESHIPS AND YEAR FIRST COMPLEX OR NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE James M. Dykas Assistant o Indefinite Senior Vice President N/A N/A 1001 Warrenville Road, Treasurer term (April 2007 to Suite 300 Present), Vice Lisle, IL 60532 o 2005 President (January D.O.B.: 01/66 2005 to April 2007), First Trust Advisors L.P. and First Trust Portfolios L.P.; Executive Director (December 2002 to January 2005), Vice President (December 2000 to December 2002), Van Kampen Asset Manage-ment and Morgan Stanley Investment Management W. Scott Jardine Secretary and o Indefinite General Counsel, N/A N/A 1001 Warrenville Road, Chief Compliance term First Trust Advisors Suite 300 Officer L.P. and First Trust Lisle, IL 60532 o 2005 Portfolios L.P.; D.O.B.: 05/60 Secretary, BondWave LLC (Software Development Company/Broker-Dealer) and Stonebridge Advisors LLC (Investment Adviser) Daniel J. Lindquist Vice President o Indefinite Senior Vice President N/A N/A 1001 Warrenville Road, term (September 2005 to Suite 300 Present), Vice Lisle, IL 60532 o 2005 President (April 2004 D.O.B.: 02/70 to September 2005), First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Operating Officer (January 2004 to April 2004), Mina Capital Management, LLC; Chief Operating Officer (April 2000 to January 2004), Samaritan Asset Management Services, Inc. Kristi A. Maher Assistant o Indefinite Deputy General N/A N/A 1001 Warrenville Road, Secretary term Counsel (May 2007 to Suite 300 Present), Assistant Lisle, IL 60532 o 2005 General Counsel D.O.B.: 12/66 (March 2004 to May 2007), First Trust Advisors L.P. and First Trust Portfolios L.P.; Associate (December 1995 to March 2004), Chapman and Cutler LLP Roger F. Testin Vice President o Indefinite Senior Vice President N/A N/A 1001 Warrenville Road, term (November 2003 to Suite 300 Present), Vice Lisle, IL 60532 o 2005 President (August D.O.B.: 06/66 2001 to November 2003), First Trust Advisors L.P. and First Trust Portfolios L.P. -30- |
NUMBER OF PORTFOLIOS IN THE FIRST OTHER TERM OF OFFICE TRUST FUND TRUSTEESHIPS AND YEAR FIRST COMPLEX OR NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE Stan Ueland Vice President o Indefinite Vice President N/A N/A 1001 Warrenville Road, term (August 2005 to Suite 300 Present), First Trust Lisle, IL 60532 o 2006 Advisors L.P. and D.O.B.: 11/70 First Trust Portfolios L.P.; Vice President (May 2004 to August 2005), BondWave LLC (Software Development Company/ Broker-Dealer); Account Executive (January 2003 to May 2004), Mina Capital Management, LLC and Samaritan Asset Management Services, Inc.; Sales Consultant (January 1997 to January 2003), Oracle Corporation |
The Board of Trustees has four standing committees: the Executive Committee (Pricing and Dividend Committee), the Nominating and Governance Committee, the Valuation Committee and the Audit Committee. The Executive Committee, which meets between Board meetings, is authorized to exercise all powers of and to act in the place of the Board of Trustees to the extent permitted by the Trust's Declaration and By-laws. The members of the Executive Committee shall also serve as a special committee of the Board known as the Pricing and Dividend Committee, which is authorized to exercise all of the powers and authority of the Board in respect of the declaration and setting of dividends. Messrs. Bowen and Erickson are members of the Executive Committee. During the last fiscal year, the Executive Committee held four meetings.
The Nominating and Governance Committee is responsible for appointing and nominating non-interested persons to the Board. Messrs. Erickson, Kadlec, Keith and Nielson are members of the Nominating and Governance Committee. If there is no vacancy on the Board of Trustees, the Board will not actively seek recommendations from other parties, including Shareholders. When a vacancy on the Board occurs and nominations are sought to fill such vacancy, the Nominating and Governance Committee may seek nominations from those sources it deems appropriate in its discretion, including Shareholders of the Funds. To submit a recommendation for nomination as a candidate for a position on the Board, Shareholders of the Funds shall mail such recommendation to W. Scott Jardine at the Funds' address, 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532. Such recommendation shall include the following information: (a) evidence of Fund ownership of the person or entity recommending the candidate (if a Fund Shareholder); (b) a full description of the proposed candidate's background, including his or her education, experience, current employment and date of birth; (c) names and addresses of at least three professional references for the candidate; (d) information as to whether the candidate is an "interested person" in relation to the Funds, as such term is defined in the 1940 Act, and such other information that may be considered to impair the candidate's independence; and (e) any other information that may be helpful to the Nominating and Governance Committee in evaluating the candidate. If a recommendation is
received with satisfactorily completed information regarding a candidate during a time when a vacancy exists on the Board or during such other time as the Nominating and Governance Committee is accepting recommendations, the recommendation will be forwarded to the chairman of the Nominating and Governance Committee and the outside counsel to the Independent Trustees. Recommendations received at any other time will be kept on file until such time as the Nominating and Governance Committee is accepting recommendations, at which point they may be considered for nomination. During the last fiscal year, the Nominating and Governance Committee held four meetings.
The Valuation Committee is responsible for the oversight of the pricing procedures of the Funds. Messrs. Erickson, Kadlec, Keith, and Nielson are members of the Valuation Committee. During the last fiscal year, the Valuation Committee held four meetings.
The Audit Committee is responsible for overseeing the Funds' accounting and financial reporting process, the system of internal controls, audit process and evaluating and appointing independent auditors (subject also to Board approval). Messrs. Erickson, Kadlec, Keith and Nielson serve on the Audit Committee. During the last fiscal year, the Audit Committee held eight meetings.
Messrs. Bowen, Erickson, Kadlec, Keith and Nielson are trustees of First Defined Portfolio Fund, LLC, an open-end mutual fund with eight portfolios, 14 closed-end funds and three exchange-traded fund trusts with 36 portfolios (collectively, the "First Trust Fund Complex"). None of the Trustees who are not "interested persons" of the Trust, nor any of their immediate family members, has ever been a director, officer or employee of, or consultant to, First Trust, First Trust Portfolios L.P. ("First Trust Portfolios") or their affiliates. In addition, Mr. Bowen and the other officers of the Trust (other than Roger Testin and Stan Ueland) hold the same positions with the other funds and trusts of the First Trust Fund Complex as they hold with the Trust. Mr. Ueland, Vice President of the Trust, serves in the same position for the exchange-traded fund trusts of the First Trust Fund Complex. Mr. Testin, Vice President of the Trust, serves in the same position for the exchange-traded fund trusts and the open-end mutual fund of the First Trust Fund Complex.
Under the Trustees' compensation plan, each Independent Trustee is paid an annual retainer of $10,000 per trust for the first 14 trusts in the First Trust Fund Complex and an annual retainer of $7,500 per trust for each subsequent trust added to the First Trust Fund Complex. The annual retainer is allocated equally among each of the trusts. Trustees are also reimbursed by the funds in the First Trust Fund Complex for travel and out-of-pocket expenses in connection with all meetings. No additional meeting fees are paid in connection with board or committee meetings.
Additionally, for all the trusts in the First Trust Fund Complex, effective January 1, 2008, Dr. Erickson is paid annual compensation of $10,000 to serve as the Lead Trustee, Mr. Keith is paid annual compensation of $5,000 to serve as the chairman of the Audit Committee, Mr. Kadlec is paid annual compensation of $2,500 to serve as chairman of the Valuation Committee and Mr. Nielson is paid annual compensation of $2,500 to serve as the chairman of the Nominating and Governance Committee. The chairmen and the Lead Trustee will
serve two years before rotating to serve as a chairman of another committee or as Lead Trustee. The additional compensation is allocated equally among each of the trusts in the First Trust Fund Complex.
During the calendar year ended December 31, 2007, for all the trusts in the First Trust Fund Complex, Mr. Kadlec was paid $10,000 to serve as the Lead Trustee, Mr. Nielson was paid $5,000 to serve as chairman of the Audit Committee and no additional compensation was paid to Dr. Erickson for his service as chairman of the Nominating and Governance Committee and the Valuation Committee. The annual compensation was allocated equally among each of the trusts in the First Trust Fund Complex.
The following table sets forth the compensation (including reimbursement for travel and out-of-pocket expenses) paid by the Trust and the First Trust Fund Complex to each of the Independent Trustees for the fiscal year ended December 31, 2007. The Trust has no retirement or pension plans. The officers and Trustee who are "interested persons" as designated above serve without any compensation from the Trust.
TOTAL COMPENSATION TOTAL COMPENSATION FROM THE NAME OF TRUSTEE FROM THE TRUST (1) FIRST TRUST FUND COMPLEX(2) James A. Bowen $0 $0 Richard E. Erickson $9,673 $156,875 Thomas R. Kadlec $9,203 $166,875 Robert F. Keith(3) $9,673 $154,375 Niel B. Nielson $10,869 $166,500 -------------------- |
(1) The compensation paid by the Trust to the Trustees for fiscal year ended December 31, 2007 for services to each Fund of the Trust.
(2) The total compensation paid to the Independent Trustees for the year ended December 31, 2007 for services to the eight portfolios of First Defined Portfolio Fund, LLC, an open-end fund (four portfolios of First Defined Portfolio Fund, LLC were liquidated on March 16, 2007), 14 closed-end funds and 36 series of the Trust, the First Trust Exchange-Traded Fund II Trust and First Trust Exchange-Traded AlphaDEX (TM) Fund, all advised by First Trust.
(3) Mr. Keith joined the Board of Trustees of certain funds in the First Trust Fund Complex on June 12, 2006 and First Defined Portfolio Fund, LLC on April 30, 2007.
The Trust has no employees. Its officers are compensated by First Trust.
The following table sets forth the dollar range of equity securities beneficially owned by the Trustees in the Funds as of December 31, 2007:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND (NUMBER OF SHARES HELD)
Value Line(R) Value Line(R) Value Line(R) Strategic Dividend IPOX Fund Equity 100 Fund Dividend Fund Value Fund Leaders Fund Allocation Fund INTERESTED TRUSTEE Mr. Bowen $10,001-$50,000 $50,001-$100,000 $50,001-$100,000 $0 $0 $0 (1250 Shares) (4,000 Shares) (3,500 Shares) (0 Shares) (0 Shares) (0 Shares) -33- |
Value Line(R) Value Line(R) Value Line(R) Strategic Dividend IPOX Fund Equity 100 Fund Dividend Fund Value Fund Leaders Fund Allocation Fund INDEPENDENT TRUSTEES Dr. Erickson $0 $10,001-$50,000 $10,001-$50,000 $10,001-$50,000 $0 $0 (0 Shares) (1,926 Shares) (859 Shares) (869 Shares) (0 Shares) (0 Shares) Mr. Kadlec $0 $10,001-$50,000 $10,001-$50,000 $0 $0 $0 (0 Shares) (1,971 Shares) (2,256 Shares) (0 Shares) (0 Shares) (0 Shares) Mr. Keith $0 $10,001-$50,000 $0 $0 $10,001-$50,000 $0 (0 Shares) (1,425 Shares) (0 Shares) (0 Shares) (750 Shares) (0 Shares) Mr. Nielson $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000 $1-$10,000 (200 Shares) (273 Shares) (252 Shares) (200 Shares) (200 Shares) (200 Shares) |
The following table sets forth the dollar range of equity securities beneficially owned by the Trustees in the Funds and in other funds overseen by the Trustees in the First Trust Fund Complex as of December 31, 2007.
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED
INVESTMENT COMPANIES OVERSEEN BY TRUSTEE IN THE FIRST TRUST FUND COMPLEX
INTERESTED TRUSTEE
Mr. Bowen Over $100,000 INDEPENDENT TRUSTEES Dr. Erickson Over $100,000 Mr. Kadlec Over $100,000 Mr. Keith Over $100,000 Mr. Nielson $50,001 - $100,000 |
As of the date of this Statement of Additional Information, the Independent Trustees of the Trust and immediate family members do not own beneficially or of record any class of securities of an investment adviser or principal underwriter of the Funds or any person directly or indirectly controlling, controlled by, or under common control with an investment adviser or principal underwriter of the Funds.
As of the date of this Statement of Additional Information, the officers and Trustees, in the aggregate, owned less than 1% of the Shares of each Fund.
The table set forth as Exhibit A shows the percentage ownership of each person who, as of December 31, 2007, owned of record, or is known by the Trust to have owned of record or beneficially 5% or more of a Fund's shares.
Information as to beneficial ownership is based on the securities position listing reports as of December 31, 2007. The Fund does not have any knowledge of who the ultimate beneficiaries are of the Shares listed below. A control person is one who owns, either directly or indirectly, more than 25% of the voting securities of a Fund or acknowledges the existence of control.
INVESTMENT ADVISER. First Trust, 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532, is the investment adviser to the Funds. First Trust is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. Grace Partners of DuPage L.P. is a
limited partnership with one general partner, The Charger Corporation, and a number of limited partners. The Charger Corporation is an Illinois corporation controlled by the Robert Donald Van Kampen family. First Trust discharges its responsibilities subject to the policies of the Board of the Trust.
First Trust provides investment tools and portfolios for advisers and investors. First Trust is committed to theoretically sound portfolio construction and empirically verifiable investment management approaches. Its asset management philosophy and investment discipline is deeply rooted in the application of intuitive factor analysis and model implementation to enhance investment decisions.
First Trust acts as investment adviser for and manages the investment and reinvestment of the assets of the Funds. First Trust also administers the Trust's business affairs, provides office facilities and equipment and certain clerical, bookkeeping and administrative services, and permits any of its officers or employees to serve without compensation as Trustees or officers of the Trust if elected to such positions.
Pursuant to an Investment Management Agreement (the "Investment Management Agreement") between First Trust and the Trust, each Fund has agreed to pay an annual management fee in the amounts set forth below.
FUND ANNUAL MANAGEMENT FEE MicroCap Fund 0.50% of average daily net assets Dividend Leaders Fund 0.30% of average daily net assets IPOX Fund 0.40% of average daily net assets Equal Weighted Fund 0.40% of average daily net assets Technology Fund 0.40% of average daily net assets Biotech Fund 0.40% of average daily net assets Internet Index Fund 0.40% of average daily net assets Strategic Value Fund 0.50% of average daily net assets Value Line(R) Equity Allocation Fund 0.50% of average daily net assets Value Line(R) Dividend Fund 0.50% of average daily net assets Ex-Technology Fund 0.40% of average daily net assets Clean Edge(R) Fund 0.40% of average daily net assets S&P REIT Fund 0.30% of average daily net assets ISE Water Fund 0.40% of average daily net assets ISE Gas Fund 0.40% of average daily net assets ISE Chindia Fund 0.40% of average daily net assets Value Line(R) 100 Fund 0.50% of average daily net assets |
Each Fund is responsible for all its expenses, including the investment advisory fees, costs of transfer agency, custody, fund administration, legal, audit and other services, interest, taxes, sublicensing fees, brokerage commissions and other expenses connected with executions of portfolio transactions, any distribution fees or expenses and extraordinary expenses. Until each Fund's Expense Cap Termination Date set forth below, First Trust has
agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of each Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) from exceeding the Annual Expense Cap amounts set forth below. Expenses borne by First Trust are subject to reimbursement by a Fund up to three years from the date the fee or expense was incurred, but no reimbursement payment will be made by a Fund at any time if it would result in a Fund's expenses exceeding its Expense Cap.
FUND ANNUAL EXPENSE CAP EXPENSE CAP TERMINATION DATE MicroCap Fund 0.60% of average daily net assets May 15, 2009 Dividend Leaders Fund 0.45% of average daily net assets May 15, 2009 IPOX Fund 0.60% of average daily net assets May 15, 2009 Equal Weighted Fund 0.60% of average daily net assets May 15, 2009 Technology Fund 0.60% of average daily net assets May 15, 2009 Biotech Fund 0.60% of average daily net assets May 15, 2009 Internet Fund 0.60% of average daily net assets May 15, 2009 Strategic Value Fund 0.65% of average daily net assets May 15, 2009 Value Line(R) Equity Allocation Fund 0.70% of average daily net assets May 15, 2009 Value Line(R) Dividend Fund 0.70% of average daily net assets May 15, 2009 Ex-Technology Fund 0.60% of average daily net assets May 15, 2009 Clean Edge(R) Fund 0.60% of average daily net assets May 15, 2009 S&P REIT Fund 0.50% of average daily net assets May 15, 2009 ISE Gas Fund 0.60% of average daily net assets May 15, 2009 ISE Water Fund 0.60% of average daily net assets May 15, 2009 ISE Chindia Fund 0.60% of average daily net assets May 15, 2009 Value Line(R) 100 Fund 0.70% of average daily net assets June 18, 2009 |
Under the Investment Management Agreement, First Trust shall not be liable for any loss sustained by reason of the purchase, sale or retention of any security, whether or not such purchase, sale or retention shall have been based upon the investigation and research made by any other individual, firm or corporation, if such recommendation shall have been selected with due care and in good faith, except loss resulting from willful misfeasance, bad faith, or gross negligence on the part of First Trust in the performance of its obligations and duties, or by reason of its reckless disregard of its obligations and duties. The Investment Management Agreement continues until two years after the initial issuance of Fund Shares and thereafter only if approved annually by the Board of Trustees, including a majority of the Independent Trustees. The Investment Management Agreement terminates automatically upon assignment and is terminable at any time without penalty as to the Funds by the Board of Trustees, including a majority of the Independent Trustees, or by vote of the holders of a majority of a Fund's outstanding voting securities on 60 days' written notice to First Trust, or by First Trust on 60 days' written notice to the Funds.
First Trust is located at 1001 Warrenville Road, Lisle, Illinois 60532.
The following table sets forth the management fees (net of fee waivers and expense reimbursements) paid by each Fund and the fees waived and expenses reimbursed by First Trust for the specified period.
AMOUNT OF MANAGEMENT FEES (NET OF FEE WAIVERS AND EXPENSE AMOUNT OF FEES WAIVED AND EXPENSES REIMBURSED REIMBURSEMENTS BY FIRST TRUST) BY FIRST TRUST ------------------------------ --------------------------------------------- (FOR THE (FOR THE (FOR THE (FOR THE (FOR THE (FOR THE PERIOD ENDED PERIOD PERIOD PERIOD PERIOD PERIOD 12/31/05) ENDED ENDED ENDED ENDED 12/31/06) ENDED FUND 12/31/06) 12/31/07) (12/31/05) 12/31/07) MicroCap Fund $0 $0 $0 $68,239 $137,971 $137,185 Dividend Leaders Fund N/A $0 $55,804 N/A $172,016 $199,880 IPOX Fund N/A $0 $0 N/A $116,048 $113,731 Equal Weighted Fund N/A $0 $11,169 N/A $101,077 $86,008 Technology Fund N/A $0 $19,069 N/A $93,915 $75,489 Biotech Fund N/A $0 $135,939 N/A $80,389 $65,395 Internet Fund N/A $0 $164,124 N/A $82,899 $54,768 Strategic Value Fund N/A $0 $10,238 N/A $132,531 $172,875 Value Line(R) Equity N/A $0 $0 N/A $26,011 $98,378 Allocation Fund Ex-Technology Fund N/A N/A $0 N/A N/A $61,242 Clean Edge(R) Fund N/A N/A $198 N/A N/A $77,233 S&P REIT Fund N/A N/A $0 N/A N/A $108,608 ISE Water Fund N/A N/A $0 N/A N/A $57,664 ISE Gas Fund N/A N/A $0 N/A N/A $59,322 ISE Chindia Fund N/A N/A $51,266 N/A N/A $61,221 Value Line(R) 100 Fund(1) $2,052,290 $1,936,973 $1,261,469 N/A N/A $132,258 |
(1) On June 15, 2007, the First Trust Value Line(R) 100 Exchange-Traded Fund acquired the assets and adopted the financial and performance history of its predecessor fund, First Trust Value Line(R) 100 Fund. Accordingly, the First Trust Value Line(R) 100 Exchange-Traded Fund adopted the financial statements of its predecessor fund. The table sets forth the management fees paid by the First Trust Value Line(R) 100 Exchange-Traded Fund or its predecessor fund for the specified periods.
(FOR THE (FOR THE (FOR THE (FOR THE (FOR THE (FOR THE (FOR THE (FOR THE PERIOD PERIOD PERIOD PERIOD PERIOD PERIOD PERIOD PERIOD ENDED ENDED 6/1/06 TO ENDED ENDED ENDED 6/1/06 TO ENDED FUND 5/31/05) 5/31/06) 12/31/06) 12/31/07) 5/31/05) 5/31/06) 12/31/06) 12/31/07) Value Line(R) Dividend Fund(2) $3,542,990 $3,598,042 $2,015,941 $900,390 N/A N/A $33,985 $392,894 |
(2) On December 15, 2006, the First Trust Value Line(R) Dividend Index Fund acquired the assets and adopted the financial and performance history of its predecessor fund, the First Trust Value Line(R) Dividend Fund. Accordingly, the First Trust Value Line(R) Dividend Index Fund adopted the financial statements of its predecessor fund. The table sets forth the management fees paid by the First Trust Value Line(R) Dividend Index Fund or its predecessor fund for the specified periods.
INVESTMENT COMMITTEE. The Investment Committee of First Trust is primarily responsible for the day-to-day management of the Funds. There are currently six members of the Investment Committee, as follows:
POSITION WITH LENGTH OF SERVICE PRINCIPAL OCCUPATION NAME FIRST TRUST WITH FIRST TRUST DURING PAST FIVE YEARS Daniel J. Lindquist Senior Vice President Since 2004 Senior Vice President (September 2005 to Present), Vice President (April 2004 to September 2005), First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Operating Officer (January 2004 to April 2004), Mina Capital Management, LLC; Chief Operating Officer (April 2000 to January 2004), Samaritan Asset Management Services, Inc. Robert F. Carey Chief Investment Officer Since 1991 Chief Investment Officer and and Senior Vice President Senior Vice President, First Trust Advisors L.P.; Senior Vice President, First Trust Portfolios L.P. Jon C. Erickson Senior Vice President Since 1994 Senior Vice President (August 2002 to Present), First Trust Advisors L.P. and First Trust Portfolios L.P. David G. McGarel Senior Vice President Since 1997 Senior Vice President (August 2002 to Present), First Trust Advisors L.P. and First Trust Portfolios L.P. POSITION WITH LENGTH OF SERVICE PRINCIPAL OCCUPATION NAME FIRST TRUST WITH FIRST TRUST DURING PAST FIVE YEARS Roger F. Testin Senior Vice President Since 2001 Senior Vice President (November 2003 to Present), Vice President (August 2001 to November 2003), First Trust Portfolios L.P. and First Trust Advisors L.P. Stan Ueland Vice President Since 2005 Vice President (August 2005 to Present), First Trust Advisors L.P. and First Trust Portfolios L.P.; Vice President (May 2004 to August 2005), BondWave LLC (Software Development Company/ Broker-Dealer); Account Executive (January 2003 to May 2004), Mina Capital Management, LLC and Samaritan Asset Management Services, Inc.; Sales Consultant (January 1997 to January 2003), Oracle Corporation |
Daniel J. Lindquist: Mr. Lindquist is Chairman of the Investment Committee and presides over Investment Committee meetings. Mr. Lindquist is also responsible for overseeing the implementation of the Funds' investment strategies.
David G. McGarel: As the head of First Trust's Strategy Research Group, Mr. McGarel is responsible for developing and implementing quantitative investment strategies for those Funds that have investment policies that require them to follow such strategies.
Jon C. Erickson: As the head of First Trust's Equity Research Group, Mr. Erickson is responsible for determining the securities to be purchased and sold by Funds that do not utilize quantitative investment strategies.
Roger F. Testin: As head of First Trust's Portfolio Management Group, Mr. Testin is responsible for executing the instructions of the Strategy Research Group and Equity Research Group in the Funds' portfolios.
Robert F. Carey: As First Trust's Chief Investment Officer, Mr. Carey consults with the Investment Committee on market conditions and First Trust's general investment philosophy.
Stan Ueland: Mr. Ueland plays an important role in executing the investment strategies of each Fund advised by First Trust.
No member of the Investment Committee beneficially owns any Shares of a Fund.
COMPENSATION. The compensation structure for each member of the Investment Committee is based upon a fixed salary as well as a discretionary bonus determined by the management of First Trust. Salaries are determined by management and are based upon an individual's position and overall value to the firm. Bonuses are also determined by management and are based upon an individual's overall contribution to the success of the firm and the profitability of the firm. Salaries and bonuses for members of the Investment Committee are not based upon criteria such as performance of the Funds or the value of assets included in the Funds' portfolios. In addition, Mr. Carey, Mr. Erickson, Mr. Lindquist and Mr. McGarel also have an indirect ownership stake in the firm and will therefore receive their allocable share of ownership-related distributions.
The Investment Committee manages the other investment vehicles with the number of accounts and assets, as of December 31, 2007, set forth in the table below:
ACCOUNTS MANAGED BY INVESTMENT COMMITTEE REGISTERED INVESTMENT OTHER POOLED COMPANIES INVESTMENT VEHICLES NUMBER OF ACCOUNTS NUMBER OF ACCOUNTS OTHER ACCOUNTS NUMBER OF INVESTMENT COMMITTEE MEMBER ($ ASSETS) ($ ASSETS) ACCOUNTS ($ ASSETS) Robert F. Carey 36 ($3,950,775,639) 4 ($534,988,518) 4,096 ($980,909,176) Roger F. Testin 36 ($3,950,775,639) 4 ($534,988,518) 4,096 ($980,909,176) Jon C. Erickson 36 ($3,950,775,639) 4 ($534,988,518) 4,096 ($980,909,176) David G. McGarel 36 ($3,950,775,639) 4 ($534,988,518) 4,096 ($980,909,176) Daniel J. Lindquist 36 ($3,950,775,639) 4 ($534,988,518) 4,096 ($980,909,176) Stan Ueland 19 ($99,454,960) N/A N/A |
None of the accounts managed by the Investment Committee pay an advisory fee that is based upon the performance of the account. In addition, First Trust believes that there are no material conflicts of interest that may arise in connection with the Investment Committee's management of the Funds' investments and the investments of the other accounts managed by the Investment Committee. However, because the investment strategy of the Funds and the investment strategies of many of the other accounts managed by the Investment Committee are based on fairly mechanical investment processes, the Investment Committee may recommend that certain clients sell and other clients buy a given security at the same time. In addition, because the investment strategies of the Funds and other accounts managed by the Investment Committee generally result in the clients investing in readily available securities, First Trust believes that
there should not be material conflicts in the allocation of investment opportunities between the Funds and other accounts managed by the Investment Committee.
BROKERAGE ALLOCATIONS
First Trust is responsible for decisions to buy and sell securities for the Funds and for the placement of the Funds' securities business, the negotiation of the commissions to be paid on brokered transactions, the prices for principal trades in securities, and the allocation of portfolio brokerage and principal business. It is the policy of First Trust to seek the best execution at the best security price available with respect to each transaction, and with respect to brokered transactions in light of the overall quality of brokerage and research services provided to First Trust and its clients. The best price to a Fund means the best net price without regard to the mix between purchase or sale price and commission, if any. Purchases may be made from underwriters, dealers, and, on occasion, the issuers. Commissions will be paid on a Fund's Futures and options transactions, if any. The purchase price of portfolio securities purchased from an underwriter or dealer may include underwriting commissions and dealer spreads. The Funds may pay mark-ups on principal transactions. In selecting broker/dealers and in negotiating commissions, First Trust considers, among other things, the firm's reliability, the quality of its execution services on a continuing basis and its financial condition. Fund portfolio transactions may be effected with broker/dealers who have assisted investors in the purchase of Shares.
Section 28(e) of the Securities Exchange Act of 1934 permits an investment adviser, under certain circumstances, to cause an account to pay a broker or dealer who supplies brokerage and research services a commission for effecting a transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction. Brokerage and research services include (a) furnishing advice as to the value of securities, the advisability of investing, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities; (b) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (c) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement, and custody).
In light of the above, in selecting brokers, First Trust may consider investment and market information and other research, such as economic, securities and performance measurement research, provided by such brokers, and the quality and reliability of brokerage services, including execution capability, performance, and financial responsibility. Accordingly, the commissions charged by any such broker may be greater than the amount another firm might charge if First Trust determines in good faith that the amount of such commissions is reasonable in relation to the value of the research information and brokerage services provided by such broker to First Trust or the Trust. First Trust believes that the research information received in this manner provides the Funds with benefits by supplementing the research otherwise available to the Funds. The Investment Management Agreement provides that such higher commissions will not be paid by the Funds unless the adviser determines in good faith that the amount is reasonable in relation to the services provided. The investment advisory fees paid by the Funds to First Trust under the Investment Management Agreement are not reduced as a result of receipt by
First Trust of research services. First Trust has advised the Board of Trustees that it does not use soft dollars.
First Trust places portfolio transactions for other advisory accounts advised by it, and research services furnished by firms through which the Funds effect their securities transactions may be used by First Trust in servicing all of its accounts; not all of such services may be used by First Trust in connection with the Funds. First Trust believes it is not possible to measure separately the benefits from research services to each of the accounts (including the Funds) advised by it. Because the volume and nature of the trading activities of the accounts are not uniform, the amount of commissions in excess of those charged by another broker paid by each account for brokerage and research services will vary. However, First Trust believes such costs to the Funds will not be disproportionate to the benefits received by the Funds on a continuing basis. First Trust seeks to allocate portfolio transactions equitably whenever concurrent decisions are made to purchase or sell securities by the Funds and another advisory account. In some cases, this procedure could have an adverse effect on the price or the amount of securities available to the Funds. In making such allocations between the Funds and other advisory accounts, the main factors considered by First Trust are the respective investment objectives, the relative size of portfolio holding of the same or comparable securities, the availability of cash for investment and the size of investment commitments generally held.
BROKERAGE COMMISSIONS
The following table sets forth the aggregate amount of brokerage commissions paid by each Fund for the specified period:
AGGREGATE AMOUNT OF BROKERAGE COMMISSIONS ----------------------------------------- (FOR THE PERIOD ENDED (FOR THE PERIOD ENDED (FOR THE PERIOD ENDED FUND DECEMBER 31, 2005) DECEMBER 31, 2006) DECEMBER 31, 2007) MicroCap Fund $5,719 $18,607 $9,318 Dividend Leaders Fund N/A $6,238 $10,166 IPOX Fund N/A $10,063 $5,762 Equal Weighted Fund N/A $1,223 $1,326 Technology Fund N/A $3,265 $1,429 Biotech Fund N/A $2,200 $5,467 Internet Fund N/A $1,805 $12,833 Strategic Value Fund N/A $1,072 $6,904 Value Line(R) Equity Allocation N/A $24,527 $13,640 Fund Ex-Technology Fund N/A N/A $589 Clean Edge(R) Fund N/A N/A $3,335 -42- |
AGGREGATE AMOUNT OF BROKERAGE COMMISSIONS ----------------------------------------- (FOR THE PERIOD ENDED (FOR THE PERIOD ENDED (FOR THE PERIOD ENDED FUND DECEMBER 31, 2005) DECEMBER 31, 2006) DECEMBER 31, 2007) S&P REIT Fund N/A N/A $518 ISE Water Fund N/A N/A $652 ISE Gas Fund N/A N/A $1,467 ISE Chindia Fund N/A N/A $7,492 Value Line(R) 100 Fund(1) $890,991 $950,791 $350,120 |
(1) On June 15, 2007, the Value Line(R) 100 Fund acquired the assets and adopted the financial and performance history of its predecessor fund. Accordingly, the Value Line(R) 100 Fund adopted the financial statements of its predecessor fund. The table sets forth the brokerage commissions paid by the First Trust Value Line(R) 100 Fund or its predecessor fund for the specified periods.
(FOR THE PERIOD ENDED (FOR THE PERIOD ENDED (FOR THE PERIOD (FOR THE PERIOD ENDED MAY 31, 2005) MAY 31, 2006) JUNE 1, 2006 TO DECEMBER 31, 2007) DECEMBER 31, 2006) Value Line(R) Dividend $309,700 $317,923 $189,631 $28,536 Fund(2) |
(2) On December 15, 2006, the First Trust Value Line(R) Dividend Index Fund acquired the assets and adopted the financial and performance history of its predecessor fund, the First Trust Value Line(R) Dividend Fund. Accordingly, the First Trust Value Line(R) Dividend Index Fund adopted the financial statements of its predecessor fund. The table sets forth the brokerage commissions paid by the First Trust Value Line(R) Dividend Index Fund or its predecessor fund for the specified periods.
The commissions paid by the Value Line(R) 100 Fund for the period ended December 31, 2007 was $600,671 less than for the period ended December 31, 2006. This difference is primarily due to operating as an exchange-traded fund rather than a closed-end fund as its predecessor fund had. The commissions paid by the Value Line(R) Dividend Fund for the period ended December 31, 2006 was $128,292 less than for the period ended May 31, 2006. This difference is primarily due to operating as an exchange-traded fund rather than a closed-end fund as its predecessor fund had, as well as the shortened time frame of the period ended December 31, 2006.
ADMINISTRATOR. The Bank of New York Mellon Corporation ("BONY") serves as Administrator for the Funds. Its principal address is 101 Barclay St., New York, NY 10286.
BONY serves as Administrator for the Trust pursuant to a Fund Administration and Accounting Agreement. Under such agreement, BONY is obligated on a continuous basis, to provide such administrative services as the Board reasonably deems necessary for the proper administration of the Trust and the Funds. BONY will generally assist in all aspects of the Trust's and the Funds' operations; supply and maintain office facilities (which may be in BONY's own offices), statistical and research data, data processing services, clerical,
accounting, bookkeeping and record keeping services (including, without limitation, the maintenance of such books and records as are required under the 1940 Act and the rules thereunder, except as maintained by other agency agents), internal auditing, executive and administrative services, and stationery and office supplies; prepare reports to shareholders or investors; prepare and file tax returns; supply financial information and supporting data for reports to and filings with the SEC and various state Blue Sky authorities; supply supporting documentation for meetings of the Board of Trustees; and provide monitoring reports and assistance regarding compliance with federal and state securities laws.
Pursuant to the Fund Administration and Accounting Agreement, the Trust on behalf of the Funds has agreed to indemnify the Administrator for certain liabilities, including certain liabilities arising under the federal securities laws, unless such loss or liability results from negligence or willful misconduct in the performance of its duties.
Pursuant to the Fund Administration and Accounting Agreement between BONY and the Trust, the Funds have agreed to pay such compensation as is mutually agreed from time to time and such out-of-pocket expenses as incurred by BONY in the performance of its duties. This fee is subject to reduction for assets over $1 billion. The following table sets forth the aggregate amount paid by each Fund to BONY under the Fund Administration and Accounting Agreement.
FUND FOR THE PERIOD ENDED FOR THE PERIOD ENDED FOR THE PERIOD ENDED DECEMBER 31, 2005 DECEMBER 31, 2006 DECEMBER 31, 2007 MicroCap Fund $4,053 $11,883 $27,788 Dividend Leaders Fund N/A $16,004 $49,973 IPOX Fund N/A $6,858 $20,200 Equal Weighted Fund N/A $7,163 $20,175 Technology Fund N/A $6,078 $13,624 Biotech Fund N/A $6,511 $27,676 Internet Fund N/A $6,449 $30,673 Strategic Value Fund N/A $3,413 $21,887 Value Line(R) Equity Allocation N/A $511 $13,243 Fund Value Line(R) Dividend Fund N/A $8,896 $135,704 Ex-Technology Fund N/A N/A $2,578 Clean Edge(R) Fund N/A N/A $11,812 S&P REIT Fund N/A N/A $2,536 ISE Gas Fund N/A N/A $2,547 ISE Water Fund N/A N/A $3,469 ISE Chindia Fund N/A N/A $15,524 Value Line(R) 100 Fund N/A N/A $52,206 |
The Trust, on behalf of the Funds, has entered into an agreement with PFPC Inc. ("PFPC"), 301 Bellevue Parkway, Wilmington, Delaware 19809, whereby PFPC will provide certain administrative services for the Trust and the Funds in connection with the Board's meetings and other related matters.
On December 15, 2006, the Value Line(R) Dividend Fund acquired the assets and adopted the financial and performance history of its predecessor fund. Accordingly, the Value Line(R) Dividend Fund adopted the financial statements of the predecessor fund. PFPC was the administrator for its predecessor fund. The following table sets forth the amount paid to PFPC by the predecessor fund for the specified periods for its services as the administrator of the predecessor fund.
PERIOD AGGREGATE AMOUNT PAID TO PFPC 6/1/2004-5/31/2005 $476,060 6/1/2005-5/31/2006 $482,836 6/1/2006-12/15/2006 $263,281 |
On June 15, 2007, the Value Line(R) 100 Fund acquired the assets and adopted the financial and performance history of its predecessor fund. Accordingly, the Value Line(R) 100 Fund adopted the financial statements of its predecessor fund. The following table sets forth the amount paid to PFPC by the predecessor fund for the specified periods for its services as the administrator of the predecessor fund.
PERIOD AGGREGATE AMOUNT PAID TO PFPC 1/1/2005-12/31/2005 $292,590 1/1/2006-12/31/2006 $278,397 1/1/2007-6/15/2007 $126,636 |
CUSTODIAN, DISTRIBUTOR, TRANSFER AGENT, FUND ACCOUNTING AGENT,
INDEX PROVIDER AND EXCHANGE
CUSTODIAN. BONY, as custodian for the Funds pursuant to a Custody Agreement, holds each Fund's assets. BONY also serves as transfer agent of the Funds pursuant to a Transfer Agency and Service Agreement. As the Funds' accounting agent, BONY calculates the NAV of Shares and calculates net income and realized capital gains or losses. BONY may be reimbursed by the Funds for its out-of-pocket expenses.
DISTRIBUTOR. First Trust Portfolios is the distributor (the "Distributor") and principal underwriter of the Shares of the Funds. Its principal address is 1001 Warrenville Road, Lisle, Illinois 60532. The Distributor has entered into a Distribution Agreement with the Trust pursuant to which it distributes Fund Shares. Shares are continuously offered for sale by the Funds through the Distributor only in Creation Unit Aggregations, as described in the Prospectus and below under the heading "Creation and Redemption of Creation Units."
The Adviser may, from time to time and from its own resources, pay, defray or absorb costs relating to distribution, including payments out of its own resources to the Distributor, or to otherwise promote the sale of shares. The Adviser's available resources to make these payments include profits from advisory fees received from the Funds. The services the Adviser may pay for include, but are not limited to, advertising and attaining access to certain conferences and seminars, as well as being presented with the opportunity to address investors and industry professionals through speeches and written marketing materials.
For the fiscal year ended December 31, 2007, there were no underwriting commissions with respect to the sale of Fund Shares and First Trust Portfolios L.P. did not receive compensation on redemptions for the Funds for that period.
On December 15, 2006, the Value Line(R) Dividend Fund acquired the assets and adopted the financial and performance history of its predecessor fund. Accordingly, the Value Line(R) Dividend Fund adopted the financial statements of its predecessor fund. Its Predecessor Fund did not pay First Trust Portfolios any underwriting commissions and compensation on redemptions.
On June 15, 2007, the Value Line(R) 100 Fund acquired the assets and adopted the financial and performance history of its predecessor fund. Accordingly, the Value Line(R) 100 Fund adopted the financial statements of its predecessor fund. Its Predecessor Fund did not pay First Trust Portfolios any underwriting commissions and compensation on redemptions.
12B-1 PLAN. The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act (the "Plan") pursuant to which the Funds may reimburse the Distributor up to a maximum annual rate of 0.25% its average daily net assets.
Under the Plan and as required by Rule 12b-1, the Trustees will receive and review after the end of each calendar quarter a written report provided by the Distributor of the amounts expended under the Plan and the purpose for which such expenditures were made.
The Plan was adopted in order to permit the implementation of the Funds' method of distribution. However, no such fee is currently paid by the Funds, and pursuant to a contractual agreement, the Funds will not pay 12b-1 fees any time before April 30, 2009.
AGGREGATIONS. Fund Shares in less than Creation Unit Aggregations are not distributed by the Distributor. The Distributor will deliver the Prospectus and, upon request, this SAI to persons purchasing Creation Unit Aggregations and will maintain records of both orders placed with it and confirmations of acceptance furnished by it. The Distributor is a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of the Financial Industry Regulatory Authority ("FINRA").
The Distribution Agreement provides that it may be terminated at any time, without the payment of any penalty, on at least 60 days' written notice by the Trust to the Distributor (i) by vote of a majority of the Independent Trustees or (ii) by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Funds. The Distribution Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act).
The Distributor may also enter into agreements with securities dealers ("Soliciting Dealers") who will solicit purchases of Creation Unit Aggregations of Fund Shares. Such Soliciting Dealers may also be Participating Parties (as defined in "Procedures for Creation of Creation Unit Aggregations" below) and
DTC Participants (as defined in "DTC Acts as Securities Depository for Fund Shares" below).
INDEX PROVIDER. The respective Indices that each respective Fund seeks to track are compiled by the Index Providers as set forth below.
FUND INDEX PROVIDER MicroCap Fund Dow Jones & Company, Inc. Dividend Leaders Fund Morningstar, Inc. IPOX Fund IPOX Schuster LLC Equal Weighted Fund The Nasdaq Stock Market, Inc. Technology Fund The Nasdaq Stock Market, Inc. Biotech Fund American Stock Exchange LLC Internet Index Fund Dow Jones & Company, Inc. Strategic Value Fund Deutsche Bank AG Value Line(R) Equity Allocation Fund Value Line(R) Publishing, Inc. Value Line(R) Dividend Fund Value Line(R) Publishing, Inc. Ex-Technology Fund The Nasdaq Stock Market, Inc. Clean Edge(R) Fund The Nasdaq Stock Market, Inc. S&P REIT Fund Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ISE Water Fund International Securities Exchange, LLC ISE Gas Fund International Securities Exchange, LLC ISE Chindia Fund International Securities Exchange, LLC Value Line(R) 100 Fund Value Line(R) Publishing, Inc. |
The Index Providers are not affiliated with the Funds or with First Trust. Each Fund is entitled to use the applicable Index pursuant to a sublicensing arrangement with First Trust, which in turn has a Product License Agreement with each Index Provider.
With respect to the Biotech Fund, the Value Line(R) Equity Allocation Fund, the Value Line(R) Dividend Fund and the Value Line(R) 100 Fund, First Trust has entered into the Index Calculation and License Agreement with AMEX pursuant to which AMEX will serve as the calculation agent for the Indices. As the calculation agent, AMEX will be responsible for the management of the day-to-day operations of these respective Indices on behalf of Value Line(R), including calculating the value of the Indices every 15 seconds, widely disseminating each such Index value every 15 seconds and tracking corporate actions resulting in adjustments to such Index.
For the Equal Weighted Fund, the Technology Fund, the Ex-Technology Fund and the Clean Edge(R) Fund, First Trust has entered into an agreement with NASDAQ(R) pursuant to which NASDAQ(R) or its designee will serve as the calculation agent for the applicable Indices. As the calculation agent, NASDAQ(R) or its designee will be responsible for calculating and disseminating the intra-day portfolio values for such Funds' Shares.
EXCHANGE. Besides being the Index Provider for the Biotech Fund and the calculation agent for the Indices related to the Value Line(R) Equity Allocation Fund, the Value Line(R) Dividend Fund and the Value Line(R) 100 Fund, the only relationship that AMEX has with First Trust or the Distributor in connection with the Biotech Fund, the Strategic Value Fund, the Internet Fund, the MicroCap Fund, the IPOX Fund, the Dividend Leaders Fund, the Value Line(R) Equity Allocation Fund, the Value Line(R) Dividend Fund, the S&P REIT Fund and the Value Line(R) 100 Fund (collectively, the "AMEX Listed Funds") is that AMEX lists the Shares of the AMEX Listed Funds pursuant to its Listing Agreement with the Trust. The AMEX is not responsible for and has not participated in the determination of pricing or the timing of the issuance or sale of the Shares of the AMEX Listed Funds or in the determination or calculation of the NAV of such Funds. The AMEX has no obligation or liability in connection with the administration, marketing or trading of the AMEX Listed Funds.
Besides being the Index Provider and the calculation agent for the Indices related to such Funds, for the Equal Weighted Fund, the Technology Fund, the Ex-Technology Fund and the Clean Edge(R) Fund (together, the "NASDAQ(R) Listed Funds"), the only relationship that NASDAQ(R) has with First Trust or the Distributor in connection with the NASDAQ(R) Listed Funds is that NASDAQ(R) lists the Shares of the NASDAQ(R) Listed Funds pursuant to its Listing Agreement with the Trust. NASDAQ(R) is not responsible for and has not participated in the determination of pricing or the timing of the issuance or sale of the Shares of the NASDAQ(R) Listed Funds or in the determination or calculation of the asset value of such Funds. NASDAQ(R) has no obligation or liability in connection with the administration, marketing or trading of the NASDAQ(R) Listed Funds.
The only relationship that NYSE Arca has with First Trust or the Distributor in connection with the ISE Water Fund, the ISE Gas Fund and the ISE Chindia Fund (the "NYSE Arca Listed Funds") is that NYSE Arca lists the Shares of the NYSE Arca Listed Funds pursuant to its Listing Agreement with the Trust. NYSE Arca is not responsible for and has not participated in the determination of pricing or the timing of the issuance or sale of the Shares of the Funds or in the determination or calculation of the net asset value of the Funds. NYSE Arca has no obligation or liability in connection with the administration, marketing or trading of the NYSE Arca Listed Funds.
ADDITIONAL INFORMATION
BOOK ENTRY ONLY SYSTEM. The following information supplements and should be read in conjunction with the section in the Prospectus entitled "Book Entry."
DTC ACTS AS SECURITIES DEPOSITORY FOR FUND SHARES. Shares of the Funds are represented by securities registered in the name of DTC or its nominee, Cede & Co., and deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold securities of its participants (the "DTC Participants") and to facilitate the clearance and settlement of securities transactions among the DTC Participants in such securities through electronic book-entry changes in accounts of the DTC Participants, thereby eliminating the need for physical movement of securities, certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own DTC. More specifically, DTC is owned by a number of its DTC Participants and by the New York Stock Exchange (the "NYSE"), the AMEX and FINRA. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (the "Indirect Participants").
Beneficial ownership of Shares is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners of such beneficial interests are referred to herein as "Beneficial Owners") is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase and sale of Shares.
Conveyance of all notices, statements and other communications to Beneficial Owners is effected as follows. Pursuant to a letter agreement between DTC and the Trust, DTC is required to make available to the Trust upon request and for a fee to be charged to the Trust a listing of the Shares of the Funds held by each DTC Participant. The Trust shall inquire of each such DTC Participant as to the number of Beneficial Owners holding Shares, directly or indirectly, through such DTC Participant. The Trust shall provide each such DTC Participant with copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trust shall pay to each such DTC Participants a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements.
Fund distributions shall be made to DTC or its nominee, as the registered holder of all Fund Shares. DTC or its nominee, upon receipt of any such distributions, shall immediately credit DTC Participants' accounts with payments in amounts proportionate to their respective beneficial interests in Shares of the Funds as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a "street name," and will be the responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspect of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such Shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests, or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants.
DTC may decide to discontinue providing its service with respect to Shares at any time by giving reasonable notice to the Trust and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Trust shall take action to find a replacement for DTC to perform its functions at a comparable cost.
PROXY VOTING POLICIES AND PROCEDURES
The Trust has adopted a proxy voting policy that seeks to ensure that proxies for securities held by the Funds are voted consistently and solely in the best economic interests of the Funds.
A senior member of First Trust is responsible for oversight of the Funds' proxy voting process. First Trust has engaged the services of Institutional Shareholder Services, Inc. ("ISS"), to make recommendations to First Trust on the voting of proxies relating to securities held by the Funds. ISS provides voting recommendations based upon established guidelines and practices. First Trust reviews ISS recommendations and frequently follows the ISS recommendations. However, on selected issues, First Trust may not vote in accordance with the ISS recommendations when First Trust believes that specific ISS recommendations are not in the best interests of the Funds. If First Trust manages the assets of a company or its pension plan and any of First Trust's clients hold any securities of that company, First Trust will vote proxies relating to such company's securities in accordance with the ISS recommendations to avoid any conflict of interest.
First Trust has adopted the ISS Proxy Voting Guidelines. While these guidelines are not intended to be all-inclusive, they do provide guidance on First Trust's general voting policies.
Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, will be available upon request and without charge on the Funds' website at http://www.ftportfolios.com, by calling (800) 621-1675 or by accessing the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE. The Trust is required to disclose, after its first and third fiscal quarters, the complete schedule of the Funds' portfolio holdings with the SEC on Form N-Q. Form N-Q for the Trust is available on the SEC's website at http://www.sec.gov. The Funds' Form N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Trust's Form N-Q is available without charge, upon request, by calling (800) 621-1675 or (800) 983-0903 or by writing to First Trust Portfolios L.P., 1001 Warrenville Road, Lisle, Illinois 60532.
POLICY REGARDING DISCLOSURE OF PORTFOLIO HOLDINGS. The Trust has adopted a policy regarding the disclosure of information about each Fund's portfolio holdings. The Board of Trustees of the Trust must approve all material amendments to this policy. Each Fund's portfolio holdings are publicly disseminated each day the Fund is open for business through financial reporting and news services, including publicly accessible Internet web sites. In addition, a basket composition file, which includes the security names and share quantities to deliver in exchange for Fund Shares, together with estimates and actual cash components, is publicly disseminated daily each day the NYSE is open for trading via the National Securities Clearing Corporation ("NSCC"). The basket represents one Creation Unit of a Fund. Each Fund's portfolio holdings are also available on the Funds' website at http://www.ftportfolios.com. The Trust, First Trust and BONY will not disseminate non-public information concerning the Trust.
CODES OF ETHICS. In order to mitigate the possibility that the Funds will be adversely affected by personal trading, the Trust, First Trust and the Distributor have adopted Codes of Ethics under Rule 17j-1 of the 1940 Act. These Codes of Ethics contain policies restricting securities trading in personal accounts of the officers, Trustees and others who normally come into possession of information on portfolio transactions. These Codes of Ethics are on public file with, and are available from, the SEC.
CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS
CREATION. The Trust issues and sells Shares of the Funds only in Creation Unit Aggregations on a continuous basis through the Distributor, without a sales load, at their NAVs next determined after receipt, on any Business Day (as defined below), of an order in proper form.
A "Business Day" is any day on which the NYSE is open for business. As of the date of this SAI, the NYSE observes the following holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
DEPOSIT OF SECURITIES AND DEPOSIT OR DELIVERY OF CASH. The consideration for purchase of Creation Unit Aggregations of the Funds may consist of (i) cash in lieu of all or a portion of the Deposit Securities, as defined below, and/or (ii) a designated portfolio of equity securities determined by First Trust--the ODeposit SecuritiesO--per each Creation Unit Aggregation constituting a substantial replication of the stocks included in the underlying index (OFund SecuritiesO) and generally an amount of cash--the OCash ComponentO--computed as described below. Together, the Deposit Securities and the Cash Component (including the cash in lieu amount) constitute the OFund Deposit,O which represents the minimum initial and subsequent investment amount for a Creation Unit Aggregation a Fund.
The Cash Component is sometimes also referred to as the Balancing Amount. The Cash Component serves the function of compensating for any differences between the NAV per Creation Unit Aggregation and the Deposit Amount (as defined below). The Cash Component is an amount equal to the difference between the NAV of Fund Shares (per Creation Unit Aggregation) and the "Deposit Amount"--an amount equal to the market value of the Deposit Securities. If the Cash Component is a positive number (i.e., the NAV per Creation Unit Aggregation exceeds the Deposit Amount), the creator will deliver the Cash Component. If the Cash Component is a negative number (i.e., the NAV per Creation Unit Aggregation is less than the Deposit Amount), the creator will receive the Cash Component.
The Custodian, through the National Securities Clearing Corporation ("NSCC") (discussed below), makes available on each Business Day, prior to the opening of business on NYSE (currently 9:30 a.m., Eastern time), the list of the names and the required number of shares of each Deposit Security to be included in the current Fund Deposit (based on information at the end of the previous Business Day) for a Fund.
Such Fund Deposit is applicable, subject to any adjustments as described below, in order to effect creations of Creation Unit Aggregations of a Fund until such time as the next-announced composition of the Deposit Securities is made available.
The identity and number of shares of the Deposit Securities required for a Fund Deposit for a Fund changes as rebalancing adjustments and corporate action events are reflected within a Fund from time to time by First Trust with a view to the investment objective of the Fund. The composition of the Deposit Securities may also change in response to adjustments to the weighting or composition of the component stocks of the underlying index. In addition, the Trust reserves the right to permit or require the substitution of an amount of cash--i.e., a "cash in lieu" amount--to be added to the Cash Component to replace any Deposit Security that may not be available in sufficient quantity for delivery or that may not be eligible for transfer through the systems of DTC or the Clearing Process (discussed below), or which might not be eligible for trading by an Authorized Participant (as defined below) or the investor for which it is acting or other relevant reason. Brokerage commissions incurred in connection with the acquisition of Deposit Securities not eligible for transfer through the systems of DTC and hence not eligible for transfer through the Clearing Process (discussed below) will at the expense of the Fund and will affect the value of all Shares; but First Trust, subject to the approval of the Board of Trustees, may adjust the transaction fee within the parameters described above to protect ongoing shareholders. The adjustments described above will reflect changes known to First Trust on the date of announcement to be in effect by the time of delivery of the Fund Deposit, in the composition of the underlying index or resulting from certain corporate actions.
In addition to the list of names and numbers of securities constituting the current Deposit Securities of a Fund Deposit, the Custodian, through the NSCC, also makes available on each Business Day, the estimated Cash Component, effective through and including the previous Business Day, per outstanding Creation Unit Aggregation of a Fund.
PROCEDURES FOR CREATION OF CREATION UNIT AGGREGATIONS. In order to be eligible to place orders with the Distributor and to create a Creation Unit Aggregation of a Fund, an entity must be (i) a "Participating Party," i.e., a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the NSCC (the "Clearing Process"), a clearing agency that is registered with the SEC; or (ii) a DTC Participant (see the Book Entry Only System section), and, in each case, must have executed an agreement with the Distributor and transfer agent, with respect to creations and redemptions of Creation Unit Aggregations ("Participant Agreement") (discussed below). A Participating Party and DTC Participant are collectively referred to as an "Authorized Participant." Investors should contact the Distributor for the
names of Authorized Participants that have signed a Participant Agreement. All Fund Shares, however created, will be entered on the records of DTC in the name of Cede & Co. for the account of a DTC Participant.
All orders to create Creation Unit Aggregations, whether through the Clearing Process (through a Participating Party) or outside the Clearing Process (through a DTC Participant), must be received by the Distributor no later than the closing time of the regular trading session on the NYSE ("Closing Time") (ordinarily 4:00 p.m., Eastern time) in each case on the date such order is placed in order for creation of Creation Unit Aggregations to be effected based on the NAV of Shares of the Funds as next determined on such date after receipt of the order in proper form. In the case of custom orders, the order must be received by the Distributor no later than 3:00 p.m. Eastern time on the trade date. A custom order may be placed by an Authorized Participant in the event that the Trust permits or requires the substitution of an amount of cash to be added to the Cash Component to replace any Deposit Security which may not be available in sufficient quantity for delivery or which may not be eligible for trading by such Authorized Participant or the investor for which it is acting or other relevant reason. The date on which an order to create Creation Unit Aggregations (or an order to redeem Creation Unit Aggregations, as discussed below) is placed is referred to as the "Transmittal Date." Orders must be transmitted by an Authorized Participant by telephone or other transmission method acceptable to the Distributor pursuant to procedures set forth in the Participant Agreement, as described below (see the Placement of Creation Orders Using Clearing Process and the Placement of Creation Orders Outside Clearing Process sections). Severe economic or market disruptions or changes, or telephone or other communication failure may impede the ability to reach the Distributor or an Authorized Participant.
All orders from investors who are not Authorized Participants to create Creation Unit Aggregations shall be placed with an Authorized Participant in the form required by such Authorized Participant. In addition, the Authorized Participant may request the investor to make certain representations or enter into agreements with respect to the order, e.g., to provide for payments of cash, when required. Investors should be aware that their particular broker may not have executed a Participant Agreement and that, therefore, orders to create Creation Unit Aggregations of a Fund have to be placed by the investor's broker through an Authorized Participant that has executed a Participant Agreement. In such cases there may be additional charges to such investor. At any given time, there may be only a limited number of broker-dealers that have executed a Participant Agreement. Those placing orders for Creation Unit Aggregations through the Clearing Process should afford sufficient time in order to permit proper submission of the order to the Distributor prior to the Closing Time on the Transmittal Date. Orders for Creation Unit Aggregations that are effected outside the Clearing Process are likely to require transmittal by the DTC Participant earlier on the Transmittal Date than orders effected using the Clearing Process. Those persons placing orders outside the Clearing Process should ascertain the deadlines applicable to DTC and the Federal Reserve Bank wire system by contacting the operations department of the broker or depository institution effectuating such transfer of Deposit Securities and Cash Component.
PLACEMENT OF CREATION ORDERS USING CLEARING PROCESS. The Clearing Process is the process of creating or redeeming Creation Unit Aggregations through the Continuous Net Settlement System of the NSCC. Fund Deposits made through the Clearing Process must be delivered through a Participating Party that has executed a Participant Agreement. The Participant Agreement authorizes the Distributor to transmit through the Custodian to NSCC, on behalf of the Participating Party, such trade instructions as are necessary to effect the Participating Party's creation order. Pursuant to such trade instructions to NSCC, the Participating Party agrees to deliver the requisite Deposit Securities and the Cash Component to the Trust, together with such additional information as may be required by the Distributor. An order to create Creation Unit Aggregations through the Clearing Process is deemed received by the Distributor on the Transmittal Date if (i) such order is received by the Distributor not later than the Closing Time on such Transmittal Date and (ii) all other procedures set forth in the Participant Agreement are properly followed.
PLACEMENT OF CREATION ORDERS OUTSIDE CLEARING PROCESS. Fund Deposits made outside the Clearing Process must be delivered through a DTC Participant that has executed a Participant Agreement pre-approved by First Trust and the Distributor. A DTC Participant who wishes to place an order creating Creation Unit Aggregations to be effected outside the Clearing Process does not need to be a Participating Party, but such orders must state that the DTC Participant is not using the Clearing Process and that the creation of Creation Unit Aggregations will instead be effected through a transfer of securities and cash directly through DTC. The Fund Deposit transfer must be ordered by the DTC Participant on the Transmittal Date in a timely fashion so as to ensure the delivery of the requisite number of Deposit Securities through DTC to the account of a Fund by no later than 11:00 a.m., Eastern time, of the next Business Day immediately following the Transmittal Date.
All questions as to the number of Deposit Securities to be delivered, and the validity, form and eligibility (including time of receipt) for the deposit of any tendered securities, will be determined by the Trust, whose determination shall be final and binding. The amount of cash equal to the Cash Component must be transferred directly to the Custodian through the Federal Reserve Bank wire transfer system in a timely manner so as to be received by the Custodian no later than 2:00 p.m., Eastern time, on the next Business Day immediately following such Transmittal Date. An order to create Creation Unit Aggregations outside the Clearing Process is deemed received by the Distributor on the Transmittal Date if (i) such order is received by the Distributor not later than the Closing Time on such Transmittal Date; and (ii) all other procedures set forth in the Participant Agreement are properly followed. However, if the Custodian does not receive both the required Deposit Securities and the Cash Component by 11:00 a.m. and 2:00 p.m., respectively on the next Business Day immediately following the Transmittal Date, such order will be canceled. Upon written notice to the Distributor, such canceled order may be resubmitted the following Business Day using a Fund Deposit as newly constituted in order to reflect the then current Deposit Securities and Cash Component. The delivery of Creation Unit Aggregations so created will occur no later than the third (3rd) Business Day following the day on which the purchase order is deemed received by the Distributor.
Additional transaction fees may be imposed with respect to transactions effected outside the Clearing Process (through a DTC participant) and in the limited circumstances in which any cash can be used in lieu of Deposit Securities to create Creation Units. (See "Creation Transaction Fee" section below).
Creation Unit Aggregations may be created in advance of receipt by the Trust of all or a portion of the applicable Deposit Securities as described below. In these circumstances, the initial deposit will have a value greater than the NAV of the Fund Shares on the date the order is placed in proper form since, in addition to available Deposit Securities, cash must be deposited in an amount equal to the sum of (i) the Cash Component, plus (ii) 115% of the market value of the undelivered Deposit Securities (the "Additional Cash Deposit"). The order shall be deemed to be received on the Business Day on which the order is placed provided that the order is placed in proper form prior to 4:00 p.m., Eastern time, on such date, and federal funds in the appropriate amount are deposited with the Custodian by 11:00 a.m., Eastern time, the following Business Day. If the order is not placed in proper form by 4:00 p.m. or federal funds in the appropriate amount are not received by 11:00 a.m. the next Business Day, then the order may be deemed to be canceled and the Authorized Participant shall be liable to the Funds for losses, if any, resulting therefrom. An additional amount of cash shall be required to be deposited with the Trust, pending delivery of the missing Deposit Securities to the extent necessary to maintain the Additional Cash Deposit with the Trust in an amount at least equal to 115% of the daily marked-to-market value of the missing Deposit Securities. To the extent that missing Deposit Securities are not received by 1:00 p.m., Eastern time, on the third Business Day following the day on which the purchase order is deemed received by the Distributor or in the event a marked-to-market payment is not made within one Business Day following notification by the Distributor that such a payment is required, the Trust may use the cash on deposit to purchase the missing Deposit Securities. Authorized Participants will be liable to the Trust and the Funds for the costs incurred by the Trust in connection with any such purchases. These costs will be deemed to include the amount by which the actual purchase price of the Deposit Securities exceeds the market value of such Deposit Securities on the day the purchase order was deemed received by the Distributor plus the brokerage and related transaction costs associated with such purchases. The Trust will return any unused portion of the Additional Cash Deposit once all of the missing Deposit Securities have been properly received by the Custodian or purchased by the Trust and deposited into the Trust. In addition, a transaction fee, as listed below, will be charged in all cases. The delivery of Creation Unit Aggregations so created will occur no later than the third Business Day following the day on which the purchase order is deemed received by the Distributor.
ACCEPTANCE OF ORDERS FOR CREATION UNIT AGGREGATIONS. The Trust reserves the absolute right to reject a creation order transmitted to it by the Distributor with respect to a Fund if: (i) the order is not in proper form; (ii) the investor(s), upon obtaining the Fund Shares ordered, would own 80% or more of the currently outstanding shares of the Fund; (iii) the Deposit Securities delivered are not as disseminated for that date by the Custodian, as described above; (iv) acceptance of the Deposit Securities would have certain adverse tax consequences to the Fund; (v) acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit would otherwise, in the discretion of the Trust or First Trust, have an adverse effect on the Trust or the rights of beneficial owners; or (vii) in the event that
circumstances outside the control of the Trust, the Custodian, the Distributor and First Trust make it for all practical purposes impossible to process creation orders. Examples of such circumstances include acts of God; public service or utility problems such as fires, floods, extreme weather conditions and power outages resulting in telephone, telecopy and computer failures; market conditions or activities causing trading halts; systems failures involving computer or other information systems affecting the Trust, First Trust, the Distributor, DTC, NSCC, the Custodian or sub-custodian or any other participant in the creation process, and similar extraordinary events. The Distributor shall notify a prospective creator of a Creation Unit and/or the Authorized Participant acting on behalf of such prospective creator of its rejection of the order of such person. The Trust, the Custodian, any sub-custodian and the Distributor are under no duty, however, to give notification of any defects or irregularities in the delivery of Fund Deposits nor shall any of them incur any liability for the failure to give any such notification.
All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility, and acceptance for deposit of any securities to be delivered shall be determined by the Trust, and the Trust's determination shall be final and binding.
CREATION TRANSACTION FEE. Purchasers of Creation Units will be required to pay a standard creation transaction fee (the "Creation Transaction Fee"), described below, payable to BONY regardless of the number of Creation Units. 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. Investors are responsible for the costs of transferring the securities constituting the Deposit Securities to the account of the Trust.
The standard creation transaction fee is based on the number of different securities in a Creation Unit 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 |
REDEMPTION OF FUND SHARES IN CREATION UNITS AGGREGATIONS. Fund Shares may be redeemed only in Creation Unit Aggregations at their NAV next determined after receipt of a redemption request in proper form by the Fund through the Transfer Agent and only on a Business Day. A Fund will not redeem Shares in amounts less than Creation Unit Aggregations. Beneficial owners must accumulate enough Shares in the secondary market to constitute a Creation Unit Aggregation in order to have such Shares redeemed by the Trust. There can be no assurance,
however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a Creation Unit Aggregation. Investors should expect to incur brokerage and other costs in connection with assembling a sufficient number of Fund Shares to constitute a redeemable Creation Unit Aggregation.
With respect to the Funds, the Custodian, through the NSCC, makes available prior to the opening of business on the NYSE (currently 9:30 a.m., Eastern time) on each Business Day, the identity of the Fund Securities that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form (as described below) on that day. Fund Securities received on redemption may not be identical to Deposit Securities that are applicable to creations of Creation Unit Aggregations.
Unless cash redemptions are available or specified for a Fund, the redemption proceeds for a Creation Unit Aggregation generally consist of Fund Securities--as announced on the Business Day of the request for redemption received in proper form--plus or minus cash in an amount equal to the difference between the NAV of the Fund Shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Securities (the "Cash Redemption Amount"), less a redemption transaction fee as listed below. In the event that the Fund Securities have a value greater than the NAV of the Fund Shares, a compensating cash payment equal to the difference is required to be made by or through an Authorized Participant by the redeeming shareholder.
The right of redemption may be suspended or the date of payment postponed (i) for any period during which the NYSE is closed (other than customary weekend and holiday closings); (ii) for any period during which trading on the NYSE is suspended or restricted; (iii) for any period during which an emergency exists as a result of which disposal of the Shares of a Fund or determination of the Fund's NAV is not reasonably practicable; or (iv) in such other circumstances as is permitted by the SEC.
REDEMPTION TRANSACTION FEE. A redemption transaction fee (the "Redemption Transaction Fee") is imposed to offset transfer and other transaction costs that may be incurred by a Fund. 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. A Fund reserves the right to effect redemptions in cash. A shareholder may request a cash redemption in lieu of securities; however, a Fund may, in its discretion, reject any such request. Investors will also bear the costs of transferring the Fund Securities from the Trust to their account or on their order. Investors who use the services of a broker or other such intermediary in addition to an Authorized Participant to effect a redemption of a Creation Unit Aggregation may be charged an additional fee for such services.
The standard redemption transaction fee is based on the number of different securities in a Creation Unit 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 |
PLACEMENT OF REDEMPTION ORDERS USING CLEARING PROCESS. Orders to redeem Creation Unit Aggregations through the Clearing Process must be delivered through a Participating Party that has executed the Participant Agreement. An order to redeem Creation Unit Aggregations using the Clearing Process is deemed received by the Trust on the Transmittal Date if (i) such order is received by the Transfer Agent not later than 4:00 p.m., Eastern time, on such Transmittal Date, and (ii) all other procedures set forth in the Participant Agreement are properly followed; such order will be effected based on the NAV of the Fund as next determined. An order to redeem Creation Unit Aggregations using the Clearing Process made in proper form but received by the Trust after 4:00 p.m., Eastern time, will be deemed received on the next Business Day immediately following the Transmittal Date and will be effected at the NAV next determined on such next Business Day. The requisite Fund Securities and the Cash Redemption Amount will be transferred by the third NSCC Business Day following the date on which such request for redemption is deemed received.
PLACEMENT OF REDEMPTION ORDERS OUTSIDE CLEARING PROCESS. Orders to redeem Creation Unit Aggregations outside the Clearing Process must be delivered through a DTC Participant that has executed the Participant Agreement. A DTC Participant who wishes to place an order for redemption of Creation Unit Aggregations to be effected outside the Clearing Process does not need to be a Participating Party, but such orders must state that the DTC Participant is not using the Clearing Process and that redemption of Creation Unit Aggregations will instead be effected through transfer of Fund Shares directly through DTC. An order to redeem Creation Unit Aggregations outside the Clearing Process is deemed received by the Trust on the Transmittal Date if (i) such order is received by the Transfer Agent not later than 4:00 p.m., Eastern time on such Transmittal Date; (ii) such order is accompanied or followed by the requisite number of Shares of the Fund, which delivery must be made through DTC to the Custodian no later than 11:00 a.m., Eastern time, (for the Fund Shares) on the next Business Day immediately following such Transmittal Date (the "DTC Cut-Off-Time") and 2:00 p.m., Eastern Time for any Cash Component, if any owed to a Fund; and (iii) all other procedures set forth in the Participant Agreement are properly followed. After the Trust has deemed an order for redemption outside the Clearing Process received, the Trust will initiate procedures to transfer the requisite Fund Securities which are expected to be delivered within three Business Days and the Cash Redemption Amount, if any owed to the redeeming Beneficial Owner to the Authorized Participant on behalf of the redeeming Beneficial Owner by the third Business Day following the Transmittal Date on which such redemption order is deemed received by the Trust.
The calculation of the value of the Fund Securities and the Cash Redemption Amount to be delivered/received upon redemption will be made by the Custodian according to the procedures set forth in this SAI under "Determination of NAV" computed on the Business Day on which a redemption order is deemed received by the Trust. Therefore, if a redemption order in proper form is submitted to the Transfer Agent by a DTC Participant not later than Closing Time on the Transmittal Date, and the requisite number of Shares of the Fund are delivered to the Custodian prior to the DTC Cut-Off-Time, then the value of the Fund Securities and the Cash Redemption Amount to be delivered/received will be determined by the Custodian on such Transmittal Date. If, however, either (i) the requisite number of Shares of the Fund are not delivered by the DTC Cut-Off-Time, as described above, or (ii) the redemption order is not submitted in proper form, then the redemption order will not be deemed received as of the Transmittal Date. In such case, the value of the Fund Securities and the Cash Redemption Amount to be delivered/received will be computed on the Business Day following the Transmittal Date provided that the Fund Shares of the Fund are delivered through DTC to the Custodian by 11:00 a.m. the following Business Day pursuant to a properly submitted redemption order.
If it is not possible to effect deliveries of the Fund Securities, the Trust may in its discretion exercise its option to redeem such Fund Shares in cash, and the redeeming Beneficial Owner will be required to receive its redemption proceeds in cash. In addition, an investor may request a redemption in cash that a Fund may, in its sole discretion, permit. In either case, the investor will receive a cash payment equal to the NAV of its Fund Shares based on the NAV of Shares of the Fund next determined after the redemption request is received in proper form (minus a redemption transaction fee and additional charge for requested cash redemptions specified above, to offset the Fund's brokerage and other transaction costs associated with the disposition of Fund Securities). The Funds may also, in their sole discretion, upon request of a shareholder, provide such redeemer a portfolio of securities that differs from the exact composition of the Fund Securities, or cash lieu of some securities added to the Cash Component, but in no event will the total value of the securities delivered and the cash transmitted differ from the NAV. Redemptions of Fund Shares for Fund Securities will be subject to compliance with applicable federal and state securities laws and each Fund (whether or not it otherwise permits cash redemptions) reserves the right to redeem Creation Unit Aggregations for cash to the extent that the Trust could not lawfully deliver specific Fund Securities upon redemptions or could not do so without first registering the Fund Securities under such laws. An Authorized Participant or an investor for which it is acting subject to a legal restriction with respect to a particular stock included in the Fund Securities applicable to the redemption of a Creation Unit Aggregation may be paid an equivalent amount of cash. The Authorized Participant may request the redeeming Beneficial Owner of the Fund Shares to complete an order form or to enter into agreements with respect to such matters as compensating cash payment, beneficial ownership of shares or delivery instructions.
The chart below describes in further detail the placement of redemption orders outside the clearing process.
TRANSMITTAL NEXT BUSINESS SECOND BUSINESS THIRD BUSINESS DATE (T) DAY (T+1) DAY (T+2) DAY (T+3) CREATION THROUGH NSCC STANDARD ORDERS 4:00 p.m. No action. No action. Creation Unit Aggregations will be Order must be delivered. received by the Distributor. CUSTOM ORDERS 3:00 p.m. No action. No action. Creation Unit Aggregations will be Order must be delivered. received by the Distributor. Orders received after 3:00 p.m. will be treated as standard orders. CREATION OUTSIDE NSCC STANDARD ORDERS 4:00 p.m. (ET) 11:00 a.m. (ET) No action. Creation Unit Aggregations will be Order in proper Deposit Securities must delivered. form must be be received by a Fund's received by the account through DTC. Distributor. 2:00 p.m. (ET) Cash Component mustbe received by the Custodian. STANDARD ORDERS CREATED 4:00 p.m. (ET) 11:00 a.m. (ET) No action. 1:00 p.m. IN ADVANCE OF RECEIPT BY THE TRUST OF ALL OR Order in proper Available Deposit Missing Deposit A PORTION OF THE form must be Securities. Securities are due to DEPOSIT SECURITIES received by the the Trust or the Trust Distributor. Cash in an amount equal may use cash on deposit to the sum of (i) the to purchase missing Cash Component, plus Deposit Securities. (ii) 115% of the market value of the Creation Unit undelivered Deposit Aggregations will be Securities. delivered. CUSTOM ORDERS 3:00 p.m. 11:00 a.m. (ET) No action. Creation Unit Aggregations will be Order in proper Deposit Securities must delivered. form must be be received by a Fund's received by the account through DTC. Distributor. Order received 2:00 p.m. (ET) after 3:00 p.m. will be treated as Cash Component must be standard orders. received by the Orders Custodian. -60- |
TRANSMITTAL NEXT BUSINESS SECOND BUSINESS THIRD BUSINESS DATE (T) DAY (T+1) DAY (T+2) DAY (T+3) REDEMPTION THROUGH NSCC STANDARD ORDERS 4:00 p.m. (ET) No action. No action. Fund Securities and Cash Redemption Amount will Order must be be transferred. received by the Transfer Agent. Orders received after 4:00 p.m. (ET) will be deemed received on the next business day (T+1) CUSTOM ORDERS 3:00 p.m. (ET) No action. No action. Fund Securities and Cash Redemption Amount will Order must be be transferred. received by the Transfer Agent Order received after 3:00 p.m. will be treated as standard orders. REDEMPTION OUTSIDE NSCC STANDARD ORDERS 4:00 p.m. (ET) 11:00 a.m. (ET) No action. Fund Securities and Cash Redemption Amount is Order must be Fund Shares must be delivered to the received by the delivered through DTC redeeming beneficial Transfer Agent. to the Custodian. owner. Order received 2:00 p.m. after 4:00 p.m. (ET) will be deemed Cash Component, if any, received on the is due. next business day (T+1). *If the order is not in proper form or the Fund Shares are not delivered, then the order will not be deemed received as of T. CUSTOM ORDERS 3:00 p.m. (ET) 11:00 a.m. (ET) No action. Fund Securities and Cash Redemption Amount is Order must be Fund Shares must be delivered to the received by the delivered through DTC redeeming beneficial Transfer Agent. to the Custodian. owner. Order received 2:00 p.m. after 3:00 p.m. will be treated as Cash Component, if any, standard orders. is due. *If the order is not in proper form or the Fund Shares are not delivered, then the order will not be deemed received as of T. |
FEDERAL TAX MATTERS
This section summarizes some of the main U.S. federal income tax consequences of owning Shares of a Fund. This section is current as of the date of the Prospectus. Tax laws and interpretations change frequently, and these summaries do not describe all of the tax consequences to all taxpayers. For example, these summaries generally do not describe your situation if you are a corporation, a non-U.S. person, a broker-dealer, or other investor with special circumstances. In addition, this section does not describe your state or foreign tax consequences.
This federal income tax summary is based in part on the advice of counsel to the Funds. The Internal Revenue Service could disagree with any conclusions set forth in this section. In addition, our counsel was not asked to review, and has not reached a conclusion with respect to the federal income tax treatment of the assets to be deposited in the Funds. This may not be sufficient for prospective investors to use for the purpose of avoiding penalties under federal tax law.
As with any investment, prospective investors should seek advice based on their individual circumstances from their own tax advisor.
Each Fund intends to qualify annually and to elect to be treated as a regulated investment company under the Internal Revenue Code.
To qualify for the favorable U.S. federal income tax treatment generally accorded to regulated investment companies, each Fund must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of stock, securities or foreign currencies or other income derived with respect to its business of investing in such stock, securities or currencies, or net income derived from interests in certain publicly traded partnerships; (b) diversify its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the market value of each Fund's assets is represented by cash and cash items (including receivables), U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities of any one issuer generally limited for the purposes of this calculation to an amount not greater than 5% of the value of each Fund's total assets and not greater than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities (other than U.S. Government securities or the securities of other regulated investment companies) of any one issuer, or two or more issuers which a Fund controls which are engaged in the same, similar or related trades or businesses, or the securities of one or more of certain publicly traded partnerships; and (c) distribute at least 90% of its investment company taxable income (which includes, among other items, dividends, interest and net short-term capital gains in excess of net long-term capital losses) and at least 90% of its net tax-exempt interest income each taxable year.
As regulated investment companies, the Funds generally will not be subject to U.S. federal income tax on their investment company taxable income (as that term is defined in the Code, but without regard to the deduction for dividends paid) and net capital gain (the excess of net long-term capital gain over net short-term capital loss), if any, that they distribute to shareholders. The Funds intend to distribute to its shareholders, at least annually, substantially all of its investment company taxable income and net capital gain. If a Fund retains any net capital gain or investment company taxable income, it will generally be subject to federal income tax at regular corporate rates on the amount retained. In addition, amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax unless, generally, each Fund distributes during each calendar year an amount equal to the sum of (1) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (2) at least 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for the one-year period ending October 31 of the calendar year, and (3) any ordinary income and capital gains for previous years that were not distributed during those years. In order to prevent application of the excise tax, the Funds intend to make its distributions in accordance with the calendar year distribution requirement. A distribution will be treated as paid on December 31 of the current calendar year if it is declared by a Fund in October, November or December with a record date in such a month and paid by the Fund during January of the following calendar year. Such distributions will be taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received.
If a Fund failed to qualify as a regulated investment company or failed to satisfy the 90% distribution requirement in any taxable year, the Fund would be taxed as an ordinary corporation on its taxable income (even if such income were distributed to its shareholders) and all distributions out of earnings and profits would be taxed to shareholders as ordinary income.
DISTRIBUTIONS
Dividends paid out of the Funds' investment company taxable income are generally taxable to a shareholder as ordinary income to the extent of the Fund's earnings and profits, whether paid in cash or reinvested in additional shares. However, certain ordinary income distributions received from a Fund may be taxed at capital gains tax rates. In particular, ordinary income dividends received by an individual shareholder from regulated investment companies such as the Funds are generally taxed at the same rates that apply to net capital gain, provided that certain holding period requirements are satisfied and provided the dividends are attributable to qualifying dividends received by each Fund itself. Dividends received by the Funds from REITs and foreign corporations are qualifying dividends eligible for this lower tax rate only in certain circumstances.
These special rules relating to the taxation of ordinary income dividends from regulated investment companies generally apply to taxable years beginning before January 1, 2011. The Funds will provide notice to its shareholders of the amount of any distributions which may be taken into account as a dividend which is eligible for the capital gains tax rates. The Funds can not make any guarantees as to the amount of any distribution which will be regarded as a qualifying dividend.
A corporation that owns Shares generally will not be entitled to the dividends received deduction with respect to many dividends received from the
Funds because the dividends received deduction is generally not available for distributions from regulated investment companies. However, certain ordinary income dividends on Shares that are attributable to qualifying dividends received by the Funds from certain domestic corporations may be designated by the Funds as being eligible for the dividends received deduction.
Distributions of net capital gain (the excess of net long-term capital gain over net short-term capital loss), if any, properly designated as capital gain dividends are taxable to a shareholder as long-term capital gains, regardless of how long the shareholder has held Fund Shares. Shareholders receiving distributions in the form of additional Shares, rather than cash, generally will have a cost basis in each such Share equal to the value of a Share of the Fund on the reinvestment date. A distribution of an amount in excess of a Fund's current and accumulated earnings and profits will be treated by a shareholder as a return of capital which is applied against and reduces the shareholder's basis in his or her Shares. To the extent that the amount of any such distribution exceeds the shareholder's basis in his or her Shares, the excess will be treated by the shareholder as gain from a sale or exchange of the Shares.
Shareholders will be notified annually as to the U.S. federal income tax status of distributions, and shareholders receiving distributions in the form of additional Shares will receive a report as to the value of those Shares.
SALE OR EXCHANGE OF FUND SHARES
Upon the sale or other disposition of Shares of the Funds, which a shareholder holds as a capital asset, such a shareholder may realize a capital gain or loss which will be long-term or short-term, depending upon the shareholder's holding period for the Shares. Generally, a shareholder's gain or loss will be a long-term gain or loss if the Shares have been held for more than one year.
Any loss realized on a sale or exchange will be disallowed to the extent that Shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after disposition of Shares or to the extent that the shareholder, during such period, acquires or enters into an option or contract to acquire, substantially identical stock or securities. In such a case, the basis of the Shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a disposition of Fund Shares held by the shareholder for six months or less will be treated as a long-term capital loss to the extent of any distributions of long-term capital gain received by the shareholder with respect to such Shares.
TAXES ON PURCHASE AND REDEMPTION OF CREATION UNITS
If a shareholder exchanges equity securities for Creation Units the shareholder will generally recognize a gain or a loss. The gain or loss will be equal to the difference between the market value of the Creation Units at the time and the shareholder's aggregate basis in the securities surrendered and the Cash Component paid. If a shareholder exchanges Creation Units for equity securities, then the shareholder will generally recognize a gain or loss equal to the difference between the shareholder's basis in the Creation Units and the aggregate market value of the securities received and the Cash Redemption Amount. The Internal Revenue Service, however, may assert that a loss realized upon an exchange of securities for Creation Units or Creation Units for securities cannot be deducted currently under the rules governing "wash sales," or on the basis that there has been no significant change in economic position.
NATURE OF FUND INVESTMENTS
Certain of the Funds' investment practices are subject to special and complex federal income tax provisions that may, among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (ii) convert lower taxed long-term capital gain into higher taxed short-term capital gain or ordinary income, (iii) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (iv) cause the Funds to recognize income or gain without a corresponding receipt of cash, (v) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur and (vi) adversely alter the characterization of certain complex financial transactions.
FUTURES CONTRACTS AND OPTIONS
The Funds' transactions in Futures Contracts and options will be subject to special provisions of the Code that, among other things, may affect the character of gains and losses realized by the Funds (i.e., may affect whether gains or losses are ordinary or capital, or short-term or long-term), may accelerate recognition of income to the Funds and may defer Fund losses. These rules could, therefore, affect the character, amount and timing of distributions to shareholders. These provisions also (a) will require the Funds to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they were closed out), and (b) may cause the Funds to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the 90% distribution requirement for qualifying to be taxed as a regulated investment company and the 98% distribution requirement for avoiding excise taxes.
INVESTMENTS IN CERTAIN FOREIGN CORPORATIONS
If a Fund holds an equity interest in any "passive foreign investment companies" ("PFICs"), which are generally certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, certain rents and royalties or capital gains) or that hold at least 50% of their assets in investments producing such passive income, the Fund could be subject to U.S. federal income tax and additional interest charges on gains and certain distributions with respect to those equity interests, even if all the income or gain is timely distributed to its Unitholders. A Fund will not be able to pass through to its Unitholders any credit or deduction for such taxes. A Fund may be able to make an election that could ameliorate these adverse tax consequences. In this case, the Fund would recognize as ordinary income any increase in the value of such PFIC shares, and as ordinary loss any decrease in such value to the extent it did not exceed prior increases included in income. Under this election, a Fund might be required to recognize in a year income in excess of its distributions from PFICs and its proceeds from dispositions of PFIC stock during that year, and such income would nevertheless be subject to the distributions requirement and would be taken into account for
purposes of the 4% excise tax (described above). Dividends paid by PFICs will not be treated as qualified dividend income.
BACKUP WITHHOLDING
The Funds may be required to withhold U.S. federal income tax from all taxable distributions and sale proceeds payable to shareholders who fail to provide the Funds with their correct taxpayer identification number or to make required certifications, or who have been notified by the Internal Revenue Service that they are subject to backup withholding. The withholding percentage is 28% until 2011, when the percentage will revert to 31% unless amended by Congress. Corporate shareholders and certain other shareholders specified in the Code generally are exempt from such backup withholding. This withholding is not an additional tax. Any amounts withheld may be credited against the shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
U.S. taxation of a shareholder who, as to the United States, is a nonresident alien individual, a foreign trust or estate, a foreign corporation or foreign partnership ("non-U.S. shareholder") depends on whether the income of a Fund is "effectively connected" with a U.S. trade or business carried on by the shareholder.
INCOME NOT EFFECTIVELY CONNECTED. If the income from a Fund is not "effectively connected" with a U.S. trade or business carried on by the non-U.S. shareholder, distributions of investment company taxable income will generally be subject to a U.S. tax of 30% (or lower treaty rate), which tax is generally withheld from such distributions.
Distributions of capital gain dividends and any amounts retained by a Fund which are designated as undistributed capital gains will not be subject to U.S. tax at the rate of 30% (or lower treaty rate) unless the non-U.S. shareholder is a nonresident alien individual and is physically present in the United States for more than 182 days during the taxable year and meets certain other requirements. However, this 30% tax on capital gains of nonresident alien individuals who are physically present in the United States for more than the 182 day period only applies in exceptional cases because any individual present in the United States for more than 182 days during the taxable year is generally treated as a resident for U.S. income tax purposes; in that case, he or she would be subject to U.S. income tax on his or her worldwide income at the, graduated rates applicable to U.S. citizens, rather than the 30% U.S. tax. In the case of a non-U.S. shareholder who is a nonresident alien individual, the Funds may be required to withhold U.S. income tax from distributions of net capital gain unless the non-U.S. shareholder certifies his or her non-U.S. status under penalties of perjury or otherwise establishes an exemption. If a non-U.S. shareholder is a nonresident alien individual, any gain such shareholder realizes upon the sale or exchange of such shareholder's shares of the Funds in the United States will ordinarily be exempt from U.S. tax unless the gain is U.S. source income and such shareholder is physically present in the United States for more than 182 days during the taxable year and meets certain other requirements.
INCOME EFFECTIVELY CONNECTED. If the income from a Fund is "effectively connected" with a U.S. trade or business carried on by a non-U.S. shareholder, then distributions of investment company taxable income and capital gain dividends, any amounts retained by the Funds which are designated as undistributed capital gains and any gains realized upon the sale or exchange of shares of the Funds will be subject to U.S. income tax at the graduated rates applicable to U.S. citizens, residents and domestic corporations. Non-U.S. corporate shareholders may also be subject to the branch profits tax imposed by the Code. The tax consequences to a non-U.S. shareholder entitled to claim the benefits of an applicable tax treaty may differ from those described herein. Non-U.S. shareholders are advised to consult their own tax advisors with respect to the particular tax consequences to them of an investment in the Funds.
OTHER TAXATION
Fund shareholders may be subject to state, local and foreign taxes on their Fund distributions. Shareholders are advised to consult their own tax advisors with respect to the particular tax consequences to them of an investment in the Funds.
DETERMINATION OF NAV
The following information supplements and should be read in conjunction with the section in the Prospectus entitled "Net Asset Value."
The per share NAV of a Fund is determined by dividing the total value of the securities and other assets, less liabilities, by the total number of Shares outstanding. A Fund's NAV may not be calculated on days during which a Fund receives no orders to purchase shares and no shares are tendered for redemption. In determining NAV, portfolio securities for a Fund for which accurate market quotations are readily available will be valued by the Fund accounting agent as follows:
(1) Common stocks and other equity securities listed on any national or foreign exchange will be valued at the last sale price on the exchange or system in which they are principally traded on the valuation date and at the official closing price for securities listed on NASDAQ(R). If there are no transactions on the valuation day, securities traded principally on an exchange will be valued at the mean between the most recent bid and ask prices.
(2) Securities traded in the over-the-counter market are valued at their closing bid prices.
(3) Exchange traded options and Futures Contracts will be valued at the closing price in the market where such contracts are principally traded. Over-the-counter options and Futures Contracts will be valued at their closing bid prices.
(4) Forward foreign currency exchange contracts which are traded in the United States on regulated exchanges will be valued by calculating the mean between the last bid and asked quotations supplied to a pricing service by certain independent dealers in such contracts.
In addition, the following types of securities will be valued as follows:
(1) Fixed income securities with a remaining maturity of 60 days or more will be valued by the fund accounting agent using a pricing service. When price quotes are not available, fair market value is based on prices of comparable securities.
(2) Fixed income securities maturing within 60 days are valued by the fund accounting agent on an amortized cost basis.
(3) Repurchase agreements will be valued as follows. Overnight repurchase agreements will be valued at cost. Term repurchase agreements (i.e., those whose maturity exceeds seven days) will be valued by First Trust at the average of the bid quotations obtained daily from at least two recognized dealers.
The value of any portfolio security held by a Fund for which market quotations are not readily available will be determined by First Trust in a manner that most fairly reflects fair market value of the security on the valuation date, based on a consideration of all available information.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Board of Trustees or its delegate at fair value. These securities generally include but are not limited to, restricted securities (securities which may not be publicly sold without registration under the 1933 Act) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of Fund NAV (as may be the case in foreign markets on which the security is primarily traded) 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 an issue of securities would appear to be the amount which the owner might reasonably expect to receive for them upon their current sale. A variety of factors may be considered in determining the fair value of such securities.
A Fund may suspend the right of redemption for the Fund only under the following unusual circumstances: (a) when the NYSE is closed (other than weekends and holidays) or trading is restricted; (b) when trading in the markets normally utilized is restricted, or when an emergency exists as determined by the SEC so that disposal of a Fund's investments or determination of its net assets is not reasonably practicable; or (c) during any period when the SEC may permit.
DIVIDENDS AND DISTRIBUTIONS
The following information supplements and should be read in conjunction with the section in the Prospectus entitled "Dividends, Distributions and Taxes."
GENERAL POLICIES. With respect to the MicroCap Fund, IPOX Fund, Equal Weighted Fund, Technology Fund, Biotech Fund, Internet Fund, Strategic Value Fund, Value Line(R) Equity Allocation Fund, Ex-Technology Fund, Clean Edge(R) Fund, S&P REIT Fund, ISE Water Fund, ISE Gas Fund, ISE Chindia Fund and Value Line(R) 100 Fund, dividends from net investment income, if any, are declared and paid semi-annually. With respect to the Dividend Leaders Fund and Value Line(R) Dividend Fund, dividends from net investment income, if any, are declared and paid quarterly. Distributions of net realized securities gains, if any, generally are declared and paid once a year, but the Trust may make distributions on a more frequent basis. The Trust reserves the right to declare special distributions if, in its reasonable discretion, such action is necessary or advisable to preserve the status of a Fund as a RIC or to avoid imposition of income or excise taxes on undistributed income.
Dividends and other distributions of Fund Shares are distributed, as described below, on a pro rata basis to Beneficial Owners of such Shares. Dividend payments are made through DTC Participants and Indirect Participants to Beneficial Owners then of record with proceeds received from the Funds.
DIVIDEND REINVESTMENT SERVICE. No reinvestment service is provided by the Trust. Broker-dealers may make available the DTC book-entry Dividend Reinvestment Service for use by Beneficial Owners of the Funds for reinvestment of their dividend distributions. Beneficial Owners should contact their brokers in order to determine the availability and costs of the service and the details of participation therein. Brokers may require Beneficial Owners to adhere to specific procedures and timetables. If this service is available and used, dividend distributions of both income and realized gains will be automatically reinvested in additional whole Shares of each Fund purchased in the secondary market.
MISCELLANEOUS INFORMATION
COUNSEL. Chapman and Cutler LLP, 111 West Monroe Street, Chicago, Illinois 60603, is counsel to the Trust.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. Deloitte & Touche LLP, 111 South Wacker Drive, Chicago, Illinois 60606, serves as the Funds' independent registered public accounting firm. The firm audits each Fund's financial statements and performs other related audit services.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto for the Funds, contained in the Annual Report to Shareholders dated December 31, 2007, are incorporated by reference into this Statement of Additional Information and have
been audited by Deloitte & Touche LLP, independent registered public accounting firm, whose report also appears in the Annual Report and is also incorporated by reference herein. No other parts of the Annual Report are incorporated by reference herein. The Annual Report is attached to this Statement of Additional Information.
EXHIBIT A
FUND NAME AND ADDRESS OF OWNER PERCENTAGE OF RECORD OWNERSHIP MicroCap Fund Pershing, LLC(10) 13.27% National Financial Services Corporation(14) 13.23% Schwab (Charles) & Co., Inc.(4) 10.74% UBS Financial Services Inc.(7) 9.10% Goldman Sachs Execution & Clearing, LP(1) 8.28% Timber Hill LLC(11) 6.54% Ameritrade, Inc.(5) 5.86% American Enterprise Investment Services, Inc.(13) 5.57% Dividend Leaders Fund National Financial Services Corporation(14) 22.26% Pershing, LLC(10) 11.03% Schwab (Charles) & Co., Inc.(4) 10.11% Ameritrade, Inc.(5) 9.14% Goldman Sachs Execution & Clearing, LP(1) 7.32% American Enterprise Investment Services, Inc.(13) 5.93% IPOX Fund Goldman Sachs Execution & Clearing, LP(1) 18.44% Schwab (Charles) & Co., Inc.(4) 10.27% American Enterprise Investment Services, Inc.(13) 8.33% National Financial Services Corporation(14) 7.37% Timber Hill LLC(11) 6.44% Citigroup Global Markets, Inc.(12) 6.17% Merrill Lynch Safekeeping(2) 5.32% Ameritrade, Inc.(5) 5.09% Equal Weighted Fund Schwab (Charles) & Co., Inc.(4) 13.64% First Clearing LLC(3) 13.29% National Financial Services Corporation(14) 10.08% American Enterprise Investment Services, Inc.(13) 9.96% Timber Hill LLC(11) 8.73% Union Bank of California, N.A.19 6.08% Pershing, LLC(10) 6.0% |
FUND NAME AND ADDRESS OF OWNER PERCENTAGE OF RECORD OWNERSHIP Technology Fund National Financial Services Corporation(14) 23.77% First Clearing LLC(3) 12.48% Citigroup Global Markets, Inc.(12) 12.23% Timber Hill LLC(11) 7.80% Raymond James & Associates, Inc.(15) 6.1% Pershing, LLC(10) 5.56% Schwab (Charles) & Co., Inc.(4) 5.08% Biotech Fund First Clearing LLC(3) 37.29% Citigroup Global Markets, Inc.(12) 10.30% Swiss American Securities, Inc.(16) 9.63% Schwab (Charles) & Co., Inc.(4) 6.16% Internet Index Fund Citigroup Global Markets, Inc.(12) 22.06% First Clearing LLC(3) 20.22% Merrill Lynch Safekeeping(2) 16.50% Timber Hill LLC(11) 7.20% Pershing, LLC(10) 6.62% National Financial Services Corporation(14) 5.04% Strategic Value Fund Pershing, LLC(10) 65.63% American Enterprise Investment Services, Inc.(13) 8.11% Value Line(R) Equity Allocation Fund Pershing, LLC(10) 30.31% ADP Clearing & Outsourcing Services, Inc.(17) 19.35% Goldman Sachs Execution & Clearing, LP(1) 17.21% Value Line(R) Dividend Fund Merrill Lynch Safekeeping(2) 19.96% Edwards (A.G.) & Sons, Inc.(6) 14.86% Raymond James & Associates, Inc.(15) 6.49% National Financial Services Corporation(14) 6.24% Ex-Technology Fund Bear Stearns Securities Corp.(8) 33.70% Timber Hill LLC(11) 26.29% E*Trade Clearing, LLC(9) 12.28% National Financial Services Corporation(14) 7.43% -2- |
FUND NAME AND ADDRESS OF OWNER PERCENTAGE OF RECORD OWNERSHIP Clean Edge(R) Fund National Financial Services Corporation(14) 18.85% Schwab (Charles) & Co., Inc.(4) 10.60% American Enterprise Investment Services, Inc.(13) 7.73% Ameritrade, Inc.(5) 7.10% First Clearing LLC(3) 6.22% S&P REIT Fund Timber Hill LLC(11) 62.69% Pershing, LLC(10) 15.18% ISE Water Fund National Financial Services Corporation(14) 14.43% Citigroup Global Markets, Inc.(12) 11.81% Edwards (A.G.) & Sons, Inc.(6) 7.13% First Clearing LLC(3) 6.62% Timber Hill LLC(11) 6.52% Schwab (Charles) & Co., Inc.(4) 5.88% Linsco/Private Ledger Corp.(18) 5.64% ISE Gas Fund Schwab (Charles) & Co., Inc.(4) 17.71% Bank of New York (The) 9.99% Pershing, LLC(10) 8.34% Timber Hill LLC(11) 6.89% Citigroup Global Markets, Inc.(12) 6.88% National Financial Services Corporation(14) 5.54% First Clearing LLC(3) 5.14% ISE Chindia Fund National Financial Services Corporation(14) 22.26% Ameritrade, Inc.(5) 11.46% Schwab (Charles) & Co., Inc.(4) 6.75% Pershing, LLC(10) 6.69% Citigroup Global Markets, Inc.(12) 5.07% Value Line(R) 100 Fund Schwab (Charles) & Co., Inc.(4) 9.96% Edwards (A.G.) & Sons, Inc.(6) 8.89% Merrill Lynch Safekeeping(2) 8.47% National Financial Services Corporation(14) 8.26% Pershing, LLC(10) 7.18% Ameritrade, Inc.(5) 5.62% |
1 30 Hudson Street, Jersey City NJ 07302
2 101 Hudson St., 9th Floor, Jersey City NJ 07302
3 10700 Wheat First Drive, Glen Allen, VA 23060
4 211 Main Street, San Francisco, CA 94105
5 51 Mercedes Way, Edgewood NY 11717
6 2801 Clark Street, St. Louis, MO 63103
7 1200 Harbor Blvd. Weehawken, NJ 07086
8 One Metrotech Center North, Fourth Floor, Brooklyn NY 11207-3862
9 10951 White Rock Road, Rancho Cordova, CA 95670
10 1 Pershing Plaza, Jersey City, NJ 07399
11 1 Pickwick Plaza, Greenwich, CT 06830
12 333 W. 34th Street, New York NY 10001
13 2178 AXP Financial Center, Minneapolis MN 55474
14 200 Liberty Street, New York City, NY 10281
15 880 Carilion Parkway, PO Box 12479, St. Petersburg, FL 33716
16 12 East 49th Street, 41st Floor, New York, NY 10017
17 51 Mercedes Way, Edgewood, NY 11717
18 9785 Towne Center Drive, San Diego, CA 92121-1968
19 530 B Street, Suite 242, San Diego, CA 92101
[LOGO OMITTED] FIRST TRUST
ADVISORS L.P.
First Trust Dow Jones Select MicroCap Index(SM) Fund
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund
First Trust IPOX-100 Index Fund
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
First Trust NASDAQ-100-Technology Sector Index(SM) Fund
First Trust Amex(R) Biotechnology Index Fund
First Trust Dow Jones Internet Index(SM) Fund
First Trust DB Strategic Value Index Fund
First Trust Value Line(R) Equity Allocation Index Fund
First Trust Value Line(R) Dividend Index Fund
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund
First Trust S&P REIT Index Fund
First Trust ISE Water Index Fund
First Trust ISE-Revere Natural Gas Index Fund
First Trust ISE Chindia Index Fund
First Trust Value Line(R) 100 Exchange-Traded Fund
Annual Report
December 31, 2007
Front Cover
First Trust Exchange-Traded Fund December 31, 2007 Shareholder Letter 2 Market Overview 3 Fund Performance Overview First Trust Dow Jones Select MicroCap Index(SM) Fund 4 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 6 First Trust IPOX-100 Index Fund 8 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 10 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 12 First Trust Amex(R) Biotechnology Index Fund 14 First Trust Dow Jones Internet Index(SM) Fund 16 First Trust DB Strategic Value Index Fund 18 First Trust Value Line(R) Equity Allocation Index Fund 20 First Trust Value Line(R) Dividend Index Fund 22 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 24 First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund 26 First Trust S&P REIT Index Fund 28 First Trust ISE Water Index Fund 30 First Trust ISE-Revere Natural Gas Index Fund 32 First Trust ISE Chindia Index Fund 34 First Trust Value Line(R) 100 Exchange-Traded Fund 36 Notes to Fund Performance Overview 38 Understanding Your Fund Expenses 39 Portfolio of Investments First Trust Dow Jones Select MicroCap Index(SM) Fund 41 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 45 First Trust IPOX-100 Index Fund 47 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 49 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 51 First Trust Amex(R) Biotechnology Index Fund 52 First Trust Dow Jones Internet Index(SM) Fund 53 First Trust DB Strategic Value Index Fund 54 First Trust Value Line(R) Equity Allocation Index Fund 55 First Trust Value Line(R) Dividend Index Fund 58 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 61 First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund 63 First Trust S&P REIT Index Fund 64 First Trust ISE Water Index Fund 66 First Trust ISE-Revere Natural Gas Index Fund 67 First Trust ISE Chindia Index Fund 68 First Trust Value Line(R) 100 Exchange-Traded Fund 70 Statements of Assets and Liabilities 72 Statements of Operations 76 Statements of Changes in Net Assets 80 Financial Highlights 86 Notes to Financial Statements 96 Report of Independent Registered Public Accounting Firm 106 Additional Information 107 Board of Trustees and Officers 110 Risk Considerations 112 |
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933. 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 respective
representatives, taking into account the information currently available to
them. Forwardlooking 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 First Trust Exchange-Traded Fund (the "Trust") to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its respective 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 (each, individually a "Fund" and collectively, the "Funds") of the Trust will achieve its investment objective. Each Fund of the Trust 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.
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 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 the portfolios and presents data and analysis that provide insight into each Fund's performance and investment approach.
By reading the portfolio commentary by Robert F. Carey, Chief Investment Officer of the Advisor, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund's performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by Mr. Carey 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.
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2007
Dear Shareholders:
We believe investment opportunities abound, both here and abroad, affording the potential for exceptional returns for investors. At First Trust Advisors L.P. ("First Trust"), we realize that we must be mindful of the complexities of the global economy and at the same time address the needs of our customers through the types of investments we bring to market. We are single-minded about providing a range of investment products, including our family of exchange-traded funds ("ETFs"), to help First Trust meet the challenge of maximizing our customers' financial opportunities. Translating investment ideas into products which can deliver performance over the long term while continuing to support our current product line remains a focus for First Trust as we head into the future.
Over the past 12 months, we have added 7 ETFs to our First Trust Exchange-Traded Fund, one or more of which you may have purchased: First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund ("QQXT"), First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund ("QCLN"), First Trust S&P REIT Index Fund ("FRI"), First Trust ISE Chindia Index Fund ("FNI"), First Trust ISE-Revere Natural Gas Index Fund ("FCG"), First Trust ISE Water Index Fund ("FIW") and First Trust Value Line(R) 100 Exchange-Traded Fund ("FVL"), which converted from a closed-end fund in June 2007. We are proud to bring these unique investments to our customers, and are pleased you have chosen one or more of our ETFs for a portion of your investment portfolio. The report you hold will give you detailed information about your investment in the First Trust Exchange-Traded Fund for the 12-month period ended December 31, 2007. I encourage you to read this report and discuss it with your financial advisor. First Trust is pleased that our ETFs are a part of your financial portfolio and we will continue to offer you current information about your investment, as well as new opportunities to the financial marketplace, through your financial advisor. We value our relationship with you and appreciate the opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen James A. Bowen President of First Trust Exchange-Traded Fund |
--------------------------------------------------------------------------------
MARKET OVERVIEW
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2007
[PHOTO OMITTED] ROBERT F. CAREY, CFA
SENIOR VICE PRESIDENT AND CHIEF INVESTMENT OFFICER
FIRST TRUST ADVISORS L.P.
Mr. Carey is responsible for the overall management of
research and analysis of the First Trust product line.
Mr. Carey has 21 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.
|
U.S. STOCKS AND BONDS
U.S. stocks posted positive returns for the 12-month period ended December 31, 2007 as most major large-cap indices delivered gains in the 5.0% to 11.0% range. Mid-cap stocks outpaced both large- and small-caps, though large-caps did manage to eclipse small-caps, something they have generally struggled to do over the past eight years. Companies continued to deliver better than expected earnings. Sixty-five percent of companies exceeded their earnings estimates over the three quarters through and including the third quarter of 2007, according to SeekingAlpha.com. The percentage of firms topping their estimates since the end of 2001 fluctuated between 59% (third quarter of 2002) and 73% (third quarter of 2006). In addition, with respect to cash holdings, the nonfinancial companies alone in the S&P 500 Index held $609.7 billion in cash and equivalents at the end of December 2007, which is in the vicinity of the all-time high of $640.1 billion, according to Standard & Poor's ("S&P"). This is encouraging news considering that over the past eleven quarters through the third quarter of 2007, the S&P 500 Index companies combined spent $1.12 trillion on stock buybacks; $1.24 trillion on capital expenditures; and $594 billion on stock dividends, according to S&P.
U.S. debt securities, with the exception of municipal bonds, generally also delivered solid returns in 2007. Most of the major taxable investment-grade debt groups returned between 5.0% and 9.0%, according to data from Lehman Brothers. The top-performing group was Treasuries, due in large part, we believe, to the aggressive rate cuts initiated by the Federal Reserve in September and October, 2007. It lowered the Federal funds rate by a combined 75 basis points in these two months. Treasury Bonds, as well as other highquality debt groups, also potentially benefited from a "flight to quality" situation beginning in late July in response to the start of the subprime mortgage meltdown.
FOREIGN STOCKS AND BONDS
The global growth story is not only driving foreign stock and bond valuations higher but commodities as well. Some emerging markets, such as India and China, are growing their economies at three to four times the pace of U.S. growth. Foreign stocks and bonds of developed countries and emerging market equities outperformed U.S. stock and bond averages for the 12-month period ended December 2007. U.S. investors who owned foreign securities over that one-year period saw their total returns enhanced by the 10% decline in the U.S. dollar against a basket of major currencies created by the Federal Reserve. The drop in the dollar accelerated in September-October of 2007 due to the reduction in the Federal funds rate from 5.25% to 4.50%. The rate cuts were viewed by foreign investors as potentially inflationary moving forward. In our opinion, the spike in the price of gold bullion in September-October, a hard asset characterized as an inflation-hedge, supports that claim.
STATE OF THE ECONOMY
Despite many challenges, the U.S. economy has generally remained resilient during this 12-month period, in our opinion. The economy has been bolstered by strength in the following areas: job creation, personal income levels growing at roughly twice the rate of inflation, high productivity and a strong manufacturing sector. Some of the areas of the U.S. economy that have been a drag on growth are as follows: high price of oil, housing slump, subprime mortgage foreclosures and tighter lending standards. In an effort to mitigate these concerns, the Federal Reserve has cut short-term rates to help make capital more readily available. While lower rates will not necessarily help the majority of homeowners with adjustable-rate mortgages resetting in 2008, we believe that lower rates could act as a positive catalyst for the stock market. We believe this is potentially good for the economy since rising stock prices could help offset some of the decline in real estate values for homeowners. The consensus forecast from the Blue Chip Economic Indicators newsletter released in December 2007 calls for 2.1% real Gross Domestic Product growth for the U.S. in the year 2008. The current expansion entered its seventh year in December 2007. The last two expansions lasted 7.7 and 10 years, respectively.
FDM - FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND
The First Trust Dow Jones Select MicroCap Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Dow Jones Select MicroCap Index(SM) (the "Index"). The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. The Index measures the performance of selected U.S. micro-capitalization companies chosen from all common stocks traded on the New York Stock Exchange ("NYSE(R)"), the American Stock Exchange, Inc. ("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 AMEX. The first day of secondary market trading in shares of the Fund was 09/30/05.
PERFORMANCE AS OF DECEMBER 31, 2007 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 12 Months Ended Inception (09/27/05) Inception (09/27/05) 12/31/07 to 12/31/07 to 12/31/07 FUND PERFORMANCE NAV -6.02% 5.47% 12.78% Market Price -5.97% 5.55% 12.98% INDEX PERFORMANCE Dow Jones Select MicroCap Index(SM) -5.29% 6.27% 14.74% Russell 2000 Index -1.56% 8.23% 19.57% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. The industrials sector was the biggest contributor to portfolio performance over the period covered by this report, led by Lindsay Corp. Materials stocks turned in the best performance in the portfolio, adding to portfolio returns. The consumer discretionary and financials sectors (with a combined weight of over 30% in the portfolio over the period) hurt performance as they were the two worst-performing sectors over the period.
The top five performing stocks in the Fund over the twelve months ended December 31, 2007, by percentage gain, were Blue Nile, Inc., Lindsay Corp., Genco Shipping & Trading Ltd., Geo Group, Inc. and Perini Corp. The worst-performing stocks, by percentage loss, were Alliance One International, Inc., Skechers USA, Inc., First Cash Financial Services, Inc., Casual Male Retail Group, Inc. and Strum Ruger & Co.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Industrials 21.74% Consumer Discretionary 16.48 Health Care 13.43 Information Technology 12.98 Financials 12.97 Energy 6.57 Materials 6.30 Consumer Staples 4.99 Telecommunication Services 2.68 Utilities 2.13 Net Other Assets and Liabilities (0.27) --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Darling International, Inc. 0.95% ManTech International Corp., Class A 0.89 Chart Industries, Inc. 0.87 DCP Midstream Partners LP 0.79 CIRCOR International, Inc. 0.79 Lindsay Corp. 0.78 NBT Bancorp, Inc. 0.78 PrivateBancorp, Inc. 0.73 Dynamic Materials Corp. 0.71 Raven Industries, Inc. 0.71 --------- Total 8.00% ========= _________________________ |
Dow Jones and Dow Jones Select MicroCap Index(SM) are trademarks of Dow Jones & Company, Inc. and have been licensed for use. The Fund, based on the Dow Jones Select MicroCap Index(SM), is not sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of trading in the Fund.
FDM - FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
September 27, 2005 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust The Dow Jones Dow Jones Select Select MicroCap MicroCap Index(SM) Fund Index(SM) Russell 2000 Index ----------------------- --------------- ------------------ 9/27/2005 $10,000 $10,000 $10,000 12/31/2005 10,374 10,397 10,254 12/31/2006 12,002 12,115 12,146 12/31/2007 11,279 11,474 11,956 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 28 3 4 0 9/30/2007 25 7 1 0 6/30/2007 32 1 0 0 3/31/2007 40 1 0 0 12/31/2006 45 0 0 0 9/30/2006 38 6 2 0 6/30/2006 17 1 0 0 3/31/2006 25 1 0 0 12/31/2005* 31 1 3 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 22 2 5 0 9/30/2007 29 1 0 0 6/30/2007 30 0 0 0 3/31/2007 19 1 0 0 12/31/2006 18 0 0 0 9/30/2006 17 0 0 0 6/30/2006 45 0 0 0 3/31/2006 36 0 0 0 12/31/2005* 29 0 0 0 * Trading commenced on September 30, 2005. |
FDL - FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND
The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Morningstar(R) Dividend Leaders(SM) Index (the "Index"). The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. The objective of the Index is to offer 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 (the New York Stock Exchange ("NYSE(R)"), the American Stock Exchange, Inc. ("AMEX") or The NASDAQ Stock Market, Inc. ("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 AMEX. The first day of secondary market trading in shares of the Fund was 03/15/06.
PERFORMANCE AS OF DECEMBER 31, 2007 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 12 Months Ended Inception (03/09/06) Inception (03/09/06) 12/31/07 to 12/31/07 to 12/31/07 FUND PERFORMANCE NAV -10.64% 4.30% 7.93% Market Price -10.03% 4.66% 8.61% INDEX PERFORMANCE Morningstar(R) Dividend Leaders(SM) Index -10.24% 4.71% 8.70% S&P 500 Index 5.49% 10.26% 19.39% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. Telecommunication services and utilities were the biggest contributors to performance on an absolute basis. AT&T and Verizon Communications produced solid returns in the telecommunications sector, while Dominion Resources was the biggest contributor to portfolio returns in the utilities sector. Financials, the largest sector weighting at a 44.8% average weight over the period, was the worst-performing sector as deteriorating credit market conditions dragged down shares.
The top five performing stocks in the Fund over the twelve months ended December 31, 2007, by percentage gain, were AT&T Inc., Altria Group, Inc., Verizon Communications, Inc., Merck & Co., Inc. and Dominion Resources, Inc. The worst-performing stocks, by percentage loss, were Citigroup, Inc., Washington Mutual, Inc., Bank of America Inc., Wachovia Corp. and National City Corp.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Financials 53.31% Telecommunication Services 13.21 Utilities 12.54 Health Care 10.11 Consumer Staples 6.78 Materials 2.91 Industrials 0.80 Consumer Discretionary 0.12 Net Other Assets and Liabilities 0.22 --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Bank of America Corp. 9.98% Citigroup, Inc. 9.22 AT&T, Inc. 8.18 Pfizer, Inc. 7.20 Altria Group, Inc. 5.95 Verizon Communications, Inc. 5.03 Wachovia Corp. 4.84 Wells Fargo & Co. 4.17 U.S. Bancorp 3.33 Bristol-Myers Squibb Co. 2.91 --------- Total 60.81% ========= _________________________ |
Morningstar is a service mark of Morningstar, Inc. and has been licensed for use. The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund is not sponsored, endorsed, issued, sold or promoted by Morningstar, Inc., nor does this company make any representation regarding the advisability of investing in the Fund.
FDL - FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
March 9, 2006 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust Morningstar(R) Morningstar(R) Dividend Leaders(SM) Dividend Leaders Index Fund Index(SM) S&P 500 Index -------------------------- ---------------- ------------- 3/9/2006 $10,000 $10,000 $10,000 12/31/2006 12,080 12,110 11,317 12/31/2007 10,795 10,870 11,938 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 24 4 5 0 9/30/2007 32 1 0 0 6/30/2007 35 1 0 0 3/31/2007 31 0 0 0 12/31/2006 47 0 0 0 9/30/2006 34 0 0 0 6/30/2006 24 8 3 0 3/31/2006* 11 0 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 21 9 1 0 9/30/2007 29 1 0 0 6/30/2007 27 0 0 0 3/31/2007 30 0 0 0 12/31/2006 16 0 0 0 9/30/2006 29 0 0 0 6/30/2006 28 0 0 0 3/31/2006* 2 0 0 0 * Trading commenced on March 15, 2006. |
FPX - FIRST TRUST IPOX-100 INDEX FUND
The First Trust IPOX-100 Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the IPOX-100 U.S. Index (the "Index"). The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. The Index is a modified value-weighted price index measuring the performance of the top 100 U.S. companies ranked quarterly by market capitalization in the IPOX Global Composite Index. The Index utilizes a 10% capping on all constituents and includes the 100 largest, typically best performing and most liquid initial public offerings ("IPOs") of the U.S. companies in the IPOX Global Composite Index. The IPOX Global Composite Index is reconstituted regularly with IPOs being added to the IPOX Global Composite Index at their seventh trading day upon "going public" and automatically exiting after 1,000 trading days or approximately four years thereafter. The Index is reconstituted quarterly to reflect changes in the stock market values of the IPOX Global Composite Index constituents and IPO activity during the past quarter with potential new companies entering the Index while other companies reach 1,000 days in the Index and automatically drop out. The Fund's shares are listed for trading on the AMEX. The first day of secondary market trading on shares of the Fund was 04/13/06.
PERFORMANCE AS OF DECEMBER 31, 2007 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 12 Months Ended Inception (04/12/06) Inception (04/12/06) 12/31/07 to 12/31/07 to 12/31/07 FUND PERFORMANCE NAV 14.53% 14.97% 27.12% Market Price 15.08% 15.23% 27.62% INDEX PERFORMANCE IPOX-100 U.S. Index 15.15% 15.66% 28.44% Russell 3000 Index 5.24% 9.28% 16.49% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. Information technology, led by Google, was the biggest contributor to portfolio returns over the period. Industrials, led by solar industry companies First Solar and SunPower, posted the highest sector return and contributed positively to portfolio performance. The financials, consumer staples, consumer discretionary and telecommunication services sectors all posted negative returns in the portfolio over the period, thus hurting portfolio results.
The top five performing stocks in the Fund over the twelve months ended December 31, 2007, by percentage gain, were Google, Inc., First Solar, Inc., MasterCard, Inc., SunPower, Inc. and CF Industries Holdings, Inc. The worst-performing stocks, by percentage loss, were Time Warner Cable, Inc., MetroPCS Communications, Inc., NYSE Euronext, Genworth Financial, Inc. and Discover Financial Services.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Information Technology 28.48% Consumer Discretionary 16.50 Financials 15.88 Industrials 13.33 Energy 9.77 Health Care 6.89 Materials 4.47 Telecommunication Services 3.07 Consumer Staples 0.92 Utilities 0.87 Net Other Assets and Liabilities (0.18) --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Google, Inc., Class A 9.98% Viacom, Inc., Class B 5.34 MasterCard, Inc., Class A 5.25 Time Warner Cable, Inc., Class A 4.99 NYSE Euronext 4.31 Covidien Ltd. 4.08 First Solar, Inc. 3.86 Tyco Electronics Ltd. 3.42 Western Union Co. 3.38 Spectra Energy Corp. 3.02 --------- Total 47.63% ========= _________________________ |
IPOX is a trademark of IPOX Schuster LLC, IPOX IPO Indexes and Derivatives (patent pending).
FPX - FIRST TRUST IPOX-100 INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
April 12, 2006 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust IPOX-100 Index Fund IPOX-100 U.S. Index Russell 3000 Index ------------------- ------------------- ------------------ 4/12/2006 $10,000 $10,000 $10,000 12/31/2006 11,100 11,154 11,069 12/31/2007 12,713 12,844 11,649 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 19 3 4 0 9/30/2007 30 5 0 1 6/30/2007 19 1 0 0 3/31/2007 28 0 0 0 12/31/2006 25 0 0 0 9/30/2006 2 0 0 0 6/30/2006* 10 0 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 33 4 1 0 9/30/2007 26 1 0 0 6/30/2007 43 0 0 0 3/31/2007 33 0 0 0 12/31/2006 38 0 0 0 9/30/2006 61 0 0 0 6/30/2006* 45 0 0 0 * Trading commenced on April 13, 2006. |
QQEW - FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND
The First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Equal Weighted Index(SM) (the "Index"). The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. The Index is the equal-weighted version of the NASDAQ-100 Index(R) which includes 100 of the largest non-financial securities listed on The NASDAQ Stock Market, Inc. ("NASDAQ(R)") based on market capitalization. The Index contains the same securities as the NASDAQ-100 Index(R) but each of the securities is initially set at a weight of 1.00% of the Index and is rebalanced quarterly. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was 04/25/06.
PERFORMANCE AS OF DECEMBER 31, 2007 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 12 Months Ended Inception (04/19/06) Inception (04/19/06) 12/31/07 to 12/31/07 to 12/31/07 FUND PERFORMANCE NAV 9.74% 5.99% 10.40% Market Price 10.80% 6.52% 11.35% INDEX PERFORMANCE NASDAQ-100 Equal Weighted Index(SM) 10.35% 6.56% 11.42% NASDAQ-100 Index(R) 19.24% 11.99% 21.24% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. Health care stocks posted strong returns in the portfolio over the period, gaining more than the health care sector in the broader market. The telecommunication services and energy sectors both posted negative returns for the period, although minimal weightings in both sectors (3.2% and 0.9% average weights, respectively), limited their impact on overall portfolio performance.
The top five performing stocks in the Fund over the twelve months ended December 31, 2007, by percentage gain, were Intuitive Surgical, Inc., Research In Motion Ltd., Amazon.com, Inc., Apple Computer, Inc. and Millicom International Cellular S.A. The worstperforming stocks, by percentage loss, were Sepracor, Inc., Starbucks Corp., Virgin Media, Inc., Network Appliance, Inc. and Level 3 Communications, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Information Technology 45.67% Consumer Discretionary 19.36 Health Care 14.91 Industrials 11.15 Telecommunication Services 4.10 Consumer Staples 2.94 Materials 2.17 Net Other Assets and Liabilities (0.30) --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Leap Wireless International, Inc. 1.23% Research In Motion Ltd. 1.18 Activision, Inc. 1.15 Joy Global, Inc. 1.15 Steel Dynamics, Inc. 1.13 Hologic, Inc. 1.10 Oracle Corp. 1.09 Intuit, Inc. 1.08 Logitech International S.A. 1.07 Apple Computer, Inc. 1.07 --------- Total 11.25% ========= _________________________ |
NASDAQ(R), NASDAQ-100, NASDAQ-100 Index(R), and NASDAQ-100 Equal Weighted Index(SM) are trademarks of The NASDAQ Stock Market, Inc. (which with its affiliates is referred to as the Corporations) and are licensed for use by First Trust Advisors L.P. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
QQEW - FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
April 19, 2006 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust NASDAQ-100 Equal Weighted NASDAQ-100 Equal Index(SM) Fund Weighted Index(SM) NASDAQ-100 Index(R) ---------------------- -------------------- ------------------- 4/19/2006 $10,000 $10,000 $10,000 12/31/2006 10,060 10,097 10,168 12/31/2007 11,040 11,142 12,124 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 39 0 3 0 9/30/2007 32 0 0 0 6/30/2007 50 0 0 0 3/31/2007 30 0 0 0 12/31/2006 40 0 1 0 9/30/2006 43 0 0 0 6/30/2006* 22 0 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 22 0 0 0 9/30/2007 31 0 0 0 6/30/2007 13 0 0 0 3/31/2007 31 0 0 0 12/31/2006 22 0 0 0 9/30/2006 20 0 0 0 6/30/2006* 26 0 0 0 * Trading commenced on April 25, 2006. |
QTEC - FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND
The First Trust NASDAQ-100-Technology Sector Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Technology Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of its total 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 nonfinancial companies listed on The NASDAQ Stock Market, Inc. ("NASDAQ(R)") based on market capitalization. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was 04/25/06.
PERFORMANCE AS OF DECEMBER 31, 2007 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 12 Months Ended Inception (04/19/06) Inception (04/19/06) 12/31/07 to 12/31/07 to 12/31/07 FUND PERFORMANCE NAV 7.66% 4.34% 7.50% Market Price 7.82% 4.37% 7.55% INDEX PERFORMANCE NASDAQ-100 Technology Sector Index(SM) 8.25% 4.90% 8.47% S&P 500 Information Technology Index 16.30% 11.17% 19.74% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. Research in Motion was the biggest contributor to portfolio performance over the period as sales of the firm's Blackberry devices surpassed expectations. Apple also posted strong performance due to strong Mac sales and the launch of the much anticipated iPhone. Network Appliance was the biggest drag on portfolio performance as sales and profits from the company's data storage devices trailed estimates.
The top five performing stocks in the Fund over the twelve months ended December 31, 2007, by percentage gain, were Research In Motion Ltd., Apple Computer, Inc., Juniper Networks, Inc., VeriSign, Inc. and Google, Inc. The worst-performing stocks, by percentage loss, were Network Appliance, Inc., L.M. Ericsson Telephone Co., Tellabs, Inc., Akamai Technologies, Inc. and Marvell Technology, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Information Technology 100.35% Net Other Assets and Liabilities (0.35) --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Research In Motion Ltd. 3.00% Oracle Corp. 2.77 Intuit, Inc. 2.76 Logitech International S.A. 2.73 Apple Computer, Inc. 2.72 Microsoft Corp. 2.70 Microchip Technology, Inc. 2.69 Infosys Technologies Ltd. ADR 2.68 Baidu.com ADR 2.67 Linear Technology Corp. 2.65 --------- Total 27.37% ========= _________________________ |
NASDAQ(R), NASDAQ-100, NASDAQ-100 Index(R), and NASDAQ-100 Technology Sector Index(SM) are trademarks of The NASDAQ Stock Market, Inc. (which with its affiliates is referred to as the Corporations) and are licensed for use by First Trust Advisors L.P. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
QTEC - FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
April 19, 2006 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust NASDAQ-100 S&P 500 NASDAQ-100-Technology Technology Information Sector Index(SM) Fund Sector Index(SM) Technology Index --------------------- ---------------- ----------------- 4/19/2006 $10,000 $10,000 $10,000 12/31/2006 9,985 10,020 10,296 12/31/2007 10,750 10,847 11,974 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 38 0 0 0 9/30/2007 39 0 0 0 6/30/2007 47 0 0 0 3/31/2007 29 0 0 0 12/31/2006 38 1 0 0 9/30/2006 33 0 1 1 6/30/2006* 32 0 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 26 0 0 0 9/30/2007 24 0 0 0 6/30/2007 16 0 0 0 3/31/2007 32 0 0 0 12/31/2006 24 0 0 0 9/30/2006 28 0 0 0 6/30/2006* 16 0 0 0 * Trading commenced on April 25, 2006. |
FBT - FIRST TRUST AMEX(R) BIOTECHNOLOGY INDEX FUND
The First Trust Amex(R) 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 Amex(R) Biotechnology Index(SM) (the "Index"). The Fund will normally invest at least 90% of its total 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 AMEX. The first day of secondary market trading in shares of the Fund was 06/23/06.
PERFORMANCE AS OF DECEMBER 31, 2007 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 12 Months Ended Inception (06/19/06) Inception (06/19/06) 12/31/07 to 12/31/07 to 12/31/07 FUND PERFORMANCE NAV 3.65% 13.87% 22.05% Market Price 3.99% 14.20% 22.60% INDEX PERFORMANCE Amex(R) Biotechnology Index(SM) 4.28% 14.57% 23.20% NASDAQ(R) Biotechnology Index 4.64% 10.34% 16.30% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. Medimmune was the biggest contributor to the portfolio return over the twelve months ended December 31, 2007, as it was acquired by AstraZeneca at a 47% announced premium. ImClone also posted strong returns aided by positive data on Erbitux, its biggest drug. InterMune had the most negative impact on returns after the company announced it would stop advanced clinical trials for its pulmonary fibrosis drug.
The top three performing stocks in the Fund over the period covered by this report, by percentage gain, were Medimmune, ImClone Systems, Inc. and Invitrogen Corp. The worst-performing stocks, by percentage loss, were InterMune, Inc., Nektar Therapeutics and Amgen, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Health Care 99.43% Net Other Assets and Liabilities 0.57 --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Millennium Pharmaceuticals, Inc. 6.94% OSI Pharmaceuticals, Inc. 6.94 Invitrogen Corp. 5.92 Human Genome Sciences, Inc. 5.92 Gilead Sciences, Inc. 5.74 Genzyme Corp. 5.45 Applera Corp. - Celera Group 5.44 Nektar Therapeutics 5.38 Millipore Corp. 4.92 Cephalon, Inc. 4.90 --------- Total 57.55% ========= _________________________ |
The Amex(R) Biotechnology Index(SM) is a trademark of the American Stock Exchange LLC and is licensed for use by First Trust Advisors L.P. The Fund is not sponsored or endorsed by the American Stock Exchange LLC. American Stock Exchange LLC 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. American Stock Exchange LLC has no obligation to take the needs of the owners of the Fund into consideration in determining, composing or calculating the Index. American Stock Exchange LLC is not responsible for and has not participated in any determination or calculation made with respect to issuance or redemption of the Fund.
FBT - FIRST TRUST AMEX(R) BIOTECHNOLOGY INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
June 19, 2006 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust Amex(R) Amex(R) Biotechnology Biotechnology NASDAQ(R) Index Fund Index(SM) Biotechnology Index ------------------- ------------- -------------------- 6/19/2006 $10,000 $10,000 $10,000 12/31/2006 11,775 11,815 11,114 12/31/2007 12,205 12,321 11,630 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 34 5 1 0 9/30/2007 47 1 0 0 6/30/2007 44 1 0 0 3/31/2007 37 1 0 0 12/31/2006 38 0 0 0 9/30/2006 20 0 0 0 6/30/2006* 6 0 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 21 2 1 0 9/30/2007 15 0 0 0 6/30/2007 18 0 0 0 3/31/2007 22 1 0 0 12/31/2006 25 0 0 0 9/30/2006 43 0 0 0 6/30/2006* 0 0 0 0 * Trading commenced on June 23, 2006. |
FDN - FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND
The First Trust Dow Jones Internet Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Dow Jones Internet Composite Index(SM) (the "Index"). The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. The Index represents companies that generate the majority of their revenues via the Internet. The Index was designed and is maintained according to a set of rules that were devised with the goal of providing clear and accurate views of the growing Internet market segment. The Index aims to consistently represent 80% of the float-adjusted Internet equity universe. The Index contains two sub-indexes, the Dow Jones Internet Commerce Index and the Dow Jones Internet Services Index. For its stock to be eligible for the "universe," a company must generate at least 50% of annual sales/revenues from the Internet, and be currently included in the Dow Jones U.S. Index. The Fund's shares are listed for trading on the AMEX. The first day of secondary market trading on shares of the Fund was 06/23/06.
PERFORMANCE AS OF DECEMBER 31, 2007 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 12 Months Ended Inception (06/19/06) Inception (06/19/06) 12/31/07 to 12/31/07 to 12/31/07 FUND PERFORMANCE NAV 11.17% 15.93% 25.45% Market Price 11.55% 16.26% 26.00% INDEX PERFORMANCE Dow Jones Internet Composite Index(SM) 11.81% 16.57% 26.52% S&P 500 Index 5.49% 13.77% 21.89% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. Amazon.com was the biggest contributor to the portfolio return over the period as the firm benefited from strong gains in sales and profits. Google was the second largest contributor to returns as consistent growth and continued product expansion were the key factors in the company's positive performance. E*TRADE Financial was the biggest drag on portfolio performance as a deteriorating mortgage portfolio and tough credit market conditions weighed on its shares.
The top three performing stocks in the Fund over the twelve months ended December 31, 2007, by percentage gain, were Amazon.com, Inc., Google, Inc. and VeriSign, Inc. The worst-performing stocks, by percentage loss, were E*TRADE Financial Corp., Akamai Technologies, Inc. and IAC/InterActiveCorp.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Information Technology 67.96% Consumer Discretionary 18.92 Financials 5.67 Industrials 3.31 Health Care 3.12 Money Market Funds 0.30 Net Other Assets and Liabilities 0.72 --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Amazon.com, Inc. 10.35% eBay, Inc. 10.07 Google, Inc., Class A 9.96 Yahoo!, Inc. 9.80 VeriSign, Inc. 7.40 BEA Systems, Inc. 4.92 Akamai Technologies, Inc. 4.86 IAC/InterActiveCorp. 4.73 TD Ameritrade Holding Corp. 4.32 Priceline.com,Inc. 3.51 --------- Total 69.92% ========= _________________________ |
Dow Jones and Dow Jones Internet Composite Index(SM) are trademarks of Dow Jones & Company, Inc. and have been licensed for use. The Fund, based on the Dow Jones Internet Composite Index(SM), is not sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of trading in the Fund.
FDN - FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
June 19, 2006 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust Dow Jones Internet Dow Jones Internet Index(SM) Fund Composite Index(SM) S&P 500 Index ------------------ ------------------- ------------- 6/19/2006 $10,000 $10,000 $10,000 12/31/2006 11,285 11,316 11,554 12/31/2007 12,546 12,652 12,188 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 20 4 3 0 9/30/2007 39 1 0 0 6/30/2007 32 1 0 0 3/31/2007 39 1 3 0 12/31/2006 33 0 0 0 9/30/2006 33 0 0 0 6/30/2006* 5 0 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 30 5 2 0 9/30/2007 23 0 0 0 6/30/2007 30 0 0 0 3/31/2007 18 0 0 0 12/31/2006 30 0 0 0 9/30/2006 30 0 0 0 6/30/2006* 1 0 0 0 * Trading commenced on June 23, 2006. |
FDV - FIRST TRUST DB STRATEGIC VALUE INDEX FUND
The First Trust DB Strategic Value Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Deutsche Bank CROCI(R) US+ Index(TM) (the "Index"). The objective of the Index is to identify companies that may be undervalued based upon their "economic" price/earnings ratios. The Index is an equal dollar-weighted index which is intended to reflect the total return performance of 40 stocks with the lowest CROCI(R) Economic Price Earnings Ratios determined by taking the 251 stocks with the highest market capitalization in the S&P 500(R) Index and then excluding any stocks issued by financial companies. The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. The Fund's shares are listed for trading on the AMEX. The first day of secondary market trading in shares of the Fund was 07/11/06.
PERFORMANCE AS OF DECEMBER 31, 2007 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 12 Months Ended Inception (07/06/06) Inception (07/06/06) 12/31/07 to 12/31/07 to 12/31/07 FUND PERFORMANCE NAV 10.26% 14.37% 22.10% Market Price 10.61% 14.71% 22.66% INDEX PERFORMANCE Deutsche Bank CROCI(R) US+ Index(TM) 10.85% 14.76% 22.73% S&P 500 Value Index 2.03% 10.02% 15.27% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. The energy sector was the biggest contributor to portfolio return of the Fund over the period covered by this report. The sector posted strong returns as sustained global economic activity led to rising crude oil prices throughout the year. Industrials also posted strong returns over the period. Consumer discretionary stocks were the biggest drag on portfolio performance as concerns about the strength of consumer spending weighed on shares in the sector over the second half of the year. Telecommunication services was the only other sector to post a negative return for the period.
The top five performing stocks in the Fund over the twelve months ended December 31, 2007, by percentage gain, were Apache Corp., Occidental Petroleum Corp., Biogen Idec, Inc., EOG Resources, Inc. and Hess Corp. The worst-performing stocks, by percentage loss, were Amgen, Inc., Home Depot, Inc., Sprint Nextel, Inc., Harley-Davidson, Inc. and Lowe's Cos.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Consumer Discretionary 24.58% Energy 24.24 Health Care 19.41 Industrials 12.20 Information Technology 10.04 Materials 4.90 Consumer Staples 2.50 Telecommunication Services 2.14 Net Other Assets and Liabilities (0.01) --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Apache Corp. 2.77% Anadarko Petroleum Corp. 2.76 Occidental Petroleum Corp. 2.74 ConocoPhillips 2.73 Noble Corp. 2.70 Marathon Oil Corp. 2.68 Texas Instruments, Inc. 2.67 Exxon Mobil Corp. 2.64 Chevron Corp. 2.63 CBS Corp., Class B 2.59 --------- Total 26.91% ========= _________________________ |
"Deutsche Bank" and "Deutsche Bank CROCI(R) US+ Index(TM)" are service marks of Deutsche Bank AG ("Deutsche Bank"). Deutsche Bank has no relationship to First Trust or the Fund, other than the licensing of the Index and its service marks for use in connection with the Fund.
FDV - FIRST TRUST DB STRATEGIC VALUE INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
July 6, 2006 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust The Deutsche DB Strategic Bank CROCI(R) Value Index Fund US+ Index(TM) S&P 500 Value Index ---------------- ------------- ------------------- 7/6/2006 $10,000 $10,000 $10,000 12/31/2006 11,074 11,072 11,298 12/31/2007 12,210 12,273 11,527 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 23 5 3 0 9/30/2007 32 2 1 0 6/30/2007 36 4 0 0 3/31/2007 30 4 0 0 12/31/2006 30 1 0 0 9/30/2006* 33 0 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 30 3 0 0 9/30/2007 28 0 0 0 6/30/2007 20 2 0 1 3/31/2007 22 3 2 0 12/31/2006 32 0 0 0 9/30/2006* 25 0 0 0 * Trading commenced on July 11, 2006. |
FVI - FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND
The First Trust Value Line(R) Equity Allocation Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) Equity Allocation Index (the "Index"). The Fund will normally invest at least 90% of its total 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 on the fourth business day of the week containing the third Friday of February and August. The Fund's shares are listed for trading on the AMEX. The first day of secondary market trading in shares of the Fund was 12/07/06.
PERFORMANCE AS OF DECEMBER 31, 2007 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 12 Months Ended Inception (12/05/06) Inception (12/05/06) 12/31/07 to 12/31/07 to 12/31/07 FUND PERFORMANCE NAV 4.65% 3.26% 3.50% Market Price 4.85% 3.59% 3.85% INDEX PERFORMANCE Value Line(R) Equity Allocation Index 5.07% 3.71% 3.98% Russell 3000 Index 5.24% 4.96% 5.33% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. Energy and materials were the best performing sectors and biggest contributors to portfolio performance. Both sectors benefited from sustained global economic growth over the period, which generally pushed up commodity prices worldwide. The financials sector was the worst performing sector in the portfolio as the fallout from deteriorating credit markets weighed on shares of companies in this sector. Consumer discretionary stocks also held back performance as concerns about slowing consumer spending hurt stock performance especially in the second half of the year.
The top five performing stocks in the Fund over the twelve months ended December 31, 2007, by percentage gain, were Research In Motion Ltd., ALCAN, Inc., Nokia Corp., Diamond Offshore Drilling, Inc. and Southern Copper Corp. The worst-performing stocks, by percentage loss, were Moody's Corp., Ambac Financial Group, Inc., Bear Stearns Cos., XL Capital Ltd. and Qwest Communications International, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Industrials 19.54% Energy 18.91 Financials 12.65 Consumer Discretionary 12.35 Information Technology 10.63 Utilities 8.79 Materials 7.53 Consumer Staples 4.43 Health Care 3.42 Telecommunication Services 2.13 Net Other Assets and Liabilities (0.38) --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Research In Motion Ltd. 1.90% Diamond Offshore Drilling, Inc. 1.70 Transocean, Inc. 1.54 Berkshire Hathaway, Inc., Class B 1.50 CNH Global NV 1.50 Nokia Oyj ADR 1.48 Imperial Oil Ltd. 1.47 Apollo Group, Inc., Class A 1.41 British American Tobacco PLC ADR 1.39 Marathon Oil Corp. 1.38 --------- Total 15.27% ========= _________________________ |
"Value Line(R)" and "Value Line(R) Equity Allocation Index" are trademarks of Value Line(R), Inc. and have been licensed for use for certain purposes by First Trust on behalf of the Fund. The Fund, based on the Value Line(R) Equity Allocation Index, is not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value Line(R) makes no representation regarding the advisability of investing in the Fund.
FVI - FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
December 5, 2006 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust Value Line(R) Equity Value Line(R) Allocation Equity Index Fund Allocation Index Russell 3000 Index -------------------- ---------------- ------------------ 12/5/2006 $10,000 $10,000 $10,000 12/31/2006 9,890 9,897 10,008 12/31/2007 10,350 10,399 10,532 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 21 4 2 0 9/30/2007 19 0 0 0 6/30/2007 20 1 0 0 3/31/2007 20 1 0 0 12/31/2006* 7 0 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 32 4 1 0 9/30/2007 44 0 0 0 6/30/2007 42 0 0 0 3/31/2007 39 1 0 0 12/31/2006* 9 0 0 0 * Trading commenced on December 7, 2006. |
FVD - FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND
The First Trust Value Line(R) Dividend Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) Dividend Index (the "Index"). The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. The Index is designed to objectively identify and select those stocks from the universe of stocks of 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 dividend and capital appreciation. The Index is rebalanced on a monthly basis. The Fund's shares are listed for trading on the AMEX.
PERFORMANCE AS OF DECEMBER 31, 2007 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 12 Months Ended Inception (08/19/03) Inception (08/19/03) 12/31/07 to 12/31/07 to 12/31/07 FUND PERFORMANCE NAV -3.42% 10.70% 55.85% Market Price -3.05% 10.78% 56.35% INDEX PERFORMANCE Value Line(R) Dividend Index -2.68% N.A. N.A. S&P 500 Index 5.49% 11.14% 58.66% |
On December 15, 2006, the Fund acquired the assets and adopted the financial and performance history of First Trust Value Line(R) Dividend Fund (the "Predecessor FVD Fund," a closed-end fund), which had an inception date of August 19, 2003. The inception date total returns at NAV include the sales load of $0.675 per share on the initial offering. The investment goals, strategies and policies of the Fund are substantially similar to those of the Predecessor FVD Fund. The inception date of the Index was July 3, 2006. Returns for the Index are only disclosed for those periods in which the Index was in existence for the entire period. The cumulative total returns for the period from the reorganization date (12/15/06) through (12/31/07) were -3.67% and -2.88% at NAV and market price, respectively. That compares to an Index return of -2.89% for that same period.
Prior to December 15, 2006, the price used to calculate market return was the AMEX closing market price of the Predecessor FVD Fund. NAV and market returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Price, respectively. Prior to December 15, 2006, NAV and market returns assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of the Predecessor FVD Fund.
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. The utilities and consumer staples sectors were the biggest contributors to portfolio performance over the period on an absolute basis. The energy sector also performed well; however, a small share weight (3.4% average weight over the period) limited their impact on portfolio performance. The financials sector was the biggest drag on the performance as deteriorating credit market conditions weighed on shares of companies in this sector. The sector had the largest weight in the portfolio (33.1% average weight over the period) and also turned in the worst performance. Consumer discretionary stocks also turned in performance that was behind the overall market generally.
The top five performing stocks in the Fund over the twelve months ended December 31, 2007, by percentage gain, were PPL Corp., Constellation Energy Group, Inc., Unilever PLC, Mercantile Bankshares Corporation and ConocoPhillips. The worst-performing stocks, by percentage loss, were McClatchy Co., National City Corp., First Horizon National Corp., Freddie Mac and Zions Bancorp.
FVD - FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (CONTINUED)
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Financials 33.20% Utilities 22.07 Consumer Staples 12.10 Industrials 8.86 Consumer Discretionary 7.73 Health Care 4.93 Materials 3.88 Energy 3.39 Telecommunication Services 2.23 Information Technology 1.63 Net Other Assets and Liabilities (0.02) --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Bemis Co., Inc. 0.58% Freddie Mac 0.58 Portland General Electric Co. 0.58 Teleflex, Inc. 0.58 AGL Resources, Inc. 0.57 Avery Dennison Corp. 0.57 Enbridge, Inc. 0.57 Health Care Property Investors, Inc. 0.57 Total SA ADR 0.57 TransCanada Corp. 0.57 --------- Total 5.74% ========= |
Growth of a $10,000 Initial Investment August 19, 2003 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust Value Line(R) Dividend Index Fund S&P 500 Index ------------------------- ------------- 8/19/2003 $10,000 $10,000 12/31/2003 10,612 11,166 12/31/2004 12,605 12,381 12/31/2005 13,436 12,989 12/31/2006 16,137 15,040 12/31/2007 15,586 15,865 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 25 5 3 0 9/30/2007 15 0 0 0 6/30/2007 11 1 0 0 3/31/2007 5 0 0 0 12/31/2006* 0 0 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 23 7 1 0 9/30/2007 46 2 0 0 6/30/2007 51 0 0 0 3/31/2007 56 0 0 0 12/31/2006* 7 1 1 0 * Trading commenced on December 18, 2006. |
QQXT - FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND
The First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Ex-Tech Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of its total 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 (ICB) 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 Stock Market, Inc. ("NASDAQ(R)") based on market capitalization. The Index is equally-weighted and is rebalanced four times annually in March, June, September and December. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was 02/15/07.
PERFORMANCE AS OF DECEMBER 31, 2007
CUMULATIVE
TOTAL RETURNS
Inception (02/08/07) to 12/31/07 FUND PERFORMANCE NAV 5.95% Market Price 6.00% INDEX PERFORMANCE NASDAQ-100 Ex-Tech Sector Index(SM) 6.53% Russell 1000 Index 2.84% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. Health care stocks were the biggest contributors to portfolio performance over the period since inception (02/08/07). In addition to being a large weight in the portfolio (24.9% average weight over the period), the portfolio's holdings in the health care sector outperformed the health care sector in the broader market. Materials stocks posted the biggest gains over the period since inception; however, a small weight (1.8% average weight over the period) limited their impact on overall portfolio performance. The technology sector was the second biggest contributor to portfolio performance. The telecommunications services sector was the biggest drag on performance as the sector posted double digit negative returns over the period.
The top five performing stocks in the Fund since inception (02/8/07), by percentage gain, were Intuitive Surgical, Inc., Amazon.com, Inc., Medimmune, Garmin Ltd. and Express Scripts. The worst-performing stocks, by percentage loss, were Sepracor, Inc., Level 3 Communications, Inc., Monster Worldwide, Inc., Sears Holdings Corp. and Virgin Media, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR (1) % OF NET ASSETS Consumer Discretionary 31.82% Health Care 24.51 Industrials 18.34 Information Technology 10.23 Telecommunication Services 6.73 Consumer Staples 4.83 Materials 3.56 Money Market 2.53 Net Other Assets and Liabilities (2.55) --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Leap Wireless International, Inc. 2.03% Joy Global, Inc. 1.89 Activision, Inc. 1.88 Steel Dynamics, Inc. 1.86 Hologic, Inc. 1.81 Electronic Arts, Inc. 1.75 Patterson Cos., Inc. 1.75 Focus Media Holding Ltd. ADR 1.73 C.H. Robinson Worldwide, Inc. 1.73 Teva Pharmaceutical Industries Ltd. ADR 1.73 --------- Total 18.16% ========= |
(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.
QQXT - FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
February 8, 2007 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust NASDAQ-100 NASDAQ-100 Ex-Technology Ex-Tech Sector Index(SM) Fund Sector Index(SM) Russell 1000 Index --------------------- ---------------- ------------------ 02/08/2007 $10,000 $10,000 $10,000 12/31/2007 10,595 10,653 10,284 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 28 0 0 3 9/30/2007 31 0 0 0 6/30/2007 46 0 0 0 3/31/2007* 5 0 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 29 0 1 3 9/30/2007 30 1 1 0 6/30/2007 17 0 0 0 3/31/2007* 27 0 0 0 * Trading commenced on February 15, 2007. |
QCLN - FIRST TRUST NASDAQ(R) CLEAN EDGE(R) U.S. LIQUID SERIES INDEX FUND
The First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series 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) U.S. Liquid Series Index (the "Index"). The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. All component securities of the Index are included in the Clean Edge(R) Index, 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 and under the Index's weighting methodology, in contrast to the Clean Edge(R) Index, larger companies receive a larger Index weighting. The Index weighting methodology also includes caps to prevent high concentrations among larger alternative energy stocks. The Index is reconstituted semi-annually in March and September and rebalanced quarterly. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was 02/14/07.
PERFORMANCE AS OF DECEMBER 31, 2007
CUMULATIVE
TOTAL RETURNS
Inception (02/08/07) to 12/31/07 FUND PERFORMANCE NAV 54.30% Market Price 54.30% INDEX PERFORMANCE NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index 55.22% Russell 2000 Index -5.10% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. The portfolio produced strong gains over the period since inception (02/08/07) as rising global energy prices and demand for cleaner fuels helped to push shares higher. Growth in the solar industry powered portfolio returns as three of the four top performers were solar focused companies (First Solar, SunPower, and Suntech). Oversupply and rising corn prices pressured shares of companies in the ethanol industry. Pacific Ethanol and VeraSun were among the biggest drags on performance over the period since inception.
The top five performing stocks in the Fund since inception, by percentage gain, were First Solar, Inc., SunPower Corp., MEMC Electronic Materials, Inc., Suntech Power Holdings Co. Ltd. and GrafTech International Ltd. The worst-performing stocks, by percentage loss, were International Rectifier Corp., Power-One, Inc., Pacific Ethanol, Inc., VeraSun Energy Corp. and LDK Solar Co. Ltd.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Information Technology 44.82% Industrials 43.04 Energy 4.78 Utilities 2.83 Materials 2.17 Health Care 1.22 Consumer Discretionary 0.75 Consumer Staples 0.19 Net Other Assets and Liabilities 0.20 --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS First Solar, Inc. 8.45% Suntech Power Holdings Co. Ltd. ADR 8.02 MEMC Electronic Materials, Inc. 7.94 Linear Technology Corp. 7.66 SunPower Corp., Class A 6.35 Itron, Inc. 3.64 ON Semiconductor Corp. 3.22 International Rectifier Corp. 3.06 Cree, Inc. 2.91 Hexcel Corp. 2.88 --------- Total 54.13% ========= _________________________ |
NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The NASDAQ Stock Market, Inc. ("NASDAQ(R)") and Clean Edge, Inc. ("Clean Edge(R)") respectively. NASDAQ(R) and Clean Edge(R) are, collectively with their affiliates, the "Corporations." The Marks are licensed for use by First Trust Advisors L.P. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. The Fund should not be construed in any way as investment advice by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
QCLN - FIRST TRUST NASDAQ(R) CLEAN EDGE(R) U.S. LIQUID SERIES INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
February 8, 2007 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust NASDAQ(R) NASDAQ(R) Clean Clean Edge(R) Edge(R) U.S. Liquid U.S. Liquid Series Index Fund Series Index Russell 2000 Index --------------------- ---------------- ------------------ 02/08/2007 $10,000 $10,000 $10,000 12/31/2007 15,430 15,522 9,490 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 16 0 4 1 9/30/2007 11 0 0 1 6/30/2007 8 0 0 1 3/31/2007* 4 0 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 43 0 0 0 9/30/2007 51 0 0 0 6/30/2007 54 0 0 0 3/31/2007* 28 0 0 0 * Trading commenced on February 14, 2007. |
FRI - FIRST TRUST S&P REIT INDEX FUND
The First Trust S&P REIT Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the S&P REIT Composite Index (the "Index"). The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. The Index measures the securitized U.S. real estate investment trust ("REIT") market and is comprised of 100 companies and covers approximately 89% of the U.S. REIT market (based on capitalization) 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 AMEX. The first day of secondary market trading in shares of the Fund was 05/10/07.
PERFORMANCE AS OF DECEMBER 31, 2007
CUMULATIVE
TOTAL RETURNS
Inception (05/08/07) to 12/31/07 FUND PERFORMANCE NAV -19.08% Market Price -19.22% INDEX PERFORMANCE S&P REIT Composite Index -19.04% Russell 3000 Index -1.89% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. REIT shares were under pressure for most of the period since the Fund's inception (05/08/07). Industrial REITs had the best relative performance over the period as growth in rents and global trade benefited that segment of the REIT market. Mortgage REITs, hurt by deteriorating credit market conditions, were the worst performing sub-industry in the portfolio.
The top five performing stocks in the Fund since inception, by percentage gain, were Archstone-Smith Trust, Plum Creek Timber Company, Inc., HCP, Inc., Rayonier, Inc. REIT and Equity Inns. The worst-performing stocks, by percentage loss, were General Growth Properties, Inc., Simon Property Group, Vornado Realty Trust, Host Hotels & Resorts, Inc. and Developers Diversified Realty Corp.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Financials 99.26% Money Market Funds 8.44 Net Other Assets and Liabilities (7.70) --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Simon Property Group, Inc. 7.14% ProLogis 6.01 J.P. Morgan Institutional Treasury Money Market Fund 5.27 Vornado Realty Trust 4.34 Boston Properties, Inc. 4.04 General Growth Properties, Inc. 3.70 Equity Residential 3.64 Kimco Realty Corp. 3.39 Public Storage 3.37 Host Hotels & Resorts, Inc. 3.28 --------- Total 44.18% ========= _________________________ |
Standard & Poor's(R), S&P(R) and S&P REIT Composite Index are registered trademarks of Standard & Poor's, a division of The McGraw-Hill Companies, Inc. and have been licensed for use by First Trust Advisors L.P. The Fund is not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation, warranty or condition regarding the advisability of investing in the Fund.
FRI - FIRST TRUST S&P REIT INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust S&P REIT S&P REIT Composite Index Fund Index Russell 3000 Index --------------------- ---------------- ------------------ 05/08/2007 $10,000 $10,000 $10,000 12/31/2007 8,092 8,096 9,811 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 13 10 1 1 9/30/2007 25 1 3 0 6/30/2007* 8 2 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 28 8 3 0 9/30/2007 31 1 2 0 6/30/2007* 26 0 0 0 * Trading commenced on May 10, 2007. |
FIW - FIRST TRUST ISE WATER INDEX FUND
The First Trust ISE Water Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE Water Index(TM) (the "Index"). The Fund will normally invest at least 90% of its total 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, Inc. The first day of secondary market trading in shares of the Fund was 05/11/07.
PERFORMANCE AS OF DECEMBER 31, 2007
CUMULATIVE
TOTAL RETURNS
Inception (05/08/07) to 12/31/07 FUND PERFORMANCE NAV 12.12% Market Price 12.12% INDEX PERFORMANCE ISE Water Index(TM) 12.60% Russell 3000 Index -1.89% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. The portfolio produced solid returns in the period since inception (05/08/07) as the global demand for water and water infrastructure drove earnings on the underlying stocks higher. Companies focused on producing the technology and infrastructure to support the growth of the water industry fared the best over the period. Water utilities posted returns that trailed those of the portfolio as a whole; however, they still outpaced water utilities in the broader market.
The top five performing stocks in the Fund since inception, by percentage gain, were Calgon Carbon Corp., Flowserve Corp., Lindsay Corp., Itron, Inc. and Valmont Industries, Inc. The worst-performing stocks, by percentage loss, were Mueller Water Products, Ashland, Inc., Watts Water Technologies, Inc., Insituform Technologies, Inc. and Mueller Industries, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Industrials 61.29% Utilities 19.44 Materials 11.45 Information Technology 4.17 Health Care 3.76 Money Market Funds 0.54 Net Other Assets and Liabilities (0.65) --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Itron, Inc. 4.17% ITT Corp. 4.15 Nalco Holding Co. 4.13 Veolia Environnement ADR 4.03 Danaher Corp. 3.99 Companhia de Saneamento Basico do Estado de Sao Paulo ADR 3.95 Pentair, Inc. 3.95 Pall Corp. 3.88 Roper Industries, Inc. 3.81 Flowserve Corp. 3.77 --------- Total 39.83% ========= _________________________ |
"International Securities Exchange(TM)", "ISE(TM)" and "ISE Water Index(TM)" are trademarks of the International Securities Exchange(TM) and have been licensed for use for certain purposes by First Trust Advisors L.P. The Fund, based on the ISE Water Index(TM), is not sponsored, endorsed, sold or promoted by the International Securities Exchange(TM) and the International Securities Exchange(TM) makes no representation regarding the advisability of trading in such products.
FIW - FIRST TRUST ISE WATER INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust ISE Water ISE Water Index Fund Index(TM) Russell 3000 Index --------------------- ---------------- ------------------ 05/08/2007 $10,000 $10,000 $10,000 12/31/2007 11,212 11,260 9,811 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 27 0 0 0 9/30/2007 13 0 0 1 6/30/2007* 11 0 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 36 0 1 0 9/30/2007 49 0 0 0 6/30/2007* 24 0 0 0 * Trading commenced on May 11, 2007. |
FCG - FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND
The First Trust ISE-Revere Natural Gas Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE-REVERE Natural Gas Index(TM) (the "Index"). The Fund will normally invest at least 90% of its total 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, Inc. The first day of secondary market trading in shares of the Fund was 05/11/07.
PERFORMANCE AS OF DECEMBER 31, 2007
CUMULATIVE
TOTAL RETURNS
Inception (05/08/07) to 12/31/07 FUND PERFORMANCE NAV 11.67% Market Price 11.62% INDEX PERFORMANCE ISE-REVERE Natural Gas Index(TM) 12.13% Russell 3000 Index -1.89% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. The Fund posted strong returns in the period since inception (05/08/07). Natural gas prices over the period were relatively flat with the nearest futures contract month for Nymex natural gas declining from $7.779/Million British Thermal Units ("MMbtu") in the beginning of the return period to $7.483/MMbtu as of 12/31/2007. Baker Hughes reported that natural gas rig counts also declined slightly to 1452 from 1462 in the same time period. While natural gas fundamentals were soft, many natural gas companies did well due to their related exposure to petroleum. The nearest futures month Nymex WTI crude oil gained 46% over the period increasing from $65.71 per barrel to $95.98 per barrel by the end of 2007. Apache Corp., Range Resource Corp. and Noble Energy were the top three contributors to the performance of the Fund; all three have some operations in crude.
The top five performing stocks in the Fund since inception, by percentage gain, were Apache Corp., Range Resources Corp., Noble Energy, Inc., Delta Petroleum Corp. and Quicksilver Resources, Inc. The worst-performing stocks, by percentage loss, were NGAS Resources, Inc., Rosetta Resources, Inc., Compton Petroleum Corp., EV Energy Partners L.P. and GMX Resources, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Energy 90.45% Utilities 9.55 Money Market Funds 0.64 Net Other Assets and Liabilities (0.64) --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Delta Petroleum Corp. 4.17% Cabot Oil & Gas Corp. 3.51 Petrohawk Energy Corp. 3.50 Rosetta Resources, Inc. 3.50 Anadarko Petroleum Corp. 3.41 EXCO Resources, Inc. 3.41 Forest Oil Corp. 3.40 Pioneer Natural Resources Co. 3.38 Noble Energy, Inc. 3.38 Edge Petroleum Corp. 3.37 --------- Total 35.03% ========= _________________________ |
"International Securities Exchange(TM)", "ISE(TM)" and "ISE-REVERE Natural Gas Index(TM)" are trademarks of the International Securities Exchange(TM) and have been licensed for use for certain purposes by First Trust Advisors L.P. The Fund, based on the ISE-REVERE Natural Gas Index(TM), is not sponsored, endorsed, sold or promoted by the International Securities Exchange(TM) and the International Securities Exchange(TM) makes no representation regarding the advisability of trading in such products.
FCG - FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust ISE-REVERE ISE-Revere Natural Natural Gas Gas Index Fund Index(TM) Russell 3000 Index --------------------- ---------------- ------------------ 05/08/2007 $10,000 $10,000 $10,000 12/31/2007 11,167 11,213 9,811 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 19 0 0 1 9/30/2007 18 0 0 1 6/30/2007* 12 0 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 43 1 0 0 9/30/2007 43 1 0 0 6/30/2007* 23 0 0 0 * Trading commenced on May 11, 2007. |
FNI - FIRST TRUST ISE CHINDIA INDEX FUND
The First Trust ISE Chindia Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE ChIndia Index(TM) (the "Index"). The Fund will normally invest at least 90% of its total assets in common stocks that comprise the Index. The Index is a non-market capitalization weighted portfolio of 50 American Depositary Receipts, American Depositary Shares 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, Inc. The first day of secondary market trading in shares of the Fund was 05/11/07.
PERFORMANCE AS OF DECEMBER 31, 2007
CUMULATIVE
TOTAL RETURNS
Inception (05/08/07) to 12/31/07 FUND PERFORMANCE NAV 38.73% Market Price 38.78% INDEX PERFORMANCE ISE ChIndia Index(TM) 39.52% Russell 3000 Index -1.89% |
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. The portfolio produced strong returns in the period since inception (05/08/07) as generally strong economic growth in both China and India drove equity returns. On a relative basis, Chinese stocks outperformed Indian stocks over the period as evidenced by the fact that the top five contributors to performance were all Chinese firms.
The top five performing stocks in the Fund since inception, by percentage gain, were China Mobile Ltd., Baidu.com, Inc., CNOOC Ltd., China Life Insurance Co. Ltd. and PetroChina Co. Ltd. The worst-performing stocks, by percentage loss, were WNS Holdings Ltd., Infosys Technologies Ltd., Wipro Ltd., Patni Computer Systems and Qiao Xing Universal Telephone, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Information Technology 26.73% Energy 16.72 Financials 14.72 Telecommunication Services 12.08 Materials 11.41 Industrials 8.30 Consumer Discretionary 5.31 Health Care 3.43 Utilities 0.70 Consumer Staples 0.68 Net Other Assets and Liabilities (0.08) --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Infosys Technologies Ltd. ADR 7.39% China Petroleum & Chemical Corp. ADR 7.24 China Mobile Ltd. ADR 6.92 ICICI Bank Ltd. ADR 6.90 Sterlite Industries (India) Ltd. ADR 6.86 PetroChina Co., Ltd. ADR 6.70 Wipro Ltd. ADR 4.06 Satyam Computer Services Ltd. ADR 3.99 Baidu.com ADR 3.94 HDFC Bank Ltd. ADR 3.93 --------- Total 57.93% ========= _________________________ |
"International Securities Exchange(TM)", "ISE(TM)" and "ISE ChIndia Index(TM)" are trademarks of the International Securities Exchange(TM) and have been licensed for use for certain purposes by First Trust Advisors L.P. The Fund, based on the ISE ChIndia Index(TM), is not sponsored, endorsed, sold or promoted by the International Securities Exchange(TM) and the International Securities Exchange(TM) makes no representation regarding the advisability of trading in such products.
FNI - FIRST TRUST ISE CHINDIA INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust ISE Chindia ISE ChIndia Index Fund Index(TM) Russell 3000 Index --------------------- ---------------- ------------------ 05/08/2007 $10,000 $10,000 $10,000 12/31/2007 13,873 13,952 9,811 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 41 1 0 1 9/30/2007 29 0 0 1 6/30/2007* 12 1 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 21 0 0 0 9/30/2007 33 0 0 0 6/30/2007* 22 0 0 0 * Trading commenced on May 11, 2007. |
FVL - FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND
The First Trust Value Line(R) 100 Exchange-Traded Fund (the "Fund") is an exchange-traded index fund. In accordance with the terms of the Agreement and Plan of Reorganization (the "Plan") adopted by the Board of Trustees of the First Trust Value Line(R) 100 Fund (the "Predecessor FVL Fund," a closed-end fund) on January 17, 2007 and approved by the Predecessor FVL Fund shareholders on May 17, 2007, the Predecessor FVL Fund was reorganized with and into the Fund effective June 15, 2007. Pursuant to the Plan, the shares of the Predecessor FVL Fund ceased trading on the American Stock Exchange, Inc. ("AMEX") on Friday, June 15, 2007 and the Fund began trading on the AMEX on Monday, June 18, 2007 under the ticker symbol "FVL," the same ticker symbol previously used by the Predecessor FVL Fund. The assets of the Predecessor FVL Fund were transferred to, and the liabilities of the Predecessor FVL Fund were assumed by the Fund in exchange for shares of the Fund on a one-for-one share basis. Fund shares were distributed to the Predecessor FVL Fund shareholders, on a tax-free basis for federal income tax purposes, and the Predecessor FVL Fund has been terminated.
The objective of the Fund is to seek 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 total 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) TimelinessTM 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.
PERFORMANCE AS OF DECEMBER 31, 2007 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 12 Months Ended Inception (06/12/03) Inception (06/12/03) 12/31/07 to 12/31/07 to 12/31/07 FUND PERFORMANCE NAV 19.91% 13.15% 75.63% Market Price 30.58% 13.23% 76.22% INDEX PERFORMANCE Russell 3000 Index 5.24% 11.57% 64.66% |
On June 15, 2007, the Fund acquired the assets and adopted the financial and performance history of the Predecessor FVL 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 will only be 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 (12/31/07) were 6.61% and 6.96% at NAV and market price, respectively. That compares to an Index return of 7.02% for that same period. Prior to June 15, 2007, the price used to calculate market return was the AMEX closing market price of the Predecessor FVL Fund. Prior to June 15, 2007, NAV and market returns assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of the Predecessor FVL Fund.
(See Notes to Fund Performance Overview on page 38.)
FUND RECAP. The portfolio produced strong returns over the period since the Fund's reorganization from a closed-end fund into an exchange-traded fund (06/15/07) as the growth-oriented momentum stocks in the portfolio outpaced the broader market. Consumer discretionary stocks were the biggest contributors to portfolio performance on an absolute basis. The portfolio benefited from both strong returns along with a large weighting in the consumer discretionary sector. Materials and industrials stocks also produced strong returns. The telecommunication services sector produced the smallest gain in the portfolio; however, the performance was still inline with the overall market.
The top five performing stocks in the Fund since inception, by percentage gain, were Potash Corp. of Saskatchewan, Inc., Research In Motion Ltd., Priceline.com, Inc., Flir Systems, Inc. and Apple Computer, Inc. The worst-performing stocks, by percentage loss, were Sepracor, Inc., ValueClick, Inc., Penford Corp., CryoLife, Inc. and Moldflow Corp.
FVL - FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (CONTINUED)
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2007
SECTOR % OF NET ASSETS Information Technology 24.15% Industrials 23.30 Health Care 18.35 Consumer Discretionary 11.96 Materials 9.31 Financials 5.13 Energy 4.11 Consumer Staples 3.09 Telecommunication Services 1.03 Net Other Assets and Liabilities (0.43) --------- Total 100.00% ========= |
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2007
SECURITY % OF NET ASSETS Fresh Del Monte Produce, Inc. 1.07% Potash Corp. of Saskatchewan, Inc. 1.07 Agrium, Inc. 1.06 ArthroCare Corp. 1.06 Mosaic (The) Co. 1.06 Robbins & Myers, Inc. 1.06 Learning Tree International, Inc. 1.06 Amazon.com, Inc. 1.05 Deere & Co. 1.05 Cubic Corp. 1.05 --------- Total 10.59% ========= |
Growth of a $10,000 Initial Investment June 12, 2003 - December 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust Value Line(R) 100 Exchange-Traded Fund Russell 3000 Index ---------------------- ------------------ 06/12/03 $10,000 $10,000 12/31/03 11,591 11,382 12/31/04 13,104 12,742 12/31/05 14,658 13,522 12/31/06 15,331 15,646 12/31/07 17,562 16,464 |
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 is no guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2007
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 periods indicated.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 18 5 4 0 9/30/2007 21 3 0 0 6/30/2007* 0 1 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/31/2007 28 7 2 0 9/30/2007 38 1 0 0 6/30/2007* 8 1 0 0 * Trading commenced on June 18, 2007. |
Total returns for the periods since inception are calculated from the inception date of each Fund. "Average annual total returns" respresent 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.
The Fund's per share net asset value ("NAV") is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund are listed for trading as of the time that the Fund's NAV is calculated. Since shares of 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 returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Price, respectively. 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. 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 the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results.
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2007
As a shareholder of First Trust Dow Jones Select MicroCap Index(SM) Fund, First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, First Trust IPOX-100 Index Fund, First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust NASDAQ-100-Technology Sector Index(SM) Fund, First Trust Amex(R) Biotechnology Index Fund, First Trust Dow Jones Internet Index(SM) Fund, First Trust DB Strategic Value Index Fund, First Trust Value Line(R) Equity Allocation Index Fund, First Trust Value Line(R) Dividend Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series 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, or First Trust Value Line(R) 100 Exchange-Traded Fund (collectively, the "Funds"), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual 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, 2007.
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
six-month 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 paid on purchases and sales of Fund shares. 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 BEGINNING ENDING BASED ON THE EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH DURING THE JULY 1, 2007 DECEMBER 31, 2007 PERIOD (A) SIX-MONTH PERIOD (B) FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND Actual $1,000.00 $884.70 0.60% $2.85 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND Actual $1,000.00 $870.60 0.45% $2.12 Hypothetical (5% return before expenses) $1,000.00 $1,022.94 0.45% $2.29 FIRST TRUST IPOX-100 INDEX FUND Actual $1,000.00 $1,026.40 0.60% $3.06 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND Actual $1,000.00 $999.10 0.60% $3.02 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND Actual $1,000.00 $984.00 0.60% $3.00 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 Page 39 |
FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES (CONTINUED) DECEMBER 31, 2007 ANNUALIZED EXPENSE RATIO BEGINNING ENDING BASED ON THE EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH DURING THE JULY 1, 2007 DECEMBER 31, 2007 PERIOD (A) SIX-MONTH PERIOD (B) FIRST TRUST AMEX(R) BIOTECHNOLOGY INDEX FUND Actual $1,000.00 $1,008.30 0.60% $3.04 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND Actual $1,000.00 $966.90 0.60% $2.97 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST DB STRATEGIC VALUE INDEX FUND Actual $1,000.00 $981.10 0.65% $3.25 Hypothetical (5% return before expenses) $1,000.00 $1,021.93 0.65% $3.31 FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND Actual $1,000.00 $975.40 0.70% $3.49 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND Actual $1,000.00 $941.00 0.70% $3.42 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57 FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND Actual $1,000.00 $1,013.40 0.60% $3.05 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST NASDAQ(R) CLEAN EDGE(R) U.S. LIQUID SERIES INDEX FUND Actual $1,000.00 $1,313.80 0.60% $3.50 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST S&P REIT INDEX FUND Actual $1,000.00 $881.70 0.50% $2.37 Hypothetical (5% return before expenses) $1,000.00 $1,022.69 0.50% $2.55 FIRST TRUST ISE WATER INDEX FUND Actual $1,000.00 $1,030.00 0.60% $3.07 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND Actual $1,000.00 $1,100.20 0.60% $3.18 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST ISE CHINDIA INDEX FUND Actual $1,000.00 $1,266.90 0.60% $3.43 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND Actual $1,000.00 $1,073.70 0.70% $3.66 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57 (a) These expense ratios reflect expense caps. (b) Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (July 1, 2007 through December 31, 2007), multiplied by 184/365. |
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (A)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.3% Aerospace & Defense--0.8% 1,682 American Science & Engineering, Inc. $ 95,453 1,617 LMI Aerospace, Inc. (b) 42,867 ------------- 138,320 ------------- Air Freight & Logistics--0.2% 1,564 Park-Ohio Holdings Corp. (b) 39,256 ------------- Airlines--0.7% 2,546 Allegiant Travel Co. (b) 81,829 3,385 Pinnacle Airlines Corp. (b) 51,621 ------------- 133,450 ------------- Auto Components--1.2% 3,998 Aftermarket Technology Corp. (b) 108,986 5,521 Spartan Motors, Inc. 42,180 3,984 Superior Industries International, Inc. 72,389 ------------- 223,555 ------------- Beverages--0.5% 1,881 Boston Beer (The) Co., Inc., Class A (b) 70,820 1,886 MGP Ingredients, Inc. 17,766 ------------- 88,586 ------------- Building Products--0.6% 5,119 Gibraltar Industries, Inc. 78,935 3,114 Insteel Industries, Inc. 36,527 ------------- 115,462 ------------- Capital Markets--1.2% 3,921 Calamos Asset Management, Inc., Class A 116,768 6,411 TradeStation Group, Inc. (b) 91,100 ------------- 207,868 ------------- Chemicals--3.5% 4,597 A. Schulman, Inc. 99,065 3,389 American Vanguard Corp. 58,799 3,093 Flotek Industries, Inc. (b) 111,472 4,761 ICO, Inc. (b) 61,131 2,853 Koppers Holdings, Inc. 123,365 4,446 Landec Corp. (b) 59,576 2,738 LSB Industries, Inc. (b) 77,266 1,632 Penford Corp. 41,763 ------------- 632,437 ------------- Commercial Banks--6.6% 2,316 Bank of the Ozarks, Inc. 60,679 3,961 Cascade Bancorp 55,137 4,132 Chemical Financial Corp. 98,300 3,021 City Holding Co. 102,231 3,523 CoBiz Financial, Inc. 52,387 5,500 Community Bank System, Inc. 109,285 2,189 Greene BancShares, Inc. 42,029 Commercial Banks (Continued) 2,538 Independent Bank Corp. $ 69,084 4,086 Nara Bancorp, Inc. 47,684 6,128 NBT Bancorp, Inc. 139,840 4,047 PrivateBancorp, Inc. 132,135 3,895 Renasant Corp. 84,015 2,798 Seacoast Banking Corp. of Florida 28,763 4,754 Texas Capital Bancshares, Inc. (b) 86,761 2,853 West Coast Bancorp 52,781 ------------- 1,161,111 ------------- Commercial Services & Supplies--7.4% 2,898 American Ecology Corp. 68,045 4,908 Bowne & Co., Inc. 86,381 9,502 CBIZ, Inc. (b) 93,215 2,402 CDI Corp. 58,273 2,473 COMSYS IT Partners, Inc. (b) 39,024 1,850 Cornell Cos., Inc. (b) 43,142 2,046 Courier Corp. 67,538 2,021 CRA International, Inc. (b) 96,219 4,673 Ennis, Inc. 84,114 4,610 Hudson Highland Group, Inc. (b) 38,770 1,239 ICF International, Inc. (b) 31,297 5,095 Innerworkings, Inc. (b) 87,940 7,637 Kforce, Inc. (b) 74,461 4,643 LECG Corp. (b) 69,924 6,462 On Assignment, Inc. (b) 45,299 3,192 Pike Electric Corp. (b) 53,498 1,966 Schawk, Inc. 30,512 10,400 Spherion Corp. (b) 75,712 3,312 Team, Inc. (b) 121,152 1,218 Waste Industries USA, Inc. 44,213 ------------- 1,308,729 ------------- Communications Equipment--1.4% 2,800 Anaren, Inc. (b) 46,172 2,814 EMS Technologies, Inc. (b) 85,095 6,785 Ixia (b) 64,322 3,740 Oplink Communications, Inc. (b) 57,409 ------------- 252,998 ------------- Computers & Peripherals--0.7% 3,840 STEC, Inc. (b) 33,562 3,842 Stratasys, Inc. (b) 99,277 ------------- 132,839 ------------- Construction & Engineering--0.8% 1,894 Integrated Electrical Services, Inc. (b) 35,588 1,279 Michael Baker Corp. (b) 52,567 1,643 Northwest Pipe Co. (b) 64,307 ------------- 152,462 ------------- Consumer Finance--0.4% 5,098 First Cash Financial Services, Inc. (b) 74,839 ------------- |
See Notes to Financial Statements. Page 41
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (A) (CONTINUED) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Diversified Consumer Services--0.5% 977 CPI Corp. $ 23,008 4,379 Universal Technical Institute, Inc. (b) 74,443 ------------- 97,451 ------------- Diversified Financial Services--0.3% 1,992 ASTA Funding, Inc. 52,668 ------------- Diversified Telecommunication Services--2.3% 7,854 Alaska Communications Systems Group, Inc. 117,811 1,753 Atlantic Tele-Network, Inc. 59,216 4,286 Consolidated Communications Holdings, Inc. 85,291 5,058 FairPoint Communications, Inc. 65,855 5,776 Iowa Telecommunications Services, Inc. 93,918 ------------- 422,091 ------------- Electrical Equipment--0.7% 2,173 Azz, Inc. (b) 61,605 3,684 LSI Industries, Inc. 67,048 ------------- 128,653 ------------- Electronic Equipment & Instruments--3.7% 6,598 CTS Corp. 65,518 2,806 FARO Technologies, Inc. (b) 76,267 15,397 Kemet Corp. (b) 102,082 3,446 LoJack Corp. (b) 57,927 6,870 Methode Electronics, Inc. 112,943 3,403 Park Electrochemical Corp. 96,101 3,032 SYNNEX Corp. (b) 59,427 7,771 TTM Technologies, Inc. (b) 90,610 ------------- 660,875 ------------- Energy Equipment & Services--4.9% 4,784 Bronco Drilling Co., Inc. (b) 71,042 1,312 Dawson Geophysical Co. (b) 93,756 2,043 Gulf Island Fabrication, Inc. 64,784 4,889 Matrix Service Co. (b) 106,679 16,434 Newpark Resources, Inc. (b) 89,565 840 OYO Geospace Corp. (b) 63,302 9,114 Pioneer Drilling Co. (b) 108,275 2,746 Superior Well Services, Inc. (b) 58,270 2,237 T-3 Energy Services, Inc. (b) 105,161 2,318 Trico Marine Services, Inc. (b) 85,812 2,125 Union Drilling, Inc. (b) 33,511 ------------- 880,157 ------------- Food & Staples Retailing--1.4% 2,465 Nash Finch Co. 86,965 Food & Staples Retailing (Continued) 2,263 PriceSmart, Inc. $ 68,026 3,919 Spartan Stores, Inc. 89,549 ------------- 244,540 ------------- Food Products--1.1% 14,844 Darling International, Inc. (b) 171,596 1,532 Imperial Sugar Co. 28,756 ------------- 200,352 ------------- Gas Utilities--0.7% 3,719 Laclede Group (The), Inc. 127,339 ------------- Health Care Equipment & Supplies--4.8% 2,019 Aspect Medical Systems, Inc. (b) 28,266 1,533 Cynosure, Inc. (b) 40,563 2,355 Datascope Corp. 85,722 2,329 ICU Medical, Inc. (b) 83,867 3,350 IRIS International, Inc. (b) 65,727 1,681 Kensey Nash Corp. (b) 50,296 2,707 Medical Action Industries, Inc. (b) 56,441 3,260 Natus Medical, Inc. (b) 63,081 5,647 Quidel Corp. (b) 109,947 5,942 Symmetry Medical, Inc. (b) 103,569 1,490 Vital Signs, Inc. 76,169 3,681 Zoll Medical Corp. (b) 98,356 ------------- 862,004 ------------- Health Care Providers & Services--6.3% 1,969 Air Methods Corp. (b) 97,800 4,520 Alliance Imaging, Inc. (b) 43,482 2,293 American Dental Partners, Inc. (b) 22,999 2,161 Bio-Reference Laboratories, Inc. (b) 70,621 5,438 Cross Country Healthcare, Inc. (b) 77,437 1,700 Emergency Medical Services Corp. (b) 49,776 4,763 Gentiva Health Services, Inc. (b) 90,688 3,943 Matria Healthcare, Inc. (b) 93,725 2,378 Medcath Corp. (b) 58,404 2,209 MWI Veterinary Supply, Inc. (b) 88,360 6,033 Odyssey HealthCare, Inc. (b) 66,725 2,137 Providence Service (The) Corp. (b) 60,135 3,210 RehabCare Group, Inc. (b) 72,418 4,648 Res-Care, Inc. (b) 116,944 7,015 Sun Healthcare Group, Inc. (b) 120,447 ------------- 1,129,961 ------------- Health Care Technology--0.2% 1,874 Computer Programs & Systems, Inc. 42,615 ------------- Hotels, Restaurants & Leisure--3.7% 5,222 AFC Enterprises (b) 59,113 3,320 BJ'S Restaurants, Inc. (b) 53,983 2,825 Buffalo Wild Wings, Inc. (b) 65,597 5,346 California Pizza Kitchen, Inc. (b) 83,237 |
Page 42 See Notes to Financial Statements.
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (A) (CONTINUED)
DECEMBER 31, 2007
Common Stocks (Continued)
Hotels, Restaurants & Leisure (Continued)
3,940 Marcus (The) Corp. $ 60,873 2,714 McCormick & Schmick's Seafood Restaurants, Inc. (b) 32,378 2,162 Monarch Casino & Resort, Inc. (b) 52,061 2,045 Morton's Restaurant Group, Inc. (b) 19,080 2,553 Peet's Coffee & Tea, Inc. (b) 74,216 2,853 Red Robin Gourmet Burgers, Inc. (b) 91,267 4,760 Steak N Shake (The) Co. (b) 51,884 2,462 Town Sports International Holdings, Inc. (b) 23,537 ------------- 667,226 ------------- Household Durables--1.1% 5,221 Helen of Troy Ltd. (b) 89,488 1,654 Lifetime Brands, Inc. 21,469 2,639 Universal Electronics, Inc. (b) 88,248 ------------- 199,205 ------------- Household Products--0.6% 2,922 WD-40 Co. 110,948 ------------- Industrial Conglomerates--0.7% 3,326 Raven Industries, Inc. 127,685 ------------- Insurance--2.9% 9,776 American Equity Investment Life Holding Co. 81,043 1,777 American Physicians Capital, Inc. 73,674 2,786 First Mercury Financial Corp. (b) 67,978 6,610 Meadowbrook Insurance Group, Inc. (b) 62,200 5,114 OneBeacon Insurance Group Ltd. 109,952 2,866 Seabright Insurance Holdings (b) 43,219 3,142 Stewart Information Services Corp. 81,975 ------------- 520,041 ------------- Internet & Catalog Retail--1.2% 3,617 FTD Group, Inc. 46,587 2,547 Gaiam, Inc. (b) 75,595 4,472 PetMed Express, Inc. (b) 54,111 3,253 Stamps.com, Inc. (b) 39,622 ------------- 215,915 ------------- Internet Software & Services--1.8% 3,769 Greenfield Online, Inc. (b) 55,065 5,320 Perficient, Inc. (b) 83,737 11,419 SonicWALL, Inc. (b) 122,411 4,896 Vignette Corp. (b) 71,531 ------------- 332,744 ------------- IT Services--1.9% 9,824 Ciber, Inc. (b) 60,025 6,130 infoUSA, Inc. 54,741 3,669 ManTech International Corp., Class A (b) 160,775 IT Services (Continued) 2,410 SI International, Inc. (b) $ 66,203 ------------- 341,744 ------------- Leisure Equipment & Products--1.4% 5,191 Jakks Pacific, Inc. (b) 122,559 3,485 RC2 Corp. (b) 97,824 4,163 Sturm, Ruger & Co., Inc. (b) 34,470 ------------- 254,853 ------------- Life Sciences Tools & Services--1.2% 4,314 Albany Molecular Research, Inc. (b) 62,035 5,312 Cambrex Corp. 44,515 2,356 Kendle International, Inc. (b) 115,255 ------------- 221,805 ------------- Machinery--8.6% 4,830 Altra Holdings, Inc. (b) 80,323 1,663 American Railcar Industries, Inc. 32,013 1,370 Ampco-Pittsburgh Corp. 52,238 2,268 Badger Meter, Inc. 101,947 6,999 Blount International, Inc. (b) 86,158 5,067 Chart Industries, Inc. (b) 156,569 3,061 CIRCOR International, Inc. 141,908 3,442 Columbus McKinnon Corp. (b) 112,278 2,178 Dynamic Materials Corp. 128,284 1,961 Gehl Co. (b) 31,454 2,787 Greenbrier Cos., Inc. 62,039 2,105 Hardinge, Inc. 35,322 974 Hurco Cos., Inc. (b) 42,515 2,557 Kadant, Inc. (b) 75,866 1,931 L.B. Foster Co., Class A (b) 99,891 1,983 Lindsay Corp. 140,178 2,157 Sun Hydraulics, Corp. 54,421 845 Twin Disc, Inc. 59,801 5,613 Wabash National Corp. 43,164 ------------- 1,536,369 ------------- Marine--0.4% 1,976 TBS International Ltd. (b) 65,327 ------------- Media--2.3% 5,873 Cox Radio, Inc., Class A (b) 71,357 2,781 DG Fastchannel, Inc. (b) 71,305 10,970 Entravision Communications Corp., Class A (b) 85,895 8,665 Journal Communications, Inc., Class A 77,465 3,781 Playboy Enterprises, Inc., Class B (b) 34,483 9,712 Sinclair Broadcast Group, Inc., Class A 79,736 ------------- 420,241 ------------- Metals & Mining--0.7% 3,224 A.M. Castle & Co. 87,661 1,853 Claymont Steel Holdings, Inc. (b) 43,268 ------------- 130,929 ------------- |
See Notes to Financial Statements. Page 43
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (A) (CONTINUED) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Oil, Gas & Consumable Fuels--1.7% 3,097 DCP Midstream Partners LP (c) $ 142,307 7,870 PetroQuest Energy, Inc. (b) 112,541 1,677 TransMontaigne Partners LP (c) 47,610 ------------- 302,458 ------------- Paper & Forest Products--2.1% 7,187 Buckeye Technologies, Inc. (b) 89,838 8,235 Glatfelter 126,077 2,715 Neenah Paper, Inc. 79,142 2,871 Schweitzer-Mauduit International, Inc. 74,388 ------------- 369,445 ------------- Personal Products--1.0% 5,000 Elizabeth Arden, Inc. (b) 101,750 1,731 Inter Parfums, Inc. 31,106 6,450 Prestige Brands Holdings, Inc. (b) 48,246 ------------- 181,102 ------------- Pharmaceuticals--0.9% 2,525 Bradley Pharmaceuticals, Inc. (b) 49,743 2,337 Obagi Medical Products, Inc. (b) 42,744 8,671 Salix Pharmaceuticals Ltd. (b) 68,327 ------------- 160,814 ------------- Road & Rail--0.4% 4,351 Celadon Group, Inc. (b) 39,855 2,770 Marten Transport Ltd. (b) 38,642 ------------- 78,497 ------------- Semiconductors & Semiconductor Equipment--1.8% 14,756 Cirrus Logic, Inc. (b) 77,912 3,882 Cohu, Inc. 59,395 9,392 Mattson Technology, Inc. (b) 80,395 4,989 Rudolph Technologies, Inc. (b) 56,475 3,553 Ultra Clean Holdings (b) 43,347 ------------- 317,524 ------------- Software--1.6% 11,095 Actuate Corp. (b) 86,208 1,547 Interactive Intelligence, Inc. (b) 40,763 4,471 Radiant Systems, Inc. (b) 77,035 7,107 Tyler Technologies, Inc. (b) 91,610 ------------- 295,616 ------------- Specialty Retail--2.8% 3,720 A.C. Moore Arts & Crafts, Inc. (b) 51,150 3,811 Big 5 Sporting Goods Corp. 54,955 6,740 Casual Male Retail Group, Inc. (b) 34,913 5,635 Cato (The) Corp., Class A 88,244 2,192 Conn's, Inc. (b) 37,505 3,309 Jos. A. Bank Clothiers, Inc. (b) 94,141 2,712 Midas, Inc. (b) 39,758 Specialty Retail (Continued) 3,700 Monro Muffler Brake, Inc. $ 72,113 2,631 West Marine, Inc. (b) 23,626 ------------- 496,405 ------------- Textiles, Apparel & Luxury Goods--2.2% 3,436 Maidenform Brands, Inc. (b) 46,489 3,545 Movado Group, Inc. 89,653 2,126 Perry Ellis International, Inc. (b) 32,698 3,370 Steven Madden Ltd. (b) 67,400 2,573 True Religion Apparel, Inc. (b) 54,934 2,631 UniFirst Corp. 99,978 ------------- 391,152 ------------- Thrifts & Mortgage Finance--1.8% 3,524 Anchor BanCorp Wisconsin, Inc. 82,884 9,671 Bank Mutual Corp. 102,223 5,771 Dime Community Bancshares 73,696 1,160 WSFS Financial Corp. 58,232 ------------- 317,035 ------------- Tobacco--0.4% 17,591 Alliance One International, Inc. (b) 71,595 ------------- Trading Companies & Distributors--0.5% 4,775 Rush Enterprises, Inc., Class A (b) 86,810 ------------- Water Utilities--1.4% 3,133 American States Water Co. 118,051 2,386 SJW Corp. 82,723 4,425 Southwest Water Co. 55,401 ------------- 256,175 ------------- Wireless Telecommunication Services--0.3% 4,247 USA Mobility, Inc. 60,732 ------------- Total Investments--100.3% (Cost $19,454,663) 18,041,010 Net Other Assets and Liabilities--(0.3%) (48,209) ------------- Net Assets--100.0% $ 17,992,801 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
(c) Master limited partnership ("MLP").
Page 44 See Notes to Financial Statements.
FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND
PORTFOLIO OF INVESTMENTS (A)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--99.8% Building Products--0.8% 22,949 Masco Corp. $ 495,928 ------------- Chemicals--2.7% 38,347 Dow Chemical (The) Co. 1,511,639 3,759 Olin Corp. 72,661 6,407 RPM International, Inc. 130,062 ------------- 1,714,362 ------------- Commercial Banks--29.2% 7,755 Associated Banc-Corp. 210,083 3,869 BancorpSouth, Inc. 91,347 39,957 BB&T Corp. 1,225,481 1,416 Chemical Financial Corp. 33,687 8,984 Citizens Banking Corp. 130,358 11,654 Colonial BancGroup (The), Inc. 157,795 12,960 Comerica, Inc. 564,149 1,678 Community Bank System, Inc. 33,342 5,599 F.N.B. Corp. 82,305 44,814 Fifth Third Bancorp. 1,126,176 1,280 First Charter Corp. 38,221 3,282 First Financial Bancorp 37,415 16,945 First Horizon National Corp. 307,552 2,830 First Midwest Bancorp, Inc. 86,598 6,119 FirstMerit Corp. 122,441 13,198 Fulton Financial Corp. 148,082 38,824 Huntington Bancshares, Inc. 573,042 33,479 KeyCorp 785,083 75,251 National City Corp. 1,238,631 2,666 National Penn Bancshares, Inc. 40,363 1,513 NBT Bancorp, Inc. 34,527 5,422 Old National Bancorp 81,113 2,991 Pacific Capital Bancorp 60,209 924 Park National Corp. 59,598 18,351 PNC Financial Services Group, Inc. 1,204,743 22,910 Popular, Inc. 242,846 2,630 Provident Bankshares Corp. 56,256 1,410 S&T Bancorp., Inc. 38,972 4,466 South Financial Group (The), Inc. 69,804 20,043 SunTrust Banks, Inc. 1,252,487 4,171 Susquehanna Bancshares, Inc. 76,913 9,107 TCF Financial Corp. 163,289 2,672 Trustmark Corp. 67,762 67,764 U.S. Bancorp 2,150,829 2,353 United Bankshares, Inc. 65,931 7,723 Valley National Bancorp 147,200 24,958 W Holding Co., Inc. 30,698 82,339 Wachovia Corp. 3,131,351 89,398 Wells Fargo & Co. 2,698,925 1,316 WesBanco, Inc. 27,110 4,311 Whitney Holding Corp. 112,733 3,748 Wilmington Trust Corp. 131,930 ------------- 18,937,377 ------------- Commercial Services & Supplies--0.0% 1,622 Kimball International, Inc. $ 22,221 ------------- Diversified Financial Services--19.2% 156,334 Bank of America Corp. 6,450,341 202,403 Citigroup, Inc. 5,958,744 ------------- 12,409,085 ------------- Diversified Telecommunication Services--13.2% 127,179 AT&T, Inc. 5,285,559 74,423 Verizon Communications, Inc. 3,251,541 ------------- 8,537,100 ------------- Electric Utilities--5.2% 2,729 Cleco Corp. 75,866 5,506 DPL, Inc. 163,253 2,359 Empire District Electric (The) Co. 53,738 6,765 Great Plains Energy, Inc. 198,350 1,252 Otter Tail Corp. 43,319 9,559 Pepco Holdings, Inc. 280,365 6,861 Pinnacle West Capital Corp. 290,975 17,977 Progress Energy, Inc. 870,626 35,597 Southern Co. 1,379,384 ------------- 3,355,876 ------------- Gas Utilities--1.1% 4,906 AGL Resources, Inc. 184,661 5,839 Atmos Energy Corp. 163,726 1,224 Laclede Group (The), Inc. 41,910 2,704 Nicor, Inc. 114,514 3,697 Piedmont Natural Gas Co., Inc. 96,714 2,877 WGL Holdings, Inc. 94,251 ------------- 695,776 ------------- Household Durables--0.1% 2,249 Tupperware Brands Corp. 74,285 ------------- Insurance--1.4% 6,499 Arthur J. Gallagher & Co. 157,211 8,160 Cincinnati Financial Corp. 322,647 2,645 Commerce Group (The), Inc. 95,167 1,524 Mercury General Corp. 75,910 2,707 Unitrin, Inc. 129,909 2,533 Zenith National Insurance Corp. 113,301 ------------- 894,145 ------------- Metals & Mining--0.3% 2,871 Nucor Corp. 170,021 ------------- Multi-Utilities--6.3% 13,600 Ameren Corp. 737,256 1,695 Black Hills Corp. 74,750 1,085 CH Energy Group, Inc. 48,326 18,020 Consolidated Edison, Inc. 880,277 |
See Notes to Financial Statements. Page 45
FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND PORTFOLIO OF INVESTMENTS (A) (CONTINUED) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Multi-Utilities (Continued) 13,516 Dominion Resources, Inc. $ 641,334 10,975 DTE Energy Co. 482,461 10,020 Energy East Corp. 272,644 5,352 NSTAR 193,849 4,834 OGE Energy Corp. 175,426 5,867 Puget Energy, Inc. 160,932 6,054 SCANA Corp. 255,176 4,671 Vectren Corp. 135,506 ------------- 4,057,937 ------------- Pharmaceuticals--10.1% 70,822 Bristol-Myers Squibb Co. 1,878,199 204,903 Pfizer, Inc. 4,657,446 ------------- 6,535,645 ------------- Real Estate Investment Trusts--0.3% 4,674 Rayonier, Inc. 220,800 ------------- Thrifts & Mortgage Finance--3.1% 5,526 Astoria Financial Corp. 128,590 4,412 Corus Bankshares, Inc. 47,076 7,075 First Niagara Financial Group, Inc. 85,183 1,528 Flagstar Bancorp, Inc. 10,650 4,792 Washington Federal, Inc. 101,159 119,923 Washington Mutual, Inc. 1,632,152 ------------- 2,004,810 ------------- Tobacco--6.8% 50,877 Altria Group, Inc. 3,845,283 9,767 UST, Inc. 535,232 ------------- 4,380,515 ------------- Total Investments--99.8% (Cost $76,588,671) 64,505,883 Net Other Assets and Liabilities--0.2% 144,606 ------------- Net Assets--100.0% $ 64,650,489 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
Page 46 See Notes to Financial Statements.
FIRST TRUST IPOX-100 INDEX FUND
PORTFOLIO OF INVESTMENTS (A)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.2% Aerospace & Defense--1.6% 2,812 DynCorp International, Inc., Class A (b) $ 75,587 6,879 Spirit Aerosystems Holdings, Inc., Class A (b) 237,325 2,328 TransDigm Group, Inc. (b) 105,155 ------------- 418,067 ------------- Biotechnology--0.2% 3,005 Theravance, Inc. (b) 58,598 ------------- Building Products--0.3% 3,401 Goodman Global, Inc. (b) 83,461 ------------- Capital Markets--5.5% 11,441 Ameriprise Financial, Inc. 630,513 1,451 GFI Group, Inc. (b) 138,890 1,331 Greenhill & Co., Inc. 88,485 5,321 Lazard Ltd., Class A 216,458 5,902 MF Global Ltd. (b) 185,736 3,658 Och-Ziff Capital Management Group, Class A 96,132 3,107 optionsXpress Holdings, Inc. 105,079 ------------- 1,461,293 ------------- Chemicals--4.5% 7,461 Celanese Corp., Class A 315,749 2,756 CF Industries Holding, Inc. 303,325 10,953 Huntsman Corp. 281,492 7,048 Nalco Holding Co. 170,421 3,644 Rockwood Holdings, Inc. (b) 121,054 ------------- 1,192,041 ------------- Commercial Services & Supplies--1.1% 4,292 EnergySolutions, Inc. (b) 115,841 3,091 IHS, Inc., Class A (b) 187,191 ------------- 303,032 ------------- Communications Equipment--0.2% 3,388 Starent Networks Corp. (b) 61,831 ------------- Construction & Engineering--1.7% 4,851 Aecom Technology Corp. (b) 138,593 8,358 KBR, Inc. (b) 324,290 ------------- 462,883 ------------- Consumer Finance--1.3% 23,560 Discover Financial Services 355,285 ------------- Diversified Financial Services--4.4% 794 MSCI, Inc., Class A (b) 30,490 13,074 NYSE Euronext 1,147,505 ------------- 1,177,995 ------------- Diversified Telecommunication Services--1.4% 7,539 Embarq Corp. $ 373,407 ------------- Electric Utilities--0.5% 2,110 ITC Holdings Corp. 119,046 ------------- Electrical Equipment--5.9% 3,846 First Solar, Inc. (b) 1,027,420 4,135 SunPower Corp., Class A (b) 539,163 ------------- 1,566,583 ------------- Electronic Equipment & Instruments--4.4% 5,446 Dolby Laboratories, Inc., Class A (b) 270,775 24,529 Tyco Electronics Ltd. 910,762 ------------- 1,181,537 ------------- Energy Equipment & Services--1.5% 5,166 Cal Dive International, Inc. (b) 68,398 3,601 Complete Production Services, Inc. (b) 64,710 4,234 Dresser-Rand Group, Inc. (b) 165,337 4,383 Hercules Offshore, Inc. (b) 104,228 ------------- 402,673 ------------- Health Care Equipment & Supplies--5.0% 24,564 Covidien Ltd. 1,087,939 5,142 ev3, Inc. (b) 65,355 2,696 Masimo Corp. (b) 106,357 1,732 NuVasive, Inc. (b) 68,449 ------------- 1,328,100 ------------- Health Care Providers & Services--0.9% 5,013 Brookdale Senior Living, Inc. 142,419 2,058 WellCare Health Plans, Inc. (b) 87,280 ------------- 229,699 ------------- Hotels, Restaurants & Leisure--3.1% 6,671 Burger King Holdings, Inc. 190,190 1,929 Life Time Fitness, Inc. (b) 95,833 9,240 Tim Hortons, Inc. 341,233 8,778 Wyndham Worldwide Corp. 206,810 ------------- 834,066 ------------- Independent Power Producers & Energy Traders--0.4% 2,048 Ormat Technologies, Inc. 112,660 ------------- Insurance--3.7% 2,981 Allied World Assurance Holdings Ltd. 149,557 3,341 Assured Guaranty Ltd. 88,670 21,641 Genworth Financial Inc., Class A 550,763 4,912 OneBeacon Insurance Group Ltd. 105,608 |
See Notes to Financial Statements. Page 47
FIRST TRUST IPOX-100 INDEX FUND PORTFOLIO OF INVESTMENTS (A) (CONTINUED) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Insurance (Continued) 3,661 Validus Holdings Ltd. (b) $ 95,113 ------------- 989,711 ------------- Internet Software & Services--11.4% 2,097 DealerTrack Holdings, Inc. (b) 70,187 3,845 Google, Inc., Class A (b) 2,658,741 2,943 Omniture, Inc. (b) 97,972 2,155 VistaPrint Ltd. (b) 92,342 2,834 WebMD Health Corp., Class A (b) 116,392 ------------- 3,035,634 ------------- IT Services--10.9% 10,448 Genpact Ltd. (b) 159,123 6,500 MasterCard, Inc., Class A 1,398,800 3,794 NeuStar, Inc., Class A (b) 108,812 8,232 SAIC, Inc. (b) 165,628 4,020 VeriFone Holdings, Inc. (b) 93,465 37,047 Western Union Co. 899,501 1,962 Wright Express Corp. (b) 69,631 ------------- 2,894,960 ------------- Machinery--0.7% 1,846 Bucyrus International, Inc., Class A 183,474 ------------- Marine--0.3% 1,424 Genco Shipping & Trading Ltd. 77,978 ------------- Media--11.8% 5,255 Cinemark Holdings, Inc. 89,335 4,917 DreamWorks Animation SKG, Inc., Class A (b) 125,580 2,171 Morningstar, Inc. (b) 168,795 48,196 Time Warner Cable, Inc., Class A (b) 1,330,210 32,376 Viacom, Inc., Class B (b) 1,421,954 ------------- 3,135,874 ------------- Oil, Gas & Consumable Fuels--8.3% 3,237 Alpha Natural Resources, Inc. (b) 105,138 1,327 Atlas America, Inc. 78,532 2,217 Bill Barrett Corp. (b) 92,826 3,737 Concho Resources, Inc. (b) 77,020 8,291 Continental Resources, Inc. (b) 216,644 2,088 Copano Energy LLC 75,899 4,250 CVR Energy, Inc. (b) 105,995 5,155 EXCO Resources, Inc. (b) 79,799 2,230 Foundation Coal Holdings, Inc. 117,075 6,998 SandRidge Energy, Inc. (b) 250,948 31,195 Spectra Energy Corp. 805,454 3,761 W&T Offshore, Inc. 112,680 3,359 Western Refining, Inc. 81,321 ------------- 2,199,331 ------------- Personal Products--0.9% 4,496 Bare Escentuals, Inc. (b) $ 109,028 3,354 Herbalife Ltd. 135,099 ------------- 244,127 ------------- Pharmaceuticals--0.8% 12,362 Warner Chilcott Ltd., Class A (b) 219,178 ------------- Real Estate Management & Development--0.9% 11,354 CB Richard Ellis Group, Inc., Class A (b) 244,679 ------------- Road & Rail--1.0% 15,873 Hertz Global Holdings, Inc. (b) 252,222 ------------- Semiconductors & Semiconductor Equipment--1.2% 2,802 Atheros Communications (b) 85,573 1,529 Hittite Microwave Corp. (b) 73,025 2,961 SiRF Technology Holdings, Inc. (b) 74,410 2,361 Tessera Technologies, Inc. (b) 98,218 ------------- 331,226 ------------- Software--0.3% 3,195 Solera Holdings, Inc. (b) 79,172 ------------- Specialty Retail--0.6% 3,033 J. Crew Group, Inc. (b) 146,221 ------------- Textiles, Apparel & Luxury Goods--1.0% 4,068 Crocs, Inc. (b) 149,744 4,697 Hanesbrands, Inc. (b) 127,617 ------------- 277,361 ------------- Trading Companies & Distributors--0.8% 3,869 Aircastle Ltd. 101,871 2,588 UAP Holding Corp. 99,897 ------------- 201,768 ------------- Wireless Telecommunication Services--1.7% 8,099 Clearwire Corp., Class A (b) 111,037 17,141 MetroPCS Communications, Inc. (b) 333,393 ------------- 444,430 ------------- Total Investments--100.2% (Cost $24,691,056) 26,679,603 Net Other Assets and Liabilities--(0.2%) (46,872) ------------- Net Assets--100.0% $ 26,632,731 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
Page 48 See Notes to Financial Statements.
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (A)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.3% Air Freight & Logistics--2.0% 6,008 C.H. Robinson Worldwide, Inc. $ 325,153 6,770 Expeditors International of Washington, Inc. 302,484 ------------- 627,637 ------------- Airlines--2.0% 8,171 Ryanair Holdings PLC ADR (b) 322,264 8,064 UAL Corp. (b) 287,562 ------------- 609,826 ------------- Beverages--1.0% 6,705 Hansen Natural Corp. (b) 296,964 ------------- Biotechnology--7.6% 6,316 Amgen, Inc. (b) 293,315 8,277 Amylin Pharmaceuticals, Inc. (b) 306,249 4,169 Biogen Idec, Inc. (b) 237,299 6,266 Celgene Corp. (b) 289,552 4,134 Cephalon, Inc. (b) 296,656 4,351 Genzyme Corp. (b) 323,889 6,852 Gilead Sciences, Inc. (b) 315,261 12,480 Vertex Pharmaceuticals, Inc. (b) 289,910 ------------- 2,352,131 ------------- Chemicals--1.0% 5,876 Sigma-Aldrich Corp. 320,830 ------------- Commercial Services & Supplies--3.0% 9,396 Cintas Corp. 315,893 9,155 Monster Worldwide, Inc. (b) 296,622 5,302 Stericycle, Inc. (b) 314,939 ------------- 927,454 ------------- Communications Equipment--5.2% 11,210 Cisco Systems, Inc. (b) 303,455 9,641 Juniper Networks, Inc. (b) 320,081 7,818 QUALCOMM, Inc. 307,638 3,213 Research In Motion Ltd. (b) 364,354 45,655 Tellabs, Inc. (b) 298,584 ------------- 1,594,112 ------------- Computers & Peripherals--6.0% 1,669 Apple Computer, Inc. (b) 330,596 12,894 Dell, Inc. (b) 316,032 9,055 Logitech International S.A. (b) 331,775 11,934 Network Appliance, Inc. (b) 297,873 8,242 SanDisk Corp. (b) 273,387 16,002 Sun Microsystems, Inc. (b) 290,116 ------------- 1,839,779 ------------- Construction & Engineering--1.0% 2,003 Foster Wheeler Ltd. (b) 310,505 ------------- Diversified Consumer Services--1.0% 4,308 Apollo Group, Inc., Class A (b) $ 302,206 ------------- Diversified Telecommunication Services--0.9% 91,046 Level 3 Communications, Inc. (b) 276,780 ------------- Electronic Equipment & Instruments--1.0% 26,619 Flextronics International Ltd. (b) 321,025 ------------- Food & Staples Retailing--2.0% 4,490 Costco Wholesale Corp. 313,223 7,318 Whole Foods Market, Inc. 298,574 ------------- 611,797 ------------- Health Care Equipment & Supplies--3.1% 7,073 DENTSPLY International, Inc. 318,426 4,947 Hologic, Inc. (b) 339,562 935 Intuitive Surgical, Inc. (b) 303,408 ------------- 961,396 ------------- Health Care Providers & Services--3.1% 4,449 Express Scripts, Inc. (b) 324,777 5,163 Henry Schein, Inc. (b) 317,008 9,707 Patterson Cos., Inc. (b) 329,553 ------------- 971,338 ------------- Hotels, Restaurants & Leisure--1.9% 14,363 Starbucks Corp. (b) 294,011 2,627 Wynn Resorts Ltd. (b) 294,565 ------------- 588,576 ------------- Household Durables--0.9% 2,995 Garmin Ltd. 290,515 ------------- Internet & Catalog Retail--3.9% 3,461 Amazon.com, Inc. (b) 320,627 9,357 Expedia, Inc. (b) 295,868 11,381 IAC/InterActiveCorp (b) 306,377 14,936 Liberty Media Corp. - Interactive, Class A (b) 284,979 ------------- 1,207,851 ------------- Internet Software & Services--6.0% 8,467 Akamai Technologies, Inc. (b) 292,958 830 Baidu.com, Inc. ADR (b) 324,023 9,315 eBay, Inc. (b) 309,165 449 Google, Inc., Class A (b) 310,475 8,229 VeriSign, Inc. (b) 309,493 12,826 Yahoo!, Inc. (b) 298,333 ------------- 1,844,447 ------------- |
See Notes to Financial Statements. Page 49
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (A) (CONTINUED
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) IT Services--4.0% 9,269 Cognizant Technology Solutions Corp., Class A (b) $ 314,590 5,794 Fiserv, Inc. (b) 321,509 7,181 Infosys Technologies Ltd. ADR 325,730 7,928 Paychex, Inc. 287,152 ------------- 1,248,981 ------------- Machinery--2.2% 5,404 Joy Global, Inc. 355,691 5,793 PACCAR, Inc. 315,603 ------------- 671,294 ------------- Media--7.9% 17,627 Comcast Corp., Class A (b) 321,869 11,756 Discovery Holding Co., Class A (b) 295,546 8,089 EchoStar Communications Corp., Class A (b) 305,117 5,726 Focus Media Holding Ltd. ADR (b) 325,293 6,318 Lamar Advertising Co., Class A 303,706 7,829 Liberty Global, Inc., Class A (b) 306,819 90,003 Sirius Satellite Radio, Inc. (b) 272,709 17,597 Virgin Media, Inc. 301,613 ------------- 2,432,672 ------------- Metals & Mining--1.1% 5,855 Steel Dynamics, Inc. 348,782 ------------- Multiline Retail--0.9% 2,849 Sears Holdings Corp. (b) 290,740 ------------- Pharmaceuticals--1.1% 6,997 Teva Pharmaceutical Industries Ltd. ADR 325,221 ------------- Semiconductors & Semiconductor Equipment--11.0% 16,628 Altera Corp. 321,253 17,364 Applied Materials, Inc. 308,385 11,111 Broadcom Corp., Class A (b) 290,442 11,664 Intel Corp. 310,962 6,346 KLA-Tencor Corp. 305,623 6,960 Lam Research Corp. (b) 300,881 10,100 Linear Technology Corp. 321,483 21,195 Marvell Technology Group Ltd. (b) 296,306 10,401 Microchip Technology, Inc. 326,800 9,166 NVIDIA Corp. (b) 311,827 14,168 Xilinx, Inc. 309,854 ------------- 3,403,816 ------------- Software--12.5% 11,930 Activision, Inc. (b) 354,320 7,263 Adobe Systems, Inc. (b) 310,348 6,397 Autodesk, Inc. (b) 318,315 19,620 BEA Systems, Inc. (b) 309,604 18,510 Cadence Design Systems, Inc. (b) 314,855 Software (Continued) 14,207 Check Point Software Technologies Ltd. (b) $ 311,986 8,394 Citrix Systems, Inc. (b) 319,056 5,643 Electronic Arts, Inc. (b) 329,608 10,597 Intuit, Inc. (b) 334,971 9,211 Microsoft Corp. 327,912 14,908 Oracle Corp. (b) 336,622 18,348 Symantec Corp. (b) 296,137 ------------- 3,863,734 ------------- Specialty Retail--2.8% 10,182 Bed Bath & Beyond, Inc. (b) 299,249 11,315 PetSmart, Inc. 266,242 13,270 Staples, Inc. 306,139 ------------- 871,630 ------------- Trading Companies & Distributors--1.0% 7,438 Fastenal Co. 300,644 ------------- Wireless Telecommunication Services--3.2% 8,184 Leap Wireless International, Inc. (b) 381,701 2,655 Millicom International Cellular S.A. (b) 313,131 6,099 NII Holdings, Inc. (b) 294,704 ------------- 989,536 ------------- Total Investments--100.3% (Cost $32,649,125) 31,002,219 Net Other Assets and Liabilities--(0.3%) (90,917) ------------- Net Assets--100.0% $ 30,911,302 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
ADR - American Depositary Receipt.
Page 50 See Notes to Financial Statements.
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (A)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.3% Communications Equipment--13.1% 21,821 Cisco Systems, Inc. (b) $ 590,694 18,767 Juniper Networks, Inc. (b) 623,064 15,217 QUALCOMM, Inc. 598,789 6,255 Research In Motion Ltd. (b) 709,318 88,869 Tellabs, Inc. (b) 581,203 ------------- 3,103,068 ------------- Computers & Peripherals--15.1% 3,249 Apple Computer, Inc. (b) 643,562 25,099 Dell, Inc. (b) 615,176 17,625 Logitech International S.A. (b) 645,781 23,230 Network Appliance, Inc. (b) 579,821 16,044 SanDisk Corp. (b) 532,179 31,147 Sun Microsystems, Inc. (b) 564,695 ------------- 3,581,214 ------------- Internet Software & Services--12.6% 16,480 Akamai Technologies, Inc. (b) 570,208 1,615 Baidu.com ADR (b) 630,480 874 Google, Inc., Class A (b) 604,354 16,018 VeriSign, Inc. (b) 602,437 24,966 Yahoo!, Inc. (b) 580,709 ------------- 2,988,188 ------------- IT Services--5.3% 18,041 Cognizant Technology Solutions Corp., Class A (b) 612,312 13,979 Infosys Technologies Ltd. ADR 634,087 ------------- 1,246,399 ------------- Semiconductors & Semiconductor Equipment--28.0% 32,367 Altera Corp. 625,330 33,799 Applied Materials, Inc. 600,270 21,628 Broadcom Corp., Class A (b) 565,356 22,704 Intel Corp. 605,289 12,352 KLA-Tencor Corp. 594,872 13,548 Lam Research Corp. (b) 585,680 19,660 Linear Technology Corp. 625,778 41,257 Marvell Technology Group Ltd. (b) 576,773 20,246 Microchip Technology, Inc. 636,129 17,841 NVIDIA Corp. (b) 606,951 27,579 Xilinx, Inc. 603,153 ------------- 6,625,581 ------------- Software--26.2% 14,137 Adobe Systems, Inc. (b) 604,074 12,453 Autodesk, Inc. (b) 619,661 38,190 BEA Systems, Inc. (b) 602,638 36,030 Cadence Design Systems, Inc. (b) 612,870 27,654 Check Point Software Technologies Ltd. (b) 607,282 16,339 Citrix Systems, Inc. (b) 621,045 20,628 Intuit, Inc. (b) 652,051 Software (Continued) 17,930 Microsoft Corp. $ 638,308 29,019 Oracle Corp. (b) 655,250 35,714 Symantec Corp. (b) 576,424 ------------- 6,189,603 ------------- Total Investments--100.3% (Cost $25,513,950) 23,734,053 Net Other Assets and Liabilities--(0.3%) (82,502) ------------- Net Assets--100.0% $ 23,651,551 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
ADR - American Depositary Receipt.
See Notes to Financial Statements. Page 51
FIRST TRUST AMEX(R) BIOTECHNOLOGY INDEX FUND PORTFOLIO OF INVESTMENTS (A) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--99.4% Biotechnology--78.8% 68,580 Amgen, Inc. (b) $ 3,184,855 84,170 Amylin Pharmaceuticals, Inc. (b) 3,114,290 250,983 Applera Corp. - Celera Group (b) 3,983,100 47,915 Biogen Idec, Inc. (b) 2,727,322 54,885 Celgene Corp. (b) 2,536,236 50,052 Cephalon, Inc. (b) 3,591,732 51,210 Genentech, Inc. (b) 3,434,655 53,617 Genzyme Corp. (b) 3,991,249 91,389 Gilead Sciences, Inc. (b) 4,204,808 415,013 Human Genome Sciences, Inc. (b) 4,332,736 83,153 ImClone Systems, Inc. (b) 3,575,579 194,316 InterMune, Inc. (b) 2,590,232 339,465 Millennium Pharmaceuticals, Inc. (b) 5,085,185 104,708 OSI Pharmaceuticals, Inc. (b) 5,079,385 191,534 PDL BioPharma, Inc. (b) 3,355,676 125,110 Vertex Pharmaceuticals, Inc. (b) 2,906,305 ------------- 57,693,345 ------------- Life Sciences Tools & Services--20.6% 140,447 Affymetrix, Inc. (b) 3,249,944 46,393 Invitrogen Corp. (b) 4,333,570 49,259 Millipore Corp. (b) 3,604,774 587,027 Nektar Therapeutics (b) 3,938,951 ------------- 15,127,239 ------------- Total Investments--99.4% (Cost $78,723,195) 72,820,584 Net Other Assets and Liabilities--0.6% 420,463 ------------- Net Assets--100.0% $ 73,241,047 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
Page 52 See Notes to Financial Statements.
FIRST TRUST DOW JONES INTERNET INDEX(SM)
FUND PORTFOLIO OF INVESTMENTS (A)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--99.0% Capital Markets--5.7% 138,504 E*TRADE Financial Corp. (b) $ 491,689 78,307 TD Ameritrade Holding Corp. (b) 1,570,839 ------------- 2,062,528 ------------- Commercial Services & Supplies--3.3% 37,139 Monster Worldwide, Inc. (b) 1,203,304 ------------- Health Care Technology--3.1% 17,948 Allscripts Healthcare Solutions, Inc. (b) 348,550 58,817 HLTH Corp. (b) 788,148 ------------- 1,136,698 ------------- Internet & Catalog Retail--18.9% 40,635 Amazon.com, Inc. (b) 3,764,425 6,292 Audible, Inc. (b) 56,125 63,975 IAC/InterActiveCorp. (b) 1,722,207 4,237 Overstock.com, Inc. (b) 65,801 11,109 Priceline.com, Inc. (b) 1,275,980 ------------- 6,884,538 ------------- Internet Software & Services--55.6% 51,060 Akamai Technologies, Inc. (b) 1,766,676 25,573 Ariba, Inc. (b) 285,139 41,407 Art Technology Group, Inc. (b) 178,878 14,072 Autobytel, Inc. (b) 38,698 15,774 CMGI, Inc. (b) 206,482 45,685 CNET Networks, Inc. (b) 417,561 12,806 DealerTrack Holdings, Inc. (b) 428,617 13,011 Digital River, Inc. (b) 430,274 39,024 EarthLink, Inc. (b) 275,900 110,407 eBay, Inc. (b) 3,664,407 5,243 Google, Inc., Class A (b) 3,625,430 10,696 InfoSpace, Inc. 201,085 15,862 Internap Network Services Corp. (b) 132,130 12,761 Interwoven, Inc. (b) 181,461 16,128 j2 Global Communications, Inc. (b) 341,430 7,303 Jupitermedia Corp. (b) 27,897 31,255 RealNetworks, Inc. (b) 190,343 20,133 SonicWALL, Inc. (b) 215,826 21,942 United Online, Inc. 259,354 32,353 ValueClick, Inc. (b) 708,531 71,638 VeriSign, Inc. (b) 2,694,305 8,632 Vignette Corp. (b) 126,114 14,531 Websense, Inc. (b) 246,736 153,379 Yahoo!, Inc. (b) 3,567,596 ------------- 20,210,870 ------------- IT Services--1.7% 21,960 CyberSource Corp. (b) 390,229 26,368 Sapient Corp. (b) 232,302 ------------- 622,531 ------------- Software--10.7% 113,434 BEA Systems, Inc. (b) $ 1,789,988 58,097 Check Point Software Technologies Ltd. (b) 1,275,810 17,872 Quest Software, Inc. (b) 329,560 61,783 TIBCO Software, Inc. (b) 498,589 ------------- 3,893,947 ------------- Total Common Stocks--99.0% (Cost $38,881,967) 36,014,416 ------------- Money Market Funds--0.3% 109,845 J.P. Morgan Institutional Treasury Money Market Fund - 3.09% (c) (Cost $109,845) 109,845 ------------- Total Investments--99.3% (Cost $38,991,812) 36,124,261 Net Other Assets and Liabilities--0.7% 261,395 ------------- Net Assets--100.0% $ 36,385,656 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
(c) Represents annualized 7-day yield at December 31, 2007.
See Notes to Financial Statements. Page 53
FIRST TRUST DB STRATEGIC VALUE INDEX FUND PORTFOLIO OF INVESTMENTS (A) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.0% Biotechnology--2.2% 28,751 Amgen, Inc. (b) $ 1,335,196 ------------- Chemicals--2.4% 37,628 Dow Chemical (The) Co. 1,483,296 ------------- Computers & Peripherals--2.5% 14,454 International Business Machines Corp. 1,562,477 ------------- Energy Equipment & Services--5.3% 41,970 Halliburton Co. 1,591,083 29,402 Noble Corp. 1,661,507 ------------- 3,252,590 ------------- Food & Staples Retailing--2.5% 32,306 Wal-Mart Stores, Inc. 1,535,504 ------------- Health Care Equipment & Supplies--2.5% 22,792 Zimmer Holdings, Inc. (b) 1,507,691 ------------- Health Care Providers & Services--2.5% 26,110 Cardinal Health, Inc. 1,507,853 ------------- Hotels, Restaurants & Leisure--2.5% 35,034 Carnival Corp. 1,558,663 ------------- Machinery--9.7% 21,327 Caterpillar, Inc. 1,547,487 30,682 Ingersoll-Rand Co. Ltd., Class A 1,425,793 28,870 PACCAR, Inc. 1,572,837 19,278 Parker Hannifin Corp. 1,451,826 ------------- 5,997,943 ------------- Media--7.5% 58,446 CBS Corp., Class B 1,592,654 75,078 News Corp., Class A 1,538,348 91,444 Time Warner, Inc. 1,509,740 ------------- 4,640,742 ------------- Metals & Mining--2.5% 25,892 Nucor Corp. 1,533,324 ------------- Multiline Retail--2.3% 30,969 Kohl's Corp. (b) 1,418,380 ------------- Office Electronics--2.4% 90,247 Xerox Corp. 1,461,099 ------------- Oil, Gas & Consumable Fuels--19.0% 25,802 Anadarko Petroleum Corp. 1,694,933 15,860 Apache Corp. 1,705,585 17,352 Chevron Corp. 1,619,462 19,035 ConocoPhillips 1,680,791 Oil, Gas & Consumable Fuels (Continued) 17,341 Exxon Mobil Corp. $ 1,624,678 27,110 Marathon Oil Corp. 1,649,915 21,859 Occidental Petroleum Corp. 1,682,924 ------------- 11,658,288 ------------- Pharmaceuticals--12.3% 29,402 Eli Lilly & Co. 1,569,773 23,216 Johnson & Johnson 1,548,507 26,649 Merck & Co., Inc. 1,548,573 65,604 Pfizer, Inc. 1,491,179 32,419 Wyeth 1,432,596 ------------- 7,590,628 ------------- Road & Rail--2.5% 29,923 Norfolk Southern Corp. 1,509,316 ------------- Semiconductors & Semiconductor Equipment--5.1% 84,975 Applied Materials, Inc. 1,509,156 49,137 Texas Instruments, Inc. 1,641,176 ------------- 3,150,332 ------------- Specialty Retail--9.7% 30,082 Best Buy Co., Inc. 1,583,817 53,769 Home Depot (The), Inc. 1,448,537 63,451 Lowe's Cos., Inc. 1,435,262 63,989 Staples, Inc. 1,476,226 ------------- 5,943,842 ------------- Textiles, Apparel & Luxury Goods--2.5% 24,242 NIKE, Inc., Class B 1,557,306 ------------- Wireless Telecommunication Services--2.1% 100,420 Sprint Nextel Corp. 1,318,515 ------------- Total Investments--100.0% (Cost $63,126,173) 61,522,985 Net Other Assets and Liabilities--(0.0%) (5,292) ------------- Net Assets--100.0% $ 61,517,693 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
Page 54 See Notes to Financial Statements.
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND
PORTFOLIO OF INVESTMENTS (A)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.4% Aerospace & Defense--2.7% 576 Ceradyne, Inc. (b) $ 27,032 1,977 Northrop Grumman Corp. 155,471 2,789 Raytheon Co. 169,292 ------------- 351,795 ------------- Air Freight & Logistics--1.3% 1,108 Forward Air Corp. 34,536 2,001 United Parcel Service, Inc., Class B 141,511 ------------- 176,047 ------------- Airlines--0.2% 4,223 AirTran Holdings, Inc. (b) 30,237 ------------- Auto Components--0.6% 3,003 Gentex Corp. 53,363 1,180 Tenneco, Inc. (b) 30,763 ------------- 84,126 ------------- Automobiles--2.0% 5,026 General Motors Corp. 125,097 1,287 Toyota Motor Corp. ADR 136,641 ------------- 261,738 ------------- Beverages--1.7% 1,347 Hansen Natural Corp. (b) 59,659 2,260 PepsiCo, Inc. 171,534 ------------- 231,193 ------------- Biotechnology--0.9% 1,270 LifeCell Corp. (b) 54,750 619 United Therapeutics Corp. (b) 60,445 ------------- 115,195 ------------- Chemicals--2.3% 1,734 Air Products and Chemicals, Inc. 171,024 3,110 Hercules, Inc. 60,179 1,295 Sigma-Aldrich Corp. 70,707 ------------- 301,910 ------------- Commercial Banks--2.0% 3,395 Huntington Bancshares, Inc. 50,110 2,142 Old National Bancorp 32,044 2,175 PNC Financial Services Group, Inc. 142,789 1,644 Whitney Holding Corp. 42,991 ------------- 267,934 ------------- Commercial Services & Supplies--1.6% 701 Advisory Board (The) Co. (b) 44,997 4,839 Allied Waste Industries, Inc. (b) 53,326 1,714 Copart, Inc. (b) 72,931 1,136 HNI Corp. 39,828 ------------- 211,082 ------------- Communications Equipment--3.9% 2,579 ADC Telecommunications, Inc. (b) $ 40,103 1,006 Dycom Industries, Inc. (b) 26,810 5,135 Nokia Oyj ADR 197,133 2,225 Research In Motion Ltd. (b) 252,315 ------------- 516,361 ------------- Computers & Peripherals--1.1% 1,363 International Business Machines Corp. 147,340 ------------- Containers & Packaging--1.3% 1,482 Bemis Co., Inc. 40,577 2,626 Crown Holdings, Inc. (b) 67,357 2,162 Sonoco Products Co. 70,654 ------------- 178,588 ------------- Distributors--0.4% 2,560 LKQ Corp. (b) 53,811 ------------- Diversified Consumer Services--2.2% 2,674 Apollo Group, Inc., Class A (b) 187,581 922 Bright Horizons Family Solutions, Inc. (b) 31,846 390 Strayer Education, Inc. 66,526 ------------- 285,953 ------------- Diversified Financial Services--0.8% 2,807 Moody's Corp. 100,210 ------------- Diversified Telecommunication Services--2.1% 1,463 CenturyTel, Inc. 60,656 8,805 Cincinnati Bell, Inc. (b) 41,824 18,345 Qwest Communications International, Inc. (b) 128,598 3,100 Telecom Corp. of New Zealand Ltd. ADR 51,491 ------------- 282,569 ------------- Electric Utilities--3.4% 963 ALLETE, Inc. 38,116 1,825 El Paso Electric Co. (b) 46,665 1,825 Hawaiian Electric Industries, Inc. 41,555 1,512 Pinnacle West Capital Corp. 64,124 1,473 Portland General Electric Co. 40,920 6,142 Reliant Energy, Inc. (b) 161,166 2,463 Westar Energy, Inc. 63,890 ------------- 456,436 ------------- Electronic Equipment & Instruments--1.4% 1,445 Arrow Electronics, Inc. (b) 56,760 3,975 AVX Corp. 53,345 2,438 FLIR Systems, Inc. (b) 76,309 ------------- 186,414 ------------- |
See Notes to Financial Statements. Page 55
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND PORTFOLIO OF INVESTMENTS (A) (CONTINUED) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Energy Equipment & Services--9.9% 539 Core Laboratories N.V. (b) $ 67,224 1,593 Diamond Offshore Drilling, Inc. 226,205 2,675 ENSCO International, Inc. 159,484 2,811 Global Industries Ltd. (b) 60,212 4,621 Halliburton Co. 175,182 1,947 Helmerich & Payne, Inc. 78,016 3,163 Noble Corp. 178,741 1,667 Schlumberger Ltd. 163,983 1,431 Transocean, Inc. 204,848 ------------- 1,313,895 ------------- Food Products--0.7% 1,988 Flowers Foods, Inc. 46,539 1,026 Lancaster Colony Corp. 40,732 ------------- 87,271 ------------- Gas Utilities--2.3% 2,209 Atmos Energy Corp. 61,940 933 New Jersey Resources Corp. 46,669 853 Northwest Natural Gas Co. 41,507 1,169 South Jersey Industries, Inc. 42,189 2,587 UGI Corp. 70,496 1,237 WGL Holdings, Inc. 40,524 ------------- 303,325 ------------- Health Care Equipment & Supplies--2.1% 781 ArthroCare Corp. (b) 37,527 1,235 Hillenbrand Industries, Inc. 68,826 1,139 IDEXX Laboratories, Inc. (b) 66,780 1,226 Immucor, Inc. (b) 41,672 1,081 Kinetic Concepts, Inc. (b) 57,898 ------------- 272,703 ------------- Household Durables--2.3% 1,542 Garmin Ltd. 149,574 3,091 Leggett & Platt, Inc. 53,907 2,094 Tempur-Pedic International, Inc. 54,381 1,374 Tupperware Brands Corp. 45,383 ------------- 303,245 ------------- Industrial Conglomerates--1.1% 1,786 3M Co. 150,596 ------------- Insurance--8.7% 929 Ambac Financial Group, Inc. 23,940 1,707 Assured Guaranty Ltd. 45,304 42 Berkshire Hathaway, Inc., Class B (b) 198,913 639 Everest Re Group Ltd. 64,156 1,463 Hanover Insurance Group, Inc. 67,005 3,466 Loews Corp. 174,478 1,609 MaxCapital Group Ltd. 45,036 2,667 MetLife, Inc. 164,341 622 RLI Corp. 35,323 Insurance (Continued) 976 Transatlantic Holdings, Inc. $ 70,926 3,033 Travelers (The) Cos., Inc. 163,175 2,043 XL Capital Ltd., Class A 102,783 ------------- 1,155,380 ------------- Life Sciences Tools & Services--0.5% 758 Ventana Medical Systems, Inc. (b) 66,120 ------------- Machinery--9.5% 1,315 Actuant Corp., Class A 44,723 772 Astec Industries, Inc. (b) 28,711 1,284 Barnes Group, Inc. 42,873 917 Cascade Corp. 42,604 1,052 CLARCOR, Inc. 39,944 3,036 CNH Global N.V. 199,830 1,346 Cummins, Inc. 171,440 1,076 Gardner Denver, Inc. (b) 35,508 1,462 Graco, Inc. 54,474 2,811 Illinois Tool Works, Inc. 150,501 1,279 Joy Global, Inc. 84,184 746 Kaydon Corp. 40,687 830 Lincoln Electric Holdings, Inc. 59,079 2,240 Parker Hannifin Corp. 168,694 1,080 Toro (The) Co. 58,795 492 Valmont Industries, Inc. 43,847 ------------- 1,265,894 ------------- Media--2.4% 6,036 Comcast Corp., Class A (b) 110,217 1,633 Harte-Hanks, Inc. 28,251 2,882 Lee Enterprises, Inc. 42,221 8,246 Time Warner, Inc. 136,142 ------------- 316,831 ------------- Metals & Mining--3.9% 2,614 BHP Billiton Ltd. ADR 183,084 913 Cleveland-Cliffs, Inc. 92,030 2,041 Fording Canadian Coal Trust 78,783 1,582 Southern Copper Corp. 166,316 ------------- 520,213 ------------- Multi-Utilities--3.1% 1,658 Alliant Energy Corp. 67,464 3,034 Ameren Corp. 164,473 1,902 NSTAR 68,890 1,969 OGE Energy Corp. 71,455 1,686 PNM Resources, Inc. 36,165 ------------- 408,447 ------------- Oil, Gas & Consumable Fuels--9.0% 1,139 Berry Petroleum Co., Class A 50,629 2,262 Canadian Natural Resources Ltd. 165,443 1,817 Exxon Mobil Corp. 170,235 1,708 Frontier Oil Corp. 69,311 1,485 Frontline Ltd. 71,280 |
Page 56 See Notes to Financial Statements.
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND
PORTFOLIO OF INVESTMENTS (A) (CONTINUED)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Oil, Gas & Consumable Fuels (Continued) 1,054 Holly Corp. $ 53,638 3,563 Imperial Oil Ltd. 195,180 3,018 Marathon Oil Corp. 183,675 2,137 Massey Energy Co. 76,398 3,064 Petro-Canada 164,292 ------------- 1,200,081 ------------- Personal Products--0.3% 1,614 NBTY, Inc. (b) 44,224 ------------- Real Estate Investment Trusts--1.2% 2,484 ProLogis 157,436 ------------- Road & Rail--2.3% 3,267 CSX Corp. 143,683 1,316 Union Pacific Corp. 165,316 ------------- 308,999 ------------- Semiconductors & Semiconductor Equipment--2.8% 7,018 Applied Materials, Inc. 124,640 2,810 Brooks Automation, Inc. (b) 37,120 1,764 Lam Research Corp. (b) 76,258 4,323 Linear Technology Corp. 137,601 ------------- 375,619 ------------- Software--1.4% 820 Advent Software, Inc. (b) 44,362 2,805 SAP AG ADR 143,195 ------------- 187,557 ------------- Specialty Retail--2.0% 1,913 Aeropostale, Inc. (b) 50,695 1,246 Barnes & Noble, Inc. 42,925 1,240 Guess?, Inc. 46,984 2,221 Sherwin-Williams (The) Co. 128,906 ------------- 269,510 ------------- Textiles, Apparel & Luxury Goods--0.5% 431 Deckers Outdoor Corp. (b) 66,831 ------------- Tobacco--1.7% 2,355 British American Tobacco PLC ADR 185,009 814 Universal Corp. 41,693 ------------- 226,702 ------------- Trading Companies & Distributors--0.8% 1,368 Applied Industrial Technologies, Inc. 39,699 711 W.W. Grainger, Inc. 62,227 ------------- 101,926 ------------- Total Investments--100.4% (Cost $12,674,262) $ 13,341,744 Net Other Assets and Liabilities--(0.4%) (50,378) ------------- |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
ADR - American Depositary Receipt.
See Notes to Financial Statements. Page 57
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND PORTFOLIO OF INVESTMENTS (A) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.0% Air Freight & Logistics--0.5% 13,790 United Parcel Service, Inc., Class B $ 975,229 ------------- Auto Components--0.6% 18,804 Autoliv, Inc. 991,159 ------------- Automobiles--1.1% 30,077 Honda Motor Co., Ltd. ADR 996,752 9,445 Toyota Motor Corp. ADR 1,002,775 ------------- 1,999,527 ------------- Beverages--1.1% 18,906 Anheuser-Busch Cos., Inc. 989,540 16,026 Coca-Cola (The) Co. 983,516 ------------- 1,973,056 ------------- Building Products--0.6% 46,681 Masco Corp. 1,008,776 ------------- Capital Markets--1.1% 23,999 Federated Investors, Inc., Class B 987,799 18,794 Merrill Lynch & Co., Inc. 1,008,862 ------------- 1,996,661 ------------- Chemicals--1.7% 21,312 Ashland, Inc. 1,010,828 22,396 E.I. du Pont de Nemours & Co. 987,440 14,108 PPG Industries, Inc. 990,805 ------------- 2,989,073 ------------- Commercial Banks--15.3% 35,807 Associated Banc-Corp. 970,012 19,495 Bank of Hawaii Corp. 996,974 17,737 Bank of Montreal 1,003,914 19,593 Bank of Nova Scotia 989,447 31,361 BB&T Corp. 961,842 13,922 Canadian Imperial Bank of Commerce 994,448 16,444 City National Corp. 979,240 22,566 Comerica, Inc. 982,298 22,371 Commerce Bancshares, Inc. 1,003,563 19,503 Cullen/Frost Bankers, Inc. 988,022 37,490 Fifth Third Bancorp. 942,124 31,596 First Midwest Bancorp, Inc. 966,838 12,278 M&T Bank Corp. 1,001,516 36,769 Marshall & Ilsley Corp. 973,643 58,251 National City Corp. 958,811 64,439 Old National Bancorp 964,007 15,228 PNC Financial Services Group, Inc. 999,718 40,912 Regions Financial Corp. 967,569 19,812 Royal Bank of Canada 1,011,205 16,151 SunTrust Banks, Inc. 1,009,277 41,262 Synovus Financial Corp. 993,589 14,302 Toronto-Dominion Bank (The) 1,000,425 31,130 U.S. Bancorp 988,066 25,465 Wachovia Corp. 968,434 32,467 Wells Fargo & Co. 980,179 Commercial Banks (Continued) 37,925 Whitney Holding Corp. $ 991,739 28,052 Wilmington Trust Corp. 987,430 20,745 Zions Bancorporation 968,584 ------------- 27,542,914 ------------- Commercial Services & Supplies--3.9% 19,332 Avery Dennison Corp. 1,027,303 16,541 Corporate Executive Board (The) Co. 994,114 27,586 HNI Corp. 967,165 26,428 Pitney Bowes, Inc. 1,005,321 27,063 R.R. Donnelley & Sons Co. 1,021,358 31,044 Republic Services, Inc. 973,229 29,979 Waste Management, Inc. 979,414 ------------- 6,967,904 ------------- Computers & Peripherals--0.5% 33,487 Diebold, Inc. 970,453 ------------- Construction Materials--0.5% 12,461 Vulcan Materials Co. 985,540 ------------- Containers & Packaging--1.1% 37,911 Bemis Co., Inc. 1,038,003 30,112 Sonoco Products Co. 984,060 ------------- 2,022,063 ------------- Distributors--0.5% 20,711 Genuine Parts Co. 958,919 ------------- Diversified Financial Services--0.6% 23,959 Bank of America Corp. 988,548 ------------- Diversified Telecommunication Services--2.2% 24,409 AT&T, Inc. 1,014,438 60,189 Telecom Corp. of New Zealand Ltd. ADR 999,739 10,352 Telefonica S.A. ADR 1,010,252 22,616 Verizon Communications, Inc. 988,093 ------------- 4,012,522 ------------- Electric Utilities--8.3% 24,587 ALLETE, Inc. 973,153 49,365 Duke Energy Corp. 995,692 8,438 Entergy Corp. 1,008,510 12,344 Exelon Corp. 1,007,764 13,663 FirstEnergy Corp. 988,381 14,807 FPL Group, Inc. 1,003,618 34,350 Great Plains Energy, Inc. 1,007,142 43,606 Hawaiian Electric Industries, Inc. 992,909 27,385 Otter Tail Corp. 947,521 23,519 Pinnacle West Capital Corp. 997,441 37,643 Portland General Electric Co. 1,045,722 19,332 PPL Corp. 1,007,004 |
Page 58 See Notes to Financial Statements.
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND
PORTFOLIO OF INVESTMENTS (A) (CONTINUED)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Electric Utilities (Continued) 20,518 Progress Energy, Inc. $ 993,687 25,881 Southern Co. 1,002,889 37,939 Westar Energy, Inc. 984,138 ------------- 14,955,571 ------------- Electrical Equipment--1.1% 17,632 Emerson Electric Co. 999,029 19,095 Hubbell, Inc., Class B 985,302 ------------- 1,984,331 ------------- Food & Staples Retailing--1.1% 31,459 Sysco Corp. 981,836 24,380 Weis Markets, Inc. 973,737 ------------- 1,955,573 ------------- Food Products--7.7% 19,800 Cadbury Schweppes PLC ADR 977,526 27,730 Campbell Soup Co. 990,793 41,618 ConAgra Foods, Inc. 990,092 17,477 General Mills, Inc. 996,189 21,443 H.J. Heinz Co. 1,000,959 25,535 Hershey (The) Co. 1,006,079 19,735 J.M. Smucker (The) Co. 1,015,168 18,895 Kellogg Co. 990,665 30,347 Kraft Foods, Inc., Class A 990,223 24,257 Lancaster Colony Corp. 963,003 25,980 McCormick & Co., Inc. 984,902 62,299 Sara Lee Corp. 1,000,522 26,798 Unilever PLC ADR 1,002,781 16,925 Wm. Wrigley Jr. Co. 990,959 ------------- 13,899,861 ------------- Gas Utilities--4.9% 27,187 AGL Resources, Inc. 1,023,318 35,222 Atmos Energy Corp. 987,625 20,968 National Fuel Gas Co. 978,786 19,689 New Jersey Resources Corp. 984,844 20,219 Northwest Natural Gas Co. 983,857 36,490 Piedmont Natural Gas Co. 954,578 26,671 South Jersey Industries, Inc. 962,556 37,338 UGI Corp. 1,017,461 29,602 WGL Holdings, Inc. 969,762 ------------- 8,862,787 ------------- Health Care Equipment & Supplies--0.6% 18,089 Hillenbrand Industries, Inc. 1,008,100 ------------- Hotels, Restaurants & Leisure--0.5% 16,796 McDonald's Corp. 989,452 ------------- Household Durables--1.7% 13,680 Fortune Brands, Inc. 989,885 57,555 Leggett & Platt, Inc. 1,003,759 Household Durables (Continued) 20,852 Snap-on, Inc. $ 1,005,900 ------------- 2,999,544 ------------- Household Products--1.1% 15,311 Clorox (The) Co. 997,818 14,506 Kimberly-Clark Corp. 1,005,846 ------------- 2,003,664 ------------- Industrial Conglomerates--1.7% 11,743 3M Co. 990,170 26,991 General Electric Co. 1,000,556 16,566 Teleflex, Inc. 1,043,824 ------------- 3,034,550 ------------- Insurance--6.0% 19,167 Allstate (The) Corp. 1,001,092 18,384 Chubb (The) Corp. 1,003,399 25,012 Cincinnati Financial Corp. 988,974 18,783 Erie Indemnity Co., Class A 974,650 16,903 Lincoln National Corp. 984,093 24,665 Manulife Financial Corp. 1,005,099 19,921 Mercury General Corp. 992,265 64,439 Old Republic International Corp. 993,005 23,868 Protective Life Corp. 979,065 18,391 Travelers (The) Cos., Inc. 989,436 19,265 XL Capital Ltd., Class A 969,222 ------------- 10,880,300 ------------- IT Services--1.1% 22,132 Automatic Data Processing, Inc. 985,538 27,034 Paychex, Inc. 979,171 ------------- 1,964,709 ------------- Machinery--1.1% 13,934 Caterpillar, Inc. 1,011,051 18,388 Illinois Tool Works, Inc. 984,494 ------------- 1,995,545 ------------- Media--1.7% 25,974 Gannett Co., Inc. 1,012,986 57,951 New York Times (The) Co., Class A 1,015,881 24,725 Thomson (The) Corp. 1,007,544 ------------- 3,036,411 ------------- Multi-Utilities--8.9% 24,193 Alliant Energy Corp. 984,413 18,600 Ameren Corp. 1,008,307 20,860 Consolidated Edison, Inc. 1,019,012 20,929 Dominion Resources, Inc. 993,081 37,201 Energy East Corp. 1,012,240 19,480 Integrys Energy Group, Inc. 1,006,921 36,307 MDU Resources Group, Inc. 1,002,436 27,624 NSTAR 1,000,541 27,722 OGE Energy Corp. 1,006,031 22,758 PG&E Corp. 980,642 |
See Notes to Financial Statements. Page 59
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND PORTFOLIO OF INVESTMENTS (A) (CONTINUED) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Multi-Utilities (Continued) 45,384 PNM Resources, Inc. $ 973,487 23,541 SCANA Corp. 992,253 16,061 Sempra Energy 993,855 33,924 Vectren Corp. 984,135 20,394 Wisconsin Energy Corp. 993,392 44,062 Xcel Energy, Inc. 994,479 ------------- 15,945,225 ------------- Oil, Gas & Consumable Fuels--3.4% 13,793 BP PLC ADR 1,009,234 10,722 Chevron Corp. 1,000,684 25,356 Enbridge, Inc. 1,025,143 12,137 Royal Dutch Shell PLC ADR 1,021,935 12,517 Total SA ADR 1,033,904 25,018 TransCanada Corp. 1,023,987 ------------- 6,114,887 ------------- Paper & Forest Products--0.5% 30,539 International Paper Co. 988,853 ------------- Pharmaceuticals--4.4% 17,360 Abbott Laboratories 974,764 36,152 Bristol-Myers Squibb Co. 958,751 18,590 Eli Lilly and Co. 992,520 19,769 GlaxoSmithKline PLC ADR 996,159 14,925 Johnson & Johnson 995,498 43,420 Pfizer, Inc. 986,937 21,640 Sanofi-Aventis ADR 985,269 22,288 Wyeth 984,907 ------------- 7,874,805 ------------- Real Estate Investment Trusts--8.0% 23,757 BRE Properties, Inc. 962,871 37,242 Duke Realty Corp. 971,271 26,067 Equity Residential 950,663 11,957 Federal Realty Investment Trust 982,268 29,533 Health Care Property Investors, Inc. 1,027,159 25,756 Kimco Realty Corp. 937,518 32,719 Liberty Property Trust 942,634 28,615 Mack-Cali Realty Corp. 972,910 21,007 Plum Creek Timber Co., Inc. 967,162 15,990 ProLogis 1,013,446 12,707 Public Storage 932,821 10,810 Simon Property Group, Inc. 938,957 47,335 United Dominion Realty Trust, Inc. 939,600 30,548 Washington Real Estate Investment Trust 959,513 29,828 Weingarten Realty Investors 937,792 ------------- 14,436,585 ------------- Specialty Retail--1.1% 37,504 Home Depot (The), Inc. $ 1,010,357 17,143 Sherwin-Williams (The) Co. 994,980 ------------- 2,005,337 ------------- Textiles, Apparel & Luxury Goods--0.5% 13,724 VF Corp. 942,290 ------------- Thrifts & Mortgage Finance--2.2% 41,532 Astoria Financial Corp. 966,450 31,606 Capitol Federal Financial 979,786 30,752 Freddie Mac 1,047,720 45,961 Washington Federal, Inc. 970,237 ------------- 3,964,193 ------------- Tobacco--1.1% 13,057 Altria Group, Inc. 986,848 19,211 Universal Corp. 983,987 ------------- 1,970,835 ------------- Total Investments--100.0% (Cost $189,756,276) 180,195,752 Net Other Assets and Liabilities--0.0% (42,530) ------------- Net Assets--100.0% $ 180,153,222 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
ADR - American Depositary Receipt.
Page 60 See Notes to Financial Statements.
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (A)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (1)--100.0% Air Freight & Logistics--3.3% 677 C.H. Robinson Worldwide, Inc. $ 36,639 763 Expeditors International of Washington, Inc. 34,091 ------------- 70,730 ------------- Airlines--3.2% 921 Ryanair Holdings PLC ADR (b) 36,325 908 UAL Corp. (b) 32,379 ------------- 68,704 ------------- Beverages--1.6% 755 Hansen Natural Corp. (b) 33,439 ------------- Biotechnology--12.5% 712 Amgen, Inc. (b) 33,065 932 Amylin Pharmaceuticals, Inc. (b) 34,484 470 Biogen Idec, Inc. (b) 26,752 706 Celgene Corp. (b) 32,624 466 Cephalon, Inc. (b) 33,440 490 Genzyme Corp. (b) 36,477 772 Gilead Sciences, Inc. (b) 35,520 1,406 Vertex Pharmaceuticals, Inc. (b) 32,661 ------------- 265,023 ------------- Chemicals--1.7% 662 Sigma-Aldrich Corp. 36,145 ------------- Commercial Services & Supplies--4.9% 1,059 Cintas Corp. 35,604 1,031 Monster Worldwide, Inc. (b) 33,404 597 Stericycle, Inc. (b) 35,462 ------------- 104,470 ------------- Construction & Engineering--1.7% 226 Foster Wheeler Ltd. (b) 35,035 ------------- Diversified Consumer Services--1.6% 485 Apollo Group, Inc., Class A (b) 34,023 ------------- Diversified Telecommunication Services--1.5% 10,257 Level 3 Communications, Inc. (b) 31,181 ------------- Electronic Equipment & Instruments--1.7% 2,999 Flextronics International Ltd. (b) 36,168 ------------- Food & Staples Retailing--3.3% 506 Costco Wholesale Corp. 35,299 824 Whole Foods Market, Inc. 33,619 ------------- 68,918 ------------- Health Care Equipment & Supplies--5.1% 797 DENTSPLY International, Inc. 35,881 Health Care Equipment & Supplies (Continued) 557 Hologic, Inc. (b) $ 38,232 105 Intuitive Surgical, Inc. (b) 34,073 ------------- 108,186 ------------- Health Care Providers & Services--5.2% 501 Express Scripts, Inc. (b) 36,573 582 Henry Schein, Inc. (b) 35,735 1,094 Patterson Cos., Inc. (b) 37,141 ------------- 109,449 ------------- Hotels, Restaurants & Leisure--3.1% 1,618 Starbucks Corp. (b) 33,120 296 Wynn Resorts Ltd. 33,191 ------------- 66,311 ------------- Household Durables--1.6% 337 Garmin Ltd. 32,689 ------------- Internet & Catalog Retail--6.4% 390 Amazon.com, Inc. (b) 36,130 1,054 Expedia, Inc. (b) 33,327 1,282 IAC/InterActiveCorp (b) 34,511 1,683 Liberty Media Corp. - Interactive, Class A (b) 32,112 ------------- 136,080 ------------- Internet Software & Services--1.6% 1,049 eBay, Inc. (b) 34,816 ------------- IT Services--3.2% 653 Fiserv, Inc. (b) 36,235 893 Paychex, Inc. 32,344 ------------- 68,579 ------------- Machinery--3.6% 609 Joy Global, Inc. 40,085 653 PACCAR, Inc. 35,575 ------------- 75,660 ------------- Media--12.9% 1,986 Comcast Corp., Class A (b) 36,264 1,324 Discovery Holding Co., Class A (b) 33,285 911 EchoStar Communications Corp., Class A (b) 34,363 645 Focus Media Holding Ltd. ADR (b) 36,642 712 Lamar Advertising Co., Class A 34,226 882 Liberty Global, Inc., Class A (b) 34,566 10,139 Sirius Satellite Radio, Inc. (b) 30,721 1,982 Virgin Media, Inc. 33,971 ------------- 274,038 ------------- |
See Notes to Financial Statements. Page 61
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (A) (CONTINUED) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (1) (Continued) Metals & Mining--1.9% 660 Steel Dynamics, Inc. $ 39,316 ------------- Multiline Retail--1.6% 321 Sears Holdings Corp. (b) 32,758 ------------- Pharmaceuticals--1.7% 788 Teva Pharmaceutical Industries Ltd. ADR 36,626 ------------- Software--3.6% 1,344 Activision, Inc. (b) 39,917 636 Electronic Arts, Inc. (b) 37,149 ------------- 77,066 ------------- Specialty Retail--4.6% 1,147 Bed Bath & Beyond, Inc. (b) 33,710 1,275 PetSmart, Inc. 30,001 1,495 Staples, Inc. 34,490 ------------- 98,201 ------------- Trading Companies & Distributors--1.6% 838 Fastenal Co. 33,872 ------------- Wireless Telecommunication Services--5.3% 922 Leap Wireless International, Inc. (b) 43,002 299 Millicom International Cellular S.A. (b) 35,264 687 NII Holdings, Inc. (b) 33,196 ------------- 111,462 ------------- Total Common Stocks--100.0% (Cost $2,327,753) 2,118,945 ------------- Money Market Funds--2.5% 25,000 Federated Treasury Obligation - 3.36% (c) 25,000 28,693 J.P. Morgan Institutional Treasury Money Market Fund - 3.09% (c) 28,693 ------------- Total Money Market Funds--2.5% (Cost $53,693) 53,693 ------------- Total Investments--102.5% (Cost $2,381,446) 2,172,638 Net Other Assets and Liabilities--(2.5%) (54,066) ------------- Net Assets--100.0% $ 2,118,572 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
(c) Represents annualized 7-day yield at December 31, 2007.
ADR - American Depositary Receipt.
(1) The industry allocation is based on Standard & Poor's Global Industry Classification Standard (GICS), and is different than the industry sector classification system used by the Index to select securities, which is the Industry Classification Benchmark (ICB) system, the joint classification system of Dow Jones Indexes and FTSE Group.
Page 62 See Notes to Financial Statements.
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) U.S. LIQUID SERIES INDEX FUND
PORTFOLIO OF INVESTMENTS (A)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--99.8% Aerospace & Defense--2.9% 60,381 Hexcel Corp. (b) $ 1,466,051 ------------- Auto Components--0.7% 72,383 Ballard Power Systems, Inc. (b) 380,735 ------------- Beverages--0.2% 10,423 MGP Ingredients, Inc. 98,185 ------------- Biotechnology--0.7% 14,167 Metabolix, Inc. (b) 337,175 ------------- Chemicals--2.2% 44,504 Altair Nanotechnologies, Inc. (b) 188,252 21,358 Zoltek Cos., Inc. (b) 915,617 ------------- 1,103,869 ------------- Electrical Equipment--40.1% 25,978 American Superconductor Corp. (b) 710,239 28,987 Baldor Electric Co. 975,702 17,595 Canadian Solar, Inc. (b) 495,299 92,262 Capstone Turbine Corp. (b) 150,387 33,450 China BAK Battery, Inc. (b) 209,063 25,254 Energy Conversion Devices, Inc. (b) 849,797 64,030 Evergreen Solar, Inc. (b) 1,105,798 16,105 First Solar, Inc. (b) 4,302,289 43,006 FuelCell Energy, Inc. (b) 426,620 64,791 GrafTech International Ltd. (b) 1,150,040 10,628 Hoku Scientific, Inc. (b) 121,159 11,944 JA Solar Holdings Co., Ltd. ADR (b) 833,811 22,142 Medis Technologies Ltd. (b) 341,651 55,480 Plug Power, Inc. (b) 219,146 55,175 Power-One, Inc. (b) 220,148 24,810 SunPower Corp., Class A (b) 3,234,976 49,626 Suntech Power Holdings Co. Ltd. ADR (b) 4,085,212 18,769 Vicor Corp. 292,609 18,633 Yingli Green Energy Holding Co., Ltd. ADR (b) 721,097 ------------- 20,445,043 ------------- Electronic Equipment & Instruments--8.5% 108,296 AVX Corp. 1,453,332 12,934 Comverge, Inc. (b) 407,292 25,697 Echelon Corp. (b) 530,386 19,332 Itron, Inc. (b) 1,855,292 12,876 Maxwell Technologies, Inc. (b) 106,485 ------------- 4,352,787 ------------- Health Care Equipment & Supplies--0.6% 14,199 Greatbatch, Inc. (b) 283,838 ------------- Independent Power Producers & Energy Traders--2.8% 26,224 Ormat Technologies, Inc. 1,442,582 ------------- IT Services--1.2% 12,072 EnerNOC, Inc. (b) $ 592,735 ------------- Oil, Gas & Consumable Fuels--4.8% 26,518 Aventine Renewable Energy Holdings, Inc. (b) 338,370 69,447 Nova Biosource Fuels, Inc. (b) 201,396 25,648 Pacific Ethanol, Inc. (b) 210,570 50,295 US BioEnergy Corp. (b) 588,954 58,681 VeraSun Energy (b) 896,647 39,861 Verenium Corp. (b) 198,906 ------------- 2,434,843 ------------- Semiconductors & Semiconductor Equipment--35.1% 28,419 Advanced Analogic Technologies, Inc. (b) 320,566 53,867 Cree, Inc. (b) 1,479,726 32,544 EMCORE Corp. (b) 497,923 78,592 Fairchild Semiconductor International, Inc. (b) 1,134,083 45,804 International Rectifier Corp. (b) 1,555,962 20,336 IXYS Corp. (b) 163,095 11,372 LDK Solar Co., Ltd. ADR (b) 534,598 122,437 Linear Technology Corp. 3,897,170 45,680 MEMC Electronic Materials, Inc. (b) 4,042,222 48,833 Microsemi Corp. (b) 1,081,163 23,985 O2Micro International Ltd. ADR (b) 276,787 184,617 ON Semiconductor Corp. (b) 1,639,399 18,708 Power Integrations, Inc. (b) 644,116 11,288 Trina Solar Ltd. ADR (b) 607,294 ------------- 17,874,104 ------------- Total Common Stocks--99.8% (Cost $45,239,978) 50,811,947 ------------- Rights--0.0% Electrical Equipment--0.0% 1,347 Medis Technologies Ltd. (Cost $0) 0 ------------- Total Investments--99.8% (Cost $45,239,978) 50,811,947 Net Other Assets and Liabilities--0.2% 101,088 ------------- Net Assets--100.0% $ 50,913,035 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
ADR - American Depositary Receipt.
See Notes to Financial Statements. Page 63
FIRST TRUST S&P REIT INDEX FUND PORTFOLIO OF INVESTMENTS (A) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--99.3% Real Estate Investment Trusts--99.3% 187 Acadia Realty Trust $ 4,789 45 Agree Realty Corp. 1,355 186 Alexandria Real Estate Equities, Inc. 18,911 577 AMB Property Corp. 33,212 159 American Campus Communities, Inc. 4,269 41 American Land Lease, Inc. 813 557 Apartment Investment & Management Co. 19,345 615 Ashford Hospitality Trust 4,422 86 Associated Estates Realty Corp. 812 459 AvalonBay Communities, Inc. 43,210 381 BioMed Realty Trust, Inc. 8,828 695 Boston Properties, Inc. 63,808 506 Brandywine Realty Trust 9,073 296 BRE Properties, Inc. 11,997 324 Camden Property Trust 15,601 383 CBL & Associates Properties, Inc. 9,158 258 Cedar Shopping Centers, Inc. 2,639 60 Cogdell Spencer, Inc. 956 274 Colonial Properties Trust 6,201 276 Corporate Office Properties Trust 8,694 218 Cousins Properties, Inc. 4,818 981 DCT Industrial Trust, Inc. 9,133 716 Developers Diversified Realty Corp. 27,416 552 DiamondRock Hospitality Co. 8,269 377 Digital Realty Trust, Inc. 14,465 848 Duke Realty Corp. 22,116 139 EastGroup Properties, Inc. 5,817 166 Education Realty Trust, Inc. 1,866 164 Entertainment Properties Trust 7,708 142 Equity Lifestyle Properties, Inc. 6,485 215 Equity One, Inc. 4,951 1,579 Equity Residential 57,586 147 Essex Property Trust, Inc. 14,331 380 Extra Space Storage, Inc. 5,430 330 Federal Realty Investment Trust 27,110 364 FelCor Lodging Trust, Inc. 5,675 260 First Industrial Realty Trust, Inc. 8,996 141 First Potomac Realty Trust 2,438 1,420 General Growth Properties, Inc. 58,476 220 Glimcher Realty Trust 3,144 1,260 HCP, Inc. 43,823 495 Health Care REIT, Inc. 22,122 295 Healthcare Realty Trust, Inc. 7,490 240 Hersha Hospitality Trust 2,280 333 Highwoods Properties, Inc. 9,784 194 Home Properties, Inc. 8,701 547 Hospitality Properties Trust 17,624 3,044 Host Hotels & Resorts, Inc. 51,870 1,313 HRPT Properties Trust 10,149 340 Inland Real Estate Corp. 4,814 321 Investors Real Estate Trust 2,879 782 iStar Financial, Inc. 20,371 191 Kilroy Realty Corp. 10,497 1,472 Kimco Realty Corp. 53,581 Real Estate Investment Trusts (Continued) 169 Kite Realty Group Trust $ 2,581 234 LaSalle Hotel Properties 7,465 371 Lexington Realty Trust 5,394 533 Liberty Property Trust 15,356 118 LTC Properties, Inc. 2,956 423 Macerich (The) Co. 30,058 396 Mack-Cali Realty Corp. 13,464 293 Medical Properties Trust, Inc. 2,986 149 Mid-America Apartment Communities, Inc. 6,370 140 Monmouth Real Estate Investment Corp. 1,134 137 National Health Investors, Inc. 3,822 419 National Retail Properties, Inc. 9,796 541 Nationwide Health Properties, Inc. 16,971 47 One Liberty Properties, Inc. 863 90 Parkway Properties, Inc. 3,328 227 Pennsylvania Real Estate Investment Trust 6,737 1,004 Plum Creek Timber Co., Inc. 46,224 255 Post Properties, Inc. 8,956 228 Potlatch Corp. 10,132 1,500 ProLogis 95,069 93 PS Business Parks, Inc. 4,887 725 Public Storage 53,222 108 Ramco-Gershenson Properties Trust 2,308 455 Rayonier, Inc. 21,494 589 Realty Income Corp. 15,915 406 Regency Centers Corp. 26,183 63 Saul Centers, Inc. 3,366 517 Senior Housing Properties Trust 11,726 1,299 Simon Property Group, Inc. 112,830 345 SL Green Realty Corp. 32,244 126 Sovran Self Storage, Inc. 5,053 433 Strategic Hotels & Resorts, Inc. 7,244 94 Sun Communities, Inc. 1,981 346 Sunstone Hotel Investors, Inc. 6,328 102 Supertel Hospitality, Inc. 626 182 Tanger Factory Outlet Centers, Inc. 6,863 307 Taubman Centers, Inc. 15,101 761 Thornburg Mortgage, Inc. 7,032 782 UDR, Inc. 15,523 69 Universal Health Realty Income Trust 2,445 129 Urstadt Biddle Properties, Inc., Class A 2,000 282 U-Store-It Trust 2,583 781 Vornado Realty Trust 68,688 272 Washington Real Estate Investment Trust 8,544 441 Weingarten Realty Investors 13,865 297 Winthrop Realty Trust, Inc. 1,571 ------------ Total Common Stocks--99.3% (Cost $1,953,907) 1,569,592 ------------- |
Page 64 See Notes to Financial Statements.
FIRST TRUST S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS (A) (CONTINUED)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Money Market Funds--8.4% 50,000 Federated Treasury Obligation - 3.36% (b) $ 50,000 83,403 J.P. Morgan Institutional Treasury Money Market Fund - 3.09% (b) 83,403 ------------- Total Money Market Funds (Cost $133,403) 133,403 ------------- Total Investments--107.7% (Cost $2,087,310) 1,702,995 Net Other Assets and Liabilities--(7.7%) (121,717) ------------- Net Assets--100.0% $ 1,581,278 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Represents annualized 7-day yield at December 31, 2007.
See Notes to Financial Statements. Page 65
FIRST TRUST ISE WATER INDEX FUND PORTFOLIO OF INVESTMENTS (A) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.1% Building Products--1.8% 2,419 Ameron International Corp. $ 222,911 ------------- Chemicals--11.4% 6,236 Arch Chemicals, Inc. 229,173 8,784 Ashland, Inc. 416,625 16,011 Calgon Carbon Corp. (b) 254,415 21,035 Nalco Holding Co. 508,626 ------------- 1,408,839 ------------- Commercial Services & Supplies--5.1% 5,194 Layne Christensen Co. (b) 255,597 17,230 Tetra Tech, Inc. (b) 370,445 ------------- 626,042 ------------- Construction & Engineering--2.8% 11,587 Insituform Technologies, Inc., Class A (b) 171,488 4,344 Northwest Pipe Co. (b) 170,024 ------------- 341,512 ------------- Electrical Equipment--5.8% 6,513 Franklin Electric Co., Inc. 249,253 7,491 Roper Industries, Inc. 468,487 ------------- 717,740 ------------- Electronic Equipment & Instruments--4.2% 5,352 Itron, Inc. (b) 513,631 ------------- Health Care Equipment & Supplies--3.8% 7,894 IDEXX Laboratories, Inc. (b) 462,825 ------------- Machinery--45.8% 5,979 Badger Meter, Inc. 268,756 9,571 Crane Co. 410,596 5,594 Danaher Corp. 490,818 16,138 Flow International Corp. (b) 150,406 4,829 Flowserve Corp. 464,550 5,107 Gorman-Rupp (The) Co. 159,338 11,773 IDEX Corp. 425,358 7,743 ITT Corp. 511,349 4,148 Lindsay Corp. 293,222 12,657 Mueller Industries, Inc. 366,926 38,319 Mueller Water Products, Inc., Class B 382,040 11,840 Pall Corp. 477,389 13,958 Pentair, Inc. 485,878 4,220 Valmont Industries, Inc. 376,086 12,525 Watts Water Technologies, Inc., Class A 373,245 ------------- 5,635,957 ------------- Multi-Utilities--4.0% 5,451 Veolia Environnement ADR $ 495,932 ------------- Water Utilities--15.4% 5,920 American States Water Co. 223,066 19,578 Aqua America, Inc. 415,054 6,450 California Water Service Group 238,779 10,339 Companhia de Saneamento Basico do Estado de Sao Paulo ADR 485,933 4,917 Consolidated Water Co., Ltd. 123,859 7,279 SJW Corp. 252,363 12,649 Southwest Water Co. 158,365 ------------- 1,897,419 ------------- Total Common Stocks (Cost $11,999,554) 12,322,808 ------------- Money Market Funds--0.5% 66,756 J.P. Morgan Institutional Treasury Money Market Fund - 3.09% (c) (Cost $66,756) 66,756 ------------- Total Investments--100.6% (Cost $12,066,310) 12,389,564 Net Other Assets and Liabilities--(0.6%) (79,845) ------------- |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
(c) Represents annualized 7-day yield at December 31, 2007.
ADR - American Depositary Receipt.
Page 66 See Notes to Financial Statements.
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND
PORTFOLIO OF INVESTMENTS (A)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.0% Gas Utilities--9.6% 5,463 Energen Corp. $ 350,888 7,977 ONEOK, Inc. 357,130 6,609 Questar Corp. 357,548 ------------- 1,065,566 ------------- Oil, Gas & Consumable Fuels--90.4% 5,796 Anadarko Petroleum Corp. 380,739 3,442 Apache Corp. 370,153 46,584 Brigham Exploration Co. (b) 350,312 9,689 Cabot Oil & Gas Corp. 391,144 9,448 Chesapeake Energy Corp. 370,362 8,827 Cimarex Energy Co. 375,412 10,957 Comstock Resources, Inc. (b) 372,538 24,677 Delta Petroleum Corp. (b) 465,160 4,069 Devon Energy Corp. 361,775 63,449 Edge Petroleum Corp. (b) 376,253 5,339 EnCana Corp. 362,838 9,293 Enerplus Resources Fund 372,185 24,593 EXCO Resources, Inc. (b) 380,700 7,464 Forest Oil Corp. (b) 379,470 16,270 Mariner Energy, Inc. (b) 372,258 6,940 Newfield Exploration Co. (b) 365,738 60,881 Ngas Resources, Inc. (b) 342,760 4,738 Noble Energy, Inc. 376,766 22,578 Petrohawk Energy Corp. (b) 390,825 6,139 Petroleum Development Corp. (b) 362,999 7,724 Pioneer Natural Resources Co. 377,240 19,685 Rosetta Resources, Inc. (b) 390,354 8,604 St. Mary Land & Exploration Co. 332,200 12,152 Statoil ASA ADR 370,879 7,949 Stone Energy Corp. (b) 372,888 20,192 Talisman Energy, Inc. 373,956 6,878 XTO Energy, Inc. 353,254 ------------- 10,091,158 ------------- Total Common Stocks--100.0% (Cost $11,135,964) 11,156,724 ------------- Money Market Funds--0.6% 71,890 J.P. Morgan Institutional Treasury Money Market Fund - 3.09% (c) (Cost $71,890) 71,890 ------------- Total Investments--100.6% (Cost $11,207,854) 11,228,614 Net Other Assets and Liabilities--(0.6%) (71,230) ------------- Net Assets--100.0% $ 11,157,384 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
(c) Represents annualized 7-day yield at December 31, 2007.
ADR - American Depositary Receipt.
See Notes to Financial Statements. Page 67
FIRST TRUST ISE CHINDIA INDEX FUND PORTFOLIO OF INVESTMENTS (A) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.1% Airlines--0.8% 12,260 China Southern Airlines Co., Ltd. ADR (b) $ 802,417 ------------- Chemicals--0.6% 11,198 Sinopec Shanghai Petrochemical Co., Ltd. ADR 683,750 ------------- Commercial Banks--10.8% 31,335 HDFC Bank Ltd. ADR 4,087,651 116,733 ICICI Bank Ltd. ADR 7,179,079 ------------- 11,266,730 ------------- Communications Equipment--0.6% 41,200 Comtech Group, Inc. (b) 663,732 ------------- Construction & Engineering--0.7% 23,380 KHD Humboldt Wedag International Ltd. (b) 700,932 ------------- Diversified Consumer Services--0.7% 8,960 New Oriental Education & Technology Group, Inc. ADR (b) 722,086 ------------- Diversified Telecommunication Services--3.7% 11,500 China Netcom Group Corp., Ltd. ADR 683,100 9,791 China Telecom Corp., Ltd. ADR 764,383 63,197 Videsh Sanchar Nigam Ltd. ADR 2,379,999 ------------- 3,827,482 ------------- Electrical Equipment--3.5% 10,145 JA Solar Holdings Co., Ltd. ADR (b) 708,222 26,873 Solarfun Power Holdings Co., Ltd. ADR (b) 877,403 24,918 Suntech Power Holdings Co., Ltd. ADR (b) 2,051,251 ------------- 3,636,876 ------------- Electronic Equipment & Instruments--0.7% 61,621 Nam Tai Electronics, Inc. 694,469 ------------- Health Care Equipment & Supplies--1.4% 16,725 China Medical Technologies, Inc. ADR 742,423 17,006 Mindray Medical International Ltd. ADR 730,748 ------------- 1,473,171 ------------- Hotels, Restaurants & Leisure--2.0% 11,964 Ctrip.com International Ltd. ADR 687,571 Hotels, Restaurants & Leisure (Continued) 19,330 Home Inns & Hotels Managment, Inc. ADR (b) $ 688,921 60,413 Melco PBL Entertainment Ltd. ADR (b) 698,375 ------------- 2,074,867 ------------- Independent Power Producers & Energy Traders--0.7% 17,575 Huaneng Power International, Inc. ADR 725,848 ------------- Insurance--3.9% 52,906 China Life Insurance Co. Ltd. ADR 4,047,309 ------------- Internet Software & Services--5.9% 10,493 Baidu.com ADR (b) 4,096,363 35,414 NetEase.com, Inc. ADR (b) 671,449 14,527 SINA Corp. (b) 643,691 12,650 Sohu.com, Inc. (b) 689,678 ------------- 6,101,181 ------------- IT Services--16.8% 169,412 Infosys Technologies Ltd. ADR 7,684,529 42,408 Patni Computer Systems Ltd. ADR 689,978 155,409 Satyam Computer Services Ltd. ADR 4,152,528 284,345 Wipro Ltd. ADR 4,219,680 43,852 WNS Holdings Ltd. ADR (b) 716,980 ------------- 17,463,695 ------------- Machinery--2.0% 111,493 Tata Motors Ltd. ADR 2,102,758 ------------- Marine--0.7% 28,021 Seaspan Corp. 686,234 ------------- Media--2.6% 35,666 Focus Media Holding Ltd. ADR (b) 2,026,185 116,553 Xinhua Finance Media Ltd. ADR (b) 699,318 ------------- 2,725,503 ------------- Metals & Mining--10.8% 80,027 Aluminum Corp. of China Ltd. ADR 4,052,567 273,616 Sterlite Industries (India) Ltd. ADR (b) 7,133,169 ------------- 11,185,736 ------------- Oil, Gas & Consumable Fuels--16.7% 50,812 China Petroleum & Chemical Corp. ADR 7,530,339 12,917 CNOOC Ltd. ADR 2,162,693 39,686 PetroChina Co., Ltd. ADR 6,963,702 |
Page 68 See Notes to Financial Statements.
FIRST TRUST ISE CHINDIA INDEX FUND
PORTFOLIO OF INVESTMENTS (A) (CONTINUED)
DECEMBER 31, 2007
SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Oil, Gas & Consumable Fuels (Continued) 7,504 Yanzhou Coal Mining Co., Ltd. ADR $ 728,338 ------------- 17,385,072 ------------- Personal Products--0.7% 63,957 American Oriental Bioengineering, Inc. (b) 708,644 ------------- Pharmaceuticals--2.0% 115,039 Dr. Reddy's Laboratories Ltd. ADR 2,089,108 ------------- Road & Rail--0.7% 19,855 Guangshen Railway Co., Ltd. ADR 707,632 ------------- Semiconductors & Semiconductor Equipment--0.7% 14,512 Trina Solar Ltd. ADR (b) 780,746 ------------- Software--2.0% 169,531 CDC Corp., Class A (b) 825,617 19,298 Shanda Interactive Entertainment Ltd. ADR (b) 643,395 29,392 The9 Ltd. ADR (b) 626,637 ------------- 2,095,649 ------------- Wireless Telecommunication Services--8.4% 82,829 China Mobile Ltd. ADR 7,195,355 36,155 China Unicom Ltd. ADR 809,872 32,447 Hutchison Telecommunications International Ltd. ADR 734,925 ------------- 8,740,152 ------------- Total Investments--100.1% (Cost $101,640,171) 104,091,779 Net Other Assets and Liabilities--(0.1%) (87,479) ------------- Net Assets--100.0% $ 104,004,300 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
ADR - American Depositary Receipt.
See Notes to Financial Statements. Page 69
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND PORTFOLIO OF INVESTMENTS (A) DECEMBER 31, 2007 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.4% Aerospace & Defense--2.1% 54,982 Cubic Corp. $ 2,155,295 14,943 Precision Castparts Corp. 2,072,594 ------------- 4,227,889 ------------- Beverages--2.0% 33,554 Coca-Cola (The) Co. 2,059,209 62,251 PepsiAmericas, Inc. 2,074,203 ------------- 4,133,412 ------------- Biotechnology--3.0% 46,277 LifeCell Corp. (b) 1,995,001 37,269 Onyx Pharmaceuticals, Inc. (b) 2,072,902 42,400 OSI Pharmaceuticals, Inc. (b) 2,056,824 ------------- 6,124,727 ------------- Capital Markets--2.1% 83,860 Charles Schwab (The) Corp. 2,142,623 62,879 Janus Capital Group, Inc. 2,065,575 ------------- 4,208,198 ------------- Chemicals--4.2% 30,186 Agrium, Inc. 2,179,731 18,544 Monsanto Co. 2,071,179 22,933 Mosaic (The) Co. (b) 2,163,499 15,195 Potash Corp. of Saskatchewan, Inc. 2,187,473 ------------- 8,601,882 ------------- Commercial Services & Supplies--5.1% 49,891 Copart, Inc. (b) 2,122,862 34,641 FTI Consulting, Inc. (b) 2,135,271 33,972 IHS, Inc., Class A (b) 2,057,344 94,212 Learning Tree International, Inc. (b) 2,163,108 34,441 Stericycle, Inc. (b) 2,045,795 ------------- 10,524,380 ------------- Communications Equipment--3.0% 118,286 Foundry Networks, Inc. (b) 2,072,371 55,091 Nokia Oyj ADR 2,114,944 17,981 Research In Motion Ltd. (b) 2,039,045 ------------- 6,226,360 ------------- Computers & Peripherals--4.1% 10,668 Apple Computer, Inc. (b) 2,113,117 111,244 EMC Corp. (b) 2,061,351 81,338 Seagate Technology 2,074,119 70,051 Western Digital Corp. (b) 2,116,241 ------------- 8,364,828 ------------- Construction & Engineering--2.0% 14,454 Fluor Corp. $ 2,106,237 21,776 Jacobs Engineering Group, Inc. (b) 2,082,003 ------------- 4,188,240 ------------- Containers & Packaging--2.1% 42,975 Owens-Illinois, Inc. (b) 2,127,262 74,689 Packaging Corp. of America 2,106,230 ------------- 4,233,492 ------------- Distributors--1.0% 94,203 LKQ Corp. (b) 1,980,147 ------------- Diversified Consumer Services--3.0% 29,351 Apollo Group, Inc., Class A (b) 2,058,973 38,930 DeVry, Inc. 2,022,803 11,876 Strayer Education, Inc. 2,025,808 ------------- 6,107,584 ------------- Diversified Financial Services--1.0% 43,304 Nasdaq Stock Market, Inc. (b) 2,143,115 ------------- Diversified Telecommunication Services--1.0% 21,673 Telefonica S.A. ADR 2,115,068 ------------- Electrical Equipment--1.0% 15,331 SunPower Corp., Class A (b) 1,999,009 ------------- Electronic Equipment & Instruments--3.0% 41,209 Dolby Laboratories, Inc., Class A (b) 2,048,911 66,486 FLIR Systems, Inc. (b) 2,081,012 61,693 National Instruments Corp. 2,056,228 ------------- 6,186,151 ------------- Energy Equipment & Services--3.1% 43,574 Cameron International Corp. (b) 2,097,217 16,989 Core Laboratories N.V. (b) 2,118,868 28,672 National-Oilwell Varco, Inc. (b) 2,106,245 ------------- 6,322,330 ------------- Food Products--1.1% 65,445 Fresh Del Monte Produce, Inc. (b) 2,197,643 ------------- Health Care Equipment & Supplies--5.1% 45,305 ArthroCare Corp. (b) 2,176,906 35,678 IDEXX Laboratories, Inc. (b) 2,091,801 6,353 Intuitive Surgical, Inc. (b) 2,061,549 39,099 Kinetic Concepts, Inc. (b) 2,094,142 51,421 St. Jude Medical, Inc. (b) 2,089,749 ------------- 10,514,147 ------------- |
Page 70 See Notes to Financial Statements.
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND
PORTFOLIO OF INVESTMENTS (A) (CONTINUED)
DECEMBER 31, 2007
Common Stocks (Continued)
Health Care Providers & Services--2.1%
29,342 Express Scripts, Inc. (b) $ 2,141,966 23,655 WellPoint, Inc. (b) 2,075,253 ------------- 4,217,219 ------------- Health Care Technology--1.0% 83,500 Eclipsys Corp. (b) 2,113,385 ------------- Household Durables--1.0% 21,039 Garmin Ltd. 2,040,783 ------------- Industrial Conglomerates--2.1% 35,969 McDermott International, Inc. (b) 2,123,250 29,659 Textron, Inc. 2,114,687 ------------- 4,237,937 ------------- Insurance--2.0% 33,918 AFLAC, Inc. 2,124,285 42,551 Aon Corp. 2,029,257 ------------- 4,153,542 ------------- Internet & Catalog Retail--2.1% 23,286 Amazon.com, Inc. (b) 2,157,215 17,991 Priceline.com, Inc. (b) 2,066,446 ------------- 4,223,661 ------------- Internet Software & Services--2.0% 62,044 eBay, Inc. (b) 2,059,240 3,016 Google, Inc., Class A (b) 2,085,504 ------------- 4,144,744 ------------- IT Services--1.0% 40,709 Computer Sciences Corp. (b) 2,013,874 ------------- Life Sciences Tools & Services--4.1% 31,710 Charles River Laboratories International, Inc. (b) 2,086,518 23,845 Covance, Inc. (b) 2,065,454 22,523 Invitrogen Corp. (b) 2,103,873 27,070 Waters Corp. (b) 2,140,425 ------------- 8,396,270 ------------- Machinery--11.0% 30,749 AGCO Corp. (b) 2,090,317 54,089 Axsys Technologies, Inc. (b) 1,982,362 21,135 Bucyrus International, Inc., Class A 2,100,608 32,014 CNH Global N.V. 2,107,161 23,146 Deere & Co. 2,155,356 33,405 Dynamic Materials Corp. 1,967,555 21,356 Flowserve Corp. 2,054,447 28,143 Lindsay Corp. 1,989,429 41,596 Manitowoc (The) Co., Inc. 2,031,133 28,678 Robbins & Myers, Inc. 2,168,916 21,483 Valmont Industries, Inc. 1,914,565 ------------- 22,561,849 ------------- Media--1.0% 69,757 Global Sources Ltd. (b) $ 1,968,543 ------------- Metals & Mining--3.0% 59,062 AMCOL International Corp. 2,128,003 29,867 BHP Billiton Ltd. ADR 2,091,885 19,266 Southern Copper Corp. 2,025,435 ------------- 6,245,323 ------------- Oil, Gas & Consumable Fuels--1.0% 59,034 Williams (The) Cos., Inc. 2,112,237 ------------- Pharmaceuticals--3.0% 35,491 Merck & Co., Inc. 2,062,382 32,144 Novo Nordisk A/S ADR 2,084,860 59,548 Perrigo Co. 2,084,775 ------------- 6,232,017 ------------- Semiconductors & Semiconductor Equipment--6.0% 55,940 Cypress Semiconductor Corp. (b) 2,015,518 22,533 MEMC Electronic Materials, Inc. (b) 1,993,945 59,275 NVIDIA Corp. (b) 2,016,536 37,241 Sigma Designs, Inc. (b) 2,055,703 62,154 Texas Instruments, Inc. 2,075,944 91,463 Zoran Corp. (b) 2,058,832 ------------- 12,216,478 ------------- Software--5.0% 50,347 ANSYS, Inc. (b) 2,087,387 81,914 CA, Inc. 2,043,754 83,457 Jack Henry & Associates, Inc. 2,031,343 57,957 Microsoft Corp. 2,063,269 93,178 Oracle Corp. (b) 2,103,960 ------------- 10,329,713 ------------- Specialty Retail--2.0% 39,768 Best Buy Co., Inc. 2,093,785 33,515 GameStop Corp., Class A (b) 2,081,617 ------------- 4,175,402 ------------- Textiles, Apparel & Luxury Goods--2.0% 12,887 Deckers Outdoor Corp. (b) 1,998,258 48,192 Fossil, Inc. (b) 2,023,100 ------------- 4,021,358 ------------- Total Investments--100.4% (Cost $183,137,182) 205,802,937 Net Other Assets and Liabilities--(0.4%) (889,512) ------------- Net Assets--100.0% $ 204,913,425 ============= |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Non-income producing security.
ADR - American Depositary Receipt.
See Notes to Financial Statements. Page 71
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2007
First Trust First Trust Dow Jones Select Morningstar(R) First Trust MicroCap Dividend Leaders(SM) IPOX-100 Index(SM) Fund Index Fund Index Fund ----------------- -------------------- ----------- ASSETS: Investments at value...................................................... $ 18,041,010 $ 64,505,883 $ 26,679,603 Cash...................................................................... 23,882 -- 12,212 Receivables: Capital shares sold................................................. 5,072 14,625 -- Investment securities sold.......................................... -- 84,267 -- Dividends........................................................... 19,540 169,668 8,565 Interest............................................................ -- -- -- Reclaims............................................................ -- -- -- From investment advisor............................................. 28,049 28,690 12,371 Other assets.............................................................. -- -- 15,091 ------------- -------------- -------------- Total Assets........................................................ 18,117,553 64,803,133 26,727,842 ------------- -------------- -------------- LIABILITIES: Due to Custodian.......................................................... -- 18,234 -- Payables: Investment securities purchased..................................... 11,095 -- -- Capital shares purchased............................................ 12,270 596 -- Investment advisory fees............................................ 7,330 17,147 8,543 Licensing fees...................................................... 824 25,133 -- Accrued expenses and other liabilities.................................... 93,233 91,534 86,568 ------------- -------------- -------------- Total Liabilities................................................... 124,752 152,644 95,111 ------------- -------------- -------------- NET ASSETS................................................................ $ 17,992,801 $ 64,650,489 $ 26,632,731 ============= ============== ============== NET ASSETS consist of: Paid-in capital........................................................... $ 21,947,285 $ 77,672,170 $ 25,988,315 Par value................................................................. 8,050 32,000 10,500 Undistributed net investment income (loss)................................ 4,380 9,502 1,158 Accumulated net realized gain (loss) on investments ...................... (2,553,261) (980,395) (1,355,789) Net unrealized appreciation (depreciation) on investments................. (1,413,653) (12,082,788) 1,988,547 ------------- -------------- -------------- NET ASSETS................................................................ $ 17,992,801 $ 64,650,489 $ 26,632,731 ============= ============== ============== NET ASSET VALUE, per share................................................ $ 22.35 $ 20.20 $ 25.36 ============= ============== ============== Number of shares outstanding (unlimited number of shares has been authorized, par value $0.01 per share) 805,000 3,200,002 1,050,002 ------------- -------------- -------------- Investments at cost....................................................... $ 19,454,663 $ 76,588,671 $ 24,691,056 ============= ============== ============== |
Page 72 See Notes to Financial Statements.
First Trust First Trust First Trust First Trust First Trust First Trust First Trust NASDAQ-100 NASDAQ-100- Amex(R) Dow Jones DB Strategic Value Line(R) Value Line(R) Equal Weighted Technology Sector Biotechnology Internet Value Equity Allocation Dividend Index(SM) Fund Index(SM) Fund Index Fund Index(SM) Fund Index Fund Index Fund Index Fund ---------------- ------------------- ---------------- ------------------ --------------- -------------------- ---------------- $ 31,002,219 $ 23,734,053 $ 72,820,584 $ 36,124,261 $ 61,522,985 $ 13,341,744 $ 180,195,752 10,549 13,252 -- -- 25,010 10,681 960,997 -- -- -- -- -- -- 7,911,342 -- -- 592,115 344,590 -- 1,084 6,532,105 10,192 2,317 -- -- 101,272 13,624 476,585 -- -- -- 841 -- -- -- -- -- -- -- -- 566 3,712 11,299 9,775 20,432 17,141 17,917 15,815 31,747 -- -- -- -- -- -- 8,063 -------------- -------------- -------------- -------------- -------------- -------------- ---------------- 31,034,259 23,759,397 73,433,131 36,486,833 61,667,184 13,383,514 196,120,303 -------------- -------------- -------------- -------------- -------------- -------------- ---------------- -- -- 57,783 2,956 -- -- -- -- -- -- -- 14,489 -- 7,466,171 -- -- -- -- -- -- 7,911,342 10,430 8,095 26,303 19,364 23,525 5,696 78,693 7,186 6,011 26,644 3,369 25,980 19,100 300,016 105,341 93,740 81,354 75,488 85,497 67,352 210,859 -------------- -------------- -------------- -------------- -------------- -------------- ---------------- 122,957 107,846 192,084 101,177 149,491 92,148 15,967,081 -------------- -------------- -------------- -------------- -------------- -------------- ---------------- $ 30,911,302 $ 23,651,551 $ 73,241,047 $ 36,385,656 $ 61,517,693 $ 13,291,366 $ 180,153,222 ============== ============== ============== ============== ============== ============== ================ $ 33,414,132 $ 26,368,424 $ 79,480,565 $ 45,349,633 $ 64,459,655 $ 14,053,511 $ 196,742,615 14,000 11,000 30,000 14,500 25,500 6,500 114,380 -- -- -- -- 22,423 3,164 -- (869,924) (947,976) (366,907) (6,110,926) (1,386,697) (1,439,291) (7,143,249) (1,646,906) (1,779,897) (5,902,611) (2,867,551) (1,603,188) 667,482 (9,560,524) -------------- -------------- -------------- -------------- -------------- -------------- ---------------- $ 30,911,302 $ 23,651,551 $ 73,241,047 $ 3 6,385,656 $ 61,517,693 $ 13,291,366 $ 180,153,222 ============== ============== ============== ============== ============== ============== ================ $ 22.08 $ 21.50 $ 24.41 $ 25.09 $ 24.12 $ 20.45 $ 15.75 ============== ============== ============== ============== ============== ============== ================ 1,400,002 1,100,002 3,000,002 1,450,002 2,550,002 650,002 11,437,986 -------------- -------------- -------------- -------------- -------------- -------------- ---------------- $ 32,649,125 $ 25,513,950 $ 78,723,195 $ 38,991,812 $ 63,126,173 $ 12,674,262 $ 189,756,276 ============== ============== ============== ============== ============== ============== ================ |
See Notes to Financial Statements. Page 73
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 2007
First Trust First Trust NASDAQ-100 NASDAQ(R) Clean Edge(R) Ex-Technology Sector U.S. Liquid Series IndexSM Fund Index Fund ----------------------- ----------------------- ASSETS: Investments at value...................................................... $ 2,172,638 $ 50,811,947 Cash...................................................................... 74,928 179,229 Receivables: Capital shares sold................................................. -- 3,127,852 Investment securities sold.......................................... 1,065,841 -- Dividends........................................................... 1,126 3,831 Interest............................................................ 217 -- Reclaims............................................................ -- -- From investment advisor............................................. -- -- Other assets.............................................................. 1,867 -- -------------- -------------- Total Assets........................................................ 3,316,617 54,122,859 -------------- -------------- LIABILITIES: Due to Custodian.......................................................... -- -- Payables: Investment securities purchased..................................... 69,788 3,131,858 Capital shares purchased............................................ 1,065,169 -- Investment advisory fees............................................ 15,575 16,608 Licensing fees...................................................... 583 8,221 Accrued expenses and other liabilities.................................... 46,930 53,137 -------------- -------------- Total Liabilities................................................... 1,198,045 3,209,824 -------------- -------------- NET ASSETS................................................................ $ 2,118,572 $ 50,913,035 ============== ============== NET ASSETS consist of: Paid-in capital........................................................... $ 2,386,278 $ 45,780,650 Par value................................................................. 1,000 16,500 Undistributed net investment income (loss)................................ -- -- Accumulated net realized gain (loss) on investments ...................... (59,898) (456,084) Net unrealized appreciation (depreciation) on investments................. (208,808) 5,571,969 -------------- -------------- NET ASSETS................................................................ $ 2,118,572 $ 50,913,035 ============== ============== NET ASSET VALUE, per share................................................ $ 21.19 $ 30.86 ============== ============== Number of shares outstanding (unlimited number of shares has been authorized, par value $0.01 per share) 100,002 1,650,002 -------------- -------------- Investments at cost....................................................... $ 2,381,446 $ 45,239,978 ============== ============== |
Page 74 See Notes to Financial Statements.
First Trust First Trust First Trust First Trust S&P ISE ISE-Revere ISE First Trust REIT Water Natural Gas Chindia Value Line(R) 100 Index Fund Index Fund Index Fund Index Fund Exchange-Traded Fund ----------------- ----------------- ----------------- ----------------- ---------------------- $ 1,702,995 $ 12,389,564 $ 11,228,614 $ 104,091,779 $ 205,802,937 -- -- -- 4,112 -- -- -- -- -- 54,976,122 -- -- -- -- 37,939,578 15,532 14,221 4,859 12,963 90,235 246 140 234 -- -- -- -- -- -- 9,203 325 -- -- 4,734 20,765 -- -- -- -- 5,998 -------------- -------------- -------------- -------------- --------------- 1,719,098 12,403,925 11,233,707 104,113,588 298,844,838 -------------- -------------- -------------- -------------- --------------- 37,543 24,920 7,609 -- 170,300 -- -- -- -- 54,478,885 -- -- -- -- 38,855,573 423 9,678 9,646 34,452 79,073 48,493 2,477 3,018 7,497 230,866 51,361 57,131 56,050 67,339 116,716 -------------- -------------- -------------- -------------- --------------- 137,820 94,206 76,323 109,288 93,931,413 -------------- -------------- -------------- -------------- --------------- $ 1,581,278 $ 12,309,719 $ 11,157,384 $ 104,004,300 $ 204,913,425 ============== ============== ============== ============== =============== $ 2,012,894 $ 12,016,965 $ 11,235,844 $ 103,452,483 $ 193,321,158 1,000 5,500 5,000 37,500 114,400 -- -- 1,666 1,096 -- (48,301) (36,000) (105,886) (1,938,387) (11,187,888) (384,315) 323,254 20,760 2,451,608 22,665,755 -------------- -------------- -------------- -------------- --------------- $ 1,581,278 $ 12,309,719 $ 11,157,384 $ 104,004,300 $ 204,913,425 ============== ============== ============== ============== =============== $ 15.81 $ 22.38 $ 22.31 $ 27.73 $ 17.91 ============== ============== ============== ============== =============== 100,002 550,002 500,002 3,750,002 11,439,982 -------------- -------------- -------------- -------------- --------------- $ 2,087,310 $ 12,066,310 $ 11,207,854 $ 101,640,171 $ 183,137,182 ============== ============== ============== ============== =============== |
See Notes to Financial Statements. Page 75
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS
First Trust First Trust Dow Jones Select Morningstar(R) First Trust MicroCap Dividend Leaders(SM) IPOX-100 Index(SM) Fund Index Fund Index Fund -------------------- -------------------- -------------------- For the For the For the Year Ended Year Ended Year Ended December 31, 2007 December 31, 2007 December 31, 2007 --------------------- ------------------- -------------------- INVESTMENT INCOME: Dividends (a) .................................................... $ 213,900 $ 3,685,392 $ 206,914 Interest.......................................................... -- -- -- ------------- ------------- -------------- Total investment income........................................ 213,900 3,685,392 206,914 ------------- ------------- -------------- EXPENSES: Investment advisory fees.......................................... 90,935 255,684 98,443 Audit and tax fees................................................ 35,026 34,918 34,983 Accounting and administration fees................................ 27,788 49,973 20,200 Licensing fees.................................................... 24,999 151,399 61,000 Printing fees..................................................... 19,954 28,366 11,714 Legal fees........................................................ 14,760 8,474 7,102 Custodian fees.................................................... 14,225 19,325 12,282 Listing fees...................................................... 10,643 10,817 10,001 Registration and filing fees...................................... 2,878 6,686 1,128 Trustees' fees and expenses....................................... 1,151 6,552 1,983 Transfer agent fees............................................... 909 4,261 1,231 Other expenses.................................................... 3,038 6,952 1,328 ------------- ------------- -------------- Total Expenses................................................. 246,306 583,407 261,395 Less fees waived and expenses reimbursed by the investment advisor..................................................... (137,185) (199,880) (113,731) ------------- ------------- -------------- Net Expenses................................................... 109,121 383,527 147,664 ------------- ------------- -------------- NET INVESTMENT INCOME (LOSS)...................................... 104,779 3,301,865 59,250 ------------- ------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments.................................................... (958,976) (923,317) (1,070,153) In-kind redemptions............................................ 2,194,872 5,852,161 2,969,529 ------------- ------------- -------------- Net realized gain (loss).......................................... 1,235,896 4,928,844 1,899,376 ------------- ------------- -------------- Net change in unrealized appreciation (depreciation) on investments.................................................... (2,332,891) (17,025,191) 1,187,879 ------------- ------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS)........................... (1,096,995) (12,096,347) 3,087,255 ------------- ------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................................ $ (992,216) $ (8,794,482) $ 3,146,505 ============= ============= ============== (a) Net of foreign witholding taxes of $348 for the First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, $1,280 for the First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, $2,145 for the First Trust NASDAQ-100- Technology Sector(SM) Index Fund, and $3,550 for the First Trust Value Line(R) Equity Allocation Index Fund. |
Page 76 See Notes to Financial Statements.
First Trust First Trust First Trust First Trust First Trust First Trust NASDAQ-100 NASDAQ-100- Amex(R) Dow Jones DB Strategic Value Line(R) Equal Weighted Technology Sector Biotechnology Internet Value Equity Allocation Index(SM) Fund Index(SM) Fund Index Fund Index(SM) Fund Index Fund Index Fund -------------------- -------------------- -------------------- -------------------- -------------------- --------------------- For the For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, 2007 December 31, 2007 December 31, 2007 December 31, 2007 December 31, 2007 December 31, 2007 --------------------- --------------------- --------------------- --------------------- ------------------------------------------ $ 126,764 $ 104,092 $ -- $ 96,406 $ 637,377 $ 261,326 -- -- -- 841 -- -- ------------ ------------ ------------ ------------ ------------ ------------ 126,764 104,092 -- 97,247 637,377 261,326 ------------ ------------ ------------ ------------ ------------ ------------ 97,177 94,558 201,334 218,892 183,113 75,067 34,624 34,635 34,613 34,595 35,197 32,727 20,175 13,624 27,676 30,673 21,887 13,243 24,294 23,639 40,267 34,143 125,500 24,416 13,823 11,487 21,782 23,174 9,837 15,474 9,766 7,129 7,343 7,343 7,426 11,711 10,301 9,280 12,013 12,526 9,097 9,412 14,339 14,867 10,490 10,544 10,001 10,545 2,041 2,753 2,351 1,791 1,695 2,931 2,060 2,248 5,183 4,830 4,286 988 1,215 1,182 2,517 2,736 1,831 751 1,958 1,923 1,828 1,858 1,053 6,207 ------------ ------------ ------------ ------------ ------------ ------------ 231,773 217,325 367,397 383,105 410,923 203,472 (86,008) (75,489) (65,395) (54,768) (172,875) (98,378) ------------ ------------ ------------ ------------ ------------ ------------ 145,765 141,836 302,002 328,337 238,048 105,094 ------------ ------------ ------------ ------------ ------------ ------------ (19,001) (37,744) (302,002) (231,090) 399,329 156,232 ------------ ------------ ------------ ------------ ------------ ------------ (646,121) (505,402) (277,758) (6,085,666) (1,466,514) (1,437,666) 3,914,875 3,570,635 7,427,406 12,961,361 5,544,664 1,033,752 ------------ ------------ ------------ ------------ ------------ ------------ 3,268,754 3,065,233 7,149,648 6,875,695 4,078,150 (403,914) ------------ ------------ ------------ ------------ ------------ ------------ (1,694,511) (1,702,778) (7,597,605) (4,669,550) (2,024,723) 851,149 ------------ ------------ ------------ ------------ ------------ ------------ 1,574,243 1,362,455 (447,957) 2,206,145 2,053,427 447,235 ------------ ------------ ------------ ------------ ------------ ------------ $ 1,555,242 $ 1,324,711 $ (749,959) $ 1,975,055 $ 2,452,756 $ 603,467 ============ ============ ============ ============ ============ ============ |
See Notes to Financial Statements. Page 77
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS (CONTINUED)
First Trust First Trust First Trust Value Line(R) NASDAQ-100 NASDAQ(R) Clean Edge(R) Dividend Ex-Technology Sector U.S. Liquid Series Index Fund Index(SM) Fund Index Fund ------------------ -------------------- -------------------------- For the Period For the Period For the February 8, 2007 (b) February 8, 2007 (b) Year Ended through through December 31, 2007 December 31, 2007 December 31, 2007 ------------------ -------------------- -------------------------- INVESTMENT INCOME: Dividends (a) .............................................. $ 7,943,435 $ 16,657 $ 51,494 Interest.................................................... 418 303 -------------- ------------- ------------- Total investment income.................................. 7,943,853 16,960 51,494 -------------- ------------- ------------- EXPENSES: Investment advisory fees.................................... 1,293,284 12,216 77,431 Audit and tax fees.......................................... 39,216 29,760 29,743 Accounting and administration fees.......................... 135,704 2,578 11,812 Licensing fees.............................................. 400,565 3,054 19,358 Printing fees............................................... 88,756 10,107 16,957 Legal fees.................................................. 17,204 5,654 8,874 Custodian fees.............................................. 46,628 1,879 4,384 Listing fees................................................ 32,016 9,395 16,498 Registration and filing fees................................ 31,186 4 4 Trustees' fees and expenses................................. 17,641 266 2,850 Transfer agent fees......................................... 12,933 153 968 Other expenses.............................................. 88,359 4,500 4,500 -------------- ------------- ------------- Total Expenses........................................... 2,203,492 79,566 193,379 Less fees waived and expenses reimbursed by the investment advisor.................................... (392,894) (61,242) (77,233) -------------- ------------- ------------- Net Expenses............................................. 1,810,598 18,324 116,146 -------------- ------------- ------------- NET INVESTMENT INCOME (LOSS)................................ 6,133,255 (1,364) (64,652) -------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments................................................. (6,917,739) (59,898) (462,882) In-kind redemptions......................................... 62,295,122 517,056 5,009,950 -------------- ------------- ------------- Net realized gain (loss).................................... 55,377,383 457,158 4,547,068 -------------- ------------- ------------- Net change in unrealized appreciation (depreciation) on investments.............................................. (65,904,350) (208,808) 5,571,969 -------------- ------------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS)..................... (10,526,967) 248,350 10,119,037 -------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.......................................... $ (4,393,712) $ 246,986 $ 10,054,385 ============== ============= ============= (a) Net of foreign witholding taxes of $99,984 for the First Trust Value Line(R) Dividend Index Fund, $101 for the First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, $3,251 for the First Trust ISE-Revere Natural Gas Index Fund, and $23,086 for the First Trust Value Line(R) 100 Exchange-Traded Fund. (b) Inception date. (c) Results for periods prior to June 18, 2007 are of First Trust Value Line(R) 100 Fund. See Note 1 in the Notes to Financial Statements. |
Page 78 See Notes to Financial Statements.
First Trust First Trust First Trust First Trust S&P ISE ISE-Revere ISE First Trust REIT Water Natural Gas Chindia Value Line(R) 100 Index Fund Index Fund Index Fund Index Fund Exchange-Traded Fund ---------------------- ---------------------- ---------------------- ---------------------- ------------------------ For the Period For the Period For the Period For the Period May 8, 2007 (b) May 8, 2007 (b) May 8, 2007 (b) May 8, 2007 (b) For the through through through through Year Ended December 31, 2007 December 31, 2007 December 31, 2007 December 31, 2007 December 31, 2007 (c) ---------------------- ---------------------- ---------------------- ---------------------- ------------------------ $ 43,954 $ 56,126 $ 30,838 $ 216,465 $ 1,482,882 410 140 234 -- -- ------------- ------------- ------------- ------------- -------------- 44,364 56,266 31,072 216,465 1,482,882 ------------- ------------- ------------- ------------- -------------- 4,118 21,211 13,470 112,487 1,393,727 32,211 29,924 29,925 29,925 42,097 2,536 3,469 2,547 15,524 178,842 48,493 2,651 3,368 22,497 305,385 6,859 8,649 7,367 11,998 46,678 5,343 5,775 5,608 10,927 36,524 1,920 2,362 2,120 5,252 20,144 6,525 7,210 7,210 7,210 20,083 1,110 1,105 1,105 1,105 -- 158 725 506 5,316 9,277 69 265 168 1,406 7,743 6,129 6,134 6,134 6,304 52,434 ------------- ------------- ------------- ------------- -------------- 115,471 89,480 79,528 229,951 2,112,934 (108,608) (57,664) (59,322) (61,221) (132,258) ------------- ------------- ------------- ------------- -------------- 6,863 31,816 20,206 168,730 1,980,676 ------------- ------------- ------------- ------------- -------------- 37,501 24,450 10,866 47,735 (497,794) ------------- ------------- ------------- ------------- -------------- (48,301) (36,000) (106,407) (1,926,901) 7,734,350 (15,732) 299,879 510,266 4,011,210 44,394,357 ------------- ------------- ------------- ------------- -------------- (64,033) 263,879 403,859 2,084,309 52,128,707 ------------- ------------- ------------- ------------- -------------- (384,315) 323,254 20,760 2,451,608 (5,434,509) ------------- ------------- ------------- ------------- -------------- (448,348) 587,133 424,619 4,535,917 46,694,198 ------------- ------------- ------------- ------------- -------------- $ (410,847) $ 611,583 $ 435,485 $ 4,583,652 $ 46,196,404 ============= ============= ============= ============= ============== |
See Notes to Financial Statements. Page 79
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS
First Trust First Trust Dow Jones Select Morningstar(R) MicroCap Dividend Leaders(SM) Index(SM) Fund Index Fund ------------------------------------------- --------------------------------------- For the Period For the Year For the Year For the Year March 9, 2006 (a) Ended Ended Ended through December 31, 2007 December 31, 2006 December 31, 2007 December 31, 2006 --------------------- ------------------- ------------------- ------------------ OPERATIONS: Net investment income (loss).................. $ 104,779 $ 57,986 $ 3,301,865 $ 1,135,197 Net realized gain (loss)...................... 1,235,896 3,858,753 4,928,844 1,133,275 Net change in unrealized appreciation (depreciation) (2,332,891) (4,051) (17,025,191) 4,942,403 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations.................. (992,216) 3,912,688 (8,794,482) 7,210,875 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income......................... (101,775) (67,080) (3,182,601) (1,240,001) Net realized gain............................. -- -- -- -- ------------- ------------- ------------- ------------- Total distributions to shareholders........... (101,775) (67,080) (3,182,601) (1,240,001) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold..................... 20,378,526 37,006,899 69,676,425 82,248,231 Value of shares repurchased................... (18,156,774) (63,479,407) (68,286,075) (12,981,883) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions.............. 2,221,752 (26,472,508) 1,390,350 69,266,348 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets......... 1,127,761 (22,626,900) (10,586,733) 75,237,222 NET ASSETS: Beginning of period........................... 16,865,040 39,491,940 75,237,222 -- ------------- ------------- ------------- ------------- End of period................................. $ 17,992,801 $ 16,865,040 $ 64,650,489 $ 75,237,222 ============= ============= ============= ============= Undistributed net investment income (loss) at end of period........................... $ 4,380 $ 1,376 $ 9,502 $ (104,804) ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period....... 705,000 1,905,000 3,200,002 -- Shares sold................................... 850,000 1,700,000 2,950,000 3,800,002 Shares repurchased............................ (750,000) (2,900,000) (2,950,000) (600,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period............. 805,000 705,000 3,200,002 3,200,002 ============= ============= ============= ============= (a) Inception date. |
Page 80 See Notes to Financial Statements.
First Trust First Trust IPOX-100 NASDAQ-100 Equal Weighted Index Fund Index(SM) Fund --------------------------------------- -------------------------------------- For the Period For the Period For the Year April 12, 2006 (a) For the Year April 19, 2006 (a) Ended through Ended through December 31, 2007 December 31, 2006 December 31, 2007 December 31, 2006 ----------------- ------------------- ----------------- ------------------- $ 59,250 $ 9,633 $ (19,001) $ (9,563) 1,899,376 (611,993) 3,268,754 521,972 1,187,879 800,668 (1,694,511) 47,605 -------------- -------------- -------------- -------------- 3,146,505 198,308 1,555,242 560,014 -------------- -------------- -------------- -------------- (67,725) -- -- -- -- -- -- -- -------------- -------------- -------------- -------------- (67,725) -- -- -- -------------- -------------- -------------- -------------- 22,872,902 43,915,451 26,192,404 32,413,288 (19,299,601) (24,133,109) (22,994,445) (6,815,201) -------------- -------------- -------------- -------------- 3,573,301 19,782,342 3,197,959 25,598,087 -------------- -------------- -------------- -------------- 6,652,081 19,980,650 4,753,201 26,158,101 19,980,650 -- 26,158,101 -- -------------- -------------- -------------- -------------- $ 26,632,731 $ 19,980,650 $ 30,911,302 $ 26,158,101 ============== ============== ============== ============== $ 1,158 $ 9,633 $ -- $ -- ============== ============== ============== ============== 900,002 -- 1,300,002 -- 950,000 2,150,002 1,150,000 1,650,002 (800,000) (1,250,000) (1,050,000) (350,000) -------------- -------------- -------------- -------------- 1,050,002 900,002 1,400,002 1,300,002 ============== ============== ============== ============== |
First Trust First Trust NASDAQ-100-Technology Sector Amex(R) Biotechnology Index(SM) Fund Index Fund ---------------------------------------- --------------------------------------- For the Period For the Period For the Year April 19, 2006 (a) For the Year June 19, 2006 (a) Ended through Ended through Dececember 31, 2007 December 31, 2006 December 31, 2007 December 31, 2006 ------------------- ------------------ ------------------ ----------------- $ (37,744) $ (24,769) $ (302,002) $ (78,128) 3,065,233 478,780 7,149,648 1,789,320 (1,702,778) (77,119) (7,597,605) 1,694,994 ------------- ------------- -------------- -------------- 1,324,711 376,892 (749,959) 3,406,186 ------------- ------------- -------------- -------------- -- -- -- -- -- -- -- -- ------------- ------------- -------------- -------------- -- -- -- -- ------------- ------------- -------------- -------------- 21,483,865 33,510,515 90,771,660 43,126,529 (27,116,601) (5,927,831) (46,218,394) (17,094,975) ------------- ------------- -------------- -------------- (5,632,736) 27,582,684 44,553,266 26,031,554 ------------- ------------- -------------- -------------- (4,308,025) 27,959,576 43,803,307 29,437,740 27,959,576 -- 29,437,740 -- ------------- ------------- -------------- -------------- $ 23,651,551 $ 27,959,576 $ 73,241,047 $ 29,437,740 ============= ============= ============== ============== $ -- $ -- $ -- $ -- ============= ============= ============== ============== 1,400,002 -- 1,250,002 -- 950,000 1,700,002 3,600,000 2,050,002 (1,250,000) (300,000) (1,850,000) (800,000) ------------- ------------- -------------- -------------- 1,100,002 1,400,002 3,000,002 1,250,002 ============= ============= ============== ============== |
See Notes to Financial Statements. Page 81
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
First Trust First Trust Dow Jones Internet DB Strategic Value IndexSM Fund Index Fund ----------------------------------------- ------------------------------------ For the Period For the Period For the Year June 19, 2006 (a) For the Year July 6, 2006 (a) Ended through Ended through December 31, 2007 December 31, 2006 December 31, 2007 December 31, 2006 ------------------ ------------------ ----------------- ----------------- OPERATIONS: Net investment income (loss).................. $ (231,090) $ (71,540) $ 399,329 $ 88,369 Net realized gain (loss)...................... 6,875,695 1,527,363 4,078,150 905,761 Net change in unrealized appreciation (depreciation)............................. (4,669,550) 1,801,999 (2,024,723) 421,535 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations................. 1,975,055 3,257,822 2,452,756 1,415,665 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income......................... -- -- (394,875) (70,400) Net realized gain............................. -- -- -- -- ------------- ------------- ------------- ------------- Total distributions to shareholders........... -- -- (394,875) (70,400) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold..................... 79,688,355 36,616,435 104,762,439 35,100,009 Value of shares repurchased................... (71,230,802) (13,921,209) (62,952,782) (18,795,119) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions.............. 8,457,553 22,695,226 41,809,657 16,304,890 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets......... 10,432,608 25,953,048 43,867,538 17,650,155 NET ASSETS: Beginning of Period........................... 25,953,048 -- 17,650,155 -- ------------- ------------- ------------- ------------- End of Period................................. $ 36,385,656 $ 25,953,048 $ 61,517,693 $ 17,650,155 ============= ============= ============= ============= Undistributed net investment income (loss) at end of period........................... $ -- $ -- $ 22,423 $ 17,969 ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period....... 1,150,002 -- 800,002 -- Shares sold................................... 3,200,000 1,800,002 4,350,000 1,700,002 Shares repurchased............................ (2,900,000) (650,000) (2,600,000) (900,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period............. 1,450,002 1,150,002 2,550,002 800,002 ============= ============= ============= ============= (a) Inception date. (b) Results for periods prior to December 18, 2006 are of First Trust Value Line(R) Dividend Fund. See Note 1 to Financial Statements. |
Page 82 See Notes to Financial Statements.
First Trust First Trust First Trust NASDAQ-100 Value Line(R) Equity Allocation Value Line(R) Dividend Ex-Technology Sector Index Fund Index Fund Index(SM) Fund ------------------------------------------ --------------------------------------------------------------- --------------------- For the Period For the Period For the Period For the Year December 5, 2006 (a) For the Year June 1, 2006 For the Year February 8, 2007 (a) Ended through Ended through Ended through December 31, 2007 December 31, 2006 December 31, 2007 December 31, 2006 (b) May 31, 2006 (b) December 31, 2007 ------------------- ------------------- -------------------- ---------------------- ----------------- --------------------- $ 156,232 $ 18,537 $ 6,133,255 $ 7,470,307 $ 13,902,862 $ (1,364) (403,914) 29,372 55,377,383 56,814,074 48,450,270 457,158 851,149 (183,667) (65,904,350) 10,193,087 (16,192,745) (208,808) ---------------- ---------------- --------------- --------------- ---------------- ---------------- 603,467 (135,758) (4,393,712) 74,477,468 46,160,387 246,986 ---------------- ---------------- --------------- --------------- ---------------- ---------------- (171,605) -- (6,533,096) (8,925,194) (13,527,000) -- -- -- -- (59,311,848) (55,080,000) -- ---------------- ---------------- --------------- --------------- ---------------- ---------------- (171,605) -- (6,533,096) (68,237,042) (68,607,000) -- ---------------- ---------------- --------------- --------------- ---------------- ---------------- 25,789,407 20,920,099 177,729,932 37,030,620 -- 8,275,318 (31,723,062) (1,991,182) (438,291,965) (127,887,361) -- (6,403,732) ---------------- ---------------- --------------- --------------- ---------------- ---------------- (5,933,655) 18,928,917 (260,562,033) (90,856,741) -- 1,871,586 ---------------- ---------------- --------------- --------------- ---------------- ---------------- (5,501,793) 18,793,159 (271,488,841) (84,616,315) (22,446,613) 2,118,572 18,793,159 -- 451,642,063 536,258,378 558,704,991 -- ---------------- ---------------- --------------- --------------- ---------------- ---------------- $ 13,291,366 $ 18,793,159 $ 180,153,222 $ 451,642,063 $ 536,258,378 $ 2,118,572 ================ ================ =============== =============== ================ ================ $ 3,164 $ 18,537 $ -- $ -- $ 1,454,887 $ -- ================ ================ =============== =============== ================ ================ 950,002 -- 26,938,000 32,400,000 32,400,000 -- 1,300,000 1,050,002 10,500,000 2,200,000 -- 400,002 (1,600,000) (100,000) (26,000,014) (7,662,000) -- (300,000) ---------------- ---------------- --------------- --------------- ---------------- ---------------- 650,002 950,002 11,437,986 26,938,000 32,400,000 100,002 ================ ================ =============== =============== ================ ================ |
See Notes to Financial Statements. Page 83
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
First Trust First Trust First Trust NASDAQ(R) Clean S&P ISE Edge(R) U.S. Liquid REIT Water Series Index Fund Index Fund Index Fund --------------------- ----------------- ----------------- For the Period For the Period For the Period February 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a) through through through December 31, 2007 December 31, 2007 December 31, 2007 --------------------- ----------------- ----------------- OPERATIONS: Net investment income (loss)............................... $ (64,652) $ 37,501 $ 24,450 Net realized gain (loss)................................... 4,547,068 (64,033) 263,879 Net change in unrealized appreciation (depreciation)....... 5,571,969 (384,315) 323,254 ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from operations 10,054,385 (410,847) 611,583 ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income...................................... -- (37,501) (24,475) Net realized gain.......................................... -- -- -- ---------------- ---------------- ---------------- Total distributions to shareholders........................ -- (37,501) (24,475) ---------------- ---------------- ---------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.................................. 57,955,176 3,796,816 18,295,951 Value of shares repurchased............................... (17,096,526) (1,767,190) (6,573,340) ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from shareholder transactions.............................. 40,858,650 2,029,626 11,722,611 ---------------- ---------------- ---------------- Net increase (decrease) in net assets...................... 50,913,035 1,581,278 12,309,719 NET ASSETS: Beginning of Period........................................ -- -- -- ---------------- ---------------- ---------------- End of Period.............................................. $ 50,913,035 $ 1,581,278 $ 12,309,719 ================ ================ ================ Undistributed net investment income (loss) at end of period............................................... $ -- $ -- $ -- ================ ================ ================ CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period.................... -- -- Shares sold................................................ 2,350,002 200,002 850,002 Shares repurchased......................................... (700,000) (100,000) (300,000) ---------------- ---------------- ---------------- Shares outstanding, end of period.......................... 1,650,002 100,002 550,002 ================ ================ ================ (a) Inception date. (b) Results for periods prior to June 18, 2007 are of First Trust Value Line(R) 100 Fund. See Note 1 to Financial Statements. |
Page 84 See Notes to Financial Statements.
First Trust First Trust ISE-Revere ISE First Trust Natural Gas Chindia Value Line(R) 100 Index Fund Index Fund Exchange-Traded Fund ----------------------- ----------------------- ------------------------------------------------ For the Period For the Period May 8, 2007 (a) May 8, 2007 (a) For the Year For the Year through through Ended Ended December 31, 2007 December 31, 2007 December 31, 2007 (b) December 31, 2006 (b) ----------------------- ----------------------- ---------------------- --------------------- $ 10,866 $ 47,735 $ (497,794) $ (1,199,513) 403,859 2,084,309 52,128,707 20,416,167 20,760 2,451,608 (5,434,509) (8,499,843) ---------------- ---------------- ----------------- ----------------- 435,485 4,583,652 46,196,404 10,716,811 ---------------- ---------------- ----------------- ----------------- (9,200) (58,125) -- -- -- -- (18,451,951) (32,863,710) ---------------- ---------------- ----------------- ----------------- (9,200) (58,125) (18,451,951) (32,863,710) ---------------- ---------------- ----------------- ----------------- 17,272,326 119,626,564 219,100,688 -- (6,541,227) (20,147,791) (319,833,579) -- ---------------- ---------------- ----------------- ----------------- 10,731,099 99,478,773 (100,732,891) -- ---------------- ---------------- ----------------- ----------------- 11,157,384 104,004,300 (72,988,438) (22,146,899) -- -- 277,901,863 300,048,762 ---------------- ---------------- ----------------- ----------------- $ 11,157,384 $ 104,004,300 $ 204,913,425 $ 277,901,863 ================ ================ ================= ================= $ 1,666 $ 1,096 $ -- $ -- ================ ================ ================= ================= -- -- 17,490,000 17,490,000 800,002 4,500,002 12,750,000 -- (300,000) (750,000) (18,800,018) -- ---------------- ---------------- ----------------- ----------------- 500,002 3,750,002 11,439,982 17,490,000 ================ ================ ================= ================= |
See Notes to Financial Statements. Page 85
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust Dow Jones Select MicroCap Index(SM) Fund
For the Period For the For the September 27, 2005 (a) Year Ended Year Ended through December 31, 2007 December 31, 2006 December 31, 2005 -------------------- ------------------- --------------------- Net asset value, beginning of period $ 23.92 $ 20.73 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.16 0.06 (e) 0.03 (e) Net realized and unrealized gain (loss) (1.60) 3.19 (e) 0.72 (e) ---------- ---------- ---------- Total from investment operations (1.44) 3.25 0.75 ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.13) (0.06) (0.02) ---------- ---------- ---------- Net asset value, end of period $ 22.35 $ 23.92 $ 20.73 ========== ========== ========== TOTAL RETURN (b) (6.02)% 15.69% 3.74% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 17,993 $ 16,865 $ 39,492 Ratios to average net assets: Ratio of total expenses to average net assets 1.35% 1.18% 1.44% (c) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% (c) Ratio of net investment income to average net assets 0.58% 0.24% 0.51% (c) Portfolio turnover rate (d) 11% 20% 6% |
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund
For the Period For the March 9, 2006 (a) Year Ended through December 31, 2007 December 31, 2006 -------------------- --------------------- Net asset value, beginning of period $ 23.51 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) 0.92 0.59 (e) Net realized and unrealized gain (loss) (3.35) 3.52 (e) ---------- ---------- Total from investment operations (2.43) 4.11 ---------- ---------- Distributions paid to shareholders from: Net investment income (0.88) (0.60) ---------- ---------- Net asset value, end of period $ 20.20 $ 23.51 ========== ========== TOTAL RETURN (b) (10.64)% 20.80% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 64,650 $ 75,237 Ratios to average net assets: Ratio of total expenses to average net assets 0.68% 0.99% (c) Ratio of net expenses to average net assets 0.45% 0.45% (c) Ratio of net investment income to average net assets 3.87% 3.55% (c) Portfolio turnover rate (d) 9% 9% |
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. Total return calculated for a
period of less than one year is not annualized. The total return would have
been lower if certain fees had not been waived and expenses reimbursed by
the investment advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(e) Per share amounts have been calculated using the average share method.
Page 86 See Notes to Financial Statements.
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust IPOX-100 Index Fund
For the Period For the April 12, 2006 (a) Year Ended through December 31, 2007 December 31, 2006 -------------------- -------------------- Net asset value, beginning of period $ 22.20 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) 0.05 0.01 (e) Net realized and unrealized gain (loss) 3.17 2.19 (e) ---------- ---------- Total from investment operations 3.22 2.20 ---------- ---------- Distributions paid to shareholders from: Net investment income (0.06) -- ---------- ---------- Net asset value, end of period $ 25.36 $ 22.20 ========== ========== TOTAL RETURN (b) 14.53% 11.00% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 26,633 $ 19,981 Ratios to average net assets: Ratio of total expenses to average net assets 1.06% 1.44% (c) Ratio of net expenses to average net assets 0.60% 0.60% (c) Ratio of net investment income to average net assets 0.24% 0.07% (c) Portfolio turnover rate (d) 11% 26% |
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
For the Period For the April 19, 2006 (a) Year Ended through December 31, 2007 December 31, 2006 ---------------------- -------------------- Net asset value, beginning of period $ 20.12 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) (0.02) (0.01) (e) Net realized and unrealized gain (loss) 1.98 0.13 (e) ---------- ---------- Total from investment operations 1.96 0.12 ---------- ---------- Net asset value, end of period $ 22.08 $ 20.12 ========== ========== TOTAL RETURN (b) 9.74% 0.60% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 30,911 $ 26,158 Ratios to average net assets: Ratio of total expenses to average net assets 0.95% 1.31% (c) Ratio of net expenses to average net assets 0.60% 0.60% (c) Ratio of net investment loss to average net assets (0.08)% (0.07)%(c) Portfolio turnover rate (d) 15% 1% |
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. Total return calculated for a
period of less than one year is not annualized. The total return would have
been lower if certain fees had not been waived and expenses reimbursed by
the investment advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(e) Per share amounts have been calculated using the average share method.
See Notes to Financial Statements. Page 87
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust NASDAQ-100-Technology Sector Index(SM) Fund
For the Period For the April 19, 2006 (a) Year Ended through December 31, 2007 December 31, 2006 -------------------- -------------------- Net asset value, beginning of period $ 19.97 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) (0.03) (0.03)(f) Net realized and unrealized gain (loss) 1.56 0.00 (e)(f) ---------- ---------- Total from investment operations 1.53 (0.03) ---------- ---------- Net asset value, end of period $ 21.50 $ 19.97 ========== ========== TOTAL RETURN (b) 7.66% (0.15)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 23,652 $ 27,960 Ratios to average net assets: Ratio of total expenses to average net assets 0.92% 1.37% (c) Ratio of net expenses to average net assets 0.60% 0.60% (c) Ratio of net investment loss to average net assets (0.16)% (0.20)%(c) Portfolio turnover rate (d) 10% 7% |
First Trust Amex(R) Biotechnology Index Fund
For the Period For the June 19, 2006 (a) Year Ended through December 31, 2007 December 31, 2006 -------------------- -------------------- Net asset value, beginning of period $ 23.55 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) (0.10) (0.07)(f) Net realized and unrealized gain (loss) 0.96 3.62 (f) ---------- ---------- Total from investment operations 0.86 3.55 ---------- ---------- Net asset value, end of period $ 24.41 $ 23.55 ========== ========== TOTAL RETURN (b) 3.65% 17.75% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 73,241 $ 29,438 Ratios to average net assets: Ratio of total expenses to average net assets 0.73% 1.22% (c) Ratio of net expenses to average net assets 0.60% 0.60% (c) Ratio of net investment loss to average net assets (0.60)% (0.60)%(c) Portfolio turnover rate (d) 11% 4% |
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. Total return calculated for a
period of less than one year is not annualized. The total return would have
been lower if certain fees had not been waived and expenses reimbursed by
the investment advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(e) Amount represents less than $0.01 per share.
(f) Per share amounts have been calculated using the average share method.
Page 88 See Notes to Financial Statements.
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust Dow Jones Internet Index(SM) Fund
For the Period For the June 19, 2006 (a) Year Ended through December 31, 2007 December 31, 2006 ------------------------------------------------ Net asset value, beginning of period $ 22.57 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) (0.16) (0.07)(e) Net realized and unrealized gain (loss) 2.68 2.64 (e) ---------- ---------- Total from investment operations 2.52 2.57 ---------- ---------- Net asset value, end of period $ 25.09 $ 22.57 ========== ========== TOTAL RETURN (b) 11.17% 12.85% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 36,386 $ 25,953 Ratios to average net assets: Ratio of total expenses to average net assets 0.70% 1.24% (c) Ratio of net expenses to average net assets 0.60% 0.60% (c) Ratio of net investment loss to average net assets (0.42)% (0.55)%(c) Portfolio turnover rate (d) 6% 4% |
First Trust DB Strategic Value Index Fund
For the Period For the July 6, 2006 (a) Year Ended through December 31, 2007 December 31, 2006 -------------------- -------------------- Net asset value, beginning of period $ 22.06 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) 0.20 0.12 (e) Net realized and unrealized gain (loss) 2.07 2.03 (e) ---------- ---------- Total from investment operations 2.27 2.15 ---------- ---------- Distributions paid to shareholders from: Net investment income (0.21) (0.09) ---------- ---------- Net asset value, end of period $ 24.12 $ 22.06 ========== ========== TOTAL RETURN (b) 10.26% 10.74% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 61,518 $ 17,650 Ratios to average net assets: Ratio of total expenses to average net assets 1.12% 2.59% (c) Ratio of net expenses to average net assets 0.65% 0.65% (c) Ratio of net investment income to average net assets 1.09% 1.29% (c) Portfolio turnover rate (d) 10% 4% |
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. Total return calculated for a
period of less than one year is not annualized. The total return would have
been lower if certain fees had not been waived and expenses reimbursed by
the investment advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(e) Per share amounts have been calculated using the average share method.
See Notes to Financial Statements. Page 89
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust Value Line(R) Equity Allocation Index Fund
For the Period For the December 5, 2006 (a) Year Ended through December 31, 2007 December 31, 2006 -------------------- ---------------------- Net asset value, beginning of period $ 19.78 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) 0.24 0.03 (e) Net realized and unrealized gain (loss) 0.68 (0.25)(e) ---------- ---------- Total from investment operations 0.92 (0.22) ---------- ---------- Distributions paid to shareholders from: Net investment income (0.25) -- ---------- ---------- Net asset value, end of period $ 20.45 $ 19.78 ========== ========== TOTAL RETURN (b) 4.65% (1.10)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 13,291 $ 18,793 Ratios to average net assets: Ratio of total expenses to average net assets 1.36% 3.25% (c) Ratio of net expenses to average net assets 0.70% 0.70% (c) Ratio of net investment income to average net assets 1.04% 1.82% (c) Portfolio turnover rate (d) 43% 1% |
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. Total return calculated for a
period of less than one year is not annualized. The total return would have
been lower if certain fees had not been waived and expenses reimbursed by
the investment advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(e) Per share amounts have been calculated using the average share method.
Page 90 See Notes to Financial Statements.
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust Value Line(R) Dividend Index Fund
For the Period For the June 1, 2006 For the For the For the Year Ended through Year Ended Year Ended Period Ended December 31, 2007 December 31, 2006 (a) May 31, 2006 (a) May 31, 2005 (a) May 31, 2004 (a) ----------------- --------------------- ---------------- ---------------- ---------------- Net asset value, beginning of period $ 16.77 $ 16.55 $ 17.24 $ 16.13 $ 14.33 (e) ----------- ----------- ----------- ----------- ----------- Income from investment operations: Net investment income (loss) 0.44 0.24 (i) 0.43 0.41 0.27 Net realized and unrealized gain (loss) (0.99) 2.10 (i) 1.00 1.99 1.86 ----------- ----------- ----------- ----------- ----------- Total from investment operations (0.55) 2.34 1.43 2.40 2.13 ----------- ----------- ----------- ----------- ----------- Distributions paid to shareholders from: Net investment income (0.47) (0.63) (0.42) (0.37) (0.20) Net realized gains -- (1.49) (1.70) (0.92) (0.11) ----------- ----------- ----------- ----------- ----------- Total distributions to shareholders (0.47) (2.12) (2.12) (1.29) (0.31) ----------- ----------- ----------- ----------- ----------- Common Shares offering costs charged to paid-in capital -- -- -- (0.00) (b) (0.02) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 15.75 $ 16.77 $ 16.55 $ 17.24 $ 16.13 =========== =========== =========== =========== =========== TOTAL RETURN, BASED ON NET ASSET VALUE (3.42)% (d) 14.70% (d) 10.26% (c) 16.05% (c) 15.09% (c) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 180,153 $ 451,642 $ 536,258 $ 558,705 $ 522,731 Ratios to average net assets: Ratio of total expenses to average net assets 0.85% 0.94% (f) 0.93% 0.93% 0.93% (f) Ratio of net expenses to average net assets 0.70% 0.93% (f)(h) 0.93% 0.93% 0.93% (f) Ratio of net investment income to average net assets 2.37% 2.36% (f) 2.51% 2.45% 2.29% (f) Portfolio turnover rate (g) 5% 28% 58% 57% 46% |
(a) The Fund commenced operations on August 19, 2003. Results for periods prior
to December 18, 2006 are of First Trust Value Line(R) Dividend Fund. See
Note 1 in the Notes to Financial Statements.
(b) Amount represents less than $0.01 per share.
(c) Total return based on net asset value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan and changes in net
asset value per share and does not reflect sales load.
(d) Total return based on net asset value is calculated assuming an initial
investment made at the net asset value at the beginning of the period,
reinvestment of all dividend distributions at net asset value during the
period, and redemption at net asset value on the last day of the period.
Prior to December 18, 2006, total return based on net asset value assumed
that all dividend distributions were reinvested at prices obtained by the
Dividend Reinvestment Plan of First Trust Value Line(R) Dividend Fund. See
Note 1 in the Notes to Financial Statements. Total return calculated for a
period of less than one year is not annualized. The total return would have
been lower if certain fees had not been reimbursed by the investment
advisor.
(e) Net of sales load $0.675 per Common Share on initial offering.
(f) Annualized.
(g) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(h) The annualized expense ratio is capped at 0.70% for the first two years from
the date of the reorganization. This ratio of 0.93% includes expenses for a
portion of the period prior to the reorganization for the First Trust Value
Line(R) Dividend Fund.
(i) Per share amounts have been calculated using the average share method.
See Notes to Financial Statements. Page 91
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
For the Period February 8, 2007 (a) through December 31, 2007 ----------------------- Net asset value, beginning of period $ 20.00 ---------- Income from investment operations: Net investment income (loss) (0.01) Net realized and unrealized gain (loss) 1.20 ---------- Total from investment operations 1.19 ---------- Net asset value, end of period $ 21.19 ========== TOTAL RETURN (b) 5.95% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 2,119 Ratios to average net assets: Ratio of total expenses to average net assets 2.61% (c) Ratio of net expenses to average net assets 0.60% (c) Ratio of net investment loss to average net assets (0.04)%(c) Portfolio turnover rate (d) 27% |
First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund
For the Period February 8, 2007 (a) through December 31, 2007 ----------------------- Net asset value, beginning of period $ 20.00 ---------- Income from investment operations: Net investment income (loss) (0.04) Net realized and unrealized gain (loss) 10.90 ---------- Total from investment operations 10.86 ---------- Net asset value, end of period $ 30.86 ========== TOTAL RETURN (b) 54.30% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 50,913 Ratios to average net assets: Ratio of total expenses to average net assets 1.00% (c) Ratio of net expenses to average net assets 0.60% (c) Ratio of net investment loss to average net assets (0.33)%(c) Portfolio turnover rate (d) 4% |
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. Total return calculated for a
period of less than one year is not annualized. The total return would have
been lower if certain fees had not been waived and expenses reimbursed by
the investment advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
Page 92 See Notes to Financial Statements.
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust S&P REIT Index Fund
For the Period May 8, 2007 (a) through December 31, 2007 ----------------------- Net asset value, beginning of period $ 20.00 ---------- Income from investment operations: Net investment income (loss) 0.32 (b) Net realized and unrealized gain (loss) (4.13)(b) ---------- Total from investment operations (3.81) ---------- Distributions paid to shareholders from: Net investment income (0.38) ---------- Net asset value, end of period $ 15.81 ========== TOTAL RETURN (c) (19.08)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 1,581 Ratios to average net assets: Ratio of total expenses to average net assets 8.41% (d) Ratio of net expenses to average net assets 0.50% (d) Ratio of net investment income to average net assets 2.73% (d) Portfolio turnover rate (e) 25% |
First Trust ISE Water Index Fund
For the Period May 8, 2007 (a) through December 31, 2007 ----------------------- Net asset value, beginning of period $ 20.00 ---------- Income from investment operations: Net investment income (loss) 0.04 Net realized and unrealized gain (loss) 2.38 ---------- Total from investment operations 2.42 ---------- Distributions paid to shareholders from: Net investment income (0.04) ---------- Net asset value, end of period $ 22.38 ========== TOTAL RETURN (c) 12.12% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 12,310 Ratios to average net assets: Ratio of total expenses to average net assets 1.68% (d) Ratio of net expenses to average net assets 0.60% (d) Ratio of net investment income to average net assets 0.46% (d) Portfolio turnover rate (e) 3% |
(a) Inception date.
(b) Per share amounts have been calculated using the average share method.
(c) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. Total return calculated for a
period of less than one year is not annualized. The total return would have
been lower if certain fees had not been waived and expenses reimbursed by
the investment advisor.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
See Notes to Financial Statements. Page 93
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust ISE-Revere Natural Gas Index Fund
For the Period May 8, 2007 (a) through December 31, 2007 ----------------------- Net asset value, beginning of period $ 20.00 ---------- Income from investment operations: Net investment income (loss) 0.03 Net realized and unrealized gain (loss) 2.30 ---------- Total from investment operations 2.33 ---------- Distributions paid to shareholders from: Net investment income (0.02) ---------- Net asset value, end of period $ 22.31 ========== TOTAL RETURN (b) 11.67% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 11,157 Ratios to average net assets: Ratio of total expenses to average net assets 2.36% (c) Ratio of net expenses to average net assets 0.60% (c) Ratio of net investment income to average net assets 0.32% (c) Portfolio turnover rate (d) 5% |
First Trust ISE Chindia Index Fund
For the Period May 8, 2007 (a) through December 31, 2007 ----------------------- Net asset value, beginning of period $ 20.00 ---------- Income from investment operations: Net investment income (loss) 0.02 Net realized and unrealized gain (loss) 7.73 ---------- Total from investment operations 7.75 ---------- Distributions paid to shareholders from: Net investment income (0.02) ---------- Net asset value, end of period $ 27.73 ========== TOTAL RETURN (b) 38.73% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 104,004 Ratios to average net assets: Ratio of total expenses to average net assets 0.82% (c) Ratio of net expenses to average net assets 0.60% (c) Ratio of net investment income to average net assets 0.17% (c) Portfolio turnover rate (d) 2% |
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. Total return calculated for a
period of less than one year is not annualized. The total return would have
been lower if certain fees had not been waived and expenses reimbursed by
the investment advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
Page 94 See Notes to Financial Statements.
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust Value Line(R) 100 Exchange-Traded Fund
For the Period For the For the For the For the June 12, 2003 Year Ended Year Ended Year Ended Year Ended through December 31, December 31, December 31, December 31, December 31, 2007 (a) 2006 (a) 2005 (a) 2004 (a) 2003 (a) -------------- -------------- -------------- -------------- ----------------- Net asset value, beginning of period $ 15.89 $ 17.16 $ 18.05 $ 16.61 $ 14.33 (e) ----------- ----------- ----------- ----------- ----------- Income from investment operations: Net investment income (loss) 1.02 (0.07) (0.08) (0.09) (0.06) Net realized and unrealized gain (loss) 2.06 0.68 2.00 2.19 2.37 ----------- ----------- ----------- ----------- ----------- Total from investment operations 3.08 0.61 1.92 2.10 2.31 ----------- ----------- ----------- ----------- ----------- Distributions paid to shareholders from: Net realized gain (1.06) (1.88) (2.81) (0.66) -- ----------- ----------- ----------- ----------- ----------- Common Shares offering costs charged to paid-in capital -- -- -- (0.00) (b) (0.03) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 17.91 $ 15.89 $ 17.16 $ 18.05 $ 16.61 =========== =========== =========== =========== =========== TOTAL RETURN 19.91% (d) 4.59% (c) 11.86% (c) 13.05% (c) 15.91% (c) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 204,913 $ 277,902 $ 300,049 $ 315,632 $ 290,464 Ratios to average net assets: Ratio of total expenses to average net assets 0.89% 0.97% 0.95% 0.97% 1.02% (f) Ratio of net expenses to average net assets 0.83% (h) 0.97% 0.95% 0.97% 1.02% (f) Ratio of net investment loss to average net assets (0.21)% (0.40)% (0.43)% (0.52)% (0.75)%(f) Portfolio turnover rate (g) 111% 234% 240% 220% 144% |
(a) The Fund commenced operations on June 12, 2003. Results for periods prior to
June 18, 2007 are of First Trust Value Line(R) 100 Fund. See Note 1 in the
Notes to Financial Statements.
(b) Amount represents less than $0.01 per share.
(c) Total return based on net asset value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan and changes in net
asset value per share and does not reflect sales load.
(d) Total return based on net asset value is calculated assuming an initial
investment made at the net asset value at the beginning of the period,
reinvestment of all dividend distributions at net asset value during the
period, and redemption at net asset value on the last day of the period.
Prior to June 18, 2007, total return based on net asset value assumed that
all dividend distributions were reinvested at prices obtained by the
Dividend Reinvestment Plan of First Trust Value Line(R) 100 Fund. See Note 1
in the Notes to Financial Statements. Total return calculated for a period
of less than one year is not annualized. The total return would have been
lower if certain fees had not been reimbursed by the investment advisor.
(e) Net of sales load $0.675 per Common Share on initial offering.
(f) Annualized.
(g) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(h) The annualized expense ratio is capped at 0.70% for the first two years from
the date of the reorganization. This ratio of 0.83% includes expenses for a
portion of the period prior to the reorganization for the First Trust Value
Line(R) 100 Fund.
See Notes to Financial Statements. Page 95
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007
1. Organization
First Trust Exchange-Traded Fund (the "Trust") is an open-end management investment company organized as a Massachusetts business trust on August 8, 2003, and is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act").
First Trust Value Line(R) Dividend Fund (the "Predecessor FVD Fund"), a closed-end fund organized as a Massachusetts business trust on June 11, 2003, reorganized with and into First Trust Value Line(R) Dividend Index Fund ("FVD"), an exchange-traded fund and newly created series of the Trust effective Friday, December 15, 2006. The Predecessor FVD Fund ceased trading on the AMEX on Friday, December 15, 2006, and FVD began trading on the AMEX on Monday, December 18, 2006 under the ticker symbol "FVD," the same ticker symbol used by the Predecessor FVD Fund. The assets of the Predecessor FVD Fund were transferred to, and the liabilities of the Predecessor FVD Fund were assumed by, FVD in exchange for shares of FVD on a one share for one share basis based upon the net asset value ("NAV") of the Predecessor FVD Fund on Friday, December 15, 2006. FVD shares have been distributed to the Predecessor FVD Fund shareholders, on a tax-free basis for federal income tax purposes, and the Predecessor FVD Fund has been terminated. The historical results of the Predecessor FVD Fund will survive for financial reporting purposes.
First Trust Value Line(R) 100 Fund (the "Predecessor FVL Fund"), a closed-end fund organized as a Massachusetts business trust on April 18, 2003, reorganized with and into First Trust Value Line(R) 100 Exchange-Traded Fund ("FVL"), an exchange-traded fund and newly created series of the Trust effective Friday, June 15, 2007. The Predecessor FVL Fund ceased trading on the AMEX on Friday, June 15, 2007, and FVL began trading on the AMEX on Monday, June 18, 2007 under the ticker symbol "FVL," the same ticker symbol used by the Predecessor FVL Fund. The assets of the Predecessor FVL Fund were transferred to, and the liabilities of the Predecessor FVL Fund were assumed by, FVL in exchange for shares of FVL on a one share for one share basis based upon the NAV of the Predecessor FVL Fund on Friday, June 15, 2007. FVL shares have been distributed to the Predecessor FVL Fund shareholders, on a tax-free basis for federal income tax purposes, and the Predecessor FVL Fund has been terminated. The historical results of the Predecessor FVL Fund will survive for financial reporting purposes.
The Trust currently consists of seventeen funds:
First Trust Dow Jones Select MicroCap Index(SM) Fund - (AMEX ticker "FDM") First Trust Morningstar(R) Dividend Leaders(SM) Index Fund - (AMEX ticker "FDL") First Trust IPOX-100 Index Fund - (AMEX ticker "FPX") First Trust NASDAQ-100 Equal Weighted Index(SM) Fund - (NASDAQ ticker "QQEW") First Trust NASDAQ-100-Technology Sector Index(SM) Fund - (NASDAQ ticker "QTEC") First Trust Amex(R) Biotechnology Index Fund - (AMEX ticker "FBT") First Trust Dow Jones Internet Index(SM) Fund - (AMEX ticker "FDN") First Trust DB Strategic Value Index Fund - (AMEX ticker "FDV") First Trust Value Line(R) Equity Allocation Index Fund - (AMEX ticker "FVI") First Trust Value Line(R) Dividend Index Fund - (AMEX ticker "FVD") First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -
(NASDAQ ticker "QQXT")
First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund -
(NASDAQ ticker "QCLN")
First Trust S&P REIT Index Fund - (AMEX ticker "FRI") First Trust ISE Water Index Fund - (NYSE Arca, Inc. ticker "FIW") First Trust ISE-Revere Natural Gas Index Fund - (NYSE Arca, Inc. ticker "FCG") First Trust ISE Chindia Index Fund - (NYSE Arca, Inc. ticker "FNI") First Trust Value Line(R) 100 Exchange-Traded Fund - (AMEX ticker "FVL")
Each fund represents a separate series of beneficial interest in the Trust (individually, each a "Fund" and collectively, the "Funds"). Each Fund's shares are listed and traded on the American Stock Exchange ("AMEX") except for the First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology Sector Index(SM) Fund, the First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, and the First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund, which are listed and traded on The NASDAQ Stock Market, Inc. ("NASDAQ(R)") and the First Trust ISE Water Index Fund, the First Trust ISE-Revere Natural Gas Index Fund and the First Trust Chindia Index Fund, which are listed and traded on the NYSE Arca, Inc. ("NYSE Arca"). Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at 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:
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007
Fund Index First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones Select MicroCap Index(SM) First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Morningstar(R) Dividend Leaders(SM) Index First Trust IPOX-100 Index Fund IPOX-100 U.S. Index First Trust NASDAQ-100 Equal Weighted Index(SM) Fund NASDAQ-100 Equal Weighted Index(SM) First Trust NASDAQ-100-Technology Sector Index(SM) Fund NASDAQ-100 Technology Sector Index(SM) First Trust Amex(R) Biotechnology Index Fund Amex(R) Biotechnology Index(SM) First Trust Dow Jones Internet Index(SM) Fund Dow Jones Internet Composite Index(SM) First Trust DB Strategic Value Index Fund Deutsche Bank CROCI(R) US+ 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 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund NASDAQ-100 Ex-Tech Sector Index(SM) First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index First Trust S&P REIT Index Fund S&P REIT Composite Index First Trust ISE Water Index Fund ISE Water Index(TM) First Trust ISE-Revere Natural Gas Index Fund ISE-REVERE Natural Gas Index(TM) First Trust ISE Chindia Index Fund ISE ChIndia Index(TM) First Trust Value Line(R) 100 Exchange-Traded Fund Value Line(R) 100 Index |
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
The NAV of each Fund's shares is determined daily as of the close of regular
trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern
time, on each day the NYSE is open for trading. The NAV is 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 shares outstanding.
Each Fund's investments are valued at market value or, in the absence of market value with respect to any portfolio securities, at fair value according to procedures adopted by the Trust's Board of Trustees. Portfolio securities listed on any exchange other than the NASDAQ(R) are valued at the last sale price on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the most recent bid and asked prices on such day. Securities traded on the NASDAQ(R) are valued at the NASDAQ(R) Official Closing Price as determined by NASDAQ(R). Portfolio securities traded on more than one securities exchange are valued at the last sale price on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities. Portfolio securities traded in the over-the-counter market, but excluding securities traded on the NASDAQ(R), are valued at the closing bid prices. Short-term investments that mature in less than 60 days are valued at amortized cost.
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.
The Funds may hold publicly-traded master limited partnerships and real estate investment trusts. Distributions from such investments may include a return of capital component.
C. Dividends and Distribution to Shareholders Dividends from net investment income of each Fund, if any, are declared and paid semi-annually, except for First Trust Morningstar(R) Dividend Leaders(SM) Index Fund and First Trust Value Line(R) Dividend Index Fund, which declare and pay dividends quarterly, or as the Board of Trustees may determine from time to time. Distributions of net realized gains earned by each Fund, if any, are distributed at least annually.
Distributions from income and capital gains are determined in accordance with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatments of income and gains on various investment securities held by a Fund, timing differences and differing characterization of distributions made by a Fund.
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007
The tax character of distributions paid by each Fund during the period ended December 31, 2007 were as follows:
Distributions Distributions Distributions paid from paid paid from Ordinary from Capital Return of Income Gains Capital ----------------- -------------- --------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ 101,775 $ -- $ -- First Trust Morningstar(R) Dividend Leaders(SM) Index Fund (A) 3,792,601 -- -- First Trust IPOX-100 Index Fund 67,725 -- -- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- -- -- First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- -- -- First Trust Amex(R) Biotechnology Index Fund -- -- -- First Trust Dow Jones Internet Index(SM) Fund -- -- -- First Trust DB Strategic Value Index Fund 394,875 -- -- First Trust Value Line(R) Equity Allocation Index Fund 171,605 -- -- First Trust Value Line(R) Dividend Index Fund 6,533,096 -- -- First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- -- -- First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund -- -- -- First Trust S&P REIT Index Fund 37,501 -- -- First Trust ISE Water Index Fund 24,475 -- -- First Trust ISE-Revere Natural Gas Index Fund 9,200 -- -- First Trust ISE Chindia Index Fund 58,125 -- -- First Trust Value Line(R) 100 Exchange-Traded Fund (B) -- -- -- |
(A) For the tax year ended November 30, 2007, the Fund distributed $2,951,001 from ordinary income. The Fund changed its tax year to December 31, effective December 1, 2007, and will have a short tax year of December 1 to December 31, 2007. The Fund distributed $841,600 from ordinary income for the period December 1 through December 31, 2007.
(B) All distributions were paid prior to June 18, 2007 and are of First Trust Value Line(R) 100 Fund. See Note 1 above.
The tax character of distributions paid during the period ended December 31, 2006 was as follows:
Distributions Distributions Distributions paid from paid paid from Ordinary from Capital Return of Income Gains Capital ----------------- -------------- --------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ 67,080 $ -- $ -- First Trust Morningstar(R) Dividend Leaders(SM) Index Fund (A) 630,001 -- -- First Trust DB Strategic Value Index Fund 70,400 -- -- First Trust Value Line(R) Dividend Index Fund 19,499,734 46,401,234 2,336,074 First Trust Value Line(R) 100 Exchange-Traded Fund (B) -- -- -- |
(A) This amount is as of November 30, 2006, the Fund's prior tax year-end.
(B) All distributions were paid prior to June 18, 2007 and are of First Trust Value Line(R) 100 Fund. See Note 1 above.
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007
As of December 31, 2007, the components of distributable earnings on a tax basis for each Fund were as follows:
Undistributed Net Unrealized Ordinary Income Appreciation (Depreciation) ----------------------- --------------------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ 4,380 $ (1,430,004) First Trust Morningstar(R) Dividend Leaders(SM) Index Fund (A) 9,502 (12,609,479) First Trust IPOX-100 Index Fund 1,158 1,958,507 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- (1,743,296) First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- (1,783,779) First Trust Amex(R) Biotechnology Index Fund -- (6,269,136) First Trust Dow Jones Internet Index(SM) Fund -- (3,579,723) First Trust DB Strategic Value Index Fund 22,423 (1,794,979) First Trust Value Line(R) Equity Allocation Index Fund 3,164 667,292 First Trust Value Line(R) Dividend Index Fund -- (10,114,015) First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- (226,358) First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund -- 5,269,569 First Trust S&P REIT Index Fund -- (413,643) First Trust ISE Water Index Fund -- 318,303 First Trust ISE-Revere Natural Gas Index Fund 1,666 10,424 First Trust ISE Chindia Index Fund 86,380 1,612,014 First Trust Value Line(R) 100 Exchange-Traded Fund -- 22,656,895 |
(A) The Fund changed its tax year to December 31, effective December 1, 2007, and will have a short tax year of December 1 to December 31, 2007.
D. Income Taxes
Each Fund intends to qualify or 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, by 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.
In June 2006, Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" - an Interpretation of FASB Statement 109 ("FIN 48") was issued and is effective for fiscal years beginning after December 15, 2006. This Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. As of December 31, 2007, management has evaluated the application of FIN 48 to each Fund, and has determined that there is no material impact resulting from the adoption of this Interpretation on each Fund's financial statements.
At December 31, 2007 for federal income tax purposes, each Fund has capital loss carryforwards available as shown in the table below, to the extent provided by regulations, to offset future capital gains through the years indicated. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to Fund shareholders.
Capital Loss Capital Loss Capital Loss Available Available Available Total Through Through Through Capital Loss 2013 2014 2015 Available ------------- ------------- ------------- -------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ -- $ 1,604,481 $ 910,503 $ 2,514,984 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 52,755 202,279 198,670 453,704 First Trust IPOX-100 Index Fund -- 303,759 740,683 1,044,442 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- 15,480 271,083 286,563 First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- 95,862 535,229 631,091 First Trust Amex(R) Biotechnology Index Fund- -- -- -- -- First Trust Dow Jones Internet Index(SM) Fund -- -- 15 15 First Trust DB Strategic Value Index Fund -- 45,432 831,336 876,768 First Trust Value Line(R) Equity Allocation Index Fund -- -- 1,439,101 1,439,101 First Trust Value Line(R) Dividend Index Fund -- -- 4,488,019 4,488,019 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- -- 7,779 7,779 First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund -- -- 141,332 141,332 First Trust S&P REIT Index Fund -- -- 10,162 10,162 First Trust ISE Water Index Fund -- -- 592 592 First Trust ISE-Revere Natural Gas Index Fund -- -- 5,274 5,274 First Trust ISE Chindia Index Fund -- -- -- -- First Trust Value Line(R) 100 Exchange-Traded Fund -- -- 6,804,100 6,804,100 |
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007
Capital losses incurred after October 31 ("post-October losses") within the taxable year can be deemed to arise on the first business day of the Funds' next taxable year.
The following Funds incurred and elected to defer net capital losses as follows:
Post-October Losses ----------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ 21,926 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund -- First Trust IPOX-100 Index Fund 281,307 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 486,971 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 313,003 First Trust Amex(R) Biotechnology Index Fund 382 First Trust Dow Jones Internet Index(SM) Fund 5,398,739 First Trust DB Strategic Value Index Fund 318,138 First Trust Value Line(R) Equity Allocation Index Fund -- First Trust Value Line(R) Dividend Index Fund 2,101,739 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 34,569 First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund 12,352 First Trust S&P REIT Index Fund 8,811 First Trust ISE Water Index Fund 30,457 First Trust ISE-Revere Natural Gas Index Fund 90,276 First Trust ISE Chindia Index Fund 1,184,077 First Trust Value Line(R) 100 Exchange-Traded Fund 4,374,928 |
In order to present paid-in capital and accumulated net realized gains or losses on the Statements of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to additional paid-in capital, undistributed net investment income and accumulated net realized gains or losses on investments. For the period ended December 31, 2007, the adjustments of each Fund were as follows:
Undistributed Undistributed Net Investment Capital Gains/ Paid-in Income (Loss) (Accumulated Losses) Capital ---------------- ---------------------- ---------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ -- $ (2,183,745) $ 2,183,745 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund (4,958) (6,685,825) 6,690,783 First Trust IPOX-100 Index Fund -- (2,944,257) 2,944,257 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 19,001 (3,872,930) 3,853,929 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 37,744 (3,561,366) 3,523,622 First Trust Amex(R) Biotechnology Index Fund 302,002 (7,464,003) 7,162,001 First Trust Dow Jones Internet Index(SM) Fund 231,090 (12,973,854) 12,742,764 First Trust DB Strategic Value Index Fund -- (5,413,876) 5,413,876 First Trust Value Line(R) Equity Allocation Index Fund -- (1,033,752) 1,033,752 First Trust Value Line(R) Dividend Index Fund 399,841 (61,254,336) 60,854,495 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 1,364 (517,056) 515,692 First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund 64,652 (5,003,152) 4,938,500 First Trust S&P REIT Index Fund -- 15,732 (15,732) First Trust ISE Water Index Fund 25 (299,879) 299,854 First Trust ISE-Revere Natural Gas Index Fund -- (509,745) 509,745 First Trust ISE Chindia Index Fund 11,486 (4,022,696) 4,011,210 First Trust Value Line(R) 100 Exchange-Traded Fund 497,794 (44,640,291) 44,142,497 |
E. Expenses
Expenses that are directly related to one of the Funds are charged directly to
that Fund. General expenses of the Trust are allocated to all the Funds based
upon the average net assets of each Fund. First Trust Advisors L.P. ("First
Trust" or the "Advisor") has entered into licensing agreements with each of the
following "Licensors" for the respective Funds:
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007
Fund Licensor First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones & Company, Inc. First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Morningstar, Inc. First Trust IPOX-100 Index Fund IPOX Schuster LLC First Trust NASDAQ-100 Equal Weighted Index(SM) Fund The NASDAQ Stock Market, Inc. First Trust NASDAQ-100-Technology Sector Index(SM) Fund The NASDAQ Stock Market, Inc. First Trust Amex(R) Biotechnology Index Fund American Stock Exchange LLC First Trust Dow Jones Internet Index(SM) Fund Dow Jones & Company, Inc. First Trust DB Strategic Value Index Fund Deutsche Bank AG First Trust Value Line(R) Equity Allocation Index Fund Value Line Publishing, Inc.(R) First Trust Value Line(R) Dividend Index Fund Value Line Publishing, Inc.(R) First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund The NASDAQ Stock Market, Inc. First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund The NASDAQ Stock Market, Inc. / Clean Edge, Inc. First Trust S&P REIT Index Fund Standard & Poor's First Trust ISE Water Index Fund International Securities Exchange, LLC First Trust ISE-Revere Natural Gas Index Fund International Securities Exchange, LLC First Trust ISE Chindia Index Fund International Securities Exchange, LLC First Trust Value Line(R) 100 Exchange-Traded Fund Value Line Publishing, Inc.(R) |
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 agreements. The respective Funds are required to pay licensing fees, which are shown on the Statements of Operations.
F. Accounting Pronouncement
In September 2006, Statement of Financial Accounting Standards No. 157 Fair
Value Measurements ("SFAS 157") was issued by the FASB and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. At this time, management is evaluating the implications
of SFAS 157 and its impact on the Funds' financial statements, if any, has not
been determined.
3. Investment Advisory Fee and Other Affiliated Transactions
First Trust is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. First Trust serves as investment advisor to the Funds pursuant to an Investment Management Agreement. First Trust is responsible for the selection and ongoing monitoring of the securities in the Funds' portfolios and certain other services necessary for the management of the Funds.
For these services, First Trust is entitled to a monthly fee calculated at the following annual rates:
% of Average Daily Net Assets ----------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund 0.50% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 0.30% First Trust IPOX-100 Index Fund 0.40% First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 0.40% First Trust NASDAQ-100-Technology Sector Index(SM) Fund 0.40% First Trust Amex(R) Biotechnology Index Fund 0.40% First Trust Dow Jones Internet Index(SM) Fund 0.40% First Trust DB Strategic Value Index Fund 0.50% First Trust Value Line(R) Equity Allocation Index Fund 0.50% First Trust Value Line(R) Dividend Index Fund 0.50% First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 0.40% First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund 0.40% First Trust S&P REIT Index Fund 0.30% First Trust ISE Water Index Fund 0.40% First Trust ISE-Revere Natural Gas Index Fund 0.40% First Trust ISE Chindia Index Fund 0.40% First Trust Value Line(R) 100 Exchange-Traded Fund (1) 0.50% |
(1) Prior to June 18, 2007, First Trust was entitled to a monthly fee calculated at an annual rate of 0.65% of the Fund's average daily net assets for its investment advisory services to First Trust Value Line(R) 100 Fund.
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007
The Trust and the Advisor have entered into an Excess Expense Agreement in which the Advisor has agreed to waive fees and/or reimburse the Funds to the extent that the operating expenses of each Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceeded the percentage of average daily net assets per year (the "Expense Cap") as shown below:
Expense Cap ------------ First Trust Dow Jones Select MicroCap Index(SM) Fund 0.60% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 0.45% First Trust IPOX-100 Index Fund 0.60% First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 0.60% First Trust NASDAQ-100-Technology Sector Index(SM) Fund 0.60% First Trust Amex(R) Biotechnology Index Fund 0.60% First Trust Dow Jones Internet Index(SM) Fund 0.60% First Trust DB Strategic Value Index Fund 0.65% First Trust Value Line(R) Equity Allocation Index Fund 0.70% First Trust Value Line(R) Dividend Index Fund 0.70% First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 0.60% First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund 0.60% First Trust S&P REIT Index Fund 0.50% First Trust ISE Water Index Fund 0.60% First Trust ISE-Revere Natural Gas Index Fund 0.60% First Trust ISE Chindia Index Fund 0.60% First Trust Value Line(R) 100 Exchange-Traded Fund 0.70% |
Each Fund's Expense Cap will be in effect for at least two years from its inception date, except that First Trust Dow Jones Select MicroCap Index(SM) Fund's Expense Cap was extended until May 15, 2008. Expenses borne by the Advisor are subject to reimbursement by the Funds up to three years from the date the fee or expense was incurred, but no reimbursement payment will be made by a Fund if it would result in the Fund exceeding its Expense Cap.
For the period ended December 31, 2007, the advisory fee waivers and reimbursements of expenses (in order to maintain the Expense Caps) were as follows:
Advisory Fee Expense Waivers Reimbursements ------------------- -------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ 90,935 $ 46,250 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 199,880 -- First Trust IPOX-100 Index Fund 98,443 15,288 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 86,008 -- First Trust NASDAQ-100-Technology Sector Index(SM) Fund 75,489 -- First Trust Amex(R) Biotechnology Index Fund 65,395 -- First Trust Dow Jones Internet Index(SM) Fund 54,768 -- First Trust DB Strategic Value Index Fund 172,875 -- First Trust Value Line(R) Equity Allocation Index Fund 75,067 23,311 First Trust Value Line(R) Dividend Index Fund 392,894 -- First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 12,216 49,026 First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund 77,233 -- First Trust S&P REIT Index Fund 4,118 104,490 First Trust ISE Water Index Fund 21,211 36,453 First Trust ISE-Revere Natural Gas Index Fund 13,470 45,852 First Trust ISE Chindia Index Fund 61,221 -- First Trust Value Line(R) 100 Exchange-Traded Fund 132,258 -- |
The Trust has multiple service agreements with The Bank of New York ("BNY"). Under the servicing agreements, BNY will perform custodial, fund accounting, certain administrative services, and transfer agency services for the Trust. As custodian, BNY is responsible for the custody of the Trust's assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Trust's securities and cash. As transfer agent, BNY is responsible for performing transfer agency services for the Trust. The Bank of New York is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007
The Trust, on behalf of the Funds, has entered into an agreement with PFPC, Inc. ("PFPC"), whereby PFPC will provide certain administrative services for the Trust and the Funds in connection with the Board's meetings and other related matters.
Prior to June 18, 2007, PFPC, an indirect, majority-owned subsidiary of The PNC Financial Services Group Inc., served as First Trust Value Line(R) 100 Fund's Administrator and Transfer Agent in accordance with certain fee arrangements. PFPC Trust Company, also an indirect, majority-owned subsidiary of The PNC Financial Services Group Inc., served as First Trust Value Line(R) 100 Fund's Custodian in accordance with certain fee arrangements.
Effective January 1, 2007, the Trustees approved a revised compensation plan. Under the revised plan, each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates ("Independent Trustees") is paid an annual retainer of $10,000 per trust for the first 14 trusts of the First Trust Fund Complex and an annual retainer of $7,500 per trust for each subsequent trust added to the First Trust Fund Complex. The annual retainer is allocated equally among each of the trusts. No additional meeting fees are paid in connection with board or committee meetings.
Additionally, the Lead Independent Trustee is paid $10,000 annually and the Audit Committee Chairman is paid $5,000 annually, with such compensation paid by the trusts in the First Trust Fund Complex and divided among those trusts. Trustees are also reimbursed by the trusts in the First Trust Fund Complex for travel and out-of-pocket expenses in connection with all meetings. Prior to January 1, 2007, the trusts paid each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates an annual retainer of $10,000, which included compensation for all board and committee meetings. Effective January 1, 2008, each of the chairmen of the Nominating and Governance Committee and Valuation Committee will be paid $2,500 annually to serve in such capacities with such compensation paid by the trusts in the First Trust Fund Complex and divided among those trusts. Also effective January 1, 2008, each committee chairman will serve two years before rotating to serve as a chairman of another committee.
4. Purchases and Sales of Securities
For the period ended December 31, 2007, the cost of purchases and proceeds from sales of investment securities, excluding short-term investments and in-kind transactions, were as follows:
Purchases Sales ----------------- ----------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ 2,026,281 $ 6,452,305 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 7,403,049 12,401,969 First Trust IPOX-100 Index Fund 2,744,316 6,108,089 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 3,693,046 3,676,209 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 2,432,152 4,566,339 First Trust Amex(R) Biotechnology Index Fund 8,022,538 5,649,685 First Trust Dow Jones Internet Index(SM) Fund 3,310,907 9,200,700 First Trust DB Strategic Value Index Fund 3,600,844 9,675,728 First Trust Value Line(R) Equity Allocation Index Fund 6,295,765 14,835,215 First Trust Value Line(R) Dividend Index Fund 13,083,142 39,505,401 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 1,100,767 938,747 First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund 1,042,859 2,103,636 First Trust S&P REIT Index Fund 551,945 529,675 First Trust ISE Water Index Fund 238,065 945,332 First Trust ISE-Revere Natural Gas Index Fund 272,367 1,697,199 First Trust ISE Chindia Index Fund 789,462 11,040,522 First Trust Value Line(R) 100 Exchange-Traded Fund 263,804,022 348,820,775 |
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007
For the period ended December 31, 2007, the cost of in-kind purchases and proceeds from in-kind sales were as follows:
Purchases Sales ----------------- ----------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ 20,717,231 $ 14,036,716 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 66,643,391 59,946,504 First Trust IPOX-100 Index Fund 22,897,265 15,897,966 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 24,182,946 21,009,227 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 20,846,783 24,389,689 First Trust Amex(R) Biotechnology Index Fund 88,117,651 46,556,875 First Trust Dow Jones Internet Index(SM) Fund 75,755,590 62,076,782 First Trust DB Strategic Value Index Fund 104,646,981 56,768,510 First Trust Value Line(R) Equity Allocation Index Fund 25,770,324 23,095,306 First Trust Value Line(R) Dividend Index Fund 177,415,981 410,789,172 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 8,099,473 6,390,899 First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund 57,096,680 15,342,993 First Trust S&P REIT Index Fund 3,771,996 1,755,034 First Trust ISE Water Index Fund 18,286,890 5,843,947 First Trust ISE-Revere Natural Gas Index Fund 16,731,803 4,571,186 First Trust ISE Chindia Index Fund 121,511,994 11,705,072 First Trust Value Line(R) 100 Exchange-Traded Fund 223,867,759 256,358,692 |
As of December 31, 2007, the costs of investments for federal income tax purposes and accumulated net unrealized appreciation/depreciation on investments were as follows:
Net Unrealized Gross Gross Appreciation Unrealized Unrealized Cost (Depreciation) Appreciation (Depreciation) ------------- -------------- ------------ -------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ 19,471,014 $ (1,430,004) $ 982,571 $ (2,412,575) First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 77,115,362 (12,609,479) 1,948,890 (14,558,369) First Trust IPOX-100 Index Fund 24,721,096 1,958,507 3,765,255 (1,806,748) First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 32,745,515 (1,743,296) 1,783,253 (3,526,549) First Trust NASDAQ-100-Technology Sector Index(SM) Fund 25,517,832 (1,783,779) 1,230,556 (3,014,335) First Trust Amex(R) Biotechnology Index Fund 79,089,720 (6,269,136) 4,180,196 (10,449,332) First Trust Dow Jones Internet Index(SM) Fund 39,703,984 (3,579,723) 2,571,492 (6,151,215) First Trust DB Strategic Value Index Fund 63,317,964 (1,794,979) 2,221,119 (4,016,098) First Trust Value Line(R) Equity Allocation Index Fund 12,674,452 667,292 1,383,595 (716,303) First Trust Value Line(R) Dividend Index Fund 190,309,767 (10,114,015) 9,162,686 (19,276,701) First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 2,398,996 (226,358) 80,792 (307,150) First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund 45,542,378 5,269,569 7,166,577 (1,897,008) First Trust S&P REIT Index Fund 2,116,638 (413,643) 4,490 (418,133) First Trust ISE Water Index Fund 12,071,261 318,303 770,676 (452,373) First Trust ISE-Revere Natural Gas Index Fund 11,218,190 10,424 302,858 (292,434) First Trust ISE Chindia Index Fund 102,479,765 1,612,014 6,594,380 (4,982,366) First Trust Value Line(R) 100 Exchange-Traded Fund 183,146,042 22,656,895 24,282,001 (1,625,106) |
5. Capital
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 times the number of Shares in a Creation Unit on the transaction date. Purchasers of Creation Units must pay 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:
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007
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 times the number of Shares in a Creation Unit on the transaction date plus the fees described above and, if applicable, any transfer taxes.
Parties redeeming Creation Units must pay a standard redemption transaction fee (the "Redemption Transaction Fee"), which is based on the number of different securities in a Creation Unit according to the fee scheduled 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. The Funds reserve the right to effect redemptions in cash. A shareholder may request a cash redemption in lieu of securities, however, a Fund may, in its discretion reject any such request.
6. 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.
To the Board of Trustees and Shareholders of First Trust Exchange-Traded Fund:
We have audited the accompanying statements of assets and liabilities of First Trust Exchange-Traded Fund, comprising First Trust Dow Jones Select MicroCapSM Index Fund, First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, First Trust IPOX-100 Index Fund, First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust NASDAQ-100-Technology Sector Index(SM) Fund, First Trust Amex(R) Biotechnology Index Fund, First Trust Dow Jones Internet Index(SM) Fund, First Trust DB Strategic Value Index Fund, First Trust Value Line(R) Equity Allocation Index Fund, First Trust Value Line(R) Dividend Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series 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 and First Trust Value Line(R) 100 Exchange-Traded Fund (the "Funds"), including the portfolios of investments, as of December 31, 2007, and the related statements of operations, changes in net assets and the financial highlights for the periods presented. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2007, by correspondence with the Funds' custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of First Trust Exchange-Traded Fund as of December 31, 2007, the results of their operations, changes in its net assets, and the financial highlights for the respective periods presented in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP Chicago, Illinois February 20, 2008 |
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007 (UNAUDITED)
Proxy Voting Policies and Procedures
A description of the policies and procedures that the Funds use to determine how to vote proxies and information on how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, 2007 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Trust's website located at http://www.ftportfolios.com; and (3) on the Securities and Exchange Commission's website at http://www.sec.gov.
Portfolio Holdings
The Trust files its complete schedule of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Trust's Form N-Q is available (1) by calling (800) 988-5891; (2) on the Trust's website located at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov; and (4) for review and copying at the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding the operation of the PRR may be obtained by calling (800) SEC-0330.
Federal Tax Information
For the taxable year ended December 31, 2007, the following percentages of income dividends paid by the Funds qualify for the dividends received deduction available to corporations:
Dividends Received Deduction ---------------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund 100% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 100% First Trust IPOX-100 Index Fund 100% First Trust DB Strategic Value Index Fund 100% First Trust Value Line(R) Equity Allocation Index Fund 91% First Trust Value Line(R) Dividend Index Fund 100% First Trust ISE Water Index Fund 100% First Trust ISE-Revere Natural Gas Index Fund 100% |
For the taxable year ended December 31, 2007, the following percentages of income dividends paid by the Funds is hereby designated as qualified dividend income:
Qualified Dividend Income ------------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund 100% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 100% First Trust IPOX-100 Index Fund 100% First Trust DB Strategic Value Index Fund 100% First Trust Value Line(R) Equity Allocation Index Fund 100% First Trust Value Line(R) Dividend Index Fund 100% First Trust ISE Water Index Fund 100% First Trust ISE-Revere Natural Gas Index Fund 100% First Trust ISE Chindia Index Fund 100% |
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007 (UNAUDITED)
Licensing Information
Dow Jones, Dow Jones Internet Composite Index(SM) and Dow Jones Select MicroCap Index(SM) are trademarks of Dow Jones & Company, Inc. and have been licensed for use. The First Trust Dow Jones Select MicroCap Index(SM) Fund, based on the Dow Jones Select MicroCap Index(SM) and the First Trust Dow Jones Internet Index(SM) Fund based on the Dow Jones Internet Composite Index(SM) are not sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of trading in the Funds.
Morningstar is a service mark of Morningstar, Inc. and has been licensed for use. The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund is not sponsored, endorsed, issued, sold or promoted by Morningstar, Inc., nor does this company make any representation regarding the advisability of investing in the Fund.
IPOX is a trademark of IPOX Schuster LLC. IPOX IPO Indexes and Derivatives (patent pending).
NASDAQ(R), NASDAQ-100, NASDAQ-100 Index(R), NASDAQ-100 Technology Sector Index(SM), NASDAQ-100 Equal-Weighted Index(SM), and NASDAQ-100 Ex-Tech Sector Index(SM), are trademarks of The NASDAQ Stock Market, Inc. (which with its affiliates is referred to as the Corporations) and are licensed for use by First Trust Advisors L.P. The Funds have not been passed on by the Corporations as to their legality or suitability. The Funds are not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUNDS.
NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The NASDAQ Stock Market, Inc. ("NASDAQ(R)") and Clean Edge, Inc. ("Clean Edge") respectively. NASDAQ(R) and Clean Edge(R) are, collectively with their affiliates, the "Corporations." The Marks are licensed for use by First Trust Advisors L.P. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. The Fund should not be construed in any way as investment advice by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
The Amex(R) Biotechnology Index(SM) is a trademark of the American Stock Exchange LLC and is licensed for use by First Trust Advisors L.P. The Fund is not sponsored or endorsed by the American Stock Exchange LLC. American Stock Exchange LLC 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. American Stock Exchange LLC has no obligation to take the needs of the owners of the Fund into consideration in determining, composing or calculating the Index. American Stock Exchange LLC is not responsible for and has not participated in any determination or calculation made with respect to issuance or redemption of the Fund.
"Deutsche Bank" and "Deutsche Bank CROCI(R) US+ Index" are service marks of Deutsche Bank AG ("Deutsche Bank"). Deutsche Bank has no relationship to First Trust or the First Trust DB Strategic Value Index Fund, other than the licensing of the Index and its service marks for use in connection with the Fund.
"Value Line(R)", "Value Line(R) Equity Allocation Index", "Value Line(R) Dividend Index" and "Value Line(R) 100 Index" are trademarks of Value Line(R), Inc. and have been licensed for use for certain purposes by First Trust on behalf of the Funds. The First Trust Value Line(R) Equity Allocation Index Fund based on the Value Line(R) Equity Allocation Index, the First Trust Value Line(R) Dividend Index Fund, based on the Value Line(R) Dividend Index and the First Trust Value Line(R) 100 Exchange-Traded Fund, based on the Value Line(R) 100 Index, are not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value Line(R) makes no representation regarding the advisability of investing in the Funds.
Standard & Poor's(R), S&P(R) and S&P REIT Composite Index are registered trademarks of Standard & Poor's, a division of The McGraw-Hill Companies, Inc. and have been licensed for use by First Trust Advisors L.P. The Fund is not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation, warranty or condition regarding the advisability of investing in the Fund.
"International Securities Exchange(TM)", "ISE(TM)", "ISE Water Index(TM)", "ISE ChIndia Index(TM)" and the ISE-Revere Natural Gas Index(TM)" are trademarks of the International Securities Exchange(TM) and have been licensed for use for certain purposes by First Trust Advisors L.P. Each Fund, based on its corresponding index, is not sponsored, endorsed, sold or promoted by the International Securities Exchange(TM) and the International Securities Exchange(TM) makes no representation regarding the advisability of trading in such products.
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007 (UNAUDITED)
Privacy Policy
The open-end and closed-end funds advised by First Trust Advisors L.P. (each a "Fund") consider your privacy an important priority in maintaining our relationship. We are committed to protecting the security and confidentiality of your personal information.
Sources of Information
We may collect nonpublic personal information about you from the following sources:
o Information we receive from you or your broker-dealer, investment advisor or financial representative through interviews, applications, agreements or other forms;
o Information about your transactions with us, our affiliates or others;
o Information we receive from your inquiries by mail, e-mail or telephone; and
o Information we collect on our website through the use of "cookies." For example, we may identify the pages on our website that your browser requests or visits.
Information Collected
The type of data we collect may include your name, address, social security number, age, financial status, assets, income, tax information, retirement and estate plan information, transaction history, account balance, payment history, investment objectives, marital status, family relationships and other personal information.
Disclosure of Information
We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. The permitted uses include the disclosure of such information to unaffiliated companies for the following reasons:
o In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as trustees, banks, financial representatives and printers.
o We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services, we may share your personal information with affiliates of the Fund. Please note, however, that the California Financial Information Privacy Act contains an "opt out" mechanism that California consumers may use to prevent us from sharing nonpublic personal information with affiliates.
Confidentiality and Security
With regard to our internal security procedures, the Fund restricts access to your nonpublic personal information to those individuals who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information.
Policy Updates and Inquiries
As required by federal law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time; however, if we do change it, we will tell you promptly.
For questions about our policy, or for additional copies of this notice, please contact us at (800) 621-1675.
First Trust Exchange-Traded Fund December 31, 2007 (Unaudited)
Each Fund's respective statement of additional information includes additional information about the Trustees and is available without charge, upon request, by calling (800) 988-5891.
NUMBER OF PORTFOLIOS IN THE FIRST TRUST OTHER TERM OF OFFICE FUND COMPLEX TRUSTEESHIPS OR NAME, ADDRESS, DATE OF BIRTH AND AND LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS POSITION(S) WITH THE TRUST SERVICE DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE INDEPENDENT TRUSTEES Richard E. Erickson, Trustee Physician; President, 58 None c/o First Trust Advisors L.P. o Indefinite Term Wheaton Orthopedics; 1001 Warrenville Road Co-owner and Co-Director Suite 300 o 2 years, 6 (January 1996 to May Lisle, IL 60532 months served 2007), Sports Med Center D.O.B.: 04/51 for Fitness; Limited Partner, Gundersen Real Estate Partnership; Limited Partner, Sportsmed LLC Thomas R. Kadlec, Trustee Senior Vice President and 58 None c/o First Trust Advisors L.P. o Indefinite Term Chief Financial Officer 1001 Warrenville Road (May 2007 to Present), Suite 300 o 2 years, 6 Vice President and Chief Lisle, IL 60532 months served Financial Officer (1990 to D.O.B.: 11/57 May 2007), ADM Investor Services, Inc. (Futures Commission Merchant); President (May 2005 to Present), ADM Derivatives, Inc.; Registered Representative (2000 to Present), Segerdahl & Company, Inc., a FINRA member (Broker-Dealer) Robert F. Keith, Trustee President (2003 to 58 None c/o First Trust Advisors L.P. o Indefinite Term Present), Hibs Enterprises 1001 Warrenville Road (Financial and Management Suite 300 o 1 year, 6 Consulting); President Lisle, IL 60532 months served (2001 to 2003), Aramark D.O.B.: 11/56 Service Master Management; President and Chief Operating Officer (1998 to 2003), Service Master Management Services Niel B. Nielson, Trustee President (June 2002 to 58 Director of c/o First Trust Advisors L.P. o Indefinite Term Present), Covenant College Covenant 1001 Warrenville Road Transport Inc. Suite 300 o 2 years, 6 Lisle, IL 60532 months served D.O.B.: 03/54 INTERESTED TRUSTEE James A. Bowen(1), Trustee, President, First Trust 58 Trustee of President, Chairman of the Board o Indefinite Term Advisors L.P. and First Wheaton College and CEO Trust Portfolios L.P.; 1001 Warrenville Road o 2 years, 6 Chairman of the Board of Suite 300 months served Directors, BondWave LLC Lisle, IL 60532 (Software Development D.O.B.: 09/55 Company/Broker-Dealer) and Stonebridge Advisors LLC (Investment Advisor) -------------------- 1 Mr. Bowen is deemed an "interested person" of the Funds due to his position as President of First Trust Advisors L.P., investment advisor of the Funds. |
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2007 (UNAUDITED)
OFFICERS NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS AND DATE OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS Mark R. Bradley Treasurer, Controller, o Indefinite term Chief Financial Officer, 1001 Warrenville Road, Chief Financial Officer First Trust Advisors L.P. and Suite 300 and Chief Accounting o 2 years, 6 months First Trust Portfolios L.P.; Lisle, IL 60532 Officer served Chief Financial Officer, D.O.B.: 11/57 BondWave LLC (Software Development Company/Broker-Dealer) and Stonebridge Advisors LLC (Investment Advisor) Kelley A. Christensen Vice President o Indefinite term Assistant Vice President, 1001 Warrenville Road, First Trust Advisors L.P. and Suite 300 o 1 year served First Trust Portfolios L.P. Lisle, IL 60532 D.O.B.: 09/70 James M. Dykas Assistant Treasurer o Indefinite term Senior Vice President (April 1001 Warrenville Road, 2007 to Present), Vice Suite 300 o 2 years served President (January 2005 to Lisle, IL 60532 April 2007), First Trust D.O.B.: 01/66 Advisors L.P. and First Trust Portfolios L.P.; Executive Director (December 2002 to January 2005), Vice President (December 2000 to December 2002), Van Kampen Asset Management and Morgan Stanley Investment Management W. Scott Jardine Secretary and Chief o Indefinite term General Counsel, First Trust 1001 Warrenville Road, Compliance Officer Advisors L.P. and First Trust Suite 300 o 2 years, 6 months Portfolios L.P.; Secretary, Lisle, IL 60532 served BondWave LLC (Software D.O.B.: 05/60 Development Company/Broker-Dealer) and Stonebridge Advisors LLC (Investment Advisor) Daniel J. Lindquist Vice President o Indefinite term Senior Vice President 1001 Warrenville Road, (September 2005 to Present), Suite 300 o 2 years served Vice President (April 2004 to Lisle, IL 60532 September 2005), First Trust D.O.B.: 02/70 Advisors L.P. and First Trust Portfolios L.P.; Chief Operating Officer (January 2004 to April 2004), Mina Capital Management, LLC; Chief Operating Officer (April 2000 to January 2004), Samaritan Asset Management Services, Inc. Kristi A. Maher Assistant Secretary o Indefinite term Deputy General Counsel (May 1001 Warrenville Road, 2007 to Present), Assistant Suite 300 o 2 years, 6 months General Counsel (March 2004 Lisle, IL 60532 served to May 2007), First Trust D.O.B.: 12/66 Advisors L.P. and First Trust Portfolios L.P.; Associate (December 1995 to March 2004), Chapman and Cutler LLP Roger F. Testin Vice President o Indefinite term Senior Vice President, First 1001 Warrenville Road, Trust Advisors L. P. and Suite 300 o 2 years, 6 months First Trust Portfolios L.P. Lisle, IL 60532 served (August 2001 to present); D.O.B.: 06/66 Analyst (1998-2001), Dolan Capital Management Stan Ueland Assistant Vice President o Indefinite term Vice President (August 2005 1001 Warrenville Road, to Present), First Trust Suite 300 o 1 year served Advisors L.P. and First Trust Lisle, IL 60532 Portfolios L.P; Vice D.O.B.: 11/70 President (May 2004 to August 2005), BondWave LLC (Software Development Company/Broker-Dealer); Account Executive (January 2003 to May 2004), Mina Capital Management, LLC and Samaritan Asset Management Services, Inc.; Sales Consultant (January 1997 to January 2003), Oracle Corporation |
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 1-800-621-1675 to request a prospectus, which contains this and other information about the particular Fund. Read it carefully before you invest. First Trust Portfolios L.P. is the distributor of the First Trust Exchange-Traded Fund.
Risk Considerations:
Each Fund's shares will change in value, and you could lose money by investing in a Fund. 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 shares' net asset value. Unlike shares of open-end mutual funds, investors are generally not able to purchase 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, the Fund.
Each of the Funds 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 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 may be concentrated in stocks of companies in an individual industry or sector if the Fund's corresponding index is concentrated in an individual industry or sector. You should be aware that an investment in a portfolio that is concentrated in an individual industry or sector involves additional risk, including limited diversification.
With the exception of First Trust DB Strategic Value 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 First Trust Dow Jones Select MicroCap Index(SM) Fund invests in micro-capitalization companies. Such companies may be more vulnerable to adverse general market or economic developments, may be less liquid, and may experience greater price volatility than larger, more established companies.
The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, the First Trust Amex(R) Biotechnology Index Fund and the First Trust Dow Jones Internet Index(SM) Fund invest in small-cap companies and are subject to additional risks, as the share prices of small-cap companies may be less liquid and are often more volatile than those of larger companies.
The First Trust Dow Jones Internet Index(SM) Fund invests in the securities of Internet companies. Internet companies are subject to rapid changes in technology, worldwide competition, rapid obsolescence of products and services, loss of patent protections, cyclical market patterns, evolving industry standards, frequent new product introductions and the considerable risk of owning small capitalization companies that have recently begun operations.
The First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology Sector Index(SM) Fund and the First Trust Dow Jones Internet Index(SM) Fund invest in stocks of companies in the technology sector. You should be aware that an investment in a portfolio which invests in a particular sector involves additional risks, including limited diversification. The companies engaged in the technology sector are subject to fierce competition and high research and development costs, and their products and services may be subject to rapid obsolescence.
The First Trust Amex(R) Biotechnology Index Fund is concentrated in stocks of companies in the biotechnology sector. You should be aware that an investment in a portfolio which is concentrated in a particular sector involves additional risks, including limited diversification. The companies engaged in the biotechnology sector are subject to fierce competition, substantial research and development costs, governmental regulations and pricing constraints, and their products and services may be subject to rapid obsolescence.
The First Trust IPOX-100 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 IPOX-100 Fund also invests in securities of companies in the financial services industry. Banks, thrifts and their holding companies are especially subject to the adverse effects of economic recession; volatile interest rates; portfolio concentrations in geographic markets and in commercial and residential real estate loans; and competition from new entrants in their fields of business. Although recently enacted legislation repealed most of the barriers which separated the banking, insurance and securities industries, these industries are still extensively regulated at both the federal and state level and may be adversely affected by increased regulations.
The First Trust IPOX-100 Fund also 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 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 Value Line(R) Equity Allocation Index Fund, the First Trust Value Line(R) Dividend Index Fund, the First Trust Value Line(R) 100 Exchange-Traded Fund, the First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology Index(SM) Fund, the First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, the NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund, the First Trust IPOX-100 Index Fund, the First Trust ISE Water Index Fund, the First Trust ISE-Revere Natural Gas Index Fund, the First Trust ISE Chindia Index Fund and the First Trust S&P REIT Index Fund 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.
The First Trust Value Line(R) 100 Exchange-Traded Fund, the First Trust ISE Water Index Fund, the First Trust ISE-Revere Natural Gas Index Fund and the First Trust ISE Chindia Index Fund invest in non-U.S. securities and such securities may be denominated in currencies other than the U.S. Dollar. 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.
The NASDAQ(R) Clean Edge(R) U.S. Liquid Series 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 NASDAQ(R) Clean Edge(R) U.S. Liquid Series 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.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
[LOGO OMITTED] FIRST TRUST
ADVISORS L.P.
FIRST TRUST EXCHANGE-TRADED FUND
INVESTMENT ADVISOR
First Trust Advisors L.P.
1001 Warrenville Road
Lisle, IL 60532
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York
101 Barclay Street
New York, NY 10286
BOARD ADMINISTRATOR
PFPC, Inc.
301 Bellevue Parkway
Wilmington, DE 19809
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
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