UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-21774
-----------
First Trust Exchange-Traded Fund
------------------------------------------------------
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
------------------------------------------------------
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 765-8000
--------------
Date of fiscal year end: December 31
-----------
Date of reporting period: December 31, 2017
-----------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
The registrant's annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
FIRST TRUST
First Trust Exchange-Traded Fund
Book 1
First Trust Dow Jones Select MicroCap Index Fund (FDM)
First Trust Morningstar Dividend Leaders Index Fund (FDL)
First Trust US Equity Opportunities ETF (FPX)
First Trust NYSE Arca Biotechnology Index Fund (FBT)
First Trust Dow Jones Internet Index Fund (FDN)
First Trust Capital Strength ETF (FTCS)
First Trust Value Line(R) Dividend Index Fund (FVD)
First Trust Value Line(R) 100 Exchange-Traded Fund (FVL)
Annual Report
December 31, 2017
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2017
Shareholder Letter.......................................................... 2
Market Overview............................................................. 3
Fund Performance Overview
First Trust Dow Jones Select MicroCap Index Fund (FDM)................... 4
First Trust Morningstar Dividend Leaders Index Fund (FDL)................ 6
First Trust US Equity Opportunities ETF (FPX)............................ 8
First Trust NYSE Arca Biotechnology Index Fund (FBT)..................... 10
First Trust Dow Jones Internet Index Fund (FDN).......................... 12
First Trust Capital Strength ETF (FTCS).................................. 14
First Trust Value Line(R) Dividend Index Fund (FVD)...................... 16
First Trust Value Line(R) 100 Exchange-Traded Fund (FVL)................. 18
Notes to Fund Performance Overview.......................................... 20
Understanding Your Fund Expenses............................................ 21
Portfolio of Investments
First Trust Dow Jones Select MicroCap Index Fund (FDM)................... 23
First Trust Morningstar Dividend Leaders Index Fund (FDL)................ 28
First Trust US Equity Opportunities ETF (FPX)............................ 30
First Trust NYSE Arca Biotechnology Index Fund (FBT)..................... 33
First Trust Dow Jones Internet Index Fund (FDN).......................... 35
First Trust Capital Strength ETF (FTCS).................................. 37
First Trust Value Line(R) Dividend Index Fund (FVD)...................... 39
First Trust Value Line(R) 100 Exchange-Traded Fund (FVL)................. 43
Statements of Assets and Liabilities........................................ 46
Statements of Operations.................................................... 48
Statements of Changes in Net Assets......................................... 50
Financial Highlights........................................................ 54
Notes to Financial Statements............................................... 58
Report of Independent Registered Public Accounting Firm..................... 68
Additional Information...................................................... 69
Board of Trustees and Officers.............................................. 74
Privacy Policy.............................................................. 76
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
any series of First Trust Exchange-Traded Fund (the "Trust") described in this
report (each such series is referred to as a "Fund" and collectively, as the
"Funds") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any Fund described in this report will achieve its
investment objective. Each Fund is subject to market risk, which is the
possibility that the market values of securities owned by the Fund will decline
and that the value of the Fund shares may therefore be less than what you paid
for them. Accordingly, you can lose money by investing in a Fund. See "Risk
Considerations" in the Additional Information Section of this report for a
discussion of other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
www.ftportfolios.com or speak with your financial advisor. Investment returns,
net asset value and share price will fluctuate and Fund shares, when sold, may
be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on each Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about each Fund's portfolio and presents data and analysis that
provide insight into each Fund's performance and investment approach.
By reading the market overview by Robert F. Carey, Chief Market Strategist of
the Advisor, you may obtain an understanding of how the market environment
affected the performance of each Fund. The statistical information that follows
may help you understand each Fund's performance compared to that of relevant
market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in each
Fund are spelled out in its prospectus, statement of additional information,
this report and other Fund regulatory filings.
Page 1
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
DECEMBER 31, 2017
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Exchange-Traded Fund which contains detailed information about your investment
for the twelve months ended December 31, 2017, including a market overview and a
performance analysis for the period. We encourage you to read this report
carefully and discuss it with your financial advisor.
This was a very strong year for U.S. markets. The three major indices--the S&P
500(R) Index, the Dow Jones Industrial Average and the Nasdaq posted their best
performance since 2013. And there was more good news for Wall Street:
o The S&P 500(R) achieved something it had not previously finishing
2017 with 12 months of gains;
o The Dow Jones realized a milestone as well closing above 24,000 for
the first time ever on November 30; and
o The Nasdaq set a record by having 11 months of gains in 2017 (June
was the only down month, and by just 0.86%).
World markets were also strong in 2017. According to the MSCI AC World Index,
which captures all sources of equity returns in 23 developed and 24 emerging
markets, world stocks rose every month in 2017. The value of public companies on
global stock markets grew by $12.4 trillion during the year.
In 2017, stocks benefitted from increased global demand, growth in corporate
profits (especially technology stocks) and an accommodative Federal Reserve. The
housing market in the United States continues to grow due to a strong job
market, low interest rates and tight inventory. As the year came to a close,
President Trump signed the tax reform package, called the "Tax Cuts and Jobs
Act," which was seen as a promise kept by then-candidate Trump to accomplish
sweeping reform. It is hoped this tax reform will boost economic activity to
greater highs.
At First Trust, we are optimistic about the U.S. economy. We also continue to
believe that you should invest for the long term and be prepared for market
volatility, which can happen at any time. How can you do this? By keeping
current on your portfolio and investing goals by speaking regularly with your
investment professional. It's important to keep in mind that past performance of
the U.S. and global stock markets or investment products can never guarantee
future results. As we've said before, markets go up and they also go down, but
savvy investors are prepared for either through careful attention to their
portfolios and investment goals.
Thank you for giving First Trust the opportunity to be a part of your financial
plan through your investment. We value our relationship with you and will report
on your investment again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 2
--------------------------------------------------------------------------------
MARKET OVERVIEW
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2017 (UNAUDITED)
ROBERT F. CAREY, CFA
SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST
FIRST TRUST ADVISORS L.P.
Mr. Carey is responsible for the overall management of research and analysis of
the First Trust product line. Mr. Carey has over 25 years of experience as an
Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial
Analyst ("CFA") designation. He is a graduate of the University of Illinois at
Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment
Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a
guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been
quoted by several publications, including The Wall Street Journal, The Wall
Street Reporter, Bloomberg News Service, and Registered Rep.
STATE OF THE ECONOMY/INVESTING
At the midpoint of 2017, House Speaker Paul Ryan stated that he did not think
that the U.S. economy could achieve a 3% gross domestic product ("GDP") growth
rate without passing tax reform legislation. The Tax Cuts and Jobs Act was
signed into law by President Trump on December 22, 2017. One of the main goals
of cutting taxes, both corporate and individual, is to try and boost economic
activity in the U.S. It is true that real GDP growth has topped the 3.0% mark on
an annualized basis the past two quarters (3.1% in the second quarter and 3.2%
in the third quarter), but growth has only averaged 2.2% in the current
recovery, which commenced in the third quarter of 2009, according to data from
the Bureau of Economic Analysis. While it will likely take some time to
determine how effective lower tax rates will be in stimulating economic growth,
particularly the cut from 35% to 21% on the federal tax rate for corporations,
the concept of tax cuts seems to have been well-received by investors since
Trump was elected more than a year ago, in our opinion.
Both small and large companies in the U.S. seem optimistic looking ahead. The
National Federation of Independent Business ("NFIB") reported that its Small
Business Optimism Index hit 107.5 in November, the second-highest reading in its
44-year history, according to its own release. The all-time high was 108.0, set
in September 1983. The NFIB noted that "small business owners are exuberant
about the economy and are ready to lead the U.S. economy in a period of robust
growth." Chief Executive's CEO Confidence Index in Business Conditions 12 Months
Out just registered its second most optimistic year (7.08 out of 10) since the
index commenced in 2003, according to its own release. The highest mark ever
achieved for a calendar year was 7.47 in 2004. The monthly survey of 267 CEOs
revealed that two-thirds of those polled plan to add to their workforce in 2018,
while only 5% forecast a decrease in headcount. CEOs are also expecting to
increase both profitability and revenue in 2018.
ETFGI, an industry research group, reported that total assets invested in
exchange-traded funds ("ETFs") and other exchange-traded products ("ETPs")
listed globally reached an all-time high of $4.83 trillion at the close of 2017,
according to its own release. Total assets invested in ETFs and ETPs listed in
the U.S. reached a record high of $3.42 trillion.
U.S. STOCKS AND BONDS
In 2017, three of the major U.S. stock indices posted double-digit returns. The
S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index posted
total returns of 21.83%, 16.24%, and 13.23%, respectively, according to
Bloomberg. Nine of the 11 major S&P 500(R) Index sectors posted positive total
returns. The top-performing sectors were Information Technology, Materials and
Consumer Discretionary, up 38.83%, 23.84% and 22.98%, respectively, on a total
return basis. The two sectors that posted losses were Energy and
Telecommunication Services, down 1.25% and 1.01%, respectively. In general,
cyclical areas of the stock market outperformed non-cyclicals in 2017, an
indication that investors are optimistic about U.S. economic growth moving
forward.
The Federal Reserve ("the Fed") raised the federal funds target rate (upper
bound) three times, from 0.75% to 1.50%, in 2017. It is poised to hike rates
three times in 2018, according to CNBC. The Fed has already raised this rate
five times, dating back to its first hike on December 16, 2015. If the Fed
tightens three times in 2018, the rate will likely hit 2.25%, assuming 25 basis
points per hike. For comparative purposes, the target rate averaged 2.68% for
the 25-year period ended December 29, 2017, according to Bloomberg. The highest
level it reached over that period was 6.50% on May 16, 2000. So while this key
benchmark lending rate is rising, it is still low by historical standards. The
projected bump up in interest rates would not likely derail the bull market in
stocks, but it could put some downward pressure on bond prices by pushing bond
yields higher, in our opinion.
In the U.S. bond market, the top-performing major debt group was high yield
corporate bonds. The Bloomberg Barclays U.S. Corporate High Yield Index posted a
total return of 7.50% in 2017. The worst-performing debt group that we track was
Treasuries, though the group still generated a positive return. The Bloomberg
Barclays U.S. Treasury: Intermediate Index posted a total return of 1.14%. The
yield on the benchmark 10-Year Treasury note (T-note) declined by four basis
points to 2.41% in 2017, according to Bloomberg. The average yield on the
10-year T-note was 2.58% for the 10-year period ended December 29, 2017.
FOREIGN STOCKS AND BONDS
The U.S. dollar declined by 9.87% against a basket of major currencies in 2017,
as measured by the U.S. Dollar Index (DXY). With respect to U.S. investors, a
weaker U.S. dollar can positively impact returns on foreign securities.
The Bloomberg Barclays EM Hard Currency Aggregate Index of emerging markets debt
posted a total return of 9.61% (USD), while the Bloomberg Barclays Global
Aggregate Index of higher quality debt rose 7.39% (USD) in 2017. The MSCI Daily
Total Return Net Emerging Markets Index of stocks posted a total return of
37.28% (USD), while the MSCI Daily Total Return Net World Index (excluding the
U.S.) posted a total return of 24.21% (USD) in 2017.
Page 3
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND(FDM)
The First Trust Dow Jones Select MicroCap Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the Dow Jones Select
MicroCap Index(SM) (the "Index"). The Fund will normally invest at least 80% of
its net assets (including investment borrowings) in common stocks of U.S.
micro-capitalization companies which are publicly traded in the United States.
The Fund will normally invest at least 90% of its net assets (including
investment borrowings) 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"), the NYSE
MKT and The Nasdaq Stock Market LLC ("Nasdaq"), excluding limited partnerships
that are comparatively liquid and have strong fundamentals relative to the
micro-capitalization segment as a whole. The Fund's shares are listed for
trading on the NYSE Arca, Inc. ("NYSE Arca"). The first day of secondary market
trading in shares of the Fund was September 30, 2005.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (9/27/05) Ended Ended (9/27/05)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 8.44% 16.89% 8.87% 8.23% 118.20% 133.93% 163.83%
Market Value 8.55% 16.97% 8.88% 8.26% 118.95% 134.13% 164.52%
INDEX PERFORMANCE
Dow Jones Select MicroCap Index(SM) 9.04% 17.58% 9.57% 8.95% 124.74% 149.31% 186.05%
Russell 2000(R) Index 14.65% 14.12% 8.71% 8.61% 93.58% 130.54% 175.36%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a net asset value ("NAV") return of 8.44% during the 12-month
period covered by this report. During the same period, the Russell 2000(R) Index
("benchmark") generated a return of 14.65%. The Financials sector was given the
highest allocation in the Fund with a 44.3% weighting. This sector had a modest
return of 5.2% leading to a 1.8% contribution. The largest contributing sector
to the Fund's return was the Industrials sector with a 2.1% contribution, which
stems from its 14.8% allocation and 15.7% return. The Telecommunication Services
sector was the worst performing sector with a -22.3% return and also the
smallest weighted sector at 0.4%, which minimized its total impact to the Fund
to only -0.2%. On a relative basis, the Fund underperformed the benchmark. The
Fund's 26.2% larger allocation to the Financials sector created -2.5% of
relative drag. The Fund's holdings within the Consumer Discretionary sector also
created -1.6% of relative drag as the Fund underperformed this sector by 9.0%.
Underperformance of 1.0% was reversed by the Fund giving less weighting to the
poor performing Energy sector securities.
-----------------------------
Dow Jones and Dow Jones Select MicroCap Index(SM) are products of S&P Dow Jones
Indices LLC ("SPDJI"), and have been licensed for use by First Trust on behalf
of the Fund. The Fund, based on the Dow Jones Select MicroCap Index(SM), is not
sponsored, endorsed, sold or promoted by SPDJI, Dow Jones Trademark Holdings LLC
("Dow Jones") or their respective affiliates, and SPDJI, Dow Jones and their
respective affiliates make no representation regarding the advisability of
trading in the Fund.
Page 4
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Financials 40.87%
Consumer Discretionary 16.96
Industrials 14.90
Information Technology 6.99
Health Care 6.23
Materials 5.54
Real Estate 2.92
Consumer Staples 2.16
Utilities 1.79
Energy 1.64
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Rayonier Advanced Materials, Inc. 0.98%
Koppers Holdings, Inc. 0.98
M/I Homes, Inc. 0.87
ArcBest Corp. 0.85
NMI Holdings, Inc., Class A 0.84
Axcelis Technologies, Inc. 0.83
Schnitzer Steel Industries, Inc.,
Class A 0.83
Astronics Corp. 0.81
CTS Corp. 0.78
Independence Realty Trust, Inc. 0.78
-------
Total 8.55%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust Dow Jones
Select MicroCap Dow Jones Select Russell 2000(R)
Index Fund MicroCap Index(SM) Index
12/07 $10,000 $10,000 $10,000
06/08 8,775 8,802 9,063
12/08 6,668 6,717 6,622
06/09 6,528 6,596 6,797
12/09 8,058 8,187 8,421
06/10 7,833 7,977 8,257
12/10 10,134 10,350 10,683
06/11 10,475 10,736 11,346
12/11 9,255 9,506 10,237
06/12 9,851 10,151 11,110
12/12 10,724 11,092 11,910
06/13 12,466 12,932 13,799
12/13 15,369 15,999 16,534
06/14 15,266 15,941 17,061
12/14 15,842 16,585 17,343
06/15 16,666 17,497 18,167
12/15 15,931 16,785 16,577
06/16 16,329 17,252 16,945
12/16 21,579 22,859 20,110
06/17 21,713 23,053 21,113
12/17 23,393 24,931 23,055
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 151 1 0 0
01/01/14 - 12/31/14 93 1 0 0
01/01/15 - 12/31/15 112 0 0 0
01/01/16 - 12/31/16 133 0 0 0
01/01/17 - 12/31/17 180 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 98 2 0 0
01/01/14 - 12/31/14 158 0 0 0
01/01/15 - 12/31/15 140 0 0 0
01/01/16 - 12/31/16 119 0 0 0
01/01/17 - 12/31/17 71 0 0 0
Page 5
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL)
The First Trust Morningstar Dividend Leaders Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the Morningstar(R) Dividend
Leaders Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its net assets (including investment borrowings) 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, in the
Morningstar(R) U.S. Market Index that have been selected through the application
of Morningstar, Inc.'s proprietary multi-step screening process. The Index is
rebalanced annually in June. The Fund's shares are listed for trading on the
NYSE Arca. The first day of secondary market trading in shares of the Fund was
March 15, 2006.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (3/9/06) Ended Ended (3/9/06)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 11.93% 13.99% 8.08% 7.49% 92.42% 117.58% 134.83%
Market Value 11.96% 14.01% 8.02% 7.50% 92.61% 116.36% 134.99%
INDEX PERFORMANCE
Morningstar(R) Dividend Leaders
Index(SM) 12.51% 14.56% 8.64% 8.03% 97.31% 129.03% 148.96%
S&P 500(R) Index 21.83% 15.79% 8.50% 8.77% 108.14% 126.03% 169.85%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 11.93% during the 12-month period covered by
this report. During the same period, the S&P 500(R) Index ("benchmark")
generated a return of 21.83%. The Fund's largest allocation was in the Consumer
Staples sector with a 17.2% weighting. This sector was also the greatest
contributing sector to the Fund's return with a 3.1% contribution and 17.3%
return. The top performing sector in the Fund was the Materials sector with a
32.2% return. The least contributing sector was the Telecommunication Services
sector with a -0.5% contribution, which stems from its 16.1% allocation and
-0.5% return. On a relative basis, the Fund underperformed the benchmark. The
primary cause of the underperformance is attributable to the Fund
over-allocating the Telecommunication Services sector by 13.9%, leading to -3.5%
of relative drag. The Fund's holdings within the Energy sector reversed 1.4% of
underperformance as the Fund over-allocated and outperformed the benchmark by
2.9% and 6.8%, respectively, in this sector.
-----------------------------
Morningstar(R) is a service mark of Morningstar, Inc. and has been licensed for
use by First Trust on behalf of the Fund. The Fund is not sponsored, endorsed,
issued, sold or promoted by Morningstar, Inc., nor does this company make any
representation regarding the advisability of investing in the Fund.
Page 6
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Consumer Staples 17.77%
Energy 15.83
Telecommunication Services 15.54
Information Technology 14.96
Industrials 11.10
Utilities 9.91
Health Care 5.29
Consumer Discretionary 5.09
Financials 2.89
Materials 1.62
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Exxon Mobil Corp. 8.96%
AT&T, Inc. 8.75
Verizon Communications, Inc. 6.79
Chevron Corp. 5.80
General Electric Co. 5.55
Pfizer, Inc. 5.25
Procter & Gamble (The) Co. 4.78
Philip Morris International, Inc. 4.41
Cisco Systems, Inc. 3.96
Coca-Cola (The) Co. 3.78
-------
Total 58.03%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust Morningstar Morningstar(R)
Dividend Leaders Dividend S&P 500(R)
Index Fund Leaders Index(SM) Index
12/07 $10,000 $10,000 $10,000
06/08 7,408 7,423 8,807
12/08 6,829 6,865 6,300
06/09 6,449 6,501 6,499
12/09 7,801 7,881 7,966
06/10 7,448 7,541 7,436
12/10 9,053 9,195 9,166
06/11 9,761 9,941 9,717
12/11 10,360 10,577 9,358
06/12 11,217 11,491 10,246
12/12 11,307 11,609 10,856
06/13 12,885 13,266 12,356
12/13 13,876 14,322 14,371
06/14 15,304 15,842 15,397
12/14 15,674 16,263 16,339
06/15 15,199 15,804 16,540
12/15 16,102 16,779 16,565
06/16 18,472 19,306 17,201
12/16 19,438 20,358 18,549
06/17 20,006 21,009 20,284
12/17 21,759 22,906 22,603
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 171 0 0 0
01/01/14 - 12/31/14 190 0 0 0
01/01/15 - 12/31/15 151 0 0 0
01/01/16 - 12/31/16 161 0 0 0
01/01/17 - 12/31/17 131 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 81 0 0 0
01/01/14 - 12/31/14 62 0 0 0
01/01/15 - 12/31/15 101 0 0 0
01/01/16 - 12/31/16 91 0 0 0
01/01/17 - 12/31/17 120 0 0 0
Page 7
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX)
The First Trust US Equity Opportunities ETF (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the IPOX(R)-100 U.S. Index (the
"Index"). The Fund will normally invest at least 90% of its net assets
(including investment borrowings) in common stocks that comprise the Index. The
Index is an applied market-cap weighted price index measuring the performance of
the top U.S. companies ranked quarterly by market capitalization in the IPOX(R)
U.S. Composite Index, a sub-index of the IPOX(R) Global Composite Index. The
Index utilizes a 10% capping on all constituents and includes the 100 largest
public offerings ("IPOs") in the IPOX(R) U.S. Composite Index, adjusted for
liquidity. In general, eligible constituents are added on the sixth day of
trading and remain eligible to be included in the Index for approximately four
years. The Index includes the securities of small, mid and large companies. The
Fund's shares are listed for trading on the NYSE Arca. The first day of
secondary market trading in shares of the Fund was April 13, 2006.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (4/12/06) Ended Ended (4/12/06)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 26.96% 18.05% 11.45% 11.96% 129.26% 195.64% 275.83%
Market Value 26.91% 17.96% 11.42% 11.97% 128.43% 194.75% 276.17%
INDEX PERFORMANCE
IPOX(R)-100 U.S. Index 27.61% 18.72% 12.11% 12.63% 135.81% 213.78% 303.02%
S&P 500(R) Index 21.83% 15.79% 8.50% 8.71% 108.14% 126.03% 166.16%
Russell 3000(R) Index 21.13% 15.58% 8.60% 8.69% 106.26% 128.22% 165.49%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 26.96% during the 12-month period covered by
this report. During the same period, the Russell 3000(R) Index ("benchmark")
generated a return of 21.13%. The Information Technology sector was the highest
allocated sector in the Fund with a 26.8% weighting. This sector had a 42.9%
return, which led to a 9.9% contribution to the Fund's return. It was the
Materials sector which had the top return of 44.6%. The Fund's performance was
impacted by -0.8% due to the Fund's holdings within the Energy sector which had
2.4% allocation and -26.9% return. On a relative basis, the Fund outperformed
the benchmark. The primary cause of the outperformance is due to the Fund
outperforming the benchmark within the Consumer Discretionary sector by 14.3%,
creating 2.3% of relative outperformance. The Fund's holdings within the
Consumer Staples sector reversed -1.7% of underperformance as the benchmark
outperformed the Fund by 6.9%.
-----------------------------
The Fund is not sponsored, endorsed, sold or promoted by IPOX(R). IPOX(R) makes
no representation or warranty, express or implied, to the owners of the Fund or
any member of the public regarding the advisability of trading in the Fund.
Page 8
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 26.77%
Consumer Discretionary 17.40
Health Care 16.18
Consumer Staples 13.67
Financials 9.25
Industrials 7.98
Materials 3.50
Real Estate 2.06
Energy 1.55
Utilities 0.86
Telecommunication Services 0.78
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Kraft Heinz (The) Co. 8.12%
AbbVie, Inc. 7.94
PayPal Holdings, Inc. 7.58
Shire PLC, ADR 4.03
Fiat Chrysler Automobiles N.V. 2.98
Tyson Foods, Inc., Class A 2.78
Synchrony Financial 2.63
DXC Technology Co. 2.32
Hilton Worldwide Holdings, Inc. 2.22
Fortive Corp. 2.15
-------
Total 42.75%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust
US Equity IPOX(R)-100 S&P 500(R) Russell 3000(R)
Opportunities ETF U.S. Index Index Index
12/07 $10,000 $10,000 $10,000 $10,000
06/08 9,270 9,297 8,808 8,895
12/08 5,612 5,641 6,300 6,269
06/09 6,362 6,422 6,499 6,532
12/09 8,134 8,234 7,966 8,045
06/10 7,652 7,770 7,435 7,558
12/10 9,621 9,805 9,165 9,407
06/11 10,573 10,813 9,717 10,004
12/11 9,919 10,176 9,358 9,503
06/12 11,262 11,588 10,246 10,389
12/12 12,896 13,307 10,856 11,063
06/13 15,061 15,580 12,356 12,618
12/13 19,084 19,812 14,371 14,774
06/14 20,345 21,189 15,397 15,799
12/14 21,356 22,308 16,339 16,628
06/15 23,201 24,307 16,540 16,951
12/15 21,823 22,931 16,565 16,709
06/16 21,681 22,835 17,200 17,314
12/16 23,285 24,591 18,551 18,842
06/17 25,774 27,286 20,284 20,525
12/17 29,563 31,379 22,603 22,824
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 220 0 0 0
01/01/14 - 12/31/14 158 0 0 0
01/01/15 - 12/31/15 172 0 0 0
01/01/16 - 12/31/16 118 0 0 0
01/01/17 - 12/31/17 179 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 32 0 0 0
01/01/14 - 12/31/14 94 0 0 0
01/01/15 - 12/31/15 80 0 0 0
01/01/16 - 12/31/16 134 0 0 0
01/01/17 - 12/31/17 72 0 0 0
Page 9
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT)
The First Trust NYSE Arca Biotechnology Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the NYSE Arca Biotechnology Index(SM)
(the "Index"). The Fund will normally invest at least 90% of its net assets
(including investment borrowings) in common stocks that comprise the Index. The
Index is an equal dollar-weighted index designed to measure the performance of a
cross section of companies in the biotechnology industry that are primarily
involved in the use of biological processes to develop products or provide
services. Such processes include, but are not limited to, recombinant DNA
technology, molecular biology, genetic engineering, monoclonal antibody-based
technology, lipid/liposome technology and genomics. This Index is rebalanced
quarterly based on closing prices on the third Friday in January, April, July
and October to ensure that each component stock continues to represent
approximately equal weight in the Index. The Fund's shares are listed for
trading on the NYSE Arca. The first day of secondary market trading in shares of
the Fund was June 23, 2006.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (6/19/06) Ended Ended (6/19/06)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 36.99% 22.05% 17.86% 17.32% 170.82% 417.02% 531.03%
Market Value 36.88% 22.09% 17.80% 17.32% 171.29% 414.70% 531.02%
INDEX PERFORMANCE
NYSE Arca Biotechnology Index(SM) 37.69% 22.57% 18.48% 17.95% 176.61% 444.91% 571.33%
S&P Composite 1500(R) Health Care Index 22.47% 17.98% 11.36% 11.60% 128.63% 193.20% 254.54%
NASDAQ(R) Biotechnology Index 21.63% 18.99% 15.23% 14.57% 138.51% 312.85% 380.11%
S&P 500(R) Index 21.83% 15.79% 8.50% 9.18% 108.14% 126.03% 175.50%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 36.99% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500(R) Health Care Index
("benchmark") generated a return of 22.47%. The Fund was fully comprised of the
Pharmaceuticals, Biotechnology and Life Sciences Tools & Services industries.
The top performing security in the Fund was Nektar Therapeutics with a 386.7%
return. This security was given a 4.0% allocation, which led to a 7.8%
contribution to the Fund. The worst performing security was Intrexon Corp. with
a -52.1% return. This security was given a 2.9% allocation, which led to a -2.1%
contribution to the Fund. On a relative basis, the Fund outperformed the
benchmark. The Fund was over allocated in Pharmaceuticals, Biotechnology and
Life Sciences Tools & Services securities by 38.3% and outperformed the
benchmark by 14.4%, which together led to 12.3% of relative outperformance. The
benchmark had a 41.0% exposure to Health Care Equipment & Services securities,
which had a return of 30.1%, leading to -3.3% of relative drag.
-----------------------------
The NYSE Arca Biotechnology Index(SM) is a trademark of NYSE Group, Inc. or its
affiliates ("NYSE Group, Inc.") and is licensed for use by First Trust. The Fund
is not sponsored or endorsed by NYSE Group, Inc. NYSE Group, Inc. makes no
representation or warranty, express or implied, to the owners of the Fund or any
member of the public regarding the advisability of investing in the Fund or the
ability of the Fund to track the performance of the various sectors represented
in the stock market.
Page 10
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
INDUSTRY CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Biotechnology 75.34%
Life Sciences Tools & Services 16.38
Pharmaceuticals 8.28
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Nektar Therapeutics 8.28%
Neurocrine Biosciences, Inc. 4.40
United Therapeutics Corp. 4.10
Alnylam Pharmaceuticals, Inc. 3.71
Alkermes PLC 3.62
Grifols S.A., ADR 3.55
Juno Therapeutics, Inc. 3.50
Bio-Techne Corp. 3.49
Illumina, Inc. 3.48
BioMarin Pharmaceutical, Inc. 3.40
-------
Total 41.53%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust NYSE NYSE Arca NASDAQ(R) S&P Composite
Arca Biotechnology Biotechnology Biotechnology S&P 500(R) 1500(R) Health
Index Fund Index(SM) Index Index Care Index
12/07 $10,000 $10,000 $10,000 $10,000 $10,000
06/08 9,349 9,380 9,506 8,808 8,760
12/08 8,167 8,228 8,744 6,300 7,624
06/09 8,784 8,864 8,993 6,499 7,696
12/09 11,831 11,979 10,129 7,967 9,207
06/10 12,805 13,008 9,614 7,437 8,539
12/10 16,196 16,499 11,674 9,168 9,687
06/11 18,174 18,571 13,348 9,720 11,062
12/11 13,547 13,876 13,084 9,361 10,839
06/12 18,177 18,678 16,331 10,249 12,084
12/12 19,089 19,668 17,309 10,859 12,828
06/13 24,096 24,882 21,961 12,360 15,472
12/13 28,653 29,659 28,727 14,376 18,240
06/14 34,126 35,362 32,608 15,402 20,100
12/14 42,303 43,870 38,610 16,345 22,761
06/15 51,474 53,469 47,024 16,546 25,083
12/15 46,939 48,865 43,153 16,571 24,448
06/16 37,166 38,809 32,904 17,207 24,590
12/16 37,739 41,267 33,935 18,554 23,947
06/17 47,317 51,868 39,814 20,287 27,891
12/17 51,699 54,491 41,285 22,603 29,320
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 204 0 0 0
01/01/14 - 12/31/14 183 0 0 0
01/01/15 - 12/31/15 159 0 0 0
01/01/16 - 12/31/16 129 1 0 0
01/01/17 - 12/31/17 136 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 48 0 0 0
01/01/14 - 12/31/14 69 0 0 0
01/01/15 - 12/31/15 93 0 0 0
01/01/16 - 12/31/16 122 0 0 0
01/01/17 - 12/31/17 115 0 0 0
Page 11
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
The First Trust Dow Jones Internet Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the Dow Jones Internet Composite
Index(SM) (the "Index"). The Fund will normally invest at least 90% of its net
assets (including investment borrowings) in common stocks that comprise the
Index. The Index represents companies that generate the majority of their
revenues via the Internet. The Index is designed to include only companies whose
primary focus is Internet-related. To be eligible for inclusion in the Index, a
company must generate at least 50% of its revenue from Internet commerce or
services. Internet commerce companies are defined as those that derive the
majority of their revenues from providing goods and services through an open
network, whereas Internet services companies are defined as those that derive
the majority of their revenues from providing access to the Internet or
providing services to people using the Internet. The Fund's shares are listed
for trading on the NYSE Arca. The first day of secondary market trading in
shares of the Fund was June 23, 2006.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (6/19/06) Ended Ended (6/19/06)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 37.62% 23.00% 15.96% 15.95% 181.49% 339.56% 451.42%
Market Value 37.59% 23.00% 15.91% 15.96% 181.57% 337.76% 451.57%
INDEX PERFORMANCE
Dow Jones Internet Composite Index(SM) 38.35% 23.62% 16.58% 16.58% 188.72% 363.64% 486.57%
S&P 500(R) Index 21.83% 15.79% 8.50% 9.18% 108.14% 126.03% 175.50%
S&P Composite 1500(R) Information
Technology Index 37.29% 20.62% 11.82% 12.97% 155.35% 205.52% 308.18%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 37.62% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500(R) Information
Technology Index ("benchmark") generated a return of 37.29%. The Fund was mainly
comprised of Information Technology securities (69.5% allocation), which had a
38.5% return and 26.7% contribution, and Consumer Discretionary securities
(19.9% allocation), which had a 40.1% return and 8.1% contribution. On a
relative basis, the Fund outperformed the benchmark. The benchmark did not have
any exposure to Consumer Discretionary securities such as Amazon.com, Inc.,
Netflix, Inc. or Groupon, Inc., which led to 0.5% of outperformance. The Fund's
Information Technology sector holdings led to 0.7% of outperformance as the Fund
outperformed the benchmark by 1.0%. Securities like E*TRADE Financial Corp. and
TD Ameritrade Holding Corp., which are categorized as Diversified Financials by
GICS, led to -0.2% of relative drag as the benchmark did not have any exposure
to these less than average performing securities.
-----------------------------
Dow Jones and Dow Jones Internet Composite Index(SM) are products of S&P Dow
Jones Indices ("SPDJI") and have been licensed for use by First Trust. The Fund,
based on the Dow Jones Internet Composite Index(SM), is not sponsored, endorsed,
sold or promoted by SPDJI, Dow Jones Trademark Holdings LLC ("Dow Jones") or
their respective affiliates and SPDJI, Dow Jones and their respective affiliates
make no representation regarding the advisability of trading in the Fund.
Page 12
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 71.18%
Consumer Discretionary 19.29
Financials 5.26
Telecommunication Services 2.35
Health Care 1.92
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Amazon.com, Inc. 8.66%
Facebook, Inc., Class A 8.20
Netflix, Inc. 5.28
PayPal Holdings, Inc. 5.20
Alphabet, Inc., Class C 4.95
Alphabet, Inc., Class A 4.92
salesforce.com, Inc. 4.79
eBay, Inc. 3.82
Twitter, Inc. 3.00
Expedia, Inc. 2.73
-------
Total 51.55%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust Dow Jones S&P Composite 1500(R)
Dow Jones Internet Internet Composite S&P 500(R) Information Technology
Index Fund Index(SM) Index Index
12/07 $10,000 $10,000 $10,000 $10,000
06/08 8,930 8,953 8,808 8,711
12/08 5,598 5,623 6,300 5,710
06/09 7,472 7,528 6,499 7,115
12/09 10,033 10,137 7,966 9,195
06/10 9,549 9,660 7,436 8,274
12/10 13,708 13,913 9,166 10,310
06/11 14,496 14,749 9,718 10,564
12/11 12,920 13,201 9,359 10,426
06/12 14,141 14,493 10,247 11,752
12/12 15,614 16,058 10,857 11,964
06/13 18,156 18,724 12,357 12,769
12/13 23,951 24,787 14,372 15,433
06/14 23,836 24,711 15,398 16,737
12/14 24,532 25,479 16,340 18,357
06/15 26,885 27,999 16,541 18,596
12/15 29,872 31,186 16,566 19,384
06/16 28,862 30,207 17,202 19,396
12/16 31,936 33,509 18,547 22,251
06/17 37,914 39,889 20,279 25,949
12/17 43,956 46,359 22,603 30,547
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 200 0 0 0
01/01/14 - 12/31/14 148 0 0 0
01/01/15 - 12/31/15 201 0 0 0
01/01/16 - 12/31/16 124 0 0 0
01/01/17 - 12/31/17 129 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 52 0 0 0
01/01/14 - 12/31/14 104 0 0 0
01/01/15 - 12/31/15 51 0 0 0
01/01/16 - 12/31/16 128 0 0 0
01/01/17 - 12/31/17 122 0 0 0
Page 13
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
The First Trust Capital Strength ETF (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called The Capital Strength Index(TM) (the
"Index"). The Fund will normally invest at least 90% of its net assets
(including investment borrowings) in common stocks that comprise the Index. In
constructing the Index, NASDAQ begins with the largest 500 U.S. companies
included in the NASDAQ US Benchmark Index and excludes (i) companies with less
than $1 billion in cash and short term investments; (ii) companies with
long-term debt are divided by the market capitalization greater than 30%; and
(iii) companies with return on equity less than 15%. NASDAQ then ranks all
remaining stocks in the universe by one-year and three-month daily volatility
(one-year and three-month daily volatility factors are equally weighted), and
selects the top 50 companies with the lowest combined volatility score, subject
to a maximum weight of 30% from any one of the ten Industry Classification
Benchmark industries. The stocks in the Index are equally weighted initially and
on each reconstituting and rebalancing effective date. The Fund's shares are
listed for trading on the Nasdaq. The first day of secondary market trading in
shares of the Fund was July 11, 2006.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (7/6/06) Ended Ended (7/6/06)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 26.49% 16.98% 9.56% 10.17% 119.01% 149.19% 204.28%
Market Value 26.67% 17.03% 9.53% 10.19% 119.52% 148.56% 204.87%
INDEX PERFORMANCE
The Capital Strength Index(TM)* 27.28% N/A N/A N/A N/A N/A N/A
S&P 500 Value Index** 15.36% 14.24% 6.80% 7.21% 94.54% 93.13% 122.48%
S&P 500(R) Index 21.83% 15.79% 8.50% 8.96% 108.14% 126.03% 167.88%
------------------------------------------------------------------------------------------------------------------------------------
* On June 4, 2013, the Fund's underlying index changed from the Credit
Suisse U.S. Value Index, Powered by HOLT(TM) to The Capital Strength
Index(TM). On June 18, 2010, the Fund's underlying index changed from the
Deutsche Bank CROCI(R) US+ Index(TM) to the Credit Suisse U.S. Value
Index, Powered by HOLT(TM). Since the Fund's new underlying index had an
inception date of March 20, 2013, it was not in existence for some of the
periods disclosed.
** The Fund no longer uses the S&P 500 Value Index as a comparative index for
the Fund as the Advisor has determined that this index is no longer
representative of the Fund's investment strategy and portfolio holdings.
The S&P 500 Value Index will be represented in performance comparisons of
the Fund until May 1, 2018.
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 26.49% during the 12-month period covered by
this report. During the same period, the S&P 500 Value Index ("benchmark")
generated a return of 15.36%. The Fund's largest sector allocation was the
Information Technology sector with a 30.3% allocation. This sector had a 27.7%
return and 8.5% contribution. The top performing sector in the Fund was the
Financials sector with a 49.7% return. This sector was given a smaller weighting
of 3.6%, which capped the sector impact to the Fund's return to only 1.7%. The
Fund's holdings amongst Consumer Discretionary sector were the worst performing
securities with a 11.2% return. On a relative basis, the Fund outperformed the
benchmark. The primary cause of the outperformance is attributable to the Fund
overweighting and outperforming the benchmark amongst Industrials sector
securities by 14.2% and 16.9%, respectively, creating 3.7% of outperformance.
Outperformance of 0.7% was reversed due to the Fund underperforming the
benchmark amongst Consumer Discretionary sector.
-----------------------------
"Credit Suisse," "HOLT" and "Credit Suisse U.S. Value Index, Powered by
HOLT(TM)," are trademarks of Credit Suisse Group AG, Credit Suisse Securities
(USA) LLC or one of their affiliates.
NASDAQ(R) and the Capital Strength Index(TM) are trademarks (the "Marks") of
Nasdaq, Inc. ("NASDAQ"). The Marks are licensed for use by First Trust. The Fund
has not been passed on by NASDAQ as to its legality or suitability. The Fund is
not issued, endorsed, sold or promoted by NASDAQ. The Fund should not be
construed in any way as investment advice by NASDAQ. NASDAQ MAKES NO WARRANTIES
AND BEARS NO LIABILITY WITH RESPECT TO THE FUND.
Page 14
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CAPITAL STRENGTH ETF (FTCS) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Industrials 27.72%
Information Technology 25.82
Health Care 17.38
Consumer Staples 14.51
Consumer Discretionary 8.22
Financials 4.21
Materials 2.14
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Home Depot (The), Inc. 2.22%
Costco Wholesale Corp. 2.22
Progressive (The) Corp. 2.21
Intel Corp. 2.19
Wal-Mart Stores, Inc. 2.16
Monster Beverage Corp. 2.15
LyondellBasell Industries N.V.,
Class A 2.14
FedEx Corp. 2.12
Expeditors International of Washington,
Inc. 2.10
Accenture PLC, Class A 2.10
-------
Total 21.61%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust Capital S&P 500(R) S&P 500
Strength ETF Index Value Index
12/07 $10,000 $10,000 $10,000
06/08 9,216 8,809 8,396
12/08 6,278 6,300 6,079
06/09 7,076 6,499 5,993
12/09 8,751 7,967 7,366
06/10 8,091 7,437 6,976
12/10 9,979 9,168 8,479
06/11 10,764 9,720 8,922
12/11 9,685 9,361 8,438
06/12 10,211 10,249 9,191
12/12 11,375 10,859 9,930
06/13 13,269 12,360 11,492
12/13 15,458 14,376 13,105
06/14 16,321 15,402 14,017
12/14 17,849 16,345 14,723
06/15 17,819 16,546 14,657
12/15 18,143 16,571 14,261
06/16 19,112 17,207 15,151
12/16 19,699 18,553 16,742
06/17 22,140 20,286 17,554
12/17 24,916 22,603 19,315
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 134 0 0 0
01/01/14 - 12/31/14 108 9 0 0
01/01/15 - 12/31/15 190 2 0 0
01/01/16 - 12/31/16 194 0 0 0
01/01/17 - 12/31/17 197 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 117 1 0 0
01/01/14 - 12/31/14 131 4 0 0
01/01/15 - 12/31/15 57 3 0 0
01/01/16 - 12/31/16 58 0 0 0
01/01/17 - 12/31/17 54 0 0 0
Page 15
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
The First Trust Value Line(R) Dividend Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the Value Line(R) Dividend Index (the
"Index"). The Fund will normally invest at least 90% of its net assets
(including investment borrowings) in common stocks that comprise the Index. The
Index is designed to objectively identify and select those stocks from the
universe of stocks which Value Line Publishing LLC gives a Safety(TM) Ranking of
#1 or #2 in the Value Line(R) Safety(TM) Ranking System and have the potential
to pay above-average dividends and achieve capital appreciation. The Index is
rebalanced on a monthly basis. The Fund's shares are listed for trading on the
NYSE Arca.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (8/19/03) Ended Ended (8/19/03)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 12.48% 14.92% 9.85% 10.10% 100.47% 155.78% 298.64%
Market Value 12.43% 14.94% 9.82% 10.11% 100.59% 155.14% 298.89%
INDEX PERFORMANCE
Value Line(R) Dividend Index* 13.31% 15.85% 10.72% N/A 108.70% 176.75% N/A
S&P 500(R) Index 21.83% 15.79% 8.50% 9.30% 108.14% 126.03% 258.65%
Dow Jones U.S. Select Dividend
Index(SM)* 15.44% 15.57% 8.84% N/A 108.21% 133.20% N/A
------------------------------------------------------------------------------------------------------------------------------------
On December 15, 2006, the Fund acquired the assets and adopted the
financial and performance history of First Trust Value Line(R) Dividend
Fund (the "Predecessor FVD Fund," a closed-end fund), which had an
inception date of August 19, 2003. The inception date total returns at net
asset value ("NAV") include the sales load of $0.675 per share on the
initial offering. The investment goals, strategies and policies of the
Fund are substantially similar to those of the Predecessor FVD Fund. The
inception date of the Index was July 3, 2006. Returns for the Index are
only disclosed for those periods in which the Index was in existence for
the entire period. The cumulative total returns for the period from the
reorganization date (December 15, 2006) through period end (December 31,
2017) were 146.46% and 147.80% at NAV and Market Value, respectively. That
compares to an Index return of 168.76% for the same period. The average
annual total returns for the period from the reorganization date (December
15, 2006) through period end (December 31, 2017) were 8.51% and 8.56% at
NAV and Market Value, respectively. That compares to an Index return of
9.37% for the same period.
NAV and Market Value returns assume that all distributions have been
reinvested in the Fund at NAV and Market Value, respectively. Prior to
December 15, 2006, NAV and Market Value returns assumed that all
distributions were reinvested at prices obtained by the Dividend
Reinvestment Plan of the Predecessor FVD Fund and the price used to
calculate Market Value return was the AMEX (now known as the NYSE MKT)
closing market price of the Predecessor FVD Fund.
* Performance data is not available for all the periods shown in the table
for the index because performance data does not exist for some of the
entire periods.
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 12.48% during the 12-month period covered by
this report. During the same period, the S&P 500(R) Index ("benchmark")
generated a return of 21.83%. Utility sector were given the largest allocation
in the Fund over the period at 22.0%. The top performing and contributing sector
was the Industrials sector with a 24.5% return and 2.9% contribution. The Energy
sector was the worst performing and contributing sector with a 3.5% return and
0.01% contribution. On a relative basis, the Fund underperformed the benchmark.
The primary cause of the underperformance is attributable to the Fund under
allocating and underperforming the benchmark amongst Information Technology
sector by -14.9% and -14.7%, respectively, leading to -3.2% of relative drag.
Due to the Fund under allocating and outperforming the benchmark amongst Energy
sector by -3.8% and 4.6%, respectively, this led to 1.1% of relative
outperformance.
-----------------------------
Value Line(R) and Safety(TM) are trademarks of Value Line, Inc. that are
licensed to First Trust. The Fund is not sponsored, recommended, sold, or
promoted by Value Line Publishing LLC, Value Line, Inc. or any of their
affiliates.
Page 16
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Utilities 22.19%
Financials 18.82
Consumer Staples 14.59
Industrials 12.59
Health Care 7.30
Consumer Discretionary 7.26
Information Technology 6.78
Real Estate 3.68
Materials 2.62
Energy 2.61
Telecommunication Services 1.56
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
New Jersey Resources Corp. 0.54%
MDU Resources Group, Inc. 0.54
Black Hills Corp. 0.54
Toronto-Dominion (The) Bank 0.54
Eaton Corp. PLC 0.53
Fortis, Inc. 0.53
Eversource Energy 0.53
MGE Energy, Inc. 0.53
Spire, Inc. 0.53
Diageo PLC, ADR 0.53
-------
Total 5.34%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust
Value Line(R) Value Line(R) S&P 500(R) Dow Jones U.S. Select
Dividend Index Fund Dividend Index Index Dividend Index(SM)
12/07 $10,000 $10,000 $10,000 $10,000
06/08 9,026 9,055 8,809 7,860
12/08 7,583 7,636 6,301 6,903
06/09 7,492 7,567 6,500 6,037
12/09 9,068 9,202 7,967 7,671
06/10 8,807 8,968 7,437 7,572
12/10 10,526 10,765 9,168 9,076
06/11 11,382 11,688 9,720 9,837
12/11 11,477 11,829 9,361 10,203
06/12 12,204 12,639 10,249 10,870
12/12 12,760 13,258 10,859 11,309
06/13 14,532 15,166 12,360 12,876
12/13 16,150 16,916 14,376 14,596
06/14 17,527 18,442 15,402 16,036
12/14 18,726 19,779 16,345 16,838
06/15 18,336 19,443 16,546 16,237
12/15 18,959 20,193 16,571 16,563
06/16 21,628 23,137 17,207 19,139
12/16 22,740 24,419 18,553 20,205
06/17 23,977 25,848 20,286 21,435
12/17 25,579 27,673 22,603 23,323
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 238 0 0 0
01/01/14 - 12/31/14 223 0 0 0
01/01/15 - 12/31/15 179 0 0 0
01/01/16 - 12/31/16 182 0 0 0
01/01/17 - 12/31/17 185 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 14 0 0 0
01/01/14 - 12/31/14 29 0 0 0
01/01/15 - 12/31/15 73 0 0 0
01/01/16 - 12/31/16 70 0 0 0
01/01/17 - 12/31/17 66 0 0 0
Page 17
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
The First Trust Value Line(R) 100 Exchange-Traded Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the Value Line(R) 100 Index
(the "Index"). The Fund will normally invest at least 90% of its net assets
(including investment borrowings) 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 Publishing
LLC assigns a #1 ranking in the Value Line(R) Timeliness(TM) Ranking System (the
"Ranking System"). At any one time only 100 stocks are assigned a #1 ranking in
the Ranking System. The Fund's shares are listed for trading on the NYSE Arca.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (6/12/03) Ended Ended (6/12/03)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 9.05% 12.55% 3.14% 6.18% 80.62% 36.26% 139.31%
Market Value 9.04% 12.58% 3.11% 6.18% 80.83% 35.86% 139.42%
INDEX PERFORMANCE
Value Line(R) 100 Index* 10.22% 13.67% 4.08% N/A 89.73% 49.10% N/A
Russell 3000(R) Index 21.13% 15.58% 8.60% 9.51% 106.26% 128.22% 274.95%
------------------------------------------------------------------------------------------------------------------------------------
On June 15, 2007, the Fund acquired the assets and adopted the financial
and performance history of First Trust Value Line(R) 100 Fund (the
"Predecessor FVL Fund," a closed-end fund), which had an inception date of
June 12, 2003. The inception date total returns at NAV include the sales
load of $0.675 per share on the initial offering. The investment goals,
strategies and policies of the Fund are substantially similar to those of
the Predecessor FVL Fund. The inception date of the Index was January 16,
2007. Returns for the Index are only disclosed for those periods in which
the Index was in existence for the entire period. The cumulative total
returns for the period from the reorganization date (June 15, 2007)
through period end (December 31, 2017) were 45.26% and 45.33% at NAV and
Market Value, respectively. That compares to an Index return of 59.57% for
that same period. The average annual total returns for the period from the
reorganization date (June 15, 2007) through period end (December 31, 2017)
were 3.60% and 3.61% at NAV and Market Value, respectively. That compares
to an Index return of 4.53% for the same period.
NAV and Market Value returns assume that all distributions have been
reinvested in the Fund at NAV and Market Value, respectively. Prior to
June 15, 2007, NAV and Market Value returns assumed that all distributions
were reinvested at prices obtained by the Dividend Reinvestment Plan of
the Predecessor FVL Fund and the price used to calculate Market Value
return was the AMEX (now known as the NYSE MKT) closing market price of
the Predecessor FVL Fund.
* Performance data is not available for all the periods shown in the table
for the index because performance data does not exist for some of the
entire periods.
(See Notes to Fund Performance Overview on page 20.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 9.05% during the 12-month period covered by
this report. During the same period, the Russell 3000(R) Index ("benchmark")
generated a return of 21.13%. Information Technology sector, which had a 54.1%
return and 18.5% allocation, contributed to 6.8% of the Fund's return. The
highest allocated sector in the Fund was the Consumer Discretionary sector with
a 26.7% allocation. The Fund's worst performing sector was the Energy sector,
which was given a 7.8% allocation, with a -25.9% return and a -3.1%
contribution. On a relative basis, the Fund underperformed the benchmark. The
Fund underperformed the benchmark amongst Consumer Discretionary sector by
-15.7%, which led to -5.3% of relative drag. The Real Estate, Consumer Staples,
and Financials sectors each reversed close to 0.3% of relative drag as the Fund
outperformed the benchmark by 18.5%, 3.6%, and 5.8%, respectively.
-----------------------------
Value Line(R) and Timeliness(TM) are trademarks of Value Line, Inc. that are
licensed to First Trust. The Fund is not sponsored, recommended, sold, or
promoted by Value Line Publishing LLC, Value Line, Inc. or any of their
affiliates.
Page 18
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 24.39%
Health Care 21.21
Industrials 16.43
Consumer Discretionary 12.89
Financials 12.39
Materials 3.29
Utilities 3.19
Consumer Staples 3.11
Real Estate 3.10
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
PulteGroup, Inc. 1.25%
Churchill Downs, Inc. 1.23
Avery Dennison Corp. 1.21
NVR, Inc. 1.15
UnitedHealth Group, Inc. 1.15
BGC Partners, Inc., Class A 1.11
SBA Communications Corp. 1.09
Marriott International, Inc.,
Class A 1.09
Wyndham Worldwide Corp. 1.09
Charles River Laboratories
International, Inc. 1.09
-------
Total 11.46%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust Value Line(R) 100 Value Line(R) Russell 3000(R)
Exchange-Traded Fund 100 Index Index
12/07 $10,000 $10,000 $10,000
06/08 9,146 9,148 8,895
12/08 5,171 5,193 6,269
06/09 4,970 5,013 6,531
12/09 5,830 5,910 8,044
06/10 5,780 5,889 7,557
12/10 7,550 7,726 9,405
06/11 7,978 8,224 10,003
12/11 6,952 7,182 9,502
06/12 7,146 7,412 10,387
12/12 7,545 7,856 11,062
06/13 8,669 9,074 12,617
12/13 10,521 11,072 14,774
06/14 11,659 12,326 15,799
12/14 11,714 12,438 16,629
06/15 12,024 12,826 16,952
12/15 11,347 12,150 16,709
06/16 11,737 12,623 17,314
12/16 12,496 13,520 18,836
06/17 12,379 13,482 20,518
12/17 13,626 14,910 22,822
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 100 0 0 0
01/01/14 - 12/31/14 165 0 0 0
01/01/15 - 12/31/15 130 0 0 0
01/01/16 - 12/31/16 140 1 0 0
01/01/17 - 12/31/17 137 1 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 152 0 0 0
01/01/14 - 12/31/14 87 0 0 0
01/01/15 - 12/31/15 122 0 0 0
01/01/16 - 12/31/16 111 0 0 0
01/01/17 - 12/31/17 113 0 0 0
Page 19
--------------------------------------------------------------------------------
NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
Total returns for the periods since inception are calculated from the inception
date of each Fund. "Average annual total returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative total
returns" represent the total change in value of an investment over the periods
indicated. The total returns would have been lower if certain fees had not been
waived and expenses reimbursed by the Advisor.
Each Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint between the highest bid and the lowest offer on the stock
exchange on which shares of the Fund are listed for trading as of the time that
the Fund's NAV is calculated. Since shares of each Fund did not trade in the
secondary market until after the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
each Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and market returns assume that all distributions have been
reinvested in each Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike each Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by each Fund. These
expenses negatively impact the performance of each Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of each
Fund will vary with changes in market conditions. Shares of each Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. Each Fund's past performance is no guarantee of future performance.
Page 20
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2017 (UNAUDITED)
As a shareholder of First Trust Dow Jones Select MicroCap Index Fund, First
Trust Morningstar Dividend Leaders Index Fund, First Trust US Equity
Opportunities ETF, First Trust NYSE Arca Biotechnology Index Fund, First Trust
Dow Jones Internet Index Fund, First Trust Capital Strength ETF, First Trust
Value Line(R) Dividend Index Fund or First Trust Value Line(R) 100
Exchange-Traded Fund (each a "Fund" and collectively, the "Funds"), you incur
two types of costs: (1) transaction costs; and (2) ongoing costs, including
management fees, distribution and/or service fees, if any, and other Fund
expenses. This Example is intended to help you understand your ongoing costs of
investing in the Funds and to compare these costs with the ongoing costs of
investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended December 31, 2017.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
--------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2017 DECEMBER 31, 2017 PERIOD (a) PERIOD (b)
--------------------------------------------------------------------------------------------------------------------------
FIRST TRUST DOW JONES SELECT MICROCAP INDEX
FUND (FDM)
Actual $1,000.00 $1,077.80 0.60% $3.14
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX
FUND (FDL)
Actual $1,000.00 $1,087.60 0.45% $2.37
Hypothetical (5% return before expenses) $1,000.00 $1,022.94 0.45% $2.29
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX)
Actual $1,000.00 $1,147.00 0.59% $3.19
Hypothetical (5% return before expenses) $1,000.00 $1,022.23 0.59% $3.01
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX
FUND (FBT)
Actual $1,000.00 $1,092.60 0.56% $2.95
Hypothetical (5% return before expenses) $1,000.00 $1,022.38 0.56% $2.85
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
Actual $1,000.00 $1,159.20 0.53% $2.88
Hypothetical (5% return before expenses) $1,000.00 $1,022.53 0.53% $2.70
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
Actual $1,000.00 $1,125.40 0.61% $3.27
Hypothetical (5% return before expenses) $1,000.00 $1,022.13 0.61% $3.11
Page 21
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES (CONTINUED)
DECEMBER 31, 2017 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2017 DECEMBER 31, 2017 PERIOD (a) PERIOD (b)
--------------------------------------------------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
Actual $1,000.00 $1,066.80 0.70% $3.65
Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED
FUND (FVL)
Actual $1,000.00 $1,101.40 0.70% $3.71
Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57
(a) These expense ratios reflect an expense cap for certain Funds. See Note 3
in Notes to Financial Statements.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (July 1,
2017 through December 31, 2017), multiplied by 184/365 (to reflect the
one-half year period).
Page 22
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 1.4%
18,866 Astronics Corp. (a) $ 782,373
9,228 Ducommun, Inc. (a) 262,537
9,914 Vectrus, Inc. (a) 305,847
--------------
1,350,757
--------------
AIR FREIGHT & LOGISTICS -- 0.1%
30,324 Radiant Logistics, Inc. (a) 139,490
--------------
AUTO COMPONENTS -- 2.0%
17,070 Motorcar Parts of America,
Inc. (a) 426,579
23,955 Stoneridge, Inc. (a) 547,611
3,286 Strattec Security Corp. 143,105
20,735 Superior Industries International,
Inc. 307,915
18,376 Tower International, Inc. 561,387
--------------
1,986,597
--------------
BANKS -- 23.8%
13,118 Access National Corp. 365,205
10,384 Allegiance Bancshares, Inc. (a) 390,958
12,460 Arrow Financial Corp. 423,017
22,965 Atlantic Capital Bancshares,
Inc. (a) 404,184
13,692 Bank of Commerce Holdings 157,458
4,889 Bank of Marin Bancorp 332,452
13,804 Bar Harbor Bankshares 372,846
11,303 BCB Bancorp, Inc. 163,893
16,570 Bridge Bancorp, Inc. 579,950
16,762 Bryn Mawr Bank Corp. 740,880
13,889 Camden National Corp. 585,144
14,831 Carolina Financial Corp. 550,972
9,118 Central Valley Community Bancorp 184,001
10,920 Citizens & Northern Corp. 262,080
8,012 Civista Bancshares, Inc. 176,264
12,861 CNB Financial Corp. 337,473
34,024 CoBiz Financial, Inc. 680,140
19,736 Community Bankers Trust Corp. (a) 160,848
3,663 Community Financial (The) Corp. 140,293
26,652 ConnectOne Bancorp, Inc. 686,289
7,683 Enterprise Bancorp, Inc. 261,606
9,634 Equity Bancshares, Inc.,
Class A (a) 341,140
4,278 Evans Bancorp, Inc. 179,248
6,728 Farmers Capital Bank Corp. 259,028
22,683 Farmers National Banc Corp. 334,574
19,697 Fidelity Southern Corp. 429,395
13,288 Financial Institutions, Inc. 413,257
8,215 First Bancshares, (The), Inc. (b) 280,953
11,415 First Bank 158,098
13,381 First Community Bancshares, Inc. 384,436
12,544 First Connecticut Bancorp, Inc. 328,026
10,067 First Financial Corp. 456,538
26,176 First Foundation, Inc. (a) 485,303
7,077 First Internet Bancorp 269,987
8,132 First Mid-Illinois Bancshares, Inc. 313,407
11,002 Franklin Financial Network,
Inc. (a) 375,168
10,320 Great Southern Bancorp, Inc. 533,028
21,318 Guaranty Bancorp 589,443
32,485 Heritage Commerce Corp. 497,670
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
BANKS (CONTINUED)
15,276 HomeTrust Bancshares, Inc. (a) $ 393,357
21,697 Horizon Bancorp 603,177
7,768 Howard Bancorp, Inc. (a) 170,896
19,096 Independent Bank Corp. 426,796
7,169 Investar Holding Corp. 172,773
14,763 Mercantile Bank Corp. 522,167
5,638 Midland States Bancorp, Inc. 183,122
8,307 MidWestOne Financial Group, Inc. 278,534
6,357 Nicolet Bankshares, Inc. (a) 347,982
6,531 Northeast Bancorp 151,193
5,302 Norwood Financial Corp. (b) 174,966
7,478 Old Line Bancshares, Inc. 220,152
26,520 Old Second Bancorp, Inc. 361,998
3,708 Paragon Commercial Corp. (a) 197,303
5,219 Parke Bancorp, Inc. 107,250
14,384 Peapack-Gladstone Financial Corp. 503,728
4,197 Penns Woods Bancorp, Inc. 195,496
4,293 Peoples Bancorp of North Carolina,
Inc. 131,752
16,364 Peoples Bancorp, Inc. 533,794
11,562 QCR Holdings, Inc. 495,432
7,999 Republic Bancorp, Inc., Class A 304,122
9,672 Sierra Bancorp 256,888
6,273 SmartFinancial, Inc. (a) 136,124
5,999 Southern First Bancshares,
Inc. (a) 247,459
19,483 TriState Capital Holdings,
Inc. (a) 448,109
16,401 Triumph Bancorp, Inc. (a) 516,631
6,435 Two River Bancorp (b) 116,667
10,391 Xenith Bankshares, Inc. (a) 351,527
--------------
23,134,047
--------------
BIOTECHNOLOGY -- 0.4%
31,665 AMAG Pharmaceuticals, Inc. (a) 419,561
--------------
BUILDING PRODUCTS -- 2.2%
14,295 CSW Industrials, Inc. (a) 656,855
44,454 PGT Innovations, Inc. (a) 749,050
31,099 Quanex Building Products Corp. 727,717
--------------
2,133,622
--------------
CAPITAL MARKETS -- 3.4%
13,951 B. Riley Financial, Inc. 252,513
2,888 Diamond Hill Investment Group,
Inc. 596,834
3,432 GAMCO Investors, Inc., Class A 101,759
12,084 Hamilton Lane, Inc., Class A 427,653
13,908 INTL FCStone, Inc. (a) 591,507
14,559 Pzena Investment Management,
Inc., Class A 155,345
35,954 Virtu Financial, Inc., Class A 657,958
7,157 Westwood Holdings Group, Inc. 473,865
--------------
3,257,434
--------------
CHEMICALS -- 3.6%
23,470 American Vanguard Corp. 461,185
6,537 Core Molding Technologies, Inc. 141,853
8,495 Hawkins, Inc. 299,024
10,729 KMG Chemicals, Inc. 708,972
18,570 Koppers Holdings, Inc. (a) 945,213
See Notes to Financial Statements Page 23
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
CHEMICALS (CONTINUED)
46,355 Rayonier Advanced Materials, Inc. $ 947,960
--------------
3,504,207
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 3.2%
22,752 Ennis, Inc. 472,104
11,879 Heritage-Crystal Clean, Inc. (a) 258,368
32,739 Hudson Technologies, Inc. (a) 198,726
41,180 InnerWorkings, Inc. (a) 413,035
33,298 Kimball International, Inc.,
Class B 621,674
20,160 SP Plus Corp. (a) 747,936
7,664 VSE Corp. 371,168
--------------
3,083,011
--------------
CONSTRUCTION & ENGINEERING
-- 0.4%
7,145 NV5 Global, Inc. (a) 386,902
--------------
CONSTRUCTION MATERIALS -- 0.1%
1,797 United States Lime & Minerals, Inc. 138,549
--------------
CONSUMER FINANCE -- 1.1%
29,956 Enova International, Inc. (a) 455,331
8,396 Regional Management Corp. (a) 220,899
5,272 World Acceptance Corp. (a) 425,556
--------------
1,101,786
--------------
CONTAINERS & PACKAGING -- 0.2%
5,855 UFP Technologies, Inc. (a) 162,769
--------------
DIVERSIFIED CONSUMER SERVICES
-- 1.8%
14,562 American Public Education,
Inc. (a) 364,778
26,117 Bridgepoint Education, Inc. (a) 216,771
13,103 Carriage Services, Inc. 336,878
7,027 Collectors Universe, Inc. 201,254
34,779 K12, Inc. (a) 552,986
6,812 Liberty Tax, Inc. 74,932
--------------
1,747,599
--------------
DIVERSIFIED FINANCIAL SERVICES
-- 0.2%
8,062 Marlin Business Services Corp. 180,589
--------------
ELECTRIC UTILITIES -- 0.1%
10,944 Spark Energy, Inc., Class A (b) 135,706
--------------
ELECTRICAL EQUIPMENT -- 0.5%
6,261 Allied Motion Technologies, Inc. 207,176
11,873 TPI Composites, Inc. (a) 242,922
--------------
450,098
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 1.7%
6,688 Airgain, Inc. (a) (b) 60,125
29,483 CTS Corp. 759,187
24,003 Kimball Electronics, Inc. (a) 438,055
10,630 Napco Security Technologies,
Inc. (a) 93,012
10,322 PC Connection, Inc. 270,540
--------------
1,620,919
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
EQUITY REAL ESTATE INVESTMENT
TRUSTS -- 1.7%
10,626 CorEnergy Infrastructure Trust,
Inc. $ 405,913
74,761 Independence Realty Trust, Inc. 754,338
17,155 NexPoint Residential Trust, Inc. 479,311
--------------
1,639,562
--------------
FOOD PRODUCTS -- 1.4%
9,500 Farmer Brothers Co. (a) 305,425
7,788 John B. Sanfilippo & Son, Inc. 492,591
24,623 Landec Corp. (a) 310,250
10,702 Limoneira Co. 239,725
--------------
1,347,991
--------------
GAS UTILITIES -- 0.1%
5,546 RGC Resources, Inc. (b) 150,186
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 2.3%
32,866 AngioDynamics, Inc. (a) 546,562
9,516 Exactech, Inc. (a) 470,566
5,629 FONAR Corp. (a) (b) 137,066
26,523 Lantheus Holdings, Inc. (a) 542,395
37,778 Meridian Bioscience, Inc. 528,892
--------------
2,225,481
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 1.8%
26,952 Aceto Corp. 278,414
6,647 Addus HomeCare Corp. (a) 231,316
11,250 Almost Family, Inc. (a) 622,688
13,713 Civitas Solutions, Inc. (a) 234,492
4,523 Psychemedics Corp. 92,993
26,431 RadNet, Inc. (a) 266,953
--------------
1,726,856
--------------
HOTELS, RESTAURANTS & LEISURE
-- 3.5%
24,168 Century Casinos, Inc. (a) 220,654
32,544 Del Taco Restaurants, Inc. (a) 394,433
19,375 El Pollo Loco Holdings, Inc. (a) 191,812
9,863 Fogo De Chao, Inc. (a) 114,411
9,679 Golden Entertainment, Inc. (a) 316,019
17,225 Marcus (The) Corp. 471,104
10,141 Monarch Casino & Resort, Inc. (a) 454,520
2,622 Nathan's Famous, Inc. 197,961
20,871 Potbelly Corp. (a) 256,713
8,004 RCI Hospitality Holdings, Inc. 223,952
26,038 Ruth's Hospitality Group, Inc. 563,723
--------------
3,405,302
--------------
HOUSEHOLD DURABLES -- 4.4%
9,649 AV Homes, Inc. (a) 160,656
9,033 Bassett Furniture Industries, Inc. 339,641
19,745 Century Communities, Inc. (a) 614,069
6,601 Flexsteel Industries, Inc. 308,795
13,584 Green Brick Partners, Inc. (a) 153,499
10,371 Hooker Furniture Corp. 440,249
112,493 Hovnanian Enterprises, Inc.,
Class A (a) 376,852
10,875 Lifetime Brands, Inc. 179,437
Page 24 See Notes to Financial Statements
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HOUSEHOLD DURABLES (CONTINUED)
24,635 M/I Homes, Inc. (a) $ 847,444
12,326 New Home Co., (The), Inc. (a) 154,445
24,916 William Lyon Homes, Class A (a) 724,557
--------------
4,299,644
--------------
INSURANCE -- 2.6%
8,445 Baldwin & Lyons, Inc., Class B 202,258
7,854 EMC Insurance Group, Inc. 225,331
8,677 Global Indemnity Ltd. (a) 364,608
26,164 Greenlight Capital Re, Ltd.,
Class A (a) 525,896
7,093 HCI Group, Inc. 212,081
10,801 Health Insurance Innovations, Inc.,
Class A (a) (b) 269,485
19,221 Heritage Insurance Holdings,
Inc. (b) 346,362
1,284 Investors Title Co. 254,681
8,180 Kingstone Cos., Inc. 153,784
--------------
2,554,486
--------------
INTERNET SOFTWARE & SERVICES
-- 0.2%
64,270 Meet Group, (The), Inc. (a) 181,241
--------------
IT SERVICES -- 1.4%
23,343 Hackett Group (The), Inc. 366,719
31,248 Perficient, Inc. (a) 595,899
45,113 Unisys Corp. (a) 367,671
--------------
1,330,289
--------------
LEISURE PRODUCTS -- 1.7%
5,111 Johnson Outdoors, Inc., Class A 317,342
18,160 Malibu Boats, Inc., Class A (a) 539,897
6,849 Marine Products Corp. 87,256
14,812 MCBC Holdings, Inc. (a) 329,123
27,487 Nautilus, Inc. (a) 366,951
--------------
1,640,569
--------------
MACHINERY -- 3.4%
9,111 Blue Bird Corp. (a) (b) 181,309
18,322 Columbus McKinnon Corp. 732,514
23,876 Commercial Vehicle Group, Inc. (a) 255,234
5,604 Eastern (The) Co. 146,545
19,595 Global Brass & Copper Holdings,
Inc. 648,594
5,514 Hurco Cos., Inc. 232,691
10,185 Miller Industries, Inc. 262,773
7,852 Park-Ohio Holdings Corp. 360,799
29,537 Spartan Motors, Inc. 465,208
--------------
3,285,667
--------------
MEDIA -- 0.9%
58,833 Entravision Communications
Corp., Class A 420,656
15,103 Hemisphere Media Group, Inc. (a) 174,440
14,223 Reading International, Inc.,
Class A (a) 237,524
--------------
832,620
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
METALS & MINING -- 1.0%
13,989 Ryerson Holding Corp. (a) $ 145,486
24,046 Schnitzer Steel Industries, Inc.,
Class A 805,541
--------------
951,027
--------------
MORTGAGE REAL ESTATE INVESTMENT
TRUSTS -- 3.4%
25,237 AG Mortgage Investment Trust, Inc. 479,755
87,823 Anworth Mortgage Asset Corp. 477,757
43,082 Arbor Realty Trust, Inc. 372,229
25,523 Ares Commercial Real Estate Corp. 329,247
10,459 Cherry Hill Mortgage Investment
Corp. 188,157
45,257 Dynex Capital, Inc. 317,252
9,192 Ellington Residential Mortgage
REIT (b) 110,672
13,987 Great Ajax Corp. 193,300
100,125 New York Mortgage Trust, Inc. 617,771
14,034 Sutherland Asset Management
Corp. 212,615
--------------
3,298,755
--------------
MULTI-UTILITIES -- 0.6%
12,640 Unitil Corp. 576,637
--------------
OIL, GAS & CONSUMABLE FUELS
-- 1.6%
74,287 Gener8 Maritime, Inc. (a) 491,780
5,173 REX American Resources Corp. (a) 428,273
31,909 SandRidge Energy, Inc. (a) 672,322
--------------
1,592,375
--------------
PAPER & FOREST PRODUCTS -- 0.6%
43,068 Mercer International, Inc. 615,872
--------------
PERSONAL PRODUCTS -- 0.8%
9,401 Medifast, Inc. 656,284
5,686 Natural Health Trends Corp. 86,370
--------------
742,654
--------------
PHARMACEUTICALS -- 1.7%
26,974 Lannett Co., Inc. (a) (b) 625,797
17,529 Phibro Animal Health Corp.,
Class A 587,221
22,543 Sucampo Pharmaceuticals, Inc.,
Class A (a) 404,647
89,153 VIVUS, Inc. (a) 44,808
--------------
1,662,473
--------------
PROFESSIONAL SERVICES -- 2.6%
6,362 BG Staffing, Inc. 101,410
7,259 CRA International, Inc. 326,292
15,024 GP Strategies Corp. (a) 348,557
16,815 Heidrick & Struggles International,
Inc. 412,808
21,086 Kforce, Inc. 532,422
44,310 RPX Corp. 595,526
6,747 Willdan Group, Inc. (a) 161,523
--------------
2,478,538
--------------
See Notes to Financial Statements Page 25
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
REAL ESTATE MANAGEMENT &
DEVELOPMENT -- 1.2%
10,418 Altisource Portfolio Solutions
S.A. (a) (b) $ 291,704
4,997 Consolidated-Tomoka Land Co. 317,310
9,384 Forestar Group, Inc. (a) (b) 206,448
6,351 RMR Group, (The), Inc., Class A 376,614
--------------
1,192,076
--------------
ROAD & RAIL -- 1.2%
22,949 ArcBest Corp. 820,427
10,845 Covenant Transportation Group,
Inc., Class A (a) 311,577
--------------
1,132,004
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 3.8%
17,525 Alpha & Omega Semiconductor
Ltd. (a) 286,709
28,119 Axcelis Technologies, Inc. (a) 807,015
25,322 Cohu, Inc. 555,818
16,231 Ichor Holdings Ltd. (a) 399,283
22,880 IXYS Corp. (a) 547,976
22,911 Nanometrics, Inc. (a) 570,942
48,577 Xcerra Corp. (a) 475,569
--------------
3,643,312
--------------
SPECIALTY RETAIL -- 1.4%
50,747 Barnes & Noble, Inc. 340,005
12,302 Citi Trends, Inc. 325,511
15,562 Container Store Group, (The),
Inc. (a) (b) 73,764
17,386 Haverty Furniture Cos., Inc. 393,793
10,573 J. Jill, Inc. (a) (b) 82,469
11,674 Tilly's, Inc., Class A 172,308
--------------
1,387,850
--------------
TEXTILES, APPAREL & LUXURY GOODS
-- 1.2%
9,355 Culp, Inc. 313,393
11,252 Perry Ellis International,
Inc. (a) 281,750
15,208 Unifi, Inc. (a) 545,511
--------------
1,140,654
--------------
THRIFTS & MORTGAGE FINANCE
-- 6.3%
37,890 Bank Mutual Corp. 403,528
7,653 BSB Bancorp, Inc. (a) 223,850
12,719 Charter Financial Corp. 223,091
6,135 Entegra Financial Corp. (a) 179,449
8,134 Federal Agricultural Mortgage
Corp., Class C 636,404
9,082 First Defiance Financial Corp. 471,992
5,799 Home Bancorp, Inc. 250,633
24,065 HomeStreet, Inc. (a) 696,682
12,940 Impac Mortgage Holdings,
Inc. (a) (b) 131,470
47,827 NMI Holdings, Inc., Class A (a) 813,059
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE
(CONTINUED)
18,498 PennyMac Financial Services, Inc.,
Class A (a) $ 413,430
18,759 Riverview Bancorp, Inc. 162,640
6,306 Southern Missouri Bancorp, Inc. 237,043
5,469 Timberland Bancorp, Inc. 145,202
44,551 United Community Financial Corp. 406,751
25,133 Waterstone Financial, Inc. 428,518
24,680 Western New England Bancorp,
Inc. 269,012
--------------
6,092,754
--------------
WATER UTILITIES -- 0.9%
7,440 Artesian Resources Corp., Class A 286,886
14,632 Middlesex Water Co. 583,963
--------------
870,849
--------------
TOTAL COMMON STOCKS -- 99.9% 96,931,367
(Cost $86,638,254) --------------
MONEY MARKET FUNDS -- 0.8%
779,333 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
1.24% (c) (d) 779,333
(Cost $779,333) --------------
PRINCIPAL
VALUE DESCRIPTION VALUE
-------------------------------------------------------------
REPURCHASE AGREEMENTS -- 1.5%
$ 1,417,185 RBC Capital Markets LLC,
1.35% (c), dated 12/29/17, due
01/02/18, with a maturity value
of $1,417,397. Collateralized
by U.S. Treasury Notes,
interest rates of 1.375% to
2.250%, due 09/30/18 to
03/31/21. The value of the
collateral including accrued
interest is $1,451,310. (d) 1,417,185
(Cost $1,417,185) --------------
TOTAL INVESTMENTS -- 102.2% 99,127,885
(Cost $88,834,772) (e)
NET OTHER ASSETS AND
LIABILITIES -- (2.2)% (2,116,256)
--------------
NET ASSETS -- 100.0% $ 97,011,629
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $2,121,913 and the total value of the collateral held by the
Fund is $2,196,518.
(c) Rate shown reflects yield as of December 31, 2017.
(d) This security serves as collateral for securities on loan.
Page 26 See Notes to Financial Statements
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
(e) Aggregate cost for federal income tax purposes is $89,141,261. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$12,126,412 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$2,139,788. The net unrealized appreciation was $9,986,624.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 96,931,367 $ -- $ --
Money Market
Funds 779,333 -- --
Repurchase
Agreements -- 1,417,185 --
----------------------------------------------------
Total Investments $ 97,710,700 $ 1,417,185 $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
--------------------------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 2,121,913
Non-cash Collateral(2) (2,121,913)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2017, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
--------------------------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 1,417,185
Non-cash Collateral(4) (1,417,185)
--------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2017, the value of the collateral received from each
seller exceeded the value of the repurchase agreements.
See Notes to Financial Statements Page 27
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 2.3%
132,497 Boeing (The) Co. $ 39,074,690
--------------
AIR FREIGHT & LOGISTICS -- 1.6%
223,584 United Parcel Service, Inc.,
Class B 26,640,034
--------------
AUTOMOBILES -- 1.6%
2,192,375 Ford Motor Co. 27,382,764
--------------
BANKS -- 0.8%
128,219 F.N.B. Corp. 1,771,986
45,193 Old National Bancorp 788,618
62,906 PacWest Bancorp 3,170,462
5,205 Park National Corp. 541,320
147,191 People's United Financial, Inc. 2,752,472
21,897 Trustmark Corp. 697,638
86,186 Umpqua Holdings Corp. 1,792,669
44,636 United Bankshares, Inc. 1,551,101
8,005 Westamerica Bancorporation 476,698
--------------
13,542,964
--------------
BEVERAGES -- 3.8%
1,416,623 Coca-Cola (The) Co. 64,994,663
--------------
CAPITAL MARKETS -- 0.8%
32,032 Federated Investors, Inc., Class B 1,155,714
147,618 Invesco Ltd. 5,393,962
62,930 T. Rowe Price Group, Inc. 6,603,245
--------------
13,152,921
--------------
CHEMICALS -- 0.8%
6,304 Kronos Worldwide, Inc. 162,454
128,965 LyondellBasell Industries N.V.,
Class A 14,227,419
--------------
14,389,873
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 0.0%
35,824 Steelcase, Inc., Class A 544,525
--------------
COMMUNICATIONS EQUIPMENT
-- 4.0%
1,777,353 Cisco Systems, Inc. 68,072,620
--------------
CONTAINERS & PACKAGING -- 0.6%
160,142 International Paper Co. 9,278,628
32,873 Sonoco Products Co. 1,746,871
--------------
11,025,499
--------------
DIVERSIFIED CONSUMER SERVICES
-- 0.1%
80,268 H&R Block, Inc. 2,104,627
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 15.5%
3,864,160 AT&T, Inc. 150,238,541
2,202,554 Verizon Communications, Inc. 116,581,183
--------------
266,819,724
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
ELECTRIC UTILITIES -- 6.1%
75,836 Alliant Energy Corp. $ 3,231,372
184,318 American Electric Power Co., Inc. 13,560,275
327,133 Duke Energy Corp. 27,515,157
89,009 Entergy Corp. 7,244,443
107,218 Eversource Energy 6,774,033
80,898 Great Plains Energy, Inc. 2,608,152
41,520 Hawaiian Electric Industries, Inc. 1,500,948
90,232 OGE Energy Corp. 2,969,535
12,425 Otter Tail Corp. 552,291
353,445 PPL Corp. 10,939,123
530,501 Southern (The) Co. 25,511,793
46,648 Westar Energy, Inc. 2,463,014
--------------
104,870,136
--------------
ELECTRICAL EQUIPMENT -- 1.6%
161,771 Eaton Corp. PLC 12,781,527
223,032 Emerson Electric Co. 15,543,100
--------------
28,324,627
--------------
FOOD PRODUCTS -- 1.4%
201,357 Archer-Daniels-Midland Co. 8,070,389
41,090 B&G Foods, Inc. 1,444,313
71,501 Flowers Foods, Inc. 1,380,684
224,975 General Mills, Inc. 13,338,768
--------------
24,234,154
--------------
GAS UTILITIES -- 0.0%
9,287 Northwest Natural Gas Co. 553,969
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 0.0%
38,826 Owens & Minor, Inc. 733,035
--------------
HOTELS, RESTAURANTS & LEISURE
-- 0.1%
21,645 Brinker International, Inc. 840,692
--------------
HOUSEHOLD DURABLES -- 0.2%
42,705 Garmin Ltd. 2,543,937
26,044 Tupperware Brands Corp. 1,632,959
--------------
4,176,896
--------------
HOUSEHOLD PRODUCTS -- 4.8%
893,101 Procter & Gamble (The) Co. 82,058,120
--------------
INDUSTRIAL CONGLOMERATES -- 5.5%
5,465,907 General Electric Co. 95,380,077
--------------
INSURANCE -- 1.3%
74,038 AmTrust Financial Services, Inc. 745,563
368,334 MetLife, Inc. 18,622,967
104,441 Old Republic International Corp. 2,232,948
--------------
21,601,478
--------------
IT SERVICES -- 4.1%
388,689 International Business Machines
Corp. 59,632,666
108,405 Paychex, Inc. 7,380,212
192,151 Western Union (The) Co. 3,652,791
--------------
70,665,669
--------------
Page 28 See Notes to Financial Statements
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDIA -- 0.1%
13,590 Meredith Corp. $ 897,619
51,202 Regal Entertainment Group,
Class A 1,178,158
--------------
2,075,777
--------------
METALS & MINING -- 0.1%
16,673 Compass Minerals International,
Inc. 1,204,624
--------------
MULTILINE RETAIL -- 1.7%
89,327 Kohl's Corp. 4,844,203
212,552 Macy's, Inc. 5,354,185
44,157 Nordstrom, Inc. 2,092,159
257,416 Target Corp. 16,796,394
--------------
29,086,941
--------------
MULTI-UTILITIES -- 3.8%
78,956 Ameren Corp. 4,657,614
20,669 Avista Corp. 1,064,247
184,330 CenterPoint Energy, Inc. 5,227,599
112,158 Consolidated Edison, Inc. 9,527,822
275,128 Dominion Energy, Inc. 22,301,876
18,737 NorthWestern Corp. 1,118,599
191,278 Public Service Enterprise Group,
Inc. 9,850,817
92,537 SCANA Corp. 3,681,122
111,236 WEC Energy Group, Inc. 7,389,407
--------------
64,819,103
--------------
OIL, GAS & CONSUMABLE FUELS
-- 15.8%
795,399 Chevron Corp. 99,576,001
1,839,079 Exxon Mobil Corp. 153,820,568
60,161 HollyFrontier Corp. 3,081,446
167,190 Valero Energy Corp. 15,366,433
--------------
271,844,448
--------------
PAPER & FOREST PRODUCTS -- 0.1%
25,061 Domtar Corp. 1,241,021
--------------
PHARMACEUTICALS -- 5.2%
2,487,735 Pfizer, Inc. 90,105,762
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 6.0%
114,398 Cypress Semiconductor Corp. 1,743,426
1,361,259 Intel Corp. 62,835,715
599,735 QUALCOMM, Inc. 38,395,035
--------------
102,974,176
--------------
SOFTWARE -- 0.2%
111,485 CA, Inc. 3,710,221
--------------
SPECIALTY RETAIL -- 0.9%
59,096 American Eagle Outfitters, Inc. 1,111,005
54,673 Chico's FAS, Inc. 482,216
31,192 DSW, Inc., Class A 667,820
93,920 GameStop Corp., Class A 1,685,864
69,547 Gap (The), Inc. 2,368,771
124,467 L Brands, Inc. 7,495,403
26,306 Williams-Sonoma, Inc. 1,360,020
--------------
15,171,099
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 0.7%
215,760 Seagate Technology PLC $ 9,027,398
83,511 Xerox Corp. 2,434,346
--------------
11,461,744
--------------
TEXTILES, APPAREL & LUXURY GOODS
-- 0.4%
89,127 VF Corp. 6,595,398
--------------
THRIFTS & MORTGAGE FINANCE
-- 0.1%
45,300 Northwest Bancshares, Inc. 757,869
20,163 Provident Financial Services, Inc. 543,796
--------------
1,301,665
--------------
TOBACCO -- 7.8%
815,092 Altria Group, Inc. 58,205,720
716,310 Philip Morris International, Inc. 75,678,151
--------------
133,883,871
--------------
TRADING COMPANIES &
DISTRIBUTORS -- 0.0%
30,255 Aircastle Ltd. 707,664
--------------
TOTAL INVESTMENTS -- 99.9% 1,717,367,271
(Cost $1,570,728,342) (a)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 1,932,062
--------------
NET ASSETS -- 100.0% $1,719,299,333
==============
(a) Aggregate cost for federal income tax purposes is $1,585,721,140. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$180,395,814 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$48,749,683. The net unrealized appreciation was $131,646,131.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $1,717,367,271 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
See Notes to Financial Statements Page 29
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
AUTO COMPONENTS -- 1.0%
78,390 Adient PLC $ 6,169,293
74,567 Delphi Technologies PLC (a) 3,912,530
--------------
10,081,823
--------------
AUTOMOBILES -- 3.0%
1,640,334 Fiat Chrysler Automobiles N.V. 29,263,559
--------------
BANKS -- 1.8%
421,372 Citizens Financial Group, Inc. 17,689,197
--------------
BIOTECHNOLOGY -- 12.8%
806,221 AbbVie, Inc. 77,969,633
26,911 Avexis, Inc. (a) 2,978,240
91,062 Bioverativ, Inc. (a) 4,910,063
255,173 Shire PLC, ADR 39,582,436
--------------
125,440,372
--------------
BUILDING PRODUCTS -- 0.4%
88,718 JELD-WEN Holding, Inc. (a) 3,492,828
--------------
CAPITAL MARKETS -- 2.3%
94,916 Cboe Global Markets, Inc. 11,825,584
45,228 Hamilton Lane, Inc., Class A 1,600,619
55,428 Houlihan Lokey, Inc. 2,518,094
73,269 Moelis & Co., Class A 3,553,547
157,560 Virtu Financial, Inc., Class A 2,883,348
--------------
22,381,192
--------------
CHEMICALS -- 1.7%
155,531 Chemours (The) Co. 7,785,882
35,445 Ingevity Corp. (a) 2,497,809
170,451 Valvoline, Inc. 4,271,502
89,450 Venator Materials PLC (a) 1,978,634
--------------
16,533,827
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 0.2%
74,476 Advanced Disposal Services,
Inc. (a) 1,782,955
--------------
COMMUNICATIONS EQUIPMENT
-- 1.7%
61,523 Arista Networks, Inc. (a) 14,493,588
52,180 Lumentum Holdings, Inc. (a) (b) 2,551,602
--------------
17,045,190
--------------
CONSTRUCTION MATERIALS -- 0.3%
95,849 Summit Materials, Inc.,
Class A (c) 3,013,493
--------------
CONSUMER FINANCE -- 4.3%
378,604 Ally Financial, Inc. 11,040,093
302,937 Santander Consumer USA
Holdings, Inc. 5,640,687
669,366 Synchrony Financial 25,844,221
--------------
42,525,001
--------------
CONTAINERS & PACKAGING -- 0.7%
109,746 Berry Global Group, Inc. (a) 6,438,798
--------------
DIVERSIFIED CONSUMER SERVICES
-- 0.6%
113,643 ServiceMaster Global Holdings,
Inc. (a) 5,826,477
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 0.8%
208,187 Zayo Group Holdings, Inc. (a) $ 7,661,282
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 1.6%
128,819 CDW Corp. 8,951,632
156,547 Keysight Technologies, Inc. (a) 6,512,355
--------------
15,463,987
--------------
EQUITY REAL ESTATE INVESTMENT
TRUSTS -- 1.8%
178,832 Gaming and Leisure Properties,
Inc. 6,616,784
215,672 MGM Growth Properties LLC,
Class A (b) 6,286,839
180,822 Park Hotels & Resorts, Inc. 5,198,632
--------------
18,102,255
--------------
FOOD & STAPLES RETAILING -- 0.9%
88,065 Performance Food Group Co. (a) 2,914,951
189,106 US Foods Holding Corp. (a) 6,038,155
--------------
8,953,106
--------------
FOOD PRODUCTS -- 12.8%
165,902 Blue Buffalo Pet Products,
Inc. (a) 5,439,927
1,025,481 Kraft Heinz (The) Co. 79,741,403
123,041 Lamb Weston Holdings, Inc. 6,945,664
100,166 Pinnacle Foods, Inc. 5,956,872
336,230 Tyson Foods, Inc., Class A 27,258,166
--------------
125,342,032
--------------
GAS UTILITIES -- 0.3%
43,995 ONE Gas, Inc. 3,223,074
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 0.3%
28,563 Penumbra, Inc. (a) 2,687,778
--------------
HEALTH CARE PROVIDERS &
SERVICES -- 0.2%
51,062 HealthEquity, Inc. (a) 2,382,553
--------------
HEALTH CARE TECHNOLOGY -- 0.2%
50,921 Teladoc, Inc. (a) (b) 1,774,597
--------------
HOTELS, RESTAURANTS & LEISURE
-- 5.0%
206,228 Aramark 8,814,185
83,396 Hilton Grand Vacations, Inc. (a) 3,498,462
272,861 Hilton Worldwide Holdings, Inc. 21,790,679
82,783 Planet Fitness, Inc., Class A (a) 2,866,775
200,989 Restaurant Brands International,
Inc. 12,356,804
--------------
49,326,905
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 0.3%
155,514 NRG Yield, Inc., Class C 2,939,215
--------------
INSURANCE -- 0.8%
159,615 Athene Holding Ltd., Class A (a) 8,253,692
--------------
Page 30 See Notes to Financial Statements
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INTERNET & DIRECT MARKETING
RETAIL -- 0.8%
80,300 Stitch Fix, Inc., Class A (a) (b) $ 2,074,149
73,921 Wayfair, Inc., Class A (a) (b) 5,933,639
--------------
8,007,788
--------------
INTERNET SOFTWARE & SERVICES
-- 5.1%
101,817 Box, Inc., Class A (a) 2,150,375
89,288 CarGurus, Inc. (a) (b) 2,676,854
44,595 Coupa Software, Inc. (a) 1,392,256
140,033 GoDaddy, Inc., Class A (a) 7,040,859
72,963 GrubHub, Inc. (a) 5,238,743
44,301 LogMeIn, Inc. 5,072,465
220,682 Match Group, Inc. (a) (b) 6,909,553
134,444 Nutanix, Inc., Class A (a) 4,743,184
625,147 Twitter, Inc. (a) 15,009,780
--------------
50,234,069
--------------
IT SERVICES -- 13.0%
129,165 Black Knight, Inc. (a) 5,702,635
240,087 DXC Technology Co. 22,784,256
777,204 First Data Corp., Class A (a) 12,987,079
1,011,545 PayPal Holdings, Inc. (a) 74,469,943
327,023 Square, Inc., Class A (a) 11,337,887
--------------
127,281,800
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 2.2%
175,046 IQVIA Holdings, Inc. (a) 17,137,004
53,333 PRA Health Sciences, Inc. (a) 4,857,036
--------------
21,994,040
--------------
MACHINERY -- 2.7%
292,511 Fortive Corp. 21,163,171
164,966 Gardner Denver Holdings, Inc. (a) 5,597,296
--------------
26,760,467
--------------
MEDIA -- 4.6%
367,089 Altice USA, Inc., Class A (a) (b) 7,793,299
4,822 Cable One, Inc. 3,391,554
153,044 Liberty Broadband Corp.,
Class A (a) 13,016,392
180,964 Liberty Media Corp-Liberty
Formula One, Class A (a) 5,921,142
282,852 Liberty Media Corp-Liberty
SiriusXM, Class A (a) 11,217,910
19,829 Madison Square Garden (The) Co.,
Class A (a) 4,180,945
--------------
45,521,242
--------------
METALS & MINING -- 0.9%
155,719 Alcoa Corp. (a) 8,388,582
--------------
MULTILINE RETAIL -- 0.3%
51,891 Ollie's Bargain Outlet Holdings,
Inc. (a) 2,763,196
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS
-- 1.5%
216,897 EQT Corp. $ 12,345,777
179,205 Jagged Peak Energy, Inc. (a) 2,827,855
--------------
15,173,632
--------------
PHARMACEUTICALS -- 0.5%
111,816 Catalent, Inc. (a) 4,593,401
--------------
PROFESSIONAL SERVICES -- 2.4%
335,715 IHS Markit Ltd. (a) 15,157,532
153,501 TransUnion (a) 8,436,415
--------------
23,593,947
--------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT -- 0.2%
68,531 Redfin Corp. (a) (b) 2,146,391
--------------
ROAD & RAIL -- 0.4%
148,865 Schneider National, Inc., Class B 4,251,584
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 0.4%
91,582 Versum Materials, Inc. 3,466,379
--------------
SOFTWARE -- 2.8%
117,925 CDK Global, Inc. 8,405,694
49,820 Paycom Software, Inc. (a) 4,002,040
1,013,524 Snap, Inc., Class A (a) (b) 14,807,586
--------------
27,215,320
--------------
SPECIALTY RETAIL -- 2.0%
57,438 Burlington Stores, Inc. (a) 7,066,597
122,601 Camping World Holdings, Inc.,
Class A 5,483,943
80,020 Floor & Decor Holdings, Inc.,
Class A (a) 3,895,373
152,542 Michaels (The) Cos., Inc. (a) 3,689,991
--------------
20,135,904
--------------
TECHNOLOGY HARDWARE, STORAGE &
PERIPHERALS -- 2.3%
1,342,376 Hewlett Packard Enterprise Co. 19,276,519
182,447 Pure Storage, Inc., Class A (a) 2,893,610
--------------
22,170,129
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 1.9%
33,469 SiteOne Landscape Supply, Inc. (a) 2,567,072
71,179 United Rentals, Inc. (a) 12,236,382
118,540 Univar, Inc. (a) 3,669,999
--------------
18,473,453
--------------
WATER UTILITIES -- 0.2%
95,325 Evoqua Water Technologies
Corp. (a) 2,260,156
--------------
TOTAL COMMON STOCKS -- 100.0% 982,056,668
(Cost $794,324,732) --------------
MONEY MARKET FUNDS -- 1.2%
11,369,069 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
1.24% (d) (e) 11,369,069
(Cost $11,369,069) --------------
See Notes to Financial Statements Page 31
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
PRINCIPAL
VALUE DESCRIPTION VALUE
-------------------------------------------------------------
REPURCHASE AGREEMENTS -- 2.1%
$ 20,674,182 RBC Capital Markets LLC,
1.35% (d), dated 12/29/17, due
01/02/18, with a maturity value
of $20,677,283. Collateralized
by U.S. Treasury Notes,
interest rates of 1.375% to
2.250%, due 09/30/18 to
03/31/21. The value of the
collateral including accrued
interest is $21,172,004. (e) $ 20,674,182
(Cost $20,674,182) --------------
TOTAL INVESTMENTS -- 103.3% 1,014,099,919
(Cost $826,367,983) (f)
NET OTHER ASSETS AND
LIABILITIES -- (3.3)% (32,368,240)
--------------
NET ASSETS -- 100.0% $ 981,731,679
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $31,225,101 and the total value of the collateral held by
the Fund is $32,043,251.
(c) Non-income producing security which makes payment-in-kind ("PIK")
distributions. For the fiscal year ended December 31, 2017, the Fund
received 1,209 PIK shares of Summit Materials, Inc., Class A.
(d) Rate shown reflects yield as of December 31, 2017.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $830,957,954. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$197,265,009 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$14,123,044. The net unrealized appreciation was $183,141,965.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 982,056,668 $ -- $ --
Money Market
Funds 11,369,069 -- --
Repurchase
Agreements -- 20,674,182 --
----------------------------------------------------
Total Investments $ 993,425,737 $ 20,674,182 $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
--------------------------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 31,225,101
Non-cash Collateral(2) (31,225,101)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2017, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
--------------------------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 20,674,182
Non-cash Collateral(4) (20,674,182)
--------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2017, the value of the collateral received from each
seller exceeded the value of the repurchase agreements.
Page 32 See Notes to Financial Statements
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
BIOTECHNOLOGY -- 75.3%
1,114,181 ACADIA Pharmaceuticals, Inc. (a) $ 33,547,990
601,819 Agios Pharmaceuticals, Inc. (a) 34,405,992
290,931 Alexion Pharmaceuticals, Inc. (a) 34,792,438
800,061 Alkermes PLC (a) 43,787,339
352,878 Alnylam Pharmaceuticals, Inc. (a) 44,833,150
220,999 Amgen, Inc. 38,431,726
119,495 Biogen, Inc. (a) 38,067,522
461,168 BioMarin Pharmaceutical, Inc. (a) 41,122,351
671,807 Bioverativ, Inc. (a) 36,223,833
333,671 Celgene Corp. (a) 34,821,906
740,499 FibroGen, Inc. (a) 35,099,653
498,349 Gilead Sciences, Inc. 35,701,722
1,871,516 Grifols S.A., ADR 42,895,147
354,485 Incyte Corp. (a) 33,573,274
605,454 Intercept Pharmaceuticals,
Inc. (a) (b) 35,370,623
2,263,016 Intrexon Corp. (a) (b) 26,069,944
628,185 Ionis Pharmaceuticals, Inc. (a) 31,597,705
925,569 Juno Therapeutics, Inc. (a) (b) 42,307,759
685,303 Neurocrine Biosciences, Inc. (a) 53,172,660
93,517 Regeneron Pharmaceuticals,
Inc. (a) 35,158,651
633,794 Seattle Genetics, Inc. (a) 33,907,979
785,694 Ultragenyx Pharmaceutical,
Inc. (a) 36,440,488
334,493 United Therapeutics Corp. (a) 49,488,239
261,774 Vertex Pharmaceuticals, Inc. (a) 39,229,452
--------------
910,047,543
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 16.4%
325,702 Bio-Techne Corp. 42,194,694
351,277 Charles River Laboratories
International, Inc. (a) 38,447,268
192,618 Illumina, Inc. (a) 42,085,107
392,839 IQVIA Holdings, Inc. (a) 38,458,938
1,185,736 QIAGEN N.V. 36,674,814
--------------
197,860,821
--------------
PHARMACEUTICALS -- 8.3%
1,674,876 Nektar Therapeutics (a) 100,023,595
--------------
TOTAL COMMON STOCKS -- 100.0% 1,207,931,959
(Cost $1,127,776,154) --------------
MONEY MARKET FUNDS -- 1.7%
20,674,818 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
1.24% (c) (d) 20,674,818
(Cost $20,674,818) --------------
PRINCIPAL
VALUE DESCRIPTION VALUE
-------------------------------------------------------------
REPURCHASE AGREEMENTS -- 3.1%
$ 37,596,300 RBC Capital Markets LLC,
1.35% (c), dated 12/29/17, due
01/02/18, with a maturity value
of $37,601,940. Collateralized
by U.S. Treasury Notes,
interest rates of 1.375% to
2.250%, due 09/30/18 to
03/31/21. The value of the
collateral including accrued
interest is $38,501,596. (d) $ 37,596,300
(Cost $37,596,300) --------------
TOTAL INVESTMENTS -- 104.8% 1,266,203,077
(Cost $1,186,047,272) (e)
NET OTHER ASSETS AND
LIABILITIES -- (4.8)% (58,392,391)
--------------
NET ASSETS -- 100.0% $1,207,810,686
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $55,002,816 and the total value of the collateral held by
the Fund is $58,271,118.
(c) Rate shown reflects yield as of December 31, 2017.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $1,212,956,346. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$213,961,351 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$160,714,620. The net unrealized appreciation was $53,246,731.
ADR - American Depositary Receipt
See Notes to Financial Statements Page 33
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $1,207,931,959 $ -- $ --
Money Market
Funds 20,674,818 -- --
Repurchase
Agreements -- 37,596,300 --
----------------------------------------------------
Total Investments $1,228,606,777 $ 37,596,300 $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
--------------------------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 55,002,816
Non-cash Collateral(2) (55,002,816)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2017, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
--------------------------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 37,596,300
Non-cash Collateral(4) (37,596,300)
--------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2017, the value of the collateral received from each
seller exceeded the value of the repurchase agreements.
Page 34 See Notes to Financial Statements
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
CAPITAL MARKETS -- 5.3%
2,898,984 E*TRADE Financial Corp. (a) $ 143,702,637
2,833,361 TD Ameritrade Holding Corp. 144,869,748
--------------
288,572,385
--------------
COMMUNICATIONS EQUIPMENT
-- 6.7%
590,498 Arista Networks, Inc. (a) 139,109,519
4,601,043 Juniper Networks, Inc. 131,129,725
1,131,648 NETGEAR, Inc. (a) 66,484,320
4,086,840 Ribbon Communications, Inc. (a) 31,591,273
--------------
368,314,837
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 2.3%
1,383,208 Cogent Communications
Holdings, Inc. 62,659,323
6,503,508 Vonage Holdings Corp. (a) 66,140,676
--------------
128,799,999
--------------
HEALTH CARE TECHNOLOGY -- 1.9%
1,912,167 Veeva Systems, Inc., Class A (a) 105,704,592
--------------
INTERNET & DIRECT MARKETING
RETAIL -- 19.3%
406,551 Amazon.com, Inc. (a) 475,449,198
1,252,635 Expedia, Inc. 150,028,094
11,690,486 Groupon, Inc. (a) 59,621,479
1,510,765 Netflix, Inc. (a) 290,006,449
2,442,741 TripAdvisor, Inc. (a) 84,176,855
--------------
1,059,282,075
--------------
INTERNET SOFTWARE & SERVICES
-- 46.9%
1,315,091 2U, Inc. (a) 84,836,520
2,199,037 Akamai Technologies, Inc. (a) 143,025,366
256,479 Alphabet, Inc., Class A (a) 270,174,979
259,762 Alphabet, Inc., Class C (a) 271,814,957
2,240,928 Blucora, Inc. (a) 49,524,509
3,678,490 Box, Inc., Class A (a) 77,689,709
1,743,242 Cornerstone OnDemand, Inc. (a) 61,588,740
5,559,015 eBay, Inc. (a) 209,797,226
4,567,676 Endurance International Group
Holdings, Inc. (a) 38,368,478
2,552,335 Facebook, Inc., Class A (a) 450,385,034
2,311,697 GoDaddy, Inc., Class A (a) 116,232,125
1,480,874 GrubHub, Inc. (a) 106,326,753
1,108,298 j2 Global, Inc. 83,155,599
894,696 LogMeIn, Inc. 102,442,692
1,218,415 New Relic, Inc. (a) 70,387,835
3,005,377 NIC, Inc. 49,889,258
10,526,204 Pandora Media, Inc. (a) (b) 50,736,303
6,849,654 Twitter, Inc. (a) 164,460,193
1,096,096 VeriSign, Inc. (a) 125,437,226
2,287,141 Web.com Group, Inc. (a) 49,859,674
--------------
2,576,133,176
--------------
IT SERVICES -- 5.2%
3,880,255 PayPal Holdings, Inc. (a) 285,664,373
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SOFTWARE -- 12.4%
3,741,630 8x8, Inc. (a) $ 52,756,983
1,590,234 Citrix Systems, Inc. (a) 139,940,592
767,370 Ebix, Inc. 60,814,072
917,905 HubSpot, Inc. (a) 81,142,802
2,571,221 salesforce.com, Inc. (a) 262,855,923
5,522,778 Snap, Inc., Class A (a) (b) 80,687,787
--------------
678,198,159
--------------
TOTAL COMMON STOCKS -- 100.0% 5,490,669,596
(Cost $4,396,413,886) --------------
MONEY MARKET FUNDS -- 0.7%
34,167,087 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
1.24% (c) (d) 34,167,087
4,244,243 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 1.19% (c) 4,244,243
--------------
TOTAL MONEY MARKET FUNDS -- 0.7% 38,411,330
(Cost $38,411,330) --------------
PRINCIPAL
VALUE DESCRIPTION VALUE
-------------------------------------------------------------
REPURCHASE AGREEMENTS -- 1.1%
$ 62,131,434 RBC Capital Markets LLC,
1.35% (c), dated 12/29/17, due
01/02/18, with a maturity value
of $62,140,754. Collateralized
by U.S. Treasury Notes,
interest rates of 1.375% to
2.250%, due 09/30/18 to
03/31/21. The value of the
collateral including
accrued interest is
$63,627,521. (d) 62,131,434
(Cost $62,131,434) --------------
TOTAL INVESTMENTS -- 101.8% 5,591,212,360
(Cost $4,496,956,650) (e)
NET OTHER ASSETS AND
LIABILITIES -- (1.8)% (100,391,952)
--------------
NET ASSETS -- 100.0% $5,490,820,408
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $92,635,184 and the total value of the collateral held by
the Fund is $96,298,521.
(c) Rate shown reflects yield as of December 31, 2017.
(d) This security serves as collateral for securities on loan.
See Notes to Financial Statements Page 35
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
(e) Aggregate cost for federal income tax purposes is $4,629,548,747. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$1,178,739,959 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$217,076,346. The net unrealized appreciation was $961,663,613.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $5,490,669,596 $ -- $ --
Money Market
Funds 38,411,330 -- --
Repurchase
Agreements -- 62,131,434 --
----------------------------------------------------
Total Investments $5,529,080,926 $ 62,131,434 $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
--------------------------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 92,635,184
Non-cash Collateral(2) (92,635,184)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2017, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
--------------------------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 62,131,434
Non-cash Collateral(4) (62,131,434)
--------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2017, the value of collateral received from each seller
exceeded the value of the repurchase agreements.
Page 36 See Notes to Financial Statements
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
AEROSPACE & DEFENSE -- 9.7%
55,872 General Dynamics Corp. $ 11,367,158
37,339 Lockheed Martin Corp. 11,987,686
40,562 Northrop Grumman Corp. 12,448,883
63,255 Raytheon Co. 11,882,452
98,807 United Technologies Corp. 12,604,809
--------------
60,290,988
--------------
AIR FREIGHT & LOGISTICS -- 6.1%
202,800 Expeditors International of
Washington, Inc. 13,119,132
53,091 FedEx Corp. 13,248,328
99,773 United Parcel Service, Inc.,
Class B 11,887,953
--------------
38,255,413
--------------
BEVERAGES -- 6.1%
257,632 Coca-Cola (The) Co. 11,820,156
211,636 Monster Beverage Corp. (a) 13,394,443
107,060 PepsiCo, Inc. 12,838,635
--------------
38,053,234
--------------
BIOTECHNOLOGY -- 1.8%
65,311 Amgen, Inc. 11,357,583
--------------
CAPITAL MARKETS -- 2.0%
73,964 S&P Global, Inc. 12,529,502
--------------
CHEMICALS -- 2.1%
120,770 LyondellBasell Industries N.V.,
Class A 13,323,346
--------------
ELECTRICAL EQUIPMENT -- 4.0%
181,648 Emerson Electric Co. 12,659,049
63,390 Rockwell Automation, Inc. 12,446,627
--------------
25,105,676
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 1.9%
138,024 Amphenol Corp., Class A 12,118,507
--------------
FOOD & STAPLES RETAILING -- 4.4%
74,322 Costco Wholesale Corp. 13,832,811
136,654 Wal-Mart Stores, Inc. 13,494,582
--------------
27,327,393
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 3.9%
32,331 Intuitive Surgical, Inc. (a) 11,798,875
79,400 Stryker Corp. 12,294,296
--------------
24,093,171
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 6.0%
62,423 Cigna Corp. 12,677,487
48,609 Humana, Inc. 12,058,435
57,587 UnitedHealth Group, Inc. 12,695,630
--------------
37,431,552
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 4.0%
105,333 Kimberly-Clark Corp. $ 12,709,480
135,399 Procter & Gamble (The) Co. 12,440,460
--------------
25,149,940
--------------
INDUSTRIAL CONGLOMERATES -- 4.1%
53,988 3M Co. 12,707,155
82,210 Honeywell International, Inc. 12,607,726
--------------
25,314,881
--------------
INSURANCE -- 2.2%
244,304 Progressive (The) Corp. 13,759,201
--------------
INTERNET SOFTWARE & SERVICES
-- 1.9%
68,288 Facebook, Inc., Class A (a) 12,050,100
--------------
IT SERVICES -- 9.8%
85,663 Accenture PLC, Class A 13,114,149
159,745 Cognizant Technology Solutions
Corp., Class A 11,345,090
73,727 International Business Machines
Corp. 11,311,196
82,189 Mastercard, Inc., Class A 12,440,127
111,099 Visa, Inc., Class A 12,667,508
--------------
60,878,070
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 2.0%
63,510 Waters Corp. (a) 12,269,497
--------------
MACHINERY -- 3.8%
77,076 Illinois Tool Works, Inc. 12,860,131
77,258 WABCO Holdings, Inc. (a) 11,086,523
--------------
23,946,654
--------------
MEDIA -- 4.0%
162,152 Omnicom Group, Inc. 11,809,530
120,211 Walt Disney (The) Co. 12,923,885
--------------
24,733,415
--------------
PHARMACEUTICALS -- 3.7%
136,981 Eli Lilly and Co. 11,569,415
83,909 Johnson & Johnson 11,723,766
--------------
23,293,181
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 4.3%
295,544 Intel Corp. 13,642,311
125,538 Texas Instruments, Inc. 13,111,189
--------------
26,753,500
--------------
SOFTWARE -- 5.8%
68,032 Adobe Systems, Inc. (a) 11,921,927
151,618 Microsoft Corp. 12,969,404
242,617 Oracle Corp. 11,470,932
--------------
36,362,263
--------------
SPECIALTY RETAIL -- 4.3%
73,112 Home Depot (The), Inc. 13,856,917
165,752 TJX (The) Cos., Inc. 12,673,398
--------------
26,530,315
--------------
See Notes to Financial Statements Page 37
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 2.1%
76,473 Apple, Inc. $ 12,941,526
--------------
TOTAL INVESTMENTS -- 100.0% 623,868,908
(Cost $543,063,478) (b)
NET OTHER ASSETS AND
LIABILITIES -- 0.0% 230,572
--------------
NET ASSETS -- 100.0% $ 624,099,480
==============
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $545,341,585. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$81,590,456 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$3,063,133. The net unrealized appreciation was $78,527,323.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 623,868,908 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
Page 38 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.8%
AEROSPACE & DEFENSE -- 1.6%
74,075 Boeing (The) Co. $ 21,845,458
68,689 Lockheed Martin Corp. 22,052,604
172,083 United Technologies Corp. 21,952,628
--------------
65,850,690
--------------
AIR FREIGHT & LOGISTICS -- 1.0%
246,412 C.H. Robinson Worldwide, Inc. 21,952,845
185,006 United Parcel Service, Inc.,
Class B 22,043,465
--------------
43,996,310
--------------
AUTOMOBILES -- 0.5%
170,954 Toyota Motor Corp., ADR 21,740,220
--------------
BANKS -- 7.3%
251,190 Bank of Hawaii Corp. 21,526,983
276,109 Bank of Montreal 22,094,242
338,104 Bank of Nova Scotia (The) 21,817,851
437,228 BB&T Corp. 21,738,976
226,348 Canadian Imperial Bank of
Commerce 22,048,559
228,667 Cullen/Frost Bankers, Inc. 21,643,331
204,436 JPMorgan Chase & Co. 21,862,386
207,009 Park National Corp. 21,528,936
1,159,447 People's United Financial, Inc. 21,681,659
150,995 PNC Financial Services Group
(The), Inc. 21,787,069
272,157 Royal Bank of Canada 22,221,619
382,765 Toronto-Dominion (The) Bank 22,422,374
405,089 U.S. Bancorp 21,704,669
357,908 Wells Fargo & Co. 21,714,278
--------------
305,792,932
--------------
BEVERAGES -- 2.6%
196,379 Anheuser-Busch InBev S.A/N.V.,
ADR 21,908,041
477,600 Coca-Cola (The) Co. 21,912,288
152,581 Diageo PLC, ADR 22,281,403
227,124 Dr Pepper Snapple Group, Inc. 22,044,656
184,026 PepsiCo, Inc. 22,068,398
--------------
110,214,786
--------------
BIOTECHNOLOGY -- 0.5%
124,250 Amgen, Inc. 21,607,075
--------------
CAPITAL MARKETS -- 2.1%
42,590 BlackRock, Inc. 21,878,909
502,154 Franklin Resources, Inc. 21,758,333
207,657 T. Rowe Price Group, Inc. 21,789,449
507,513 Thomson Reuters Corp. 22,122,491
--------------
87,549,182
--------------
CHEMICALS -- 1.6%
134,224 Air Products and Chemicals, Inc. 22,023,474
306,256 DowDuPont, Inc. 21,811,552
143,365 Praxair, Inc. 22,175,698
--------------
66,010,724
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES
-- 1.1%
327,671 Republic Services, Inc. $ 22,153,836
254,762 Waste Management, Inc. 21,985,961
--------------
44,139,797
--------------
COMMUNICATIONS EQUIPMENT
-- 0.5%
568,575 Cisco Systems, Inc. 21,776,423
--------------
CONTAINERS & PACKAGING -- 1.0%
461,675 Bemis Co., Inc. 22,063,448
411,101 Sonoco Products Co. 21,845,907
--------------
43,909,355
--------------
DISTRIBUTORS -- 0.5%
229,360 Genuine Parts Co. 21,791,494
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.6%
560,133 AT&T, Inc. 21,777,971
579,724 TELUS Corp. 21,954,148
411,101 Verizon Communications, Inc. 21,759,576
--------------
65,491,695
--------------
ELECTRIC UTILITIES -- 11.1%
299,545 ALLETE, Inc. 22,274,166
518,579 Alliant Energy Corp. 22,096,651
299,749 American Electric Power Co., Inc. 22,052,534
434,362 Avangrid, Inc. 21,970,030
261,708 Duke Energy Corp. 22,012,260
341,644 Edison International 21,605,567
400,709 El Paso Electric Co. 22,179,243
353,112 Eversource Energy 22,309,616
609,438 Fortis, Inc. 22,348,091
607,915 Hawaiian Electric Industries, Inc. 21,976,127
243,477 IDACORP, Inc. 22,244,059
353,454 MGE Energy, Inc. 22,302,947
142,069 NextEra Energy, Inc. 22,189,757
666,426 OGE Energy Corp. 21,932,080
496,684 Otter Tail Corp. 22,077,604
259,564 Pinnacle West Capital Corp. 22,109,662
485,438 Portland General Electric Co. 22,126,264
711,275 PPL Corp. 22,013,961
455,332 Southern (The) Co. 21,896,916
416,975 Westar Energy, Inc. 22,016,280
457,427 Xcel Energy, Inc. 22,006,813
--------------
463,740,628
--------------
ELECTRICAL EQUIPMENT -- 2.1%
820,662 ABB Ltd., ADR 22,010,155
282,963 Eaton Corp. PLC 22,356,907
314,668 Emerson Electric Co. 21,929,213
159,121 Hubbell, Inc. 21,535,436
--------------
87,831,711
--------------
ENERGY EQUIPMENT & SERVICES
-- 0.5%
323,603 Schlumberger Ltd. 21,807,606
--------------
See Notes to Financial Statements Page 39
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
EQUITY REAL ESTATE INVESTMENT
TRUSTS -- 3.7%
155,268 American Tower Corp. $ 22,152,085
122,234 AvalonBay Communities, Inc. 21,807,768
341,324 Equity Residential 21,766,231
165,722 Federal Realty Investment Trust 22,009,539
105,171 Public Storage 21,980,739
389,095 Realty Income Corp. 22,186,197
129,186 Simon Property Group, Inc. 22,186,404
--------------
154,088,963
--------------
FOOD & STAPLES RETAILING -- 2.1%
296,942 CVS Health Corp. 21,528,295
360,084 Sysco Corp. 21,867,901
298,484 Walgreens Boots Alliance, Inc. 21,675,908
220,642 Wal-Mart Stores, Inc. 21,788,398
--------------
86,860,502
--------------
FOOD PRODUCTS -- 5.7%
543,439 Archer-Daniels-Midland Co. 21,781,035
453,073 Campbell Soup Co. 21,797,342
572,596 Conagra Brands, Inc. 21,569,691
363,920 General Mills, Inc. 21,576,817
190,235 Hershey (The) Co. 21,593,575
595,502 Hormel Foods Corp. 21,670,318
174,652 J.M. Smucker (The) Co. 21,698,765
321,038 Kellogg Co. 21,824,163
280,103 Kraft Heinz (The) Co. 21,780,809
214,479 McCormick & Co., Inc. 21,857,555
503,886 Mondelez International, Inc.,
Class A 21,566,321
--------------
238,716,391
--------------
GAS UTILITIES -- 4.2%
258,614 Atmos Energy Corp. 22,212,356
566,075 New Jersey Resources Corp. 22,756,215
373,358 Northwest Natural Gas Co. 22,270,805
302,275 ONE Gas, Inc. 22,144,667
710,812 South Jersey Industries, Inc. 22,198,659
296,660 Spire, Inc. 22,293,999
470,713 UGI Corp. 22,099,975
255,354 WGL Holdings, Inc. 21,919,587
--------------
177,896,263
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 1.0%
383,838 Abbott Laboratories 21,905,635
268,551 Medtronic PLC 21,685,493
--------------
43,591,128
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 1.6%
349,109 Cardinal Health, Inc. 21,389,908
1,160,064 Owens & Minor, Inc. 21,902,008
603,720 Patterson Cos., Inc. 21,812,404
--------------
65,104,320
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE
-- 1.6%
134,462 Cracker Barrel Old Country Store,
Inc. $ 21,364,667
127,729 McDonald's Corp. 21,984,716
382,900 Starbucks Corp. 21,989,947
--------------
65,339,330
--------------
HOUSEHOLD DURABLES -- 0.5%
460,218 Leggett & Platt, Inc. 21,966,205
--------------
HOUSEHOLD PRODUCTS -- 2.1%
146,163 Clorox (The) Co. 21,740,285
289,864 Colgate-Palmolive Co. 21,870,239
180,353 Kimberly-Clark Corp. 21,761,393
236,579 Procter & Gamble (The) Co. 21,736,878
--------------
87,108,795
--------------
INDUSTRIAL CONGLOMERATES -- 1.6%
92,923 3M Co. 21,871,287
1,255,241 General Electric Co. 21,903,955
142,290 Honeywell International, Inc. 21,821,594
--------------
65,596,836
--------------
INSURANCE -- 8.4%
249,646 Aflac, Inc. 21,913,926
347,779 Arthur J. Gallagher & Co. 22,007,455
536,244 Aspen Insurance Holdings Ltd. 21,771,506
216,261 Assurant, Inc. 21,807,759
435,833 Axis Capital Holdings Ltd. 21,904,967
150,565 Chubb Ltd. 22,002,064
294,582 Cincinnati Financial Corp. 22,084,813
416,737 CNA Financial Corp. 22,107,898
182,475 Erie Indemnity Co., Class A 22,232,754
99,574 Everest Re Group Ltd. 22,031,743
556,854 FNF Group 21,850,951
203,242 Hanover Insurance Group (The),
Inc. 21,966,395
412,419 Mercury General Corp. 22,039,671
162,330 Travelers (The) Cos., Inc. 22,018,441
466,100 Validus Holdings Ltd. 21,869,412
620,850 XL Group Ltd. 21,829,086
--------------
351,438,841
--------------
IT SERVICES -- 2.1%
186,091 Automatic Data Processing, Inc. 21,808,004
1,349,708 Infosys Ltd., ADR 21,892,264
143,160 International Business Machines
Corp. 21,963,607
317,776 Paychex, Inc. 21,634,190
--------------
87,298,065
--------------
MACHINERY -- 2.1%
139,853 Caterpillar, Inc. 22,038,036
124,214 Cummins, Inc. 21,941,161
216,367 Dover Corp. 21,850,903
125,150 Snap-on, Inc. 21,813,645
--------------
87,643,745
--------------
Page 40 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDIA -- 1.6%
298,281 Omnicom Group, Inc. $ 21,723,805
951,253 Shaw Communications, Inc.,
Class B 21,717,106
241,171 WPP PLC, ADR 21,840,446
--------------
65,281,357
--------------
MULTILINE RETAIL -- 0.5%
332,403 Target Corp. 21,689,296
--------------
MULTI-UTILITIES -- 6.3%
375,279 Ameren Corp. 22,137,708
425,077 Avista Corp. 21,887,215
373,102 Black Hills Corp. 22,427,161
467,396 CMS Energy Corp. 22,107,831
259,845 Consolidated Edison, Inc. 22,073,833
272,362 Dominion Energy, Inc. 22,077,664
202,336 DTE Energy Co. 22,147,699
836,986 MDU Resources Group, Inc. 22,498,184
429,332 Public Service Enterprise Group,
Inc. 22,110,598
202,696 Sempra Energy 21,672,256
340,209 Vectren Corp. 22,120,389
334,743 WEC Energy Group, Inc. 22,236,977
--------------
265,497,515
--------------
OIL, GAS & CONSUMABLE FUELS
-- 2.1%
173,670 Chevron Corp. 21,741,747
260,524 Exxon Mobil Corp. 21,790,227
322,698 Royal Dutch Shell PLC, Class B,
ADR 22,037,047
394,709 TOTAL S.A., ADR 21,819,514
--------------
87,388,535
--------------
PERSONAL PRODUCTS -- 0.5%
394,356 Unilever PLC, ADR 21,823,661
--------------
PHARMACEUTICALS -- 4.2%
357,146 Bristol-Myers Squibb Co. 21,885,907
257,430 Eli Lilly and Co. 21,742,538
618,568 GlaxoSmithKline PLC, ADR 21,940,607
156,175 Johnson & Johnson 21,820,771
388,337 Merck & Co., Inc. 21,851,723
263,252 Novartis AG, ADR 22,102,638
604,218 Pfizer, Inc. 21,884,776
510,472 Sanofi, ADR 21,950,296
--------------
175,179,256
--------------
PROFESSIONAL SERVICES -- 0.5%
604,218 Nielsen Holdings PLC 21,993,535
--------------
ROAD & RAIL -- 0.5%
162,487 Union Pacific Corp. 21,789,507
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 2.6%
246,858 Analog Devices, Inc. 21,977,768
474,802 Intel Corp. 21,916,860
340,261 QUALCOMM, Inc. 21,783,509
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (CONTINUED)
561,716 Taiwan Semiconductor
Manufacturing Co., Ltd., ADR $ 22,272,040
210,069 Texas Instruments, Inc. 21,939,606
--------------
109,889,783
--------------
SOFTWARE -- 1.0%
650,186 CA, Inc. 21,638,190
256,192 Microsoft Corp. 21,914,664
--------------
43,552,854
--------------
SPECIALTY RETAIL -- 1.5%
114,934 Home Depot (The), Inc. 21,783,441
207,972 Tiffany & Co. 21,618,689
410,408 Williams-Sonoma, Inc. 21,218,094
--------------
64,620,224
--------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 0.5%
566,660 Canon, Inc., ADR 21,193,084
--------------
TEXTILES, APPAREL & LUXURY
GOODS -- 0.5%
293,242 VF Corp. 21,699,908
--------------
THRIFTS & MORTGAGE FINANCE
-- 1.0%
1,601,670 Capitol Federal Financial, Inc. 21,478,395
1,299,987 Northwest Bancshares, Inc. 21,748,782
--------------
43,227,177
--------------
TOBACCO -- 1.6%
303,538 Altria Group, Inc. 21,675,648
329,598 British American Tobacco PLC,
ADR 22,079,770
210,149 Philip Morris International, Inc. 22,202,242
--------------
65,957,660
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 2.1%
404,192 Fastenal Co. 22,105,261
229,049 MSC Industrial Direct Co., Inc.,
Class A 22,139,876
92,701 W.W. Grainger, Inc. 21,900,611
129,203 Watsco, Inc. 21,969,678
--------------
88,115,426
--------------
WATER UTILITIES -- 0.5%
563,886 Aqua America, Inc. 22,121,248
--------------
TOTAL INVESTMENTS -- 99.8% 4,186,920,038
(Cost $3,827,722,548) (a)
NET OTHER ASSETS AND
LIABILITIES -- 0.2% 7,910,317
--------------
NET ASSETS -- 100.0% $4,194,830,355
==============
See Notes to Financial Statements Page 41
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
(a) Aggregate cost for federal income tax purposes is $3,898,766,107. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$374,770,003 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$86,616,072. The net unrealized appreciation was $288,153,931.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $4,186,920,038 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
Page 42 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.1%
AEROSPACE & DEFENSE -- 3.1%
6,351 HEICO Corp. $ 599,217
1,744 Northrop Grumman Corp. 535,251
3,288 Teledyne Technologies, Inc. (a) 595,621
--------------
1,730,089
--------------
BEVERAGES -- 1.0%
2,412 Constellation Brands, Inc.,
Class A 551,311
--------------
BIOTECHNOLOGY -- 1.1%
6,171 AbbVie, Inc. 596,797
--------------
BUILDING PRODUCTS -- 2.1%
9,696 A.O. Smith Corp. 594,171
6,157 Owens Corning 566,074
--------------
1,160,245
--------------
CAPITAL MARKETS -- 9.3%
17,772 Apollo Global Management LLC,
Class A (b) 594,829
41,167 BGC Partners, Inc., Class A 622,033
1,164 BlackRock, Inc. 597,959
13,059 Houlihan Lokey, Inc. 593,270
8,536 Intercontinental Exchange, Inc. 602,300
3,539 Moody's Corp. 522,392
4,127 MSCI, Inc. 522,231
7,853 Nasdaq, Inc. 603,346
3,236 S&P Global, Inc. 548,178
--------------
5,206,538
--------------
CHEMICALS -- 2.1%
5,617 Celanese Corp., Series A 601,469
1,354 Sherwin-Williams (The) Co. 555,194
--------------
1,156,663
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 3.1%
3,844 Cintas Corp. 599,011
10,492 Healthcare Services Group, Inc. 553,138
8,377 Republic Services, Inc. 566,369
--------------
1,718,518
--------------
CONTAINERS & PACKAGING -- 1.2%
5,891 Avery Dennison Corp. 676,640
--------------
DIVERSIFIED CONSUMER SERVICES
-- 3.1%
6,337 Bright Horizons Family Solutions,
Inc. (a) 595,678
6,571 Grand Canyon Education, Inc. (a) 588,301
14,749 Service Corp. International 550,433
--------------
1,734,412
--------------
ELECTRIC UTILITIES -- 1.0%
14,093 PNM Resources, Inc. 570,062
--------------
ELECTRICAL EQUIPMENT -- 1.1%
8,242 AMETEK, Inc. 597,298
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 3.1%
5,840 Amphenol Corp., Class A 512,752
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS (CONTINUED)
8,666 CDW Corp. $ 602,200
2,805 IPG Photonics Corp. (a) 600,635
--------------
1,715,587
--------------
EQUITY REAL ESTATE INVESTMENT
TRUSTS -- 3.1%
3,590 American Tower Corp. 512,185
1,339 Equinix, Inc. 606,862
3,741 SBA Communications Corp. (a) 611,130
--------------
1,730,177
--------------
GAS UTILITIES -- 1.1%
8,260 ONE Gas, Inc. 605,128
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 7.8%
10,489 Abbott Laboratories 598,607
2,055 Align Technology, Inc. (a) 456,600
8,515 Baxter International, Inc. 550,410
2,755 Becton, Dickinson and Co. 589,735
18,516 Boston Scientific Corp. (a) 459,012
2,188 Cooper (The) Cos., Inc. 476,721
1,634 Intuitive Surgical, Inc. (a) 596,312
2,412 Teleflex, Inc. 600,154
--------------
4,327,551
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 4.1%
2,266 Chemed Corp. 550,683
2,632 Cigna Corp. 534,533
3,713 Laboratory Corp. of America
Holdings (a) 592,261
2,909 UnitedHealth Group, Inc. 641,318
--------------
2,318,795
--------------
HOTELS, RESTAURANTS & LEISURE
-- 4.4%
2,950 Churchill Downs, Inc. 686,465
4,485 Marriott International, Inc.,
Class A 608,749
2,544 Vail Resorts, Inc. 540,524
5,249 Wyndham Worldwide Corp. 608,201
--------------
2,443,939
--------------
HOUSEHOLD DURABLES -- 2.4%
183 NVR, Inc. (a) 642,005
20,905 PulteGroup, Inc. 695,091
--------------
1,337,096
--------------
INDUSTRIAL CONGLOMERATES -- 1.1%
2,298 Roper Technologies, Inc. 595,182
--------------
INSURANCE -- 3.1%
5,730 Allstate (The) Corp. 599,988
3,839 Aon PLC 514,426
3,831 Reinsurance Group of America, Inc. 597,368
--------------
1,711,782
--------------
See Notes to Financial Statements Page 43
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INTERNET SOFTWARE & SERVICES
-- 3.1%
515 Alphabet, Inc., Class C (a) $ 538,896
2,028 CoStar Group, Inc. (a) 602,214
3,397 Facebook, Inc., Class A (a) 599,435
--------------
1,740,545
--------------
IT SERVICES -- 9.1%
5,844 Broadridge Financial Solutions,
Inc. 529,349
8,392 Cognizant Technology Solutions
Corp., Class A 596,000
5,708 Fidelity National Information
Services, Inc. 537,066
4,091 Fiserv, Inc. (a) 536,453
4,501 Gartner, Inc. (a) 554,298
16,786 Genpact Ltd. 532,788
4,007 Mastercard, Inc., Class A 606,499
7,557 Total System Services, Inc. 597,683
5,291 Visa, Inc., Class A 603,280
--------------
5,093,416
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 6.1%
5,548 Charles River Laboratories
International, Inc. (a) 607,229
5,274 ICON PLC (a) 591,479
5,590 IQVIA Holdings, Inc. (a) 547,261
874 Mettler-Toledo International,
Inc. (a) 541,460
2,748 Thermo Fisher Scientific, Inc. 521,790
3,084 Waters Corp. (a) 595,798
--------------
3,405,017
--------------
MACHINERY -- 6.0%
11,977 Graco, Inc. 541,600
4,068 IDEX Corp. 536,854
3,304 Illinois Tool Works, Inc. 551,272
5,973 Kadant, Inc. 599,689
3,563 Stanley Black & Decker, Inc. 604,606
7,836 Xylem, Inc. 534,415
--------------
3,368,436
--------------
MEDIA -- 2.0%
11,938 Live Nation Entertainment,
Inc. (a) 508,201
31,886 New York Times (The) Co., Class A 589,891
--------------
1,098,092
--------------
MULTI-UTILITIES -- 1.1%
5,529 DTE Energy Co. 605,204
--------------
PERSONAL PRODUCTS -- 2.1%
4,640 Estee Lauder (The) Cos., Inc.,
Class A 590,393
10,776 Unilever PLC, ADR 596,344
--------------
1,186,737
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
PHARMACEUTICALS -- 2.1%
4,268 Johnson & Johnson $ 596,325
8,265 Zoetis, Inc. 595,411
--------------
1,191,736
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 3.1%
6,385 Microchip Technology, Inc. 561,114
5,284 Monolithic Power Systems, Inc. 593,710
5,740 Texas Instruments, Inc. 599,486
--------------
1,754,310
--------------
SOFTWARE -- 4.9%
11,704 Cadence Design Systems, Inc. (a) 489,461
4,963 Check Point Software
Technologies Ltd. (a) 514,266
3,327 Intuit, Inc. 524,934
4,957 Red Hat, Inc. (a) 595,336
5,830 salesforce.com, Inc. (a) 596,001
--------------
2,719,998
--------------
SPECIALTY RETAIL -- 1.0%
3,079 Home Depot (The), Inc. 583,563
--------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 1.1%
3,505 Apple, Inc. 593,151
--------------
TOTAL INVESTMENTS -- 100.1% 55,824,015
(Cost $55,154,887) (c)
NET OTHER ASSETS AND
LIABILITIES -- (0.1)% (66,687)
--------------
NET ASSETS -- 100.0% $ 55,757,328
==============
(a) Non-income producing security.
(b) Security is a Master Limited Partnership ("MLP").
(c) Aggregate cost for federal income tax purposes is $55,427,025. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$1,019,230 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$622,240. The net unrealized appreciation was $396,990.
ADR - American Depositary Receipt
Page 44 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 55,824,015 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
See Notes to Financial Statements Page 45
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2017
FIRST TRUST FIRST TRUST FIRST TRUST
DOW JONES SELECT MORNINGSTAR US EQUITY
MICROCAP DIVIDEND LEADERS OPPORTUNITIES
INDEX FUND INDEX FUND ETF
(FDM) (FDL) (FPX)
---------------- ----------------- ----------------
ASSETS:
Investments, at value............................................... $ 99,127,885 $ 1,717,367,271 $1,014,099,919
Cash................................................................ 138,709 17,123,814 1,556,618
Receivables:
Capital shares sold........................................... -- -- --
Investment securities sold.................................... 557,170 511,943 --
Dividends..................................................... 133,434 2,530,986 436,957
Securities lending income..................................... 6,301 -- 77,661
Reclaims...................................................... -- -- 8,223
Due from authorized participants.............................. -- -- --
Prepaid expenses.................................................... 764 14,912 20,194
-------------- --------------- --------------
Total Assets.................................................. 99,964,263 1,737,548,926 1,016,199,572
-------------- --------------- --------------
LIABILITIES:
Payables:
Collateral for securities on loan............................. 2,196,518 -- 32,043,251
Distributions payable......................................... 369,489 16,553,681 1,603,030
Investment securities purchased............................... 303,594 524,332 --
Investment advisory fees...................................... 29,741 415,836 331,318
Audit and tax fees............................................ 22,925 22,925 22,925
Printing fees................................................. 6,271 68,035 38,002
Licensing fees................................................ 1,681 384,575 234,099
Trustees' fees................................................ -- 3 2
Other liabilities................................................... 22,415 280,206 195,266
-------------- --------------- --------------
Total Liabilities............................................. 2,952,634 18,249,593 34,467,893
-------------- --------------- --------------
NET ASSETS.......................................................... $ 97,011,629 $ 1,719,299,333 $ 981,731,679
============== =============== ==============
NET ASSETS CONSIST OF:
Paid-in capital..................................................... $ 107,090,436 $ 1,623,537,370 $ 879,450,023
Par value........................................................... 20,550 572,000 144,000
Accumulated net investment income (loss)............................ -- (91,063) --
Accumulated net realized gain (loss) on investments and foreign
currency transactions............................................ (20,392,470) (51,357,903) (85,594,280)
Net unrealized appreciation (depreciation) on investments and
foreign currency translation..................................... 10,293,113 146,638,929 187,731,936
-------------- --------------- --------------
NET ASSETS.......................................................... $ 97,011,629 $ 1,719,299,333 $ 981,731,679
============== =============== ==============
NET ASSET VALUE, per share.......................................... $ 47.21 $ 30.06 $ 68.18
============== =============== ==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share)....................................... 2,055,000 57,200,002 14,400,002
============== =============== ==============
Investments, at cost................................................ $ 88,834,772 $ 1,570,728,342 $ 826,367,983
============== =============== ==============
Securities on loan, at value........................................ $ 2,121,913 $ -- $ 31,225,101
============== =============== ==============
Page 46 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST
NYSE ARCA DOW JONES CAPITAL VALUE LINE(R) VALUE LINE(R) 100
BIOTECHNOLOGY INTERNET STRENGTH DIVIDEND EXCHANGE-TRADED
INDEX FUND INDEX FUND ETF INDEX FUND FUND
(FBT) (FDN) (FTCS) (FVD) (FVL)
---------------- ----------------- ---------------- ----------------- ----------------
$1,266,203,077 $ 5,591,212,360 $ 623,868,908 $ 4,186,920,038 $ 55,824,015
703,401 -- 2,026,722 30,003,568 24,014
-- -- 7,662,066 6,184,535 --
-- -- -- 189,283,696 28,915,543
-- 1,592 604,431 7,691,731 39,831
57,717 229,112 -- -- --
39,677 -- -- 529,630 5,230
-- -- -- 984,313 --
10,256 42,607 4,463 34,564 488
-------------- --------------- -------------- --------------- --------------
1,267,014,128 5,591,485,671 634,166,590 4,421,632,075 84,809,121
-------------- --------------- -------------- --------------- --------------
58,271,118 96,298,521 -- -- --
-- -- 1,973,790 27,751,243 81,737
-- -- 7,658,761 194,998,407 28,865,855
410,333 1,864,604 256,917 1,645,134 16,668
22,925 22,925 22,925 22,925 22,925
45,901 170,565 19,887 137,572 4,556
242,468 1,505,225 14,143 1,552,697 22,365
2 7 1 6 --
210,695 803,416 120,686 693,736 37,687
-------------- --------------- -------------- --------------- --------------
59,203,442 100,665,263 10,067,110 226,801,720 29,051,793
-------------- --------------- -------------- --------------- --------------
$1,207,810,686 $ 5,490,820,408 $ 624,099,480 $ 4,194,830,355 $ 55,757,328
============== =============== ============== =============== ==============
$1,358,148,104 $ 4,632,443,324 $ 561,769,533 $ 3,958,011,662 $ 58,989,952
97,000 500,000 122,500 1,360,380 23,900
-- -- 15,284 -- --
(230,590,223) (236,378,626) (18,613,267) (123,740,109) (3,925,689)
80,155,805 1,094,255,710 80,805,430 359,198,422 669,165
-------------- --------------- -------------- --------------- --------------
$1,207,810,686 $ 5,490,820,408 $ 624,099,480 $ 4,194,830,355 $ 55,757,328
============== =============== ============== =============== ==============
$ 124.52 $ 109.82 $ 50.95 $ 30.84 $ 23.33
============== =============== ============== =============== ==============
9,700,002 50,000,002 12,250,002 136,037,986 2,389,982
============== =============== ============== =============== ==============
$1,186,047,272 $ 4,496,956,650 $ 543,063,478 $ 3,827,722,548 $ 55,154,887
============== =============== ============== =============== ==============
$ 55,002,816 $ 92,635,184 $ -- $ -- $ --
============== =============== ============== =============== ==============
See Notes to Financial Statements Page 47
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2017
FIRST TRUST FIRST TRUST FIRST TRUST
DOW JONES SELECT MORNINGSTAR US EQUITY
MICROCAP DIVIDEND LEADERS OPPORTUNITIES
INDEX FUND INDEX FUND ETF
(FDM) (FDL) (FPX)
---------------- ----------------- ----------------
INVESTMENT INCOME:
Dividends........................................................... $ 1,283,978 $ 62,781,174 $ 9,339,745
Non-cash dividends.................................................. -- -- 64,136
Securities lending income (net of fees)............................. 76,060 -- 1,156,004
Interest............................................................ -- -- --
Foreign tax withholding............................................. (273) -- (58,067)
-------------- --------------- --------------
Total investment income....................................... 1,359,765 62,781,174 10,501,818
-------------- --------------- --------------
EXPENSES:
Investment advisory fees............................................ 455,717 5,185,374 3,210,829
Licensing fees...................................................... 54,280 1,563,292 802,700
Accounting and administration fees.................................. 48,683 791,718 402,217
Custodian fees...................................................... 23,808 200,889 113,793
Audit and tax fees.................................................. 23,248 23,248 23,248
Printing fees....................................................... 13,028 140,535 76,423
Listing fees........................................................ 7,381 12,381 8,829
Trustees' fees and expenses......................................... 7,365 10,050 8,507
Transfer agent fees................................................. 4,557 68,212 40,135
Legal fees.......................................................... 3,565 46,248 24,567
Expenses previously waived or reimbursed............................ -- -- 23,043
Registration and filing fees........................................ (927) (17,894) 22,421
Other expenses...................................................... 3,864 43,119 18,183
-------------- --------------- --------------
Total expenses................................................ 644,569 8,067,172 4,774,895
Less fees waived and expenses reimbursed by the investment
advisor.................................................... (97,709) (289,110) --
-------------- --------------- --------------
Net expenses.................................................. 546,860 7,778,062 4,774,895
-------------- --------------- --------------
NET INVESTMENT INCOME (LOSS)........................................ 812,905 55,003,112 5,726,923
-------------- --------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................... (1,157,602) (14,579,773) (12,792,205)
In-kind redemptions........................................... 10,592,300 173,715,533 68,709,723
Foreign currency transactions................................. -- -- (1,823)
-------------- --------------- --------------
Net realized gain (loss)............................................ 9,434,698 159,135,760 55,915,695
-------------- --------------- --------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................... (4,670,191) (19,118,314) 130,247,878
Foreign currency translation.................................. -- -- --
-------------- --------------- --------------
Net change in unrealized appreciation (depreciation)................ (4,670,191) (19,118,314) 130,247,878
-------------- --------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)............................. 4,764,507 140,017,446 186,163,573
-------------- --------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................................. $ 5,577,412 $ 195,020,558 $ 191,890,496
============== =============== ==============
Page 48 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST
NYSE ARCA DOW JONES CAPITAL VALUE LINE(R) VALUE LINE(R) 100
BIOTECHNOLOGY INTERNET STRENGTH DIVIDEND EXCHANGE-TRADED
INDEX FUND INDEX FUND ETF INDEX FUND FUND
(FBT) (FDN) (FTCS) (FVD) (FVL)
---------------- ----------------- ---------------- ----------------- ----------------
$ 3,935,776 $ 8,200,312 $ 8,663,936 $ 107,325,098 $ 786,188
269,348 -- -- -- --
918,866 1,379,289 -- -- --
-- 195 -- -- --
(120,741) -- -- (1,885,469) (17,365)
-------------- --------------- -------------- --------------- --------------
5,003,249 9,579,796 8,663,936 105,439,629 768,823
-------------- --------------- -------------- --------------- --------------
4,118,135 17,968,978 2,243,567 18,218,071 268,604
823,627 2,760,514 52,298 5,510,366 85,304
508,554 1,693,619 224,857 1,441,136 26,357
133,541 503,866 57,569 397,778 9,196
23,248 23,248 23,248 23,248 23,248
90,470 352,531 42,217 301,331 7,836
7,381 9,881 759 33,413 22,000
8,816 14,429 7,974 13,380 7,302
49,649 137,307 22,436 116,090 2,686
27,335 133,882 15,098 122,276 1,369
-- -- -- -- --
-- 93,240 15,532 71,819 --
19,217 100,953 9,635 73,145 4,670
-------------- --------------- -------------- --------------- --------------
5,809,973 23,792,448 2,715,190 26,322,053 458,572
-- -- -- (816,754) (82,527)
-------------- --------------- -------------- --------------- --------------
5,809,973 23,792,448 2,715,190 25,505,299 376,045
-------------- --------------- -------------- --------------- --------------
(806,724) (14,212,652) 5,948,746 79,934,330 392,778
-------------- --------------- -------------- --------------- --------------
15,963,276 (94,099,629) (8,949,226) (97,908,479) 68,598
16,838,158 587,472,125 45,030,480 284,967,954 3,913,077
-- -- -- 1,407 44
-------------- --------------- -------------- --------------- --------------
32,801,434 493,372,496 36,081,254 187,060,882 3,981,719
-------------- --------------- -------------- --------------- --------------
267,489,817 912,068,438 63,244,829 160,581,722 364,876
-- -- -- 932 37
-------------- --------------- -------------- --------------- --------------
267,489,817 912,068,438 63,244,829 160,582,654 364,913
-------------- --------------- -------------- --------------- --------------
300,291,251 1,405,440,934 99,326,083 347,643,536 4,346,632
-------------- --------------- -------------- --------------- --------------
$ 299,484,527 $ 1,391,228,282 $ 105,274,829 $ 427,577,866 $ 4,739,410
============== =============== ============== =============== ==============
See Notes to Financial Statements Page 49
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST
DOW JONES SELECT MORNINGSTAR
MICROCAP DIVIDEND LEADERS
INDEX FUND INDEX FUND
(FDM) (FDL)
------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/2017 12/31/2016 12/31/2017 12/31/2016
-------------- -------------- -------------- --------------
OPERATIONS:
Net investment income (loss)................................... $ 812,905 $ 796,678 $ 55,003,112 $ 48,310,219
Net realized gain (loss)....................................... 9,434,698 2,026,258 159,135,760 83,589,990
Net change in unrealized appreciation (depreciation)........... (4,670,191) 14,044,138 (19,118,314) 126,628,833
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations............................................. 5,577,412 16,867,074 195,020,558 258,529,042
-------------- -------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.......................................... (908,212) (828,593) (56,593,922) (48,261,512)
-------------- -------------- -------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold...................................... 20,308,722 70,348,426 664,561,022 1,442,870,317
Cost of shares redeemed........................................ (44,741,959) (19,162,623) (862,152,243) (749,967,524)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions............................... (24,433,237) 51,185,803 (197,591,221) 692,902,793
-------------- -------------- -------------- --------------
Total increase (decrease) in net assets........................ (19,764,037) 67,224,284 (59,164,585) 903,170,323
NET ASSETS:
Beginning of period............................................ 116,775,666 49,551,382 1,778,463,918 875,293,595
-------------- -------------- -------------- --------------
End of period.................................................. $ 97,011,629 $ 116,775,666 $1,719,299,333 $1,778,463,918
============== ============== ============== ==============
Accumulated net investment income (loss)
at end of period............................................ $ -- $ 13,856 $ (91,063) $ 6,393
============== ============== ============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period........................ 2,655,000 1,505,000 64,100,002 36,950,002
Shares sold.................................................... 450,000 1,700,000 22,900,000 55,400,000
Shares redeemed................................................ (1,050,000) (550,000) (29,800,000) (28,250,000)
-------------- -------------- -------------- --------------
Shares outstanding, end of period.............................. 2,055,000 2,655,000 57,200,002 64,100,002
============== ============== ============== ==============
Page 50 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST
US EQUITY NYSE ARCA DOW JONES
OPPORTUNITIES BIOTECHNOLOGY INTERNET
ETF INDEX FUND INDEX FUND
(FPX) (FBT) (FDN)
------------------------------- ------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/2017 12/31/2016 12/31/2017 12/31/2016 12/31/2017 12/31/2016
-------------- -------------- -------------- -------------- -------------- --------------
$ 5,726,923 $ 3,420,646 $ (806,724) $ (2,803,773) $ (14,212,652) $ (11,698,754)
55,915,695 22,753,897 32,801,434 (373,243,194) 493,372,496 283,396,131
130,247,878 (6,902,011) 267,489,817 (454,566,123) 912,068,438 (286,737,424)
-------------- -------------- -------------- -------------- -------------- --------------
191,890,496 19,272,532 299,484,527 (830,613,090) 1,391,228,282 (15,040,047)
-------------- -------------- -------------- -------------- -------------- --------------
(6,231,361) (4,684,081) -- -- -- --
-------------- -------------- -------------- -------------- -------------- --------------
442,823,110 117,937,765 186,132,148 428,122,566 2,369,979,673 913,770,456
(260,774,732) (308,194,899) (82,190,788) (2,230,149,092) (1,757,121,476) (2,326,817,875)
-------------- -------------- -------------- -------------- -------------- --------------
182,048,378 (190,257,134) 103,941,360 (1,802,026,526) 612,858,197 (1,413,047,419)
-------------- -------------- -------------- -------------- -------------- --------------
367,707,513 (175,668,683) 403,425,887 (2,632,639,616) 2,004,086,479 (1,428,087,466)
614,024,166 789,692,849 804,384,799 3,437,024,415 3,486,733,929 4,914,821,395
-------------- -------------- -------------- -------------- -------------- --------------
$ 981,731,679 $ 614,024,166 $1,207,810,686 $ 804,384,799 $5,490,820,408 $3,486,733,929
============== ============== ============== ============== ============== ==============
$ -- $ -- $ -- $ -- $ -- $ --
============== ============== ============== ============== ============== ==============
11,350,002 15,450,002 8,850,002 30,400,002 43,700,002 65,850,002
7,250,000 2,200,000 1,600,000 4,850,000 24,150,000 12,200,000
(4,200,000) (6,300,000) (750,000) (26,400,000) (17,850,000) (34,350,000)
-------------- -------------- -------------- -------------- -------------- --------------
14,400,002 11,350,002 9,700,002 8,850,002 50,000,002 43,700,002
============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 51
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST FIRST TRUST
CAPITAL STRENGTH VALUE LINE(R) DIVIDEND
ETF INDEX FUND
(FTCS) (FVD)
------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/2017 12/31/2016 12/31/2017 12/31/2016
-------------- -------------- -------------- --------------
OPERATIONS:
Net investment income (loss)................................... $ 5,948,746 $ 3,527,317 $ 79,934,330 $ 46,562,596
Net realized gain (loss)....................................... 36,081,254 613,019 187,060,882 147,736,202
Net change in unrealized appreciation (depreciation)........... 63,244,829 14,122,275 160,582,654 148,113,774
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations............................................. 105,274,829 18,262,611 427,577,866 342,412,572
-------------- -------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.......................................... (5,933,462) (3,539,946) (82,356,171) (47,522,750)
-------------- -------------- -------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold...................................... 517,169,745 220,814,366 2,713,663,936 2,392,736,109
Cost of shares redeemed........................................ (312,601,674) (81,161,652) (1,757,036,859) (982,675,414)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions............................... 204,568,071 139,652,714 956,627,077 1,410,060,695
-------------- -------------- -------------- --------------
Total increase (decrease) in net assets........................ 303,909,438 154,375,379 1,301,848,772 1,704,950,517
NET ASSETS:
Beginning of period............................................ 320,190,042 165,814,663 2,892,981,583 1,188,031,066
-------------- -------------- -------------- --------------
End of period.................................................. $ 624,099,480 $ 320,190,042 $4,194,830,355 $2,892,981,583
============== ============== ============== ==============
Accumulated net investment income (loss)
at end of period............................................ $ 15,284 $ -- $ -- $ --
============== ============== ============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period........................ 7,850,002 4,350,002 103,237,986 49,787,986
Shares sold.................................................... 11,250,000 5,550,000 92,200,000 89,750,000
Shares redeemed................................................ (6,850,000) (2,050,000) (59,400,000) (36,300,000)
-------------- -------------- -------------- --------------
Shares outstanding, end of period.............................. 12,250,002 7,850,002 136,037,986 103,237,986
============== ============== ============== ==============
Page 52 See Notes to Financial Statements
FIRST TRUST
VALUE LINE(R) 100
EXCHANGE-TRADED FUND
(FVL)
-------------------------------
Year Ended Year Ended
12/31/2017 12/31/2016
-------------- --------------
$ 392,778 $ 295,661
3,981,719 4,949,610
364,913 (715,003)
-------------- --------------
4,739,410 4,530,268
-------------- --------------
(463,929) (303,697)
-------------- --------------
39,249,030 26,089,617
(40,410,393) (30,685,938)
-------------- --------------
(1,161,363) (4,596,321)
-------------- --------------
3,114,118 (369,750)
52,643,210 53,012,960
-------------- --------------
$ 55,757,328 $ 52,643,210
============== ==============
$ -- $ (54)
============== ==============
2,439,982 2,689,982
1,700,000 1,250,000
(1,750,000) (1,500,000)
-------------- --------------
2,389,982 2,439,982
============== ==============
See Notes to Financial Statements Page 53
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 43.98 $ 32.92 $ 33.21 $ 32.47 $ 22.87
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.42 0.49 0.49 0.23 0.25
Net realized and unrealized gain (loss) 3.27 11.07 (0.30) 0.76 9.62
------------ ------------ ------------ ------------ ------------
Total from investment operations 3.69 11.56 0.19 0.99 9.87
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.46) (0.50) (0.48) (0.25) (0.27)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 47.21 $ 43.98 $ 32.92 $ 33.21 $ 32.47
============ ============ ============ ============ ============
TOTAL RETURN (a) 8.44% 35.45% 0.55% 3.08% 43.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 97,012 $ 116,776 $ 49,551 $ 51,648 $ 91,080
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.71% 0.75% 0.73% 0.70% 0.72%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.89% 1.52% 1.46% 0.71% 0.93%
Portfolio turnover rate (b) 55% 48% 63% 49% 70%
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 27.75 $ 23.69 $ 23.94 $ 21.93 $ 18.46
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.93 0.82 0.86 0.80 0.69
Net realized and unrealized gain (loss) 2.34 4.05 (0.25) 2.01 3.47
------------ ------------ ------------ ------------ ------------
Total from investment operations 3.27 4.87 0.61 2.81 4.16
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.96) (0.81) (0.86) (0.80) (0.69)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 30.06 $ 27.75 $ 23.69 $ 23.94 $ 21.93
============ ============ ============ ============ ============
TOTAL RETURN (a) 11.93% 20.72% 2.73% 12.96% 22.71%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 1,719,299 $ 1,778,464 $ 875,294 $ 985,151 $ 687,437
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.47% 0.48% 0.48% 0.49% 0.49%
Ratio of net expenses to average net assets 0.45% 0.45% 0.45% 0.45% 0.45%
Ratio of net investment income (loss) to
average net assets 3.18% 3.27% 3.59% 3.55% 3.61%
Portfolio turnover rate (b) 43% 50% 61% 40% 35%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 54 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 54.10 $ 51.11 $ 50.32 $ 45.34 $ 30.82
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.43 0.31 0.31 0.41 0.22
Net realized and unrealized gain (loss) 14.12 3.10 0.80 4.97 14.53
------------ ------------ ------------ ------------ ------------
Total from investment operations 14.55 3.41 1.11 5.38 14.75
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.47) (0.42) (0.32) (0.40) (0.23)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 68.18 $ 54.10 $ 51.11 $ 50.32 $ 45.34
============ ============ ============ ============ ============
TOTAL RETURN (a) 26.96% 6.70% 2.19% 11.91% 47.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 981,732 $ 614,024 $ 789,693 $ 535,943 $ 351,376
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.59% 0.60% 0.60% 0.60% 0.66%
Ratio of net expenses to average net assets 0.59% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.71% 0.58% 0.61% 0.89% 0.69%
Portfolio turnover rate (b) 31% 41% 41% 46% 30%
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 90.89 $ 113.06 $ 101.99 $ 69.12 $ 46.05
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.08) (0.32) 0.09 0.04 (0.10)
Net realized and unrealized gain (loss) 33.71 (21.85) 11.11 32.88 23.17
------------ ------------ ------------ ------------ ------------
Total from investment operations 33.63 (22.17) 11.20 32.92 23.07
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income -- -- (0.13) (0.05) --
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 124.52 $ 90.89 $ 113.06 $ 101.99 $ 69.12
============ ============ ============ ============ ============
TOTAL RETURN (a) 36.99% (19.60)% 10.97% 47.63% 50.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 1,207,811 $ 804,385 $ 3,437,024 $ 2,126,581 $ 953,910
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.56% 0.56% 0.55% 0.58% 0.60%
Ratio of net expenses to average net assets 0.56% 0.56% 0.55% 0.58% 0.60%
Ratio of net investment income (loss) to
average net assets (0.08)% (0.27)% 0.08% 0.06% (0.26)%
Portfolio turnover rate (b) 36% 42% 30% 58% 48%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 55
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 79.79 $ 74.64 $ 61.30 $ 59.84 $ 39.01
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.28) (0.27) (0.14) (0.08) (0.11)
Net realized and unrealized gain (loss) 30.31 5.42 13.48 1.54 20.94
------------ ------------ ------------ ------------ ------------
Total from investment operations 30.03 5.15 13.34 1.46 20.83
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 109.82 $ 79.79 $ 74.64 $ 61.30 $ 59.84
============ ============ ============ ============ ============
TOTAL RETURN (a) 37.62% 6.91% 21.77% 2.42% 53.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 5,490,820 $ 3,486,734 $ 4,914,821 $ 1,976,793 $ 1,929,852
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.53% 0.54% 0.54% 0.54% 0.57%
Ratio of net expenses to average net assets 0.53% 0.54% 0.54% 0.54% 0.57%
Ratio of net investment income (loss) to
average net assets (0.32)% (0.35)% (0.29)% (0.13)% (0.28)%
Portfolio turnover rate (b) 22% 21% 28% 27% 17%
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 40.79 $ 38.12 $ 38.08 $ 33.70 $ 25.16
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.59 0.58 0.57 0.72 0.45
Net realized and unrealized gain (loss) 10.16 2.67 0.04 4.43 8.54
------------ ------------ ------------ ------------ ------------
Total from investment operations 10.75 3.25 0.61 5.15 8.99
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.59) (0.58) (0.57) (0.77) (0.45)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 50.95 $ 40.79 $ 38.12 $ 38.08 $ 33.70
============ ============ ============ ============ ============
TOTAL RETURN (a) 26.49% 8.57% 1.64% 15.46% 35.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 624,099 $ 320,190 $ 165,815 $ 85,686 $ 65,706
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.61% 0.64% 0.65% 0.66% 0.76%
Ratio of net expenses to average net assets 0.61% 0.64% 0.65% 0.65% 0.65%
Ratio of net investment income (loss) to
average net assets 1.33% 1.55% 1.59% 2.07% 1.59%
Portfolio turnover rate (b) 85% 85% 96% 89% 156%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 56 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 28.02 $ 23.86 $ 24.13 $ 21.36 $ 17.29
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.63 0.56 0.55 0.58 0.50
Net realized and unrealized gain (loss) 2.84 4.17 (0.26) 2.78 4.06
------------ ------------ ------------ ------------ ------------
Total from investment operations 3.47 4.73 0.29 3.36 4.56
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.65) (0.57) (0.56) (0.59) (0.49)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 30.84 $ 28.02 $ 23.86 $ 24.13 $ 21.36
============ ============ ============ ============ ============
TOTAL RETURN (a) 12.48% 19.94% 1.26% 15.94% 26.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 4,194,830 $ 2,892,982 $ 1,188,031 $ 1,089,299 $ 796,361
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.72% 0.73% 0.74% 0.75% 0.76%
Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income (loss) to
average net assets 2.19% 2.31% 2.40% 2.63% 2.57%
Portfolio turnover rate (b) 50% 60% 82% 63% 71%
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 21.58 $ 19.71 $ 20.41 $ 18.44 $ 13.27
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.16 0.12 0.07 0.11 0.06
Net realized and unrealized gain (loss) 1.78 1.87 (0.71) (c) 1.98 5.17
------------ ------------ ------------ ------------ ------------
Total from investment operations 1.94 1.99 (0.64) 2.09 5.23
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.19) (0.12) (0.06) (0.12) (0.06)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 23.33 $ 21.58 $ 19.71 $ 20.41 $ 18.44
============ ============ ============ ============ ============
TOTAL RETURN (a) 9.05% 10.14% (3.13)% (c) 11.33% 39.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 55,757 $ 52,643 $ 53,013 $ 60,008 $ 56,058
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.85% 0.87% 0.84% 0.84% 0.87%
Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income (loss) to
average net assets 0.73% 0.59% 0.32% 0.57% 0.35%
Portfolio turnover rate (b) 466% 491% 404% 325% 350%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(c) The Fund received a payment from the Advisor in the amount of $95,996 in
connection with a trade error, which represents $0.03 per share. Since the
Advisor reimbursed the Fund, there was no effect on the Fund's total
return.
See Notes to Financial Statements Page 57
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
1. ORGANIZATION
First Trust Exchange-Traded Fund (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on August 8,
2003, and is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of twenty exchange-traded funds. This report covers
the eight funds listed below:
First Trust Dow Jones Select MicroCap Index Fund - (NYSE Arca, Inc.
("NYSE Arca") ticker "FDM")
First Trust Morningstar Dividend Leaders Index Fund - (NYSE Arca ticker
"FDL")
First Trust US Equity Opportunities ETF - (NYSE Arca ticker "FPX")
First Trust NYSE Arca Biotechnology Index Fund - (NYSE Arca ticker "FBT")
First Trust Dow Jones Internet Index Fund - (NYSE Arca ticker "FDN")
First Trust Capital Strength ETF - (The Nasdaq Stock Market LLC ("Nasdaq")
ticker "FTCS")
First Trust Value Line Dividend Index Fund - (NYSE Arca ticker "FVD")
First Trust Value Line(R) 100 Exchange-Traded Fund - (NYSE Arca ticker
"FVL")
Each fund represents a separate series of shares of beneficial interest in the
Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual
funds, each Fund issues and redeems shares on a continuous basis, at net asset
value ("NAV"), only in large specified blocks consisting of 50,000 shares called
a "Creation Unit." Creation Units are generally issued and redeemed in-kind for
securities in which a Fund invests and, in certain circumstances, for cash, and
only to and from broker-dealers and large institutional investors that have
entered into participation agreements. Except when aggregated in Creation Units,
each Fund's shares are not redeemable securities. The investment objective of
each Fund is to seek investment results that correspond generally to the price
and yield (before the Fund's fees and expenses) of the following indices:
FUND INDEX
First Trust Dow Jones Select MicroCap Index Fund Dow Jones Select MicroCap Index(SM)
First Trust Morningstar Dividend Leaders Index Fund Morningstar(R) Dividend Leaders Index(SM)
First Trust US Equity Opportunities ETF IPOX(R)-100 U.S. Index
First Trust NYSE Arca Biotechnology Index Fund NYSE Arca Biotechnology Index(SM)
First Trust Dow Jones Internet Index Fund Dow Jones Internet Composite Index(SM)
First Trust Capital Strength ETF The Capital Strength Index(TM)
First Trust Value Line(R) Dividend Index Fund Value Line(R) Dividend Index
First Trust Value Line(R) 100 Exchange-Traded Fund Value Line(R) 100 Index
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds are each considered an investment company and follow accounting and
reporting guidance under Financial Accounting Standards Board Accounting
Standards Codification Topic 946, "Financial Services-Investment Companies." The
following is a summary of significant accounting policies consistently followed
by the Funds in the preparation of the financial statements. The preparation of
the financial statements in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP") requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
A. PORTFOLIO VALUATION
Each Fund's NAV is determined daily as of the close of regular trading on the
New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day
the NYSE is open for trading. If the NYSE closes early on a valuation day, the
NAV is determined as of that time. Each Fund's NAV is calculated by dividing the
value of all assets of each Fund (including accrued interest and dividends),
less all liabilities (including accrued expenses and dividends declared but
unpaid), by the total number of shares outstanding.
Each Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Funds'
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. Investments valued
by the Advisor's Pricing Committee, if any, are footnoted as such in the
footnotes to the Portfolio of Investments. Each Fund's investments are valued as
follows:
Page 58
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
Common stocks and other equity securities listed on any national or
foreign exchange (excluding Nasdaq and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for Nasdaq and
AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the principal market for such securities.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Overnight repurchase agreements are valued at amortized cost when it
represents the best estimate of fair value.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a third-party pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of a Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or third-party pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
In addition, differences between the prices used to calculate a Fund's NAV and
the prices used by such Fund's corresponding index could result in a difference
between a Fund's performance and the performance of its underlying index.
The Funds are subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
Page 59
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value each Fund's investments as of December 31, 2017, is
included with each Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis.
Withholding taxes and tax reclaims on foreign dividends have been provided for
in accordance with each Fund's understanding of the applicable country's tax
rules and rates.
Distributions received from a Fund's investments in real estate investment trust
("REITs") may be comprised of return of capital, capital gains and income. The
actual character of the amounts received during the year is not known until
after the REITs' fiscal year end. A Fund records the character of distributions
received from REITs during the year based on estimates available. The
characterization of distributions received by a Fund may be subsequently revised
based on information received from the REITs after their tax reporting periods
conclude.
C. OFFSETTING ON THE STATEMENTS OF ASSETS AND LIABILITIES
Offsetting Assets and Liabilities require entities to disclose both gross and
net information about instruments and transactions eligible for offset on the
Statements of Assets and Liabilities, and disclose instruments and transactions
subject to master netting or similar agreements. These disclosure requirements
are intended to help investors and other financial statement users better assess
the effect or potential effect of offsetting arrangements on a fund's financial
position. The transactions subject to offsetting disclosures are derivative
instruments, repurchase agreements and reverse repurchase agreements, and
securities borrowing and securities lending transactions.
This disclosure, if applicable, is included within each Fund's Portfolio of
Investments under the heading "Offsetting Assets and Liabilities." For financial
reporting purposes, the Funds do not offset financial assets and financial
liabilities that are subject to master netting arrangements ("MNAs") or similar
agreements on the Statements of Assets and Liabilities. MNAs provide the right,
in the event of default (including bankruptcy and insolvency), for the
non-defaulting counterparty to liquidate the collateral and calculate the net
exposure to the defaulting party or request additional collateral.
D. SECURITIES LENDING
The Funds may lend securities representing up to 33 1/3% of the value of their
total assets to broker-dealers, banks and other institutions to generate
additional income. When a Fund loans its portfolio securities, it will receive,
at the inception of each loan, collateral equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
loaned securities. The collateral amount is valued at the beginning of each
business day and is compared to the market value of the loaned securities from
the prior business day to determine if additional collateral is required. If
additional collateral is required, a request is sent to the borrower. Securities
lending involves the risk that the Fund may lose money because the borrower of
the Fund's loaned securities fails to return the securities in a timely manner
or at all. The Fund could also lose money in the event of (i) a decline in the
value of the collateral provided for the loaned securities, (ii) a decline in
the value of any investments made with cash collateral or (iii) an increase in
the value of the loaned securities if the borrower does not increase the
collateral accordingly and the borrower fails to return the securities. These
events could also trigger adverse tax consequences for the Funds.
Under the Funds' Securities Lending Agency Agreement, the securities lending
agent will generally bear the risk that a borrower may default on its obligation
to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the
Funds' securities lending agent and is responsible for executing the lending of
the portfolio securities to creditworthy borrowers. The Funds, however, will be
responsible for the risks associated with the investment of cash collateral. A
Fund may lose money on its investment of cash collateral, which may affect its
ability to repay the collateral to the borrower without the use of other Fund
assets. Each Fund that engages in securities lending receives compensation (net
of any rebate and securities lending agent fees) for lending its securities.
Compensation can be in the form of fees received from the securities lending
agent or dividends or interest earned from the investment of cash collateral.
The dividend and interest earned on the securities loaned is accounted for in
the same manner as other dividend and interest income. At December 31, 2017,
only FDM, FPX, FBT, and FDN had securities in the securities lending program.
In the event of a default by a borrower with respect to any loan, BBH will
exercise any and all remedies provided under the applicable borrower agreement
to make the Funds whole. These remedies include purchasing replacement
securities by applying the collateral held from the defaulting broker against
the purchase cost of the replacement securities. If, despite such efforts by BBH
Page 60
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
to exercise these remedies, a Fund sustains losses as a result of a borrower's
default, BBH will indemnify the Fund by purchasing replacement securities at its
own expense, or paying the Fund an amount equal to the market value of the
replacement securities, subject to certain limitations which are set forth in
detail in the Securities Lending Agency Agreement between the Trust on behalf of
the Funds and BBH.
E. REPURCHASE AGREEMENTS
Repurchase agreements involve the purchase of securities subject to the seller's
agreement to repurchase the securities at a mutually agreed upon date and price,
under the terms of a Master Repurchase Agreement ("MRA"). During the term of a
repurchase agreement, the value of the underlying securities held as collateral
on behalf of a Fund, including accrued interest, is required to exceed the value
of the repurchase agreement, including accrued interest. The underlying
securities for all repurchase agreements are held at the Funds' custodian or
designated sub-custodians under tri-party repurchase agreements.
MRAs govern transactions between a Fund and select counterparties. The MRAs
contain provisions for, among other things, initiation, income payments, events
of default, and maintenance of collateral for repurchase agreements.
Repurchase agreements received for lending securities are collateralized by U.S.
Treasury securities. The U.S. Treasury securities are held in a joint custody
account at BBH on behalf of the Funds participating in the securities lending
program. In the event the counterparty defaults on the repurchase agreement, the
U.S. Treasury securities can either be maintained as part of a Fund's portfolio
or sold for cash. A Fund could suffer a loss to the extent that the proceeds
from the sale of the underlying collateral held by the Fund are less than the
repurchase price and the Fund's costs associated with the delay and enforcement
of the MRA.
While the Funds may invest in repurchase agreements, any repurchase agreements
held by the Funds during the year ended December 31, 2017, were received as
collateral for lending securities.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income of each Fund, if any, are declared and paid
quarterly or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by each Fund, if any, are distributed
at least annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Funds and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the year ended
December 31, 2017 was as follows:
Distributions Distributions Distributions
paid from paid from paid from
Ordinary Income Capital Gains Return of Capital
------------------ ---------------- -----------------
First Trust Dow Jones Select MicroCap Index Fund $ 908,212 $ -- $ --
First Trust Morningstar Dividend Leaders Index Fund 56,593,922 -- --
First Trust US Equity Opportunities ETF 6,231,361 -- --
First Trust NYSE Arca Biotechnology Index Fund -- -- --
First Trust Dow Jones Internet Index Fund -- -- --
First Trust Capital Strength ETF 5,933,462 -- --
First Trust Value Line(R) Dividend Index Fund 82,356,171 -- --
First Trust Value Line(R) 100 Exchange-Traded Fund 463,929 -- --
Page 61
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
The tax character of distributions paid by each Fund during the year ended
December 31, 2016 was as follows:
Distributions Distributions Distributions
paid from paid from paid from
Ordinary Income Capital Gains Return of Capital
------------------ ---------------- -----------------
First Trust Dow Jones Select MicroCap Index Fund $ 828,593 $ -- $ --
First Trust Morningstar Dividend Leaders Index Fund 48,261,512 -- --
First Trust US Equity Opportunities ETF 4,684,081 -- --
First Trust NYSE Arca Biotechnology Index Fund -- -- --
First Trust Dow Jones Internet Index Fund -- -- --
First Trust Capital Strength ETF 3,539,946 -- --
First Trust Value Line(R) Dividend Index Fund 47,522,750 -- --
First Trust Value Line(R) 100 Exchange-Traded Fund 303,697 -- --
As of December 31, 2017, the components of distributable earnings on a tax basis
for each Fund were as follows:
Accumulated
Undistributed Capital and Net Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
------------------ ---------------- -----------------
First Trust Dow Jones Select MicroCap Index Fund $ -- $ (20,085,981) $ 9,986,624
First Trust Morningstar Dividend Leaders Index Fund -- (36,456,168) 131,646,131
First Trust US Equity Opportunities ETF -- (81,004,309) 183,141,965
First Trust NYSE Arca Biotechnology Index Fund -- (203,681,149) 53,246,731
First Trust Dow Jones Internet Index Fund -- (103,786,529) 961,663,613
First Trust Capital Strength ETF 15,284 (16,335,160) 78,527,323
First Trust Value Line(R) Dividend Index Fund -- (52,696,550) 288,154,863
First Trust Value Line(R) 100 Exchange-Traded Fund -- (3,653,651) 397,027
G. INCOME TAXES
Each Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, each Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of each Fund's taxable income
exceeds the distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2014, 2015,
2016, and 2017 remain open to federal and state audit. As of December 31, 2017,
management has evaluated the application of these standards to the Funds, and
has determined that no provision for income tax is required in the Funds'
financial statements for uncertain tax positions.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses arising in taxable years after December 22, 2010, may be
carried forward indefinitely, and their character is retained as short-term
and/or long-term losses. Previously, net capital losses were carried forward for
up to eight years and treated as short-term losses. As a transition rule, the
Act requires that post-enactment net capital losses be used before pre-enactment
net capital losses. At December 31, 2017, the Funds had pre-enactment and
post-enactment net capital losses for federal income tax purposes as shown in
the following table. To the extent that these loss carryforwards are used to
offset future capital gains, it is probable that the capital gains so offset
will not be distributed to Fund shareholders. The Funds are subject to certain
limitations, under U.S. tax rules, on the use of capital loss carryforwards and
net unrealized built-in losses. These limitations apply when there has been a
50% change in ownership.
Page 62
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
Capital Loss Post- Total
Available Enactment - Capital
Through No Loss
2018 Expiration Available
------------------ ---------------- -----------------
First Trust Dow Jones Select MicroCap Index Fund $ 5,096,533 $ 14,989,448 $ 20,085,981
First Trust Morningstar Dividend Leaders Index Fund 473,435 35,982,733 36,456,168
First Trust US Equity Opportunities ETF 65,058 80,939,251 81,004,309
First Trust NYSE Arca Biotechnology Index Fund 1,039,054 202,642,095 203,681,149
First Trust Dow Jones Internet Index Fund -- 103,786,529 103,786,529
First Trust Capital Strength ETF 1,367,556 14,967,604 16,335,160
First Trust Value Line(R) Dividend Index Fund 437,987 52,258,563 52,696,550
First Trust Value Line(R) 100 Exchange-Traded Fund -- 3,653,551 3,653,551
During the taxable year ended December 31, 2017, the following Funds utilized
capital loss carryforwards in the following amounts:
Pre-Enactment Capital Loss Post-Enactment Capital Loss
Carryforward Utilized Carryforward Utilized
-------------------------- ---------------------------
First Trust NYSE Arca Biotechnology Index Fund $ -- $ 29,341,017
First Trust Value Line(R) 100 Exchange-Traded Fund -- 316,720
At the taxable year ended December 31, 2017, the following Funds' capital loss
carryforwards expired in the following amounts:
Capital Loss
Carryforward Expired
--------------------------
First Trust Dow Jones Select MicroCap Index Fund $ 3,227,616
First Trust Morningstar Dividend Leaders Index Fund 16,831,977
First Trust US Equity Opportunities ETF 1,127,563
First Trust NYSE Arca Biotechnology Index Fund 5,787,577
First Trust Dow Jones Internet Index Fund 1,163,966
First Trust Capital Strength ETF 11,336,270
First Trust Value Line(R) Dividend Index Fund 19,646,203
First Trust Value Line(R) 100 Exchange-Traded Fund 29,477,928
In order to present paid-in capital, accumulated net investment income (loss)
and accumulated net realized gain (loss) on investments on the Statements of
Assets and Liabilities that more closely represent their tax character, certain
adjustments have been made to paid-in capital, accumulated net investment income
(loss) and accumulated net realized gain (loss) on investments. These
adjustments are primarily due to the difference between book and tax treatments
of income and gains on various investment securities held by the Funds and
in-kind transactions. The results of operations and net assets were not affected
by these adjustments. For the year ended December 31, 2017, the adjustments for
each Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss)
Income (Loss) on Investments Paid-in Capital
------------------ ---------------- -----------------
First Trust Dow Jones Select MicroCap Index Fund $ 81,451 $ (6,577,572) $ 6,496,121
First Trust Morningstar Dividend Leaders Index Fund 1,493,354 (152,827,414) 151,334,060
First Trust US Equity Opportunities ETF 504,438 (66,000,234) 65,495,796
First Trust NYSE Arca Biotechnology Index Fund 806,724 (10,751,243) 9,944,519
First Trust Dow Jones Internet Index Fund 14,212,652 (569,779,193) 555,566,541
First Trust Capital Strength ETF -- (32,489,199) 32,489,199
First Trust Value Line(R) Dividend Index Fund 2,421,841 (239,338,458) 236,916,617
First Trust Value Line(R) 100 Exchange-Traded Fund 71,205 25,621,617 (25,692,822)
Page 63
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
H. EXPENSES
Expenses that are directly related to one of the Funds are charged directly to
the respective Fund. General expenses of the Trust are allocated to all the
Funds based upon the net assets of each Fund.
First Trust has entered into licensing agreements with each of the following
"Licensors" for the respective Funds:
FUND LICENSOR
First Trust Dow Jones Select MicroCap Index Fund S&P Dow Jones Indices LLC
First Trust Morningstar Dividend Leaders Index Fund Morningstar, Inc.
First Trust US Equity Opportunities ETF IPOX(R) Schuster LLC
First Trust NYSE Arca Biotechnology Index Fund NYSE Euronext
First Trust Dow Jones Internet Index Fund S&P Dow Jones Indices LLC
First Trust Capital Strength ETF Nasdaq, Inc.
First Trust Value Line(R) Dividend Index Fund Value Line Publishing LLC
First Trust Value Line(R) 100 Exchange-Traded Fund Value Line Publishing LLC
The respective license agreements allow for the use by First Trust of certain
trademarks and trade names of the respective Licensors. The Funds are
sub-licensees to the applicable license agreement. The respective Funds are
required to pay licensing fees, which are shown on the Statements of Operations.
I. NEW AND AMENDED FINANCIAL REPORTING RULES AND FORMS
On October 13, 2016, the SEC adopted new rules and forms, and amended existing
rules and forms. The new and amended rules and forms are intended to modernize
the reporting of information provided by funds and to improve the quality and
type of information that funds provide to the SEC and investors. In part, the
new and amended rules and forms amend Regulation S-X and require standardized,
enhanced disclosures about derivatives in a fund's financial statements, as well
as other amendments. The compliance date for the amendments of Regulation S-X
was August 1, 2017, which resulted in no change to the financial statements. The
new form types and other rule amendments will be effective for the First Trust
funds, including the Funds, for reporting periods beginning on and after June 1,
2018. Management is evaluating the new form types and other rule amendments that
are effective on and after June 1, 2018 to determine the impact to the Funds.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Funds, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in each Fund's portfolio, managing the Funds' business affairs and providing
certain administrative services necessary for the management of the Funds.
For these services, First Trust is entitled to receive monthly fees from each
Fund calculated at the following annual rates:
% of Average
Daily Net Assets
-----------------
First Trust Dow Jones Select MicroCap Index Fund 0.50%
First Trust Morningstar Dividend Leaders Index Fund 0.30%
First Trust US Equity Opportunities ETF 0.40%
First Trust NYSE Arca Biotechnology Index Fund 0.40%
First Trust Dow Jones Internet Index Fund 0.40%
First Trust Capital Strength ETF 0.50%
First Trust Value Line(R) Dividend Index Fund 0.50%
First Trust Value Line(R) 100 Exchange-Traded Fund 0.50%
The Trust and First Trust have entered into an Expense Reimbursement, Fee Waiver
and Recovery Agreement ("Recovery Agreement") in which First Trust has agreed to
waive fees and/or reimburse Fund expenses to the extent that the operating
expenses of each Fund (excluding interest expense, brokerage commissions and
other trading expenses, acquired fund fees and expenses, taxes and extraordinary
expenses) exceed the below amount as a percentage of average daily net assets
per year (the "Expense Cap"). The Expense Cap will be in effect until at least
April 30, 2019.
Page 64
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
Expense Cap
-----------------
First Trust Dow Jones Select MicroCap Index Fund 0.60%
First Trust Morningstar Dividend Leaders Index Fund 0.45%
First Trust US Equity Opportunities ETF 0.60%
First Trust NYSE Arca Biotechnology Index Fund 0.60%
First Trust Dow Jones Internet Index Fund 0.60%
First Trust Capital Strength ETF 0.65%
First Trust Value Line(R) Dividend Index Fund 0.70%
First Trust Value Line(R) 100 Exchange-Traded Fund 0.70%
Expenses reimbursed and fees waived by First Trust under the Recovery Agreement
are subject to recovery by First Trust for up to three years from the date the
fee was waived or expense was incurred, but no reimbursement payment will be
made by a Fund if it results in the Fund exceeding an expense ratio equal to the
Expense Cap in place at the time the expenses were reimbursed or fees waived by
First Trust. These amounts are included in "Expenses previously waived or
reimbursed" on the Statements of Operations.
The advisory fee waivers and expense reimbursements for the year ended December
31, 2017 and the fees waived or expenses borne by First Trust subject to
recovery from the applicable Fund for the periods indicated were as follows:
Fees Waived or Expenses Borne by First Trust
Subject to Recovery
------------------------------------------------
Advisory Year Year Year
Fee Expense Ended Ended Ended
Waivers Reimbursement 12/31/2015 12/31/2016 12/31/2017 Total
--------- ------------- ---------- ---------- ---------- ---------
First Trust Dow Jones Select MicroCap
Index Fund $ 97,709 $ -- $ 69,191 $ 76,424 $ 97,709 $ 243,324
First Trust Morningstar Dividend Leaders
Index Fund 289,110 -- 260,965 390,779 289,110 940,854
First Trust Value Line(R) Dividend
Index Fund 816,754 -- 464,054 679,825 816,754 1,960,633
First Trust Value Line(R) 100 Exchange-Traded
Fund 82,527 -- 83,472 85,239 82,527 251,238
During the year ended December 31, 2017, First Trust recovered fees that were
previously waived from First Trust US Equity Opportunities ETF of $23,043. First
Trust US Equity Opportunities ETF, First Trust NYSE Arca Biotechnology Index
Fund, First Trust Dow Jones Internet Index Fund and First Trust Capital Strength
ETF do not have any remaining fees previously waived or expenses reimbursed that
are subject to recovery.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
each Fund. As custodian, BNYM is responsible for custody of each Fund's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of each Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for each Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen rotate every three years. The officers and "Interested" Trustee receive
no compensation from the Trust for acting in such capacities.
Page 65
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
4. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2017, the cost of purchases and proceeds from
sales of investments for each Fund, excluding short-term investments and in-kind
transactions, were as follows:
Purchases Sales
--------------- ---------------
First Trust Dow Jones Select MicroCap Index Fund $ 50,775,324 $ 50,663,768
First Trust Morningstar Dividend Leaders Index Fund 736,799,395 733,762,745
First Trust US Equity Opportunities ETF 247,775,551 246,654,043
First Trust NYSE Arca Biotechnology Index Fund 371,004,301 371,467,475
First Trust Dow Jones Internet Index Fund 986,757,505 989,786,427
First Trust Capital Strength ETF 383,564,141 383,620,238
First Trust Value Line(R) Dividend Index Fund 1,801,784,282 1,806,353,854
First Trust Value Line(R) 100 Exchange-Traded Fund 250,660,270 250,549,701
For the year ended December 31, 2017, the cost of in-kind purchases and proceeds
from in-kind sales for each Fund were as follows:
Purchases Sales
--------------- ---------------
First Trust Dow Jones Select MicroCap Index Fund $ 20,292,408 $ 44,715,651
First Trust Morningstar Dividend Leaders Index Fund 661,411,578 860,891,640
First Trust US Equity Opportunities ETF 441,931,791 260,104,325
First Trust NYSE Arca Biotechnology Index Fund 186,155,841 82,171,921
First Trust Dow Jones Internet Index Fund 2,359,993,529 1,757,607,016
First Trust Capital Strength ETF 516,667,572 312,193,274
First Trust Value Line(R) Dividend Index Fund 2,707,325,927 1,751,684,685
First Trust Value Line(R) 100 Exchange-Traded Fund 39,243,910 40,334,267
5. CREATION, REDEMPTION AND TRANSACTION FEES
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker-dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Such transactions are generally permitted on an
in-kind basis, with a balancing cash component to equate the transaction to the
daily NAV per Share of each Fund on the transaction date times the number of
Shares in a Creation Unit. Authorized Participants purchasing Creation Units
must pay to BNYM, as transfer agent, a standard creation transaction fee (the
"Creation Transaction Fee"), which is based on the number of different
securities in a Creation Unit of each Fund according to the fee schedule set
forth below:
Number of Securities Creation
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-499 $1,000
500 or more $1,500
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by a Fund with respect to
transactions effected outside of the clearing process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. The price for each Creation Unit will equal the daily
NAV per Share of a Fund on the transaction date times the number of Shares in a
Creation Unit plus the fees described above and, if applicable, any transfer
taxes.
Authorized Participants redeeming Creation Units must pay to BNYM, as transfer
agent, a standard redemption transaction fee (the "Redemption Transaction Fee"),
which is based on the number of different securities in a Creation Unit of each
Fund according to the fee schedule set forth below:
Number of Securities Redemption
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-499 $1,000
500 or more $1,500
Page 66
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable fee of up to three times the Redemption Transaction Fee may
be charged to approximate additional expenses incurred by a Fund with respect to
redemptions effected outside of the clearing process or to the extent that
redemptions are for cash. Each Fund reserves the right to effect redemptions in
cash. A shareholder may request cash redemption in lieu of securities; however,
a Fund may, in its discretion, reject any such request.
6. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
in the sale of Creation Units or the provision of investor services. FTP may
also use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before April 30, 2019.
7. INDEMNIFICATION
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined there
were no subsequent events requiring recognition or disclosure in the financial
statements that have not already been disclosed.
Page 67
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statements of assets and liabilities of First
Trust Dow Jones Select MicroCap Index Fund, First Trust Morningstar Dividend
Leaders Index Fund, First Trust US Equity Opportunities ETF, First Trust NYSE
Arca Biotechnology Index Fund, First Trust Dow Jones Internet Index Fund, First
Trust Capital Strength ETF, First Trust Value Line(R) Dividend Index Fund, and
First Trust Value Line(R) 100 Exchange-Traded Fund (the "Funds"), each a series
of the First Trust Exchange-Traded Fund (the "Trust"), including the portfolios
of investments, as of December 31, 2017, the related statements of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, the financial highlights for each of the
five years in the period then ended, and the related notes. In our opinion, the
financial statements and financial highlights present fairly, in all material
respects, the financial position of each of the portfolios constituting the
First Trust Exchange-Traded Fund as of December 31, 2017, and the results of
their operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
BASIS FOR OPINION
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on the Funds'
financial statements and financial highlights based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to
the Funds in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Funds are not
required to have, nor were we engaged to perform, an audit of their internal
control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2017, by correspondence with
the custodian and brokers; when replies were not received from brokers, we
performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 23, 2018
We have served as the auditor of one or more First Trust investment companies
since 2001.
Page 68
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Funds' website located at www.ftportfolios.com; and (3) on the Securities
and Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of each Fund's portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q. The
Trust's Form N-Qs are available (1) by calling (800) 988-5891; (2) on the Funds'
website located at www.ftportfolios.com; (3) on the SEC's website at
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, 2017, the following percentages of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
----------------------------
First Trust Dow Jones Select MicroCap Index Fund 100.00%
First Trust Morningstar Dividend Leaders Index Fund 100.00%
First Trust US Equity Opportunities ETF 100.00%
First Trust NYSE Arca Biotechnology Index Fund --
First Trust Dow Jones Internet Index Fund --
First Trust Capital Strength ETF 100.00%
First Trust Value Line(R) Dividend Index Fund 99.45%
First Trust Value Line(R) 100 Exchange-Traded Fund 100.00%
For the taxable year ended December 31, 2017, the following percentages of
income dividends paid by the Funds are hereby designated as qualified dividend
income:
Qualified Dividend Income
----------------------------
First Trust Dow Jones Select MicroCap Index Fund 100.00%
First Trust Morningstar Dividend Leaders Index Fund 100.00%
First Trust US Equity Opportunities ETF 100.00%
First Trust NYSE Arca Biotechnology Index Fund --
First Trust Dow Jones Internet Index Fund --
First Trust Capital Strength ETF 100.00%
First Trust Value Line(R) Dividend Index Fund 100.00%
First Trust Value Line(R) 100 Exchange-Traded Fund 100.00%
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER EACH FUND'S INVESTMENT
OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN
DOWNLOAD EACH FUND'S PROSPECTUS AT WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST
PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS THIS
AND OTHER INFORMATION ABOUT EACH FUND. FOR ADDITIONAL INFORMATION ABOUT THE
RISKS ASSOCIATED WITH INVESTING IN THE FUNDS, PLEASE SEE THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION, AS WELL AS OTHER REGULATORY FILINGS. READ THESE
DOCUMENTS CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS THE
DISTRIBUTOR OF THE FIRST TRUST EXCHANGE-TRADED FUND.
The following summarizes some of the risks that should be considered for the
Funds.
Each Fund's shares will change in value, and you could lose money by investing
in a Fund. Shares are subject to market fluctuations caused by such factors as
economic, political, regulatory or market developments, changes in interest
rates and perceived trends in stock prices. Overall stock values could decline
generally or could underperform other investments. Overall stock market values
could decline generally or could underperform other investments.
Page 69
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
An investment in a Fund involves risks similar to those of investing in any fund
of equity securities traded on an exchange. Investors buying or selling Fund
shares on the secondary market may incur brokerage commissions. In addition,
investors who sell Fund shares may receive less than the Fund shares' net asset
value. Unlike shares of open-end funds, investors are generally not able to
purchase exchange-traded fund ("ETF") shares directly from a Fund and individual
ETF shares are not redeemable. However, specified large blocks of ETF shares
called creation units can be purchased from, or redeemed to, a Fund.
Each Fund is subject to index tracking risk. You should anticipate that the
value of Fund shares will decline, more or less, in correlation with any decline
in the value of the index that the Fund seeks to track.
Each Fund's return may not match the return of the index it seeks to track for a
number of reasons. While First Trust seeks to have a correlation of 0.95 or
better, before expenses, between a Fund's performance and the performance of its
corresponding index, there can be no assurance that a Fund will be able to
achieve such a correlation. Accordingly, each Fund's performance may correlate
to a lesser extent and may possibly vary substantially from the performance of
its corresponding index.
Each Fund is also exposed to additional market risk due to a policy of investing
principally in the securities included in its corresponding index. As a result
of such policies, securities held by each Fund will generally not be bought or
sold in response to market fluctuations and the securities may be issued by
companies concentrated in a particular industry. As a result, each Fund will
generally not sell a stock because the stock's issuer is in financial trouble,
unless that stock is removed or is anticipated to be removed from the index the
Fund seeks to track.
Each Fund relies on a license from an index provider that permits the Fund to
use its corresponding index and associated trade names and trademarks in
connection with the name and investment strategies of the Fund. Such licenses
may be terminated by the respective index provider and, as a result, each Fund
may lose its ability to use such intellectual property. There is also no
guarantee that the index provider has all rights to license the respective
intellectual property to First Trust, on behalf of the Fund. Accordingly, in the
event the license is terminated or the index provider does not have rights to
license the particular intellectual property, it may have a significant effect
on the operation of the related Fund.
Each Fund is subject to issuer specific changes risk. The value of an individual
security or a particular type of security can be more volatile than the market
as a whole and can perform differently from the value of the market as a whole.
Each Fund will be concentrated in the securities of companies of a given
industry if the Fund's corresponding index is concentrated in such industry. A
concentration makes a Fund more susceptible to any single occurrence affecting
the related industry and may subject a Fund to greater market risk than less
concentrated funds.
Only a party that has entered into a participation agreement an "authorized
participant" may engage in creation or redemption transactions directly with the
Funds. The Funds have a limited number of institutions that act as authorized
participants. To the extent that these institutions exit the business or are
unable to proceed with creation and/or redemption orders with respect to the
Funds and no other authorized participant is able to step forward to create or
redeem, in either of these cases, Fund shares may trade at a discount to a
Fund's net asset value and possibly face delisting.
The Funds have become more susceptible to potential operational risks through
breaches in cyber security as the use of Internet technology has become more
prevalent in the course of business. Cyber security breaches may involve
unauthorized access to the Fund's digital information system or those of the
Fund's third party service providers, such as its administrator, transfer agent,
custodian, or issuers in which the Fund invests. The Funds have established risk
management systems designed to reduce the risks associated with cyber security,
however there is no guarantee that such efforts will succeed.
With the exception of First Trust Capital Strength ETF, First Trust Dow Jones
Select MicroCap Index Fund, First Trust Value Line(R) Dividend Index Fund and
First Trust Value Line(R) 100 Exchange-Traded Fund, each Fund is considered to
be non-diversified. As a result, those Funds are exposed to additional market
risk. A non-diversified fund may invest a relatively high percentage of its
assets in a limited number of issuers. As a result, changes in the market value
of a single portfolio security could cause greater fluctuations in share price
than would occur in a diversified fund. Furthermore, non-diversified funds are
more susceptible to any single political, regulatory or economic occurrence.
The Funds are not actively managed. The Funds may be affected by a general
decline in certain market segments relating to their corresponding index. The
Funds invest in securities included in or representative of their corresponding
index regardless of their investment merit. The Funds generally will not attempt
to take defensive positions in declining markets.
Page 70
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
The First Trust Dow Jones Select MicroCap Index Fund invests in
micro-capitalization companies. Such companies may be more vulnerable to adverse
general market or economic developments, may be less liquid, and may experience
greater price volatility than larger, more established companies.
The First Trust NYSE Arca Biotechnology Index Fund invests in the securities of
companies in the health care sector. Because companies in the health care sector
are involved in medical services or health care including biotechnology research
and production, drugs and pharmaceuticals and health care facilities and
services, general problems with these companies include extensive competition,
generic drug sales or the loss of patent protection, product liability
litigations and increased government regulations.
The First Trust NYSE Arca Biotechnology Index Fund invests in biotechnology and
pharmaceutical companies that are subject to changing government regulation
which could have a negative effect on the price, profitability of their products
and services. Regulations have been proposed to increase the availability and
affordability of prescription drugs including increased access to generic drugs
and increased rebates paid by drug manufacturers in exchange for Medicaid
coverage of their products. Whether such proposals will be adopted cannot be
predicted. Such companies also face increasing competition from existing generic
drugs, the termination of their patent protection for certain drugs and
technological advances which render their products or services obsolete. The
research and development costs required to bring a drug to market are
substantial and may include a lengthy review by the government, with no
guarantee that the product will ever be brought to market or show a profit. In
addition, the potential for an increased amount of required disclosure of
proprietary scientific information could negatively impact the competitive
position of these companies, many of which may not offer certain drugs or
products for several years, and as a result, may have significant losses of
revenue and earnings.
The First Trust Capital Strength ETF invests in health care companies involved
in medical services or health care, including biotechnology research and
production, drugs and pharmaceuticals and health care facilities and services.
These companies are subject to extensive competition, generic drug sales or the
loss of patent protection, product liability litigation and increased government
regulation. Research and development costs of bringing new drugs to market are
substantial, and there is no guarantee that the product will ever come to
market. Health care facility operators may be affected by the demand for
services, efforts by government or insurers to limit rates, restriction of
government financial assistance and competition from other providers.
The First Trust US Equity Opportunities ETF invests in companies that have
recently conducted an initial public offering. The stocks of such companies are
often subject to extreme price volatility and speculative trading.
The First Trust Dow Jones Select Micro Cap Index Fund and First Trust Value
Line(R) Dividend Index Fund invest in financial companies which are especially
subject to the adverse effects of economic recession, currency exchange rates,
government regulation, decreases in the availability of capital, 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.
The First Trust Capital Strength ETF, First Trust Dow Jones Internet Index Fund,
First Trust US Equity Opportunities ETF and First Trust Value Line(R) 100
Exchange-Traded Fund invest in securities of companies in the information
technology industry. Information technology companies are generally subject to
the risks of rapidly changing technologies; short product life cycles; fierce
competition; and aggressive pricing and reduced profit margins.
The First Trust Dow Jones Internet Index Fund invests in the securities of
Internet companies. Internet companies are subject to rapid changes in
technology, worldwide competition, rapid obsolescence of products and services,
loss of patent protections, cyclical market patterns, evolving industry
standards and frequent new product introductions. The Fund's investment in
Internet companies may also be subject to the risk of owning small
capitalization companies that have recently begun operations.
The First Trust Dow Jones Internet Index Fund, First Trust US Equity
Opportunities ETF, First Trust Value Line(R) 100 Exchange-Traded Fund and First
Trust Dow Jones Internet Index Fund invest in the securities of companies in the
consumer discretionary sector. Because companies in the consumer discretionary
sector provide non-essential goods and services directly to the consumer, the
success of these companies is tied closely to the performance of the overall
domestic and international economy, interest rates, competition and consumer
confidence. Changes in demographics and consumer tastes can also affect the
demand for, and success of, consumer discretionary products.
The First Trust Capital Strength ETF and First Trust Value Line(R) 100
Exchange-Traded Fund invest in the securities of companies in the industrials
sector. General risks of these companies include the general state of the
economy, intense competition, consolidation, domestic and international
politics, excess capacity and consumer demand and spending trends. In addition,
they may also be significantly affected by overall capital spending levels,
economic cycles, technical obsolescence, delays in modernization, labor
relations, government regulations and e-commerce initiatives.
Page 71
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
The First Trust Capital Strength ETF and First Trust Value Line(R) Dividend
Index Fund invest in the securities of companies in the consumer staples sector.
Consumer staples companies provide products directly to the consumer that are
typically considered non-discretionary items based on consumer purchasing
habits. The success of these companies is affected by a variety of factors, such
as government regulations, which may affect the permissibility of using various
food additives and the production methods of companies that manufacture food
products.
The First Trust Morningstar Dividend Leaders Index Fund and First Trust Value
Line(R) Dividend Index Fund invest in the securities of utilities companies.
Utilities companies are subject to the imposition of rate caps, increased
competition due to deregulation, the difficulty in obtaining an adequate return
on invested capital or in financing large construction projects, the limitations
on operations and increased costs and delays attributable to environmental
considerations, and the capital market's ability to absorb utility debt. In
addition, taxes, government regulation, international politics, price and supply
fluctuations, volatile interest rates and energy conservation may cause
difficulties for utilities. Utilities issuers have been experiencing certain of
these problems to varying degrees.
With the exception of First Trust Capital Strength ETF and First Trust Dow Jones
Select MicroCap Index Fund, the Funds may invest in small capitalization and
mid-capitalization companies. Such companies' securities may be less liquid and
may experience greater price volatility than securities of larger, more
established companies.
Because a Fund's corresponding index may include American Depositary Receipts
("ADRs"), American Depositary Shares ("ADSs") and/or stocks of non-U.S.
companies, the investments of certain Funds, including but not limited to, the
First Trust Value Line(R) 100 Exchange-Traded Fund, involves risks of investing
in non-U.S. securities that are in addition to the risk associated with domestic
securities. Non-U.S. companies, in general, are not subject to the regulatory
requirements of U.S. companies and, as such, there may be less publicly
available information about these companies. Moreover, non-U.S. accounting,
auditing and financial reporting standards generally are different from those
applicable to U.S. companies. In addition, non-U.S. companies are exposed to
additional economic, political, social or diplomatic events. ADRs and ADSs also
involve substantially identical risks to those associated with investments in
non-U.S. securities. In addition, the issuers of certain depositary receipts,
particularly unsponsored or unregistered depositary receipts, are under no
obligation to distribute shareholder communications to the holders of such
receipts, or to pass through to them any voting rights with respect to the
deposited securities.
The First Trust Morningstar Dividend Leaders Index Fund invests in
telecommunications companies which are subject to risks such as a market
characterized by increasing competition and regulation by the Federal
Communications Commission and various state regulatory authorities, the need to
commit substantial capital to meet increasing competition, particularly in
formulating new products and services using new technology, and innovations that
may make various products and services obsolete.
The First Trust Morningstar Dividend Leaders Index Fund invests in the
securities of companies in the energy sector. General problems of issuers in the
energy sector include volatile fluctuations in price and supply of energy fuels
, international politics, terrorist attacks, reduced demand as a result of
increases in energy efficiency and energy conservation, the success of
exploration projects, clean-up and litigation costs relating to oil spills and
environmental damage, and tax and other regulatory policies of various
governments. In addition, oil prices are subject to extreme volatility.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
Page 72
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
REMUNERATION
First Trust Advisors L.P. ("First Trust") is authorised and regulated by the
U.S. Securities and Exchange Commission and is entitled to market shares of the
First Trust Exchange-Traded Funds it manages (the "Funds") in certain member
states in the European Economic Area in accordance with the cooperation
arrangements in Article 42 of the Alternative Investment Fund Managers Directive
(the "Directive"). First Trust is required under the Directive to make
disclosures in respect of remuneration. The following disclosures are made in
line with First Trust's interpretation of currently available regulatory
guidance on remuneration disclosures.
During the year ended December 31, 2017, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Funds is $8,575,944.
This figure is comprised of $345,122 paid (or to be paid) in fixed compensation
and $8,230,822 paid (or to be paid) in variable compensation. There were a total
of 14 beneficiaries of the remuneration described above. Those amounts include
$6,004,189 paid (or to be paid) to senior management of First Trust Advisors
L.P. and $2,571,755 paid (or to be paid) to other employees whose professional
activities have a material impact on the risk profiles of First Trust Advisors
L.P. or the Funds (collectively, "Code Staff").
Code Staff included in the aggregated figures disclosed above are rewarded in
line with First Trust's remuneration policy (the "Remuneration Policy") which is
determined and implemented by First Trust's senior management. The Remuneration
Policy reflects First Trust's ethos of good governance and encapsulates the
following principal objectives:
i. to provide a clear link between remuneration and performance of
First Trust and to avoid rewarding for failure;
ii. to promote sound and effective risk management consistent with the
risk profiles of the Funds managed by First Trust; and
iii. to remunerate staff in line with the business strategy, objectives,
values and interests of First Trust and the Funds managed by First
Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when
considering and implementing remuneration for Code Staff and considers whether
any potential award to such person(s) would give rise to a conflict of interest.
First Trust does not reward failure, or consider the taking of risk or failure
to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in
respect of performance-related remuneration of Code Staff by reference to a
broad range of measures including (i) individual performance (using financial
and non-financial criteria), and (ii) the overall performance of First Trust.
Remuneration is not based upon the performance of the Funds.
The elements of remuneration are balanced between fixed and variable and the
senior management sets fixed salaries at a level sufficient to ensure that
variable remuneration incentivises and rewards strong individual performance but
does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
Page 73
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 E. Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 151 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 151 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial 151 Director of Trust
(1956) and Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating 151 Director of
(1954) Officer (January 2015 to Present), Pelita Covenant
o Since Inception Harapan Educational Foundation Transport Inc.
(Educational Products and Services); (May 2003 to
President and Chief Executive Officer May 2014)
(June 2012 to September 2014), Servant
Interactive LLC (Educational Products and
Services); President and Chief Executive
Officer (June 2012 to September 2014),
Dew Learning LLC (Educational Products
and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 151 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P.; Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 74
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer
(1966) Executive Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer (January
2016 to Present), BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; and Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 75
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
May 2017
Page 76
FIRST TRUST
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
FIRST TRUST
First Trust Exchange-Traded Fund
Book 2
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)
First Trust S&P REIT Index Fund (FRI)
First Trust Water ETF (FIW)
First Trust Natural Gas ETF (FCG)
First Trust Chindia ETF (FNI)
First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)
Annual Report
December 31, 2017
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2017
Shareholder Letter.......................................................... 2
Market Overview............................................................. 3
Fund Performance Overview
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW).................. 4
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)............... 6
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)............ 8
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)....... 10
First Trust S&P REIT Index Fund (FRI).................................... 12
First Trust Water ETF (FIW).............................................. 14
First Trust Natural Gas ETF (FCG)........................................ 16
First Trust Chindia ETF (FNI)............................................ 18
First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)............... 20
Notes to Fund Performance Overview.......................................... 22
Understanding Your Fund Expenses............................................ 23
Portfolio of Investments
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW).................. 25
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)............... 28
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)............ 29
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)....... 32
First Trust S&P REIT Index Fund (FRI).................................... 34
First Trust Water ETF (FIW).............................................. 37
First Trust Natural Gas ETF (FCG)........................................ 39
First Trust Chindia ETF (FNI)............................................ 41
First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)............... 44
Statements of Assets and Liabilities........................................ 48
Statements of Operations.................................................... 50
Statements of Changes in Net Assets......................................... 52
Financial Highlights........................................................ 56
Notes to Financial Statements............................................... 61
Report of Independent Registered Public Accounting Firm..................... 71
Additional Information...................................................... 72
Board of Trustees and Officers.............................................. 77
Privacy Policy.............................................................. 79
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
any series of First Trust Exchange-Traded Fund (the "Trust") described in this
report (each such series is referred to as a "Fund" and collectively, as the
"Funds") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any Fund described in this report will achieve its
investment objective. Each Fund is subject to market risk, which is the
possibility that the market values of securities owned by the Fund will decline
and that the value of the Fund shares may therefore be less than what you paid
for them. Accordingly, you can lose money by investing in a Fund. See "Risk
Considerations" in the Additional Information section of this report for a
discussion of other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
www.ftportfolios.com or speak with your financial advisor. Investment returns,
net asset value and share price will fluctuate and Fund shares, when sold, may
be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on each Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about each Fund's portfolio and presents data and analysis that
provide insight into each Fund's performance and investment approach.
By reading the market overview by Robert F. Carey, Chief Market Strategist of
the Advisor, you may obtain an understanding of how the market environment
affected the performance of each Fund. The statistical information that follows
may help you understand each Fund's performance compared to that of relevant
market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in each
Fund are spelled out in its prospectus, statement of additional information,
this report and other Fund regulatory filings.
Page 1
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
DECEMBER 31, 2017
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Exchange-Traded Fund which contains detailed information about your investment
for the twelve months ended December 31, 2017, including a market overview and a
performance analysis for the period. We encourage you to read this report
carefully and discuss it with your financial advisor.
This was a very strong year for U.S. markets. The three major indices--the S&P
500(R) Index, the Dow Jones Industrial Average and the Nasdaq posted their best
performance since 2013. And there was more good news for Wall Street:
o The S&P 500(R) achieved something it had not previously, finishing
2017 with 12 months of gains;
o The Dow Jones realized a milestone as well, closing above 24,000 for
the first time ever on November 30; and
o The Nasdaq set a record by having 11 months of gains in 2017 (June
was the only down month, and by just 0.86%).
World markets were also strong in 2017. According to the MSCI AC World Index,
which captures all sources of equity returns in 23 developed and 24 emerging
markets, world stocks rose every month in 2017. The value of public companies on
global stock markets grew by $12.4 trillion during the year.
In 2017, stocks benefitted from increased global demand, growth in corporate
profits (especially technology stocks) and an accommodative Federal Reserve. The
housing market in the United States continues to grow due to a strong job
market, low interest rates and tight inventory. As the year came to a close,
President Trump signed the tax reform package, called the "Tax Cuts and Jobs
Act," which was seen as a promise kept by then-candidate Trump to accomplish
sweeping reform. It is hoped this tax reform will boost economic activity to
greater highs.
At First Trust, we are optimistic about the U.S. economy. We also continue to
believe that you should invest for the long term and be prepared for market
volatility, which can happen at any time. How can you do this? By keeping
current on your portfolio and investing goals by speaking regularly with your
investment professional. It's important to keep in mind that past performance of
the U.S. and global stock markets or investment products can never guarantee
future results. As we've said before, markets go up and they also go down, but
savvy investors are prepared for either through careful attention to their
portfolios and investment goals.
Thank you for giving First Trust the opportunity to be a part of your financial
plan through your investment. We value our relationship with you and will report
on your investment again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 2
--------------------------------------------------------------------------------
MARKET OVERVIEW
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2017
ROBERT F. CAREY, CFA
SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST
FIRST TRUST ADVISORS L.P.
Mr. Carey is responsible for the overall management of research and analysis of
the First Trust product line. Mr. Carey has over 25 years of experience as an
Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial
Analyst ("CFA") designation. He is a graduate of the University of Illinois at
Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment
Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a
guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been
quoted by several publications, including The Wall Street Journal, The Wall
Street Reporter, Bloomberg News Service, and Registered Rep.
STATE OF THE ECONOMY/INVESTING
At the midpoint of 2017, House Speaker Paul Ryan stated that he did not think
that the U.S. economy could achieve a 3% gross domestic product ("GDP") growth
rate without passing tax reform legislation. The Tax Cuts and Jobs Act was
signed into law by President Trump on December 22, 2017. One of the main goals
of cutting taxes, both corporate and individual, is to try and boost economic
activity in the U.S. It is true that real GDP growth has topped the 3.0% mark on
an annualized basis the past two quarters (3.1% in the second quarter and 3.2%
in the third quarter), but growth has only averaged 2.2% in the current
recovery, which commenced in the third quarter of 2009, according to data from
the Bureau of Economic Analysis. While it will likely take some time to
determine how effective lower tax rates will be in stimulating economic growth,
particularly the cut from 35% to 21% on the federal tax rate for corporations,
the concept of tax cuts seems to have been well-received by investors since
Trump was elected more than a year ago, in our opinion.
Both small and large companies in the U.S. seem optimistic looking ahead. The
National Federation of Independent Business ("NFIB") reported that its Small
Business Optimism Index hit 107.5 in November, the second-highest reading in its
44-year history, according to its own release. The all-time high was 108.0, set
in September 1983. The NFIB noted that "small business owners are exuberant
about the economy and are ready to lead the U.S. economy in a period of robust
growth." Chief Executive's CEO Confidence Index in Business Conditions 12 Months
Out just registered its second most optimistic year (7.08 out of 10) since the
index commenced in 2003, according to its own release. The highest mark ever
achieved for a calendar year was 7.47 in 2004. The monthly survey of 267 CEOs
revealed that two-thirds of those polled plan to add to their workforce in 2018,
while only 5% forecast a decrease in headcount. CEOs are also expecting to
increase both profitability and revenue in 2018.
ETFGI, an industry research group, reported that total assets invested in
exchange-traded funds ("ETFs") and other exchange-traded products ("ETPs")
listed globally reached an all-time high of $4.83 trillion at the close of 2017,
according to its own release. Total assets invested in ETFs and ETPs listed in
the U.S. reached a record high of $3.42 trillion.
U.S. STOCKS AND BONDS
In 2017, three of the major U.S. stock indices posted double-digit returns. The
S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index posted
total returns of 21.83%, 16.24%, and 13.23%, respectively, according to
Bloomberg. Nine of the 11 major S&P 500(R) Index sectors posted positive total
returns. The top-performing sectors were Information Technology, Materials and
Consumer Discretionary, up 38.83%, 23.84% and 22.98%, respectively, on a total
return basis. The two sectors that posted losses were Energy and
Telecommunication Services, down 1.25% and 1.01%, respectively. In general,
cyclical areas of the stock market outperformed non-cyclicals in 2017, an
indication that investors are optimistic about U.S. economic growth moving
forward.
The Federal Reserve ("the Fed") raised the federal funds target rate (upper
bound) three times, from 0.75% to 1.50%, in 2017. It is poised to hike rates
three times in 2018, according to CNBC. The Fed has already raised this rate
five times, dating back to its first hike on December 16, 2015. If the Fed
tightens three times in 2018, the rate will likely hit 2.25%, assuming 25 basis
points per hike. For comparative purposes, the target rate averaged 2.68% for
the 25-year period ended December 29, 2017, according to Bloomberg. The highest
level it reached over that period was 6.50% on May 16, 2000. So while this key
benchmark lending rate is rising, it is still low by historical standards. The
projected bump up in interest rates would not likely derail the bull market in
stocks, but it could put some downward pressure on bond prices by pushing bond
yields higher, in our opinion.
In the U.S. bond market, the top-performing major debt group was high yield
corporate bonds. The Bloomberg Barclays U.S. Corporate High Yield Index posted a
total return of 7.50% in 2017. The worst-performing debt group that we track was
Treasuries, though the group still generated a positive return. The Bloomberg
Barclays U.S. Treasury: Intermediate Index posted a total return of 1.14%. The
yield on the benchmark 10-Year Treasury note (T-note) declined by four basis
points to 2.41% in 2017, according to Bloomberg. The average yield on the
10-year T-note was 2.58% for the 10-year period ended December 29, 2017.
FOREIGN STOCKS AND BONDS
The U.S. dollar declined by 9.87% against a basket of major currencies in 2017,
as measured by the U.S. Dollar Index (DXY). With respect to U.S. investors, a
weaker U.S. dollar can positively impact returns on foreign securities.
The Bloomberg Barclays EM Hard Currency Aggregate Index of emerging markets debt
posted a total return of 9.61% (USD), while the Bloomberg Barclays Global
Aggregate Index of higher quality debt rose 7.39% (USD) in 2017. The MSCI Daily
Total Return Net Emerging Markets Index of stocks posted a total return of
37.28% (USD), while the MSCI Daily Total Return Net World Index (excluding the
U.S.) posted a total return of 24.21% (USD) in 2017.
Page 3
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
The First Trust NASDAQ-100 Equal Weighted Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Equal
Weighted Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its net assets (including investment borrowings) in common stocks that comprise
the Index. The Index is the equal-weighted version of the NASDAQ-100 Index(R),
which includes 100 of the largest non-financial securities listed on The Nasdaq
Stock Market LLC ("Nasdaq") based on market capitalization. The Index contains
the same securities as the NASDAQ-100 Index(R), but each of the securities is
initially set at a weight of 1.00% of the Index which is rebalanced quarterly.
The Fund's shares are listed for trading on the Nasdaq. The first day of
secondary market trading in shares of the Fund was April 25, 2006.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (4/19/06) Ended Ended (4/19/06)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 26.00% 18.11% 10.77% 10.07% 129.81% 178.22% 207.15%
Market Value 26.01% 18.11% 10.69% 10.07% 129.84% 175.99% 207.31%
INDEX PERFORMANCE
NASDAQ-100 Equal Weighted Index(SM) 26.78% 18.86% 11.48% 10.75% 137.25% 196.52% 230.38%
S&P 500(R) Index 21.83% 15.79% 8.50% 8.57% 108.14% 126.03% 161.71%
NASDAQ-100 Index(R) 32.99% 20.68% 13.05% 12.89% 155.98% 240.83% 313.21%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a net asset value ("NAV") return of 26.00% during the
12-month period covered by this report. During the same period, the NASDAQ-100
Index(R) ("benchmark") generated a return of 32.99%. The Information Technology
sector was the highest allocated and top performing sector over the period as it
comprised 40.8% of the Fund and had a 38.9% return, which led to a 15.0%
contribution to the Fund's return. The Consumer Staples sector was the worst
performing sector in the Fund with a 8.3% return and 0.4% contribution. On a
relative basis, the Fund underperformed the benchmark. The Fund underperformed
the benchmark in Consumer Discretionary securities by -13.0% which led to -3.7%
of relative drag. Another -2.6% of underperformance is attributable to the Fund
under allocating the benchmark 17.8% amongst the well performing Information
Technology securities. Underperformance of 0.7% was reversed due to the Fund
outperforming the benchmark in Consumer Staples securities.
-----------------------------
Nasdaq(R), Nasdaq-100(R), Nasdaq-100 Index(R), and Nasdaq-100 Equal Weighted
Index(SM) are trademarks of Nasdaq, Inc. (which with its affiliates is referred
to as the Corporations) and are licensed for use by First Trust. The Fund has
not been passed on by the Corporations as to its legality or suitability. The
Fund is not issued, endorsed, sold, or promoted by the Corporations. THE
CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Page 4
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 43.69%
Consumer Discretionary 22.15
Health Care 20.01
Industrials 7.16
Consumer Staples 4.95
Telecommunication Services 2.04
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Marriott International, Inc., Class A 1.06%
Ross Stores, Inc. 1.06
Mylan N.V. 1.05
Express Scripts Holding Co. 1.05
CSX Corp. 1.05
Intel Corp. 1.05
Charter Communications, Inc., Class A 1.05
Shire PLC, ADR 1.04
Vertex Pharmaceuticals, Inc. 1.04
Alexion Pharmaceuticals, Inc. 1.04
-------
Total 10.49%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust
NASDAQ-100 Equal NASDAQ-100 Equal S&P 500(R) NASDAQ-100
Weighted Index Fund Weighted Index(SM) Index Index(R)
12/07 $10,000 $10,000 $10,000 $10,000
06/08 8,762 8,782 8,808 8,832
12/08 5,604 5,647 6,300 5,843
06/09 6,932 7,003 6,499 7,152
12/09 8,941 9,065 7,966 9,034
06/10 8,437 8,581 7,436 8,477
12/10 10,841 11,058 9,166 10,855
06/11 11,655 11,926 9,717 11,423
12/11 10,540 10,826 9,358 11,253
06/12 11,508 11,849 10,246 12,989
12/12 12,106 12,498 10,856 13,315
06/13 13,995 14,513 12,356 14,658
12/13 16,942 17,622 14,371 18,233
06/14 18,294 19,086 15,397 19,668
12/14 20,184 21,117 16,339 21,772
06/15 20,662 21,681 16,540 22,734
12/15 20,633 21,727 16,565 23,896
06/16 20,039 21,156 17,201 23,138
12/16 22,081 23,390 18,546 25,635
06/17 25,576 27,172 20,278 29,937
12/17 27,824 29,656 22,603 34,083
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 203 0 0 0
01/01/14 - 12/31/14 161 3 0 0
01/01/15 - 12/31/15 126 1 0 0
01/01/16 - 12/31/16 107 0 0 0
01/01/17 - 12/31/17 178 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 49 0 0 0
01/01/14 - 12/31/14 87 1 0 0
01/01/15 - 12/31/15 122 3 0 0
01/01/16 - 12/31/16 145 0 0 0
01/01/17 - 12/31/17 73 0 0 0
Page 5
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC)
The First Trust NASDAQ-100-Technology Sector Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Technology
Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its net assets (including investment borrowings) in common stocks that comprise
the Index. The Index is an equal-weighted index based on the securities of the
NASDAQ-100 Index(R) that are classified as "technology" according to the
Industry Classification Benchmark classification system. The NASDAQ-100 Index(R)
includes 100 of the largest domestic and international non-financial companies
listed on the Nasdaq based on market capitalization. The NASDAQ-100 Index(R) is
rebalanced four times annually in March, June, September and December. The
Fund's shares are listed for trading on the Nasdaq. The first day of secondary
market trading in shares of the Fund was April 25, 2006.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (4/19/06) Ended Ended (4/19/06)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 37.86% 24.04% 13.63% 12.23% 193.68% 258.98% 285.91%
Market Value 37.85% 24.06% 13.64% 12.24% 193.87% 259.06% 286.17%
INDEX PERFORMANCE
NASDAQ-100 Technology Sector Index(SM) 38.69% 24.84% 14.37% 12.94% 203.21% 283.06% 315.51%
S&P 500(R) Index 21.83% 15.79% 8.50% 8.57% 108.14% 126.03% 161.71%
S&P 500 Information Technology Index 38.83% 20.90% 11.90% 11.79% 158.28% 207.73% 268.50%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 37.86% during the 12-month period covered by
this report. During the same period, the S&P 500 Information Technology Index
("benchmark") generated a return of 38.83%. The Semiconductors & Semiconductor
Equipment and the Software & Services industries were each given an average
weighting of roughly 42.5% in the Fund. The Semiconductors & Semiconductor
Equipment industry had a 44% return in the Fund, leading to a 17.9% contribution
while the Software & Services industry had a 35.5% return in the Fund, leading
to a 15.6% contribution. The worst performing industry was the Technology
Hardware & Equipment industry with a 31% return and 3.8% contribution. On a
relative basis, the Fund underperformed the benchmark. The primary cause of the
underperformance is due to the Fund underperforming in Technology Hardware &
Equipment securities by -9.8%, which resulted in -1.5% of relative drag. The
Software & Services industry created another -1.0% of drag as the Fund
underperformed the benchmark by -2.5%. The Semiconductors & Semiconductor
Equipment industry reversed 2.1% of drag as the Fund over allocated this well
performing industry and outperformed by 5.5%.
-----------------------------
Nasdaq(R), Nasdaq-100(R), Nasdaq-100 Index(R), and Nasdaq-100 Technology Sector
Index(SM) are trademarks of Nasdaq, Inc. (which with its affiliates is referred
to as the Corporations) and are licensed for use by First Trust. The Fund has
not been passed on by the Corporations as to its legality or suitability. The
Fund is not issued, endorsed, sold, or promoted by the Corporations. THE
CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Page 6
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION (1) LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 97.27%
Health Care 2.73
-------
Total 100.00%
=======
(1) The above sector classification is based on Standard & Poor's Global
Industry Classification Standard ("GICS"), and is different than the
industry sector classification system used by the Index to select
securities, which is the Industry Classification Benchmark ("ICB") system,
the joint classification system of Dow Jones Indexes and FTSE Group.
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Intel Corp. 2.92%
Texas Instruments, Inc. 2.90
Analog Devices, Inc. 2.88
NVIDIA Corp. 2.85
Microchip Technology, Inc. 2.84
Baidu, Inc., ADR 2.83
ASML Holding N.V. 2.82
Cisco Systems, Inc. 2.82
Maxim Integrated Products, Inc. 2.81
KLA-Tencor Corp. 2.81
-------
Total 28.48%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust
NASDAQ-100- NASDAQ-100
Technology Sector Technology Sector S&P 500 Information S&P 500(R)
Index Fund Index(SM) Technology Index Index
12/07 $10,000 $10,000 $10,000 $10,000
06/08 9,074 9,101 8,692 8,808
12/08 5,474 5,518 5,686 6,300
06/09 7,339 7,422 7,100 6,499
12/09 9,847 9,995 9,195 7,966
06/10 9,099 9,260 8,223 7,436
12/10 12,006 12,259 10,132 9,166
06/11 12,098 12,390 10,341 9,717
12/11 11,315 11,626 10,377 9,358
06/12 11,831 12,195 11,761 10,246
12/12 12,223 12,638 11,915 10,856
06/13 13,656 14,165 12,672 12,356
12/13 16,883 17,569 15,303 14,371
06/14 19,098 19,937 16,671 15,397
12/14 21,075 22,072 18,381 16,339
06/15 20,554 21,586 18,521 16,540
12/15 20,784 21,897 19,471 16,565
06/16 21,393 22,620 19,409 17,201
12/16 26,037 27,628 22,167 18,548
06/17 30,997 32,985 25,986 20,280
12/17 35,898 38,306 30,773 22,603
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 170 0 0 0
01/01/14 - 12/31/14 171 4 0 0
01/01/15 - 12/31/15 164 2 0 0
01/01/16 - 12/31/16 147 0 0 0
01/01/17 - 12/31/17 146 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 81 1 0 0
01/01/14 - 12/31/14 76 1 0 0
01/01/15 - 12/31/15 85 1 0 0
01/01/16 - 12/31/16 105 0 0 0
01/01/17 - 12/31/17 105 0 0 0
Page 7
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
The First Trust NASDAQ-100 Ex-Technology Sector Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Ex-Tech
Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its net assets (including investment borrowings) in common stocks that comprise
the Index. The Index contains securities of the NASDAQ-100 Index(R) that are not
classified as "technology" according to the Industry Classification Benchmark
classification system and, as a result, is a subset of the NASDAQ-100 Index(R).
The NASDAQ-100 Index(R) includes 100 of the largest domestic and international
non-financial companies listed on the Nasdaq based on market capitalization. The
Index is equally-weighted and is rebalanced four times annually in March, June,
September and December. The Fund's shares are listed for trading on the Nasdaq.
The first day of secondary market trading in shares of the Fund was February 15,
2007.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (2/8/07) Ended Ended (2/8/07)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 20.41% 15.00% 9.20% 8.99% 101.11% 141.13% 155.47%
Market Value 20.52% 14.98% 9.20% 9.00% 100.95% 141.11% 155.58%
INDEX PERFORMANCE
NASDAQ-100 Ex-Tech Sector Index(SM) 21.14% 15.71% 9.88% 9.67% 107.44% 156.50% 173.36%
Russell 1000(R) Index 21.69% 15.71% 8.59% 8.14% 107.42% 128.06% 134.50%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 20.41% during the 12-month period covered by
this report. During the same period, the Russell 1000(R) Index ("benchmark")
generated a return of 21.69%. Consumer Discretionary securities were given the
highest allocation in the Fund over the period at 40.1%. This sector had a 17.8%
return and contributed 7.4% to the Fund's return. The top performing sector was
the Information Technology sector with a 40.8% return. This sector was given an
11.3% allocation and had a 4.1% contribution. The worst performing and least
contributing sector was the Consumer Staples sector with an 8.3% return and 0.7%
contribution. On a relative basis, the Fund underperformed the benchmark. The
primary cause of the underperformance is attributable to the Fund
underperforming the benchmark amongst Consumer Discretionary securities by
-5.6%, which created -1.7% of drag. The Fund did not have any allocation to the
Energy sector which resulted in 1.6% of relative outperformance as these
securities were given a 6.0% allocation in the benchmark and had a -1.6% return.
-----------------------------
Nasdaq(R), Nasdaq-100(R), Nasdaq-100 Index(R), and Nasdaq-100 Ex-Tech Sector
Index(SM) are trademarks of Nasdaq, Inc. (which with its affiliates is referred
to as the Corporations) and are licensed for use by First Trust. The Fund has
not been passed on by the Corporations as to its legality or suitability. The
Fund is not issued, endorsed, sold, or promoted by the Corporations. THE
CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Page 8
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Consumer Discretionary 34.50%
Health Care 29.63
Information Technology 13.83
Industrials 11.15
Consumer Staples 7.70
Telecommunication Services 3.19
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Marriott International, Inc., Class A 1.65%
Ross Stores, Inc. 1.65
CSX Corp. 1.64
Express Scripts Holding Co. 1.63
Mylan N.V. 1.63
Shire PLC, ADR 1.63
Charter Communications, Inc., Class A 1.63
Vertex Pharmaceuticals, Inc. 1.62
Alexion Pharmaceuticals, Inc. 1.62
JD.com, Inc., ADR 1.62
-------
Total 16.32%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust
NASDAQ-100 NASDAQ-100
Ex-Technology Sector Ex-Tech Sector Russell 1000(R)
Index Fund Index(SM) Index
12/07 $10,000 $10,000 $10,000
06/08 8,548 8,567 8,881
12/08 5,690 5,728 6,241
06/09 6,663 6,726 6,511
12/09 8,350 8,457 8,016
06/10 7,978 8,104 7,503
12/10 10,073 10,265 9,306
06/11 11,288 11,541 9,899
12/11 9,964 10,226 9,446
06/12 11,236 11,562 10,332
12/12 11,988 12,364 10,997
06/13 14,239 14,756 12,527
12/13 16,932 17,594 14,639
06/14 17,707 18,461 15,703
12/14 19,531 20,414 16,578
06/15 20,592 21,594 16,861
12/15 20,458 22,947 16,729
06/16 19,220 21,602 17,355
12/16 20,021 22,565 18,745
06/17 22,880 25,869 20,483
12/17 24,113 25,650 22,806
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 145 13 0 0
01/01/14 - 12/31/14 151 14 0 0
01/01/15 - 12/31/15 201 6 0 0
01/01/16 - 12/31/16 80 0 0 0
01/01/17 - 12/31/17 44 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 82 12 0 0
01/01/14 - 12/31/14 79 7 1 0
01/01/15 - 12/31/15 42 3 0 0
01/01/16 - 12/31/16 172 0 0 0
01/01/17 - 12/31/17 207 0 0 0
Page 9
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (the "Fund")
seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the NASDAQ(R)
Clean Edge(R) Green Energy Index(SM) (the "Index"). The Fund will normally
invest at least 90% of its net assets (including investment borrowings) in
common stocks that comprise the Index. The Index is a modified market
capitalization weighted index in which larger companies receive a larger Index
weighting and includes caps to prevent high concentrations among larger
alternative energy stocks. The Index is an equity index designed to track the
performance of clean-energy companies that are publicly traded in the United
States and includes companies engaged in manufacturing, development,
distribution, and installation of emerging clean-energy technologies including,
but not limited to, solar photovoltaics, biofuels, and advanced batteries. The
Index weighting methodology also includes caps to prevent high concentrations
among larger alternative energy stocks. The Index is reconstituted semi-annually
in March and September and rebalanced quarterly. The Fund's shares are listed
for trading on the Nasdaq. The first day of secondary market trading in shares
of the Fund was February 14, 2007.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (2/8/07) Ended Ended (2/8/07)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 31.73% 17.29% -3.63% 0.59% 121.99% -30.93% 6.58%
Market Value 31.91% 17.46% -3.61% 0.61% 123.61% -30.78% 6.80%
INDEX PERFORMANCE
NASDAQ(R) Clean Edge(R) Green Energy
Index(SM) 32.05% 17.16% -3.50% 0.77% 120.73% -29.94% 8.75%
Russell 2000(R) Index 14.65% 14.12% 8.71% 7.45% 93.58% 130.54% 118.75%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 31.73% during the 12-month period covered by
this report. During the same period, the Russell 2000(R) Index ("benchmark")
generated a return of 14.65%. Information Technology securities comprised the
majority of the Fund at 54.1% over the period and with a return of 42.8% this
led to a 22.0% contribution to the Fund's return. The Semiconductors &
Semiconductor Equipment industry within the Information Technology sector in
particular was given a 38.9% allocation. Although the Energy sector securities
were only given a 2.2% allocation, due to their poor return of -28.7%, they
contributed -1.0% to the Fund's return. Notably, Tesla Inc., part of the
Consumer Discretionary sector, was given a high 8.6% allocation. Tesla Inc. had
a 45.7% return and 5.1% contribution to the Fund's return. Acuity Brands, Inc.,
part of the Industrials sector, was the worst single contributor to the Fund's
return with a -2.4% contribution, stemming from its 7.3% allocation and -23.6%
return. On a relative basis, the Fund outperformed the benchmark. The Fund over
allocated and outperformed the benchmark amongst Information Technology
securities by 37.2% and 25.9%, respectively, which led to 13.9% of relative
outperformance. The Fund's holdings amongst the Industrials sector created -2.7%
of relative drag as the Fund underperformed the benchmark by -15.3%.
-----------------------------
Nasdaq(R) and Clean Edge(R) are the registered trademarks (the "Marks") of
Nasdaq, Inc. ("Nasdaq") and Clean Edge, Inc. ("Clean Edge(R)") respectively.
Nasdaq and Clean Edge(R) are, collectively with their affiliates, the
"Corporations." The Marks are licensed for use by First Trust. The Fund has not
been passed on by the Corporations as to its legality or suitability. The Fund
is not issued, endorsed, sold, or promoted by the Corporations. The Fund should
not be construed in any way as investment advice by the Corporations. THE
CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Page 10
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 55.86%
Industrials 19.20
Utilities 13.75
Consumer Discretionary 8.04
Energy 1.62
Financials 1.53
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
ON Semiconductor Corp. 8.31%
Tesla, Inc. 8.04
Acuity Brands, Inc. 7.97
Universal Display Corp. 7.60
First Solar, Inc. 7.57
Cree, Inc. 4.17
Hexcel Corp. 3.98
Integrated Device Technology, Inc. 3.94
Microsemi Corp. 3.90
Ormat Technologies, Inc. 3.88
-------
Total 59.36%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust
NASDAQ(R) NASDAQ(R)
Clean Edge(R) Green Clean Edge(R) Russell 2000(R)
Energy Index Fund Green Energy Index(SM) Index
12/07 $10,000 $10,000 $10,000
06/08 8,004 8,035 9,062
12/08 3,626 3,656 6,621
06/09 4,485 4,534 6,796
12/09 5,214 5,291 8,420
06/10 4,320 4,396 8,256
12/10 5,321 5,433 10,682
06/11 4,952 5,076 11,345
12/11 3,127 3,216 10,237
06/12 3,027 3,106 11,110
12/12 3,112 3,173 11,910
06/13 4,652 4,731 13,799
12/13 5,906 6,008 16,534
06/14 6,792 6,912 17,061
12/14 5,726 5,821 17,343
06/15 6,145 6,248 18,167
12/15 5,357 5,450 16,577
06/16 4,832 4,903 16,945
12/16 5,243 5,305 20,110
06/17 6,130 6,210 21,113
12/17 6,907 7,006 23,055
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 168 5 0 0
01/01/14 - 12/31/14 122 3 0 0
01/01/15 - 12/31/15 160 1 0 0
01/01/16 - 12/31/16 68 0 0 0
01/01/17 - 12/31/17 164 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 75 4 0 0
01/01/14 - 12/31/14 124 3 0 0
01/01/15 - 12/31/15 89 2 0 0
01/01/16 - 12/31/16 184 0 0 0
01/01/17 - 12/31/17 87 0 0 0
Page 11
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST S&P REIT INDEX FUND (FRI)
The First Trust S&P REIT Index Fund (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the S&P United States REIT Index (the
"Index"). The Fund will normally invest at least 90% of its net assets
(including investment borrowings) in common stocks that comprise the Index. The
Index is a subset of the S&P Developed REIT Index, which measures the
performance of more than 200 REITs or REIT-like structures in 15 developed
markets. The S&P Developed REIT Index is a sub-index of the S&P Global REIT
Index. The S&P Developed REIT Index aims to represent an accurate measure of the
REIT developed equity market, reflecting the risk and return characteristics of
this broad universe on an on-going basis. The Index contains those constituents
of the S&P Developed REIT Index that are domiciled in the United States. The
Index includes the securities of small and mid cap companies. The Fund's shares
are listed for trading on the NYSE Arca. The first day of secondary market
trading in shares of the Fund was May 10, 2007.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (5/8/07) Ended Ended (5/8/07)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 3.79% 8.55% 6.68% 4.16% 50.73% 90.82% 54.42%
Market Value 3.74% 8.55% 6.70% 4.17% 50.73% 91.19% 54.43%
INDEX PERFORMANCE
S&P United States REIT Index* 4.33% 9.13% N/A N/A 54.82% N/A N/A
FTSE EPRA/NAREIT North America Index 4.57% 8.37% 6.79% 4.41% 49.47% 92.93% 58.32%
Russell 3000(R) Index 21.13% 15.58% 8.60% 7.86% 106.26% 128.22% 123.76%
------------------------------------------------------------------------------------------------------------------------------------
* On November 6, 2008, the Fund's underlying index changed from the S&P REIT
Composite Index to the S&P United States REIT Index. Effective December 31,
2008, the S&P REIT Composite Index was discontinued. Therefore, the Fund's
performance and historical returns shown for the periods prior to November 6,
2008 are not necessarily indicative of the performance that the Fund, based
on its current Index, would have generated. The inception date of the Index
was June 30, 2008. Returns for the Index are only disclosed for those periods
in which the Index was in existence for the whole period.
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 3.79% during the 12-month period covered by
this report. During the same period, the Russell 3000(R) Index ("benchmark")
generated a return of 21.13%. Retail Real Estate Investment Trusts ("REITs")
were given the highest allocation in the Fund over the period at 21.5%, but due
to these securities poor return of -4.6%, their contribution to the Fund's
return was -1.3%. Industrial REITs were the Fund's top performing and
contributing REITs with a 23.9% return and 1.4% contribution. On a relative
basis, the Fund underperformed the benchmark. REITs accounted for 2.9% of the
benchmark over the period and contributed 0.1% to the benchmark's return. The
primary cause of the underperformance is attributable to the Fund over
allocating the benchmark among the poor performing Retail REITs by 20.8%
creating -5.7% of relative drag. The only REIT industry in the Fund to create
relative outperformance was the Industrial REITs, which the Fund over allocated
by 6.2%, creating 0.2% of outperformance.
-----------------------------
The S&P United States REIT Index is a product of S&P Dow Jones Indices LLC
("SPDJI"). Standard & Poor's(R) and S&P(R) are registered trademarks of Standard
& Poor's Financial Services LLC ("S&P"). The marks have been licensed for use by
SPDJI and sub-licensed by First Trust. The Fund is not sponsored, endorsed, sold
or promoted by SPDJI or its affiliates, and SPDJI and its affiliates make no
representation, warranty or condition regarding the advisability of buying,
selling or holding shares of the Fund.
Page 12
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST S&P REIT INDEX FUND (FRI) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
REIT CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Retail 20.34%
Residential 16.95
Specialized 14.43
Office 13.84
Health Care 12.00
Diversified 7.90
Industrial 7.80
Hotel & Resort 6.74
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Simon Property Group, Inc. 6.47%
Prologis, Inc. 4.16
Public Storage 3.79
AvalonBay Communities, Inc. 2.99
Welltower, Inc. 2.86
Equity Residential 2.84
Digital Realty Trust, Inc. 2.84
Ventas, Inc. 2.59
Boston Properties, Inc. 2.43
Realty Income Corp. 1.95
-------
Total 32.92%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust FTSE EPRA/NAREIT Russell 3000(R)
S&P REIT Index Fund North America Index Index
12/07 $10,000 $10,000 $10,000
06/08 9,563 9,558 8,896
12/08 6,113 5,937 6,270
06/09 5,337 5,339 6,529
12/09 7,826 7,851 8,042
06/10 8,253 8,254 7,555
12/10 9,996 10,100 9,403
06/11 10,996 11,168 10,000
12/11 10,786 10,927 9,499
06/12 12,365 12,525 10,384
12/12 12,662 12,911 11,058
06/13 13,433 13,518 12,613
12/13 12,893 13,076 14,769
06/14 15,131 15,309 15,794
12/14 16,711 16,757 16,623
06/15 15,653 15,742 16,945
12/15 17,040 17,061 16,703
06/16 19,248 19,299 17,308
12/16 18,390 18,456 18,829
06/17 18,717 18,790 20,510
12/17 19,082 19,293 22,822
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 130 0 0 0
01/01/14 - 12/31/14 193 0 0 0
01/01/15 - 12/31/15 130 0 0 0
01/01/16 - 12/31/16 156 0 0 0
01/01/17 - 12/31/17 106 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 122 0 0 0
01/01/14 - 12/31/14 59 0 0 0
01/01/15 - 12/31/15 122 0 0 0
01/01/16 - 12/31/16 96 0 0 0
01/01/17 - 12/31/17 145 0 0 0
Page 13
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST WATER ETF (FIW)
The First Trust Water ETF (the "Fund") seeks investment results that correspond
generally to the price and yield (before the Fund's fees and expenses) of an
equity index called the ISE Clean Edge Water Index (the "Index"). The Fund will
normally invest at least 90% of its net assets (including investment borrowings)
in common stocks that comprise the Index. The Index is a modified market
capitalization weighted index comprised of 34 stocks that derive a substantial
portion of their revenues from the potable and wastewater industries. The Fund's
shares are listed for trading on the NYSE Arca. The first day of secondary
market trading in shares of the Fund was May 11, 2007.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (5/8/07) Ended Ended (5/8/07)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 24.25% 14.25% 8.99% 9.59% 94.65% 136.44% 165.10%
Market Value 24.26% 14.24% 8.99% 9.59% 94.62% 136.57% 165.25%
INDEX PERFORMANCE
ISE Clean Edge Water Index 24.66% 14.92% 9.68% 10.28% 100.42% 151.90% 183.63%
Russell 3000(R) Index 21.13% 15.58% 8.60% 7.86% 106.26% 128.22% 123.76%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 24.25% during the 12-month period covered by
this report. During the same period, the Russell 3000(R) Index ("benchmark")
generated a return of 21.13%. The majority of the Fund was comprised of
Industrial securities with a 53.0% allocation. This sector had a 18.3% return
and 9.9% contribution to the Fund's return. The top performing sector was the
Materials sector with a 63.2% return. This sector's contribution to the Fund's
return was limited to 4.5% due to its smaller 8.2% allocation. The worst
performing sector was the Information Technology sector with a 16.7% return.
This sector had a 5.0% allocation and 0.9% contribution. On a relative basis,
the Fund outperformed the benchmark. The primary cause of the outperformance is
attributable to the Materials sector, which created 3.0% of outperformance as
the Fund outperformed the benchmark by 40.3%. The Fund under allocated and
underperformed the benchmark among Information Technology securities by -16.7%
and -20.4%, respectively, creating -3.5% of relative drag on performance.
-----------------------------
"International Securities Exchange(TM)", "ISE(TM)" and "ISE Clean Edge Water
Index" are trademarks of the International Securities Exchange, LLC and have
been licensed for use for certain purposes by First Trust. The Fund, based on
the ISE Clean Edge Water Index, is not sponsored, endorsed, sold or promoted by
the International Securities Exchange, LLC and the International Securities
Exchange, LLC makes no representation regarding the advisability of trading in
such product.
Page 14
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST WATER ETF (FIW) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Industrials 53.75%
Utilities 22.75
Health Care 11.32
Materials 7.36
Information Technology 4.82
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Pentair PLC 4.08%
American Water Works Co., Inc. 4.06
Roper Technologies, Inc. 4.03
IDEX Corp. 4.03
Danaher Corp. 3.99
A.O. Smith Corp. 3.95
Xylem, Inc. 3.94
Forterra, Inc. 3.75
Agilent Technologies, Inc. 3.71
Aqua America, Inc. 3.69
-------
Total 39.23%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust ISE Clean Edge Russell 3000(R)
Water ETF Water Index Index
12/07 $10,000 $10,000 $10,000
06/08 9,804 9,819 8,896
12/08 7,059 7,093 6,270
06/09 7,285 7,350 6,529
12/09 8,493 8,598 8,042
06/10 8,017 8,142 7,555
12/10 10,148 10,349 9,403
06/11 10,623 10,873 10,000
12/11 9,578 9,837 9,499
06/12 10,528 10,857 10,384
12/12 12,148 12,569 11,058
06/13 13,009 13,517 12,613
12/13 15,904 16,579 14,769
06/14 16,357 17,098 15,794
12/14 15,961 16,739 16,623
06/15 14,904 15,678 16,945
12/15 14,394 15,190 16,703
06/16 16,897 17,894 17,308
12/16 19,029 20,206 18,829
06/17 20,776 22,071 20,510
12/17 23,643 25,190 22,822
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 197 0 0 0
01/01/14 - 12/31/14 195 0 0 0
01/01/15 - 12/31/15 133 0 0 0
01/01/16 - 12/31/16 152 0 0 0
01/01/17 - 12/31/17 184 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 55 0 0 0
01/01/14 - 12/31/14 56 1 0 0
01/01/15 - 12/31/15 119 0 0 0
01/01/16 - 12/31/16 100 0 0 0
01/01/17 - 12/31/17 67 0 0 0
Page 15
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NATURAL GAS ETF (FCG)
The First Trust Natural Gas ETF (the "Fund"), formerly First Trust ISE-Revere
Natural Gas Index Fund, seeks investment results that correspond generally to
the price and yield (before the Fund's fees and expenses) of an equity index
called the ISE-Revere Natural Gas(TM) Index (the "Index"). The Fund will
normally invest at least 90% of its net assets (including investment borrowings)
in equity securities that comprise the Index. The Index is designed to take
advantage of both event-driven news and long term trends in the natural gas
industry. Equity securities are selected for inclusion in the Index using a
quantitative ranking and screening system that begins with the universe of
equity securities of issuers that are involved in the exploration and production
of natural gas and that satisfy market capitalization, liquidity and weighting
concentration requirements. After application of the screens, the remaining
equity securities are divided into two groups, one for equity securities issued
by master limited partnerships ("MLPs") and one for equity securities issued by
entities that are not MLPs ("non-MLPs"). The Index is allocated 85% to equity
securities issued by non-MLPs, and the remaining 15% consists of equity
securities issued by MLPs. The Index uses a linear-based capitalization-weighted
methodology for each of the MLP and non-MLP group of constituents that initially
ranks the equity securities based on market capitalization and average daily
trading volume, and then adjusts the combined rankings of each equity security
by a factor relating to its market capitalization. The resulting linear weight
distribution prevents a few large component stocks from dominating the Index
while allowing smaller companies to adequately influence Index performance. The
Fund's shares are listed for trading on the NYSE Arca. The first day of
secondary market trading in shares of the Fund was May 11, 2007.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (5/8/07) Ended Ended (5/8/07)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV -11.53% -20.69% -13.81% -12.12% -68.63% -77.39% -74.75%
Market Value -11.56% -20.71% -13.81% -12.12% -68.65% -77.37% -74.75%
INDEX PERFORMANCE
ISE-Revere Natural Gas(TM) Index -10.88% -20.69% -13.51% -11.80% -68.63% -76.57% -73.73%
S&P Composite 1500(R) Energy Index -2.05% 2.05% 0.85% 2.67% 10.69% 8.84% 32.45%
Russell 3000(R) Index 21.13% 15.58% 8.60% 7.86% 106.26% 128.22% 123.76%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of -11.53% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500(R) Energy Index
("benchmark") generated a return of -2.05%. The Oil Gas & Consumable Fuels
industry comprised 93.1% of the Fund over the period. Notable names were
Continental Resources, Inc. with a 39.6% return and Range Resources Corp. with a
-50.2% return. On a relative basis, the Fund underperformed the benchmark. The
Fund gave a 10.0% higher allocation to Oil Gas & Consumable Fuels securities and
had a -14.5% lower return, which led to -12.9% of relative drag on performance.
The benchmark gave the Energy Equipment & Services industry a 15.8% higher
allocation, which led to 2.5% of relative outperformance by the Fund as this
industry had a -18.1% return.
-----------------------------
"International Securities Exchange(TM)", "ISE(TM)" and "ISE-Revere Natural
Gas(TM) Index" are trademarks of the International Securities Exchange, LLC and
have been licensed for use for certain purposes by First Trust. The Fund, based
on the ISE-Revere Natural Gas(TM) Index, is not sponsored, endorsed, sold or
promoted by the International Securities Exchange, LLC and the International
Securities Exchange, LLC makes no representation regarding the advisability of
trading in such product.
Page 16
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NATURAL GAS ETF (FCG) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SUB-INDUSTRY CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Oil & Gas Exploration & Production 81.73%
Oil & Gas Storage & Transportation 13.48
Gas Utilities 2.72
Oil & Gas Refining & Marketing 1.39
Oil & Gas Drilling 0.68
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Anadarko Petroleum Corp. 5.38%
Devon Energy Corp. 5.18
Concho Resources, Inc. 5.18
Encana Corp. 4.89
Continental Resources, Inc. 4.86
Noble Energy, Inc. 4.81
EQT Corp. 4.61
Cimarex Energy Co. 4.56
Newfield Exploration Co. 4.43
Cabot Oil & Gas Corp. 4.29
-------
Total 48.19%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust ISE-Revere Natural Russell 3000(R) S&P Composite 1500(R)
Natural Gas ETF Gas(TM) Index Index Energy Index
12/07 $10,000 $10,000 $10,000 $10,000
06/08 14,110 14,217 8,895 11,157
12/08 5,344 5,365 6,270 6,417
06/09 5,780 5,812 6,533 6,359
12/09 7,973 8,040 8,047 7,470
06/10 6,942 7,036 7,560 6,586
12/10 8,948 9,143 9,409 9,067
06/11 9,862 10,113 10,006 10,109
12/11 8,336 8,578 9,505 9,423
06/12 7,546 7,789 10,391 9,146
12/12 7,210 7,468 11,065 9,832
06/13 7,424 7,703 12,621 10,788
12/13 9,022 9,389 14,778 12,330
06/14 10,934 11,404 15,804 13,928
12/14 5,232 5,443 16,634 11,200
06/15 4,460 4,600 16,957 10,675
12/15 2,140 2,195 16,715 8,728
06/16 2,373 2,429 17,320 10,087
12/16 2,556 2,630 18,842 11,111
06/17 2,036 2,102 20,525 9,575
12/17 2,261 2,344 22,822 10,883
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 149 0 0 0
01/01/14 - 12/31/14 140 1 0 0
01/01/15 - 12/31/15 155 1 0 0
01/01/16 - 12/31/16 156 6 1 0
01/01/17 - 12/31/17 116 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 103 0 0 0
01/01/14 - 12/31/14 111 0 0 0
01/01/15 - 12/31/15 93 3 0 0
01/01/16 - 12/31/16 88 1 0 0
01/01/17 - 12/31/17 135 0 0 0
Page 17
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CHINDIA ETF (FNI)
The First Trust Chindia ETF (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the ISE ChIndia(TM) Index (the "Index"). The
Fund will normally invest at least 90% of its net assets (including investment
borrowings) in securities that comprise the Index. The Index is a non-market
capitalization weighted portfolio of 50 American Depositary Receipts ("ADRs"),
American Depositary Shares ("ADSs") and/or stocks selected from a universe of
all listed ADRs, ADSs, and/or stocks of companies from China and India currently
trading on a U.S. exchange. The Fund's shares are listed for trading on the NYSE
Arca. The first day of secondary market trading in shares of the Fund was May
11, 2007.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (5/8/07) Ended Ended (5/8/07)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 47.36% 14.85% 4.82% 7.79% 99.83% 60.19% 122.23%
Market Value 47.64% 14.90% 4.83% 7.79% 100.27% 60.25% 122.39%
INDEX PERFORMANCE
ISE ChIndia(TM) Index 48.00% 15.39% 5.35% 8.35% 104.59% 68.38% 134.88%
Russell 3000(R) Index 21.13% 15.58% 8.60% 7.86% 106.26% 128.22% 123.76%
MSCI Emerging Markets Index 37.28% 4.35% 1.68% 3.90% 23.72% 18.16% 50.27%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 47.36% during the 12-month period covered by
this report. During the same period, the MSCI Emerging Markets Index
("benchmark") generated a return of 37.28%. Chinese securities were given the
heaviest allocation in the Fund over the period with a 59.9% allocation. These
securities returned 61.3% and contributed 34.5% to the Fund's return. Indian
securities comprised the remainder of the Fund and had a 29.1% return and 12.1%
contribution. On a relative basis, the Fund outperformed the benchmark. The
outperformance can be attributed to the Fund allocating 32.5% more weighting to
the well performing Chinese securities. Relative drag of -2.4% was incurred as a
result of the Fund not being exposed to an appreciated Korean Won relative to
the U.S. Dollar.
-----------------------------
"International Securities Exchange(TM)", "ISE(TM)" and "ISE ChIndia(TM) Index"
are trademarks of the International Securities Exchange, LLC and have been
licensed for use for certain purposes by First Trust. The Fund, based on the ISE
ChIndia(TM) Index, is not sponsored, endorsed, sold or promoted by the
International Securities Exchange, LLC and the International Securities
Exchange, LLC makes no representation regarding the advisability of trading in
such product.
Page 18
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CHINDIA ETF (FNI) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 39.67%
Consumer Discretionary 25.69
Financials 16.11
Materials 5.13
Telecommunication Services 5.11
Health Care 4.11
Industrials 2.12
Energy 2.06
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
JD.com, Inc., ADR 7.48%
HDFC Bank Ltd., ADR 7.08
Infosys Ltd., ADR 7.05
ICICI Bank Ltd., ADR 6.90
Baidu, Inc., ADR 6.64
Alibaba Group Holding Ltd., ADR 6.59
Vedanta Ltd., ADR 4.42
Tata Motors Ltd., ADR 4.10
NetEase, Inc., ADR 4.06
Wipro Ltd., ADR 3.92
-------
Total 58.24%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust ISE ChIndia(TM) Russell 3000(R) MSCI Emerging
Chindia ETF Index Index Markets Index
12/07 $10,000 $10,000 $10,000 $10,000
06/08 7,197 7,210 8,895 8,824
12/08 4,302 4,323 6,270 4,667
06/09 6,004 6,057 6,533 6,348
12/09 7,811 7,907 8,047 8,332
06/10 7,598 7,718 7,560 7,818
12/10 9,253 9,444 9,409 9,905
06/11 9,405 9,653 10,006 9,992
12/11 6,846 7,004 9,505 8,081
06/12 7,258 7,437 10,391 8,399
12/12 8,016 8,231 11,065 9,554
06/13 8,115 8,357 12,621 8,640
12/13 10,886 11,228 14,778 9,305
06/14 11,566 11,956 15,804 9,876
12/14 11,144 11,538 16,634 9,102
06/15 11,936 12,381 16,957 9,371
12/15 11,108 11,555 16,715 7,744
06/16 10,704 11,164 17,320 8,240
12/16 10,870 11,378 18,842 8,610
06/17 13,954 14,642 20,525 10,197
12/17 16,018 16,838 22,822 11,816
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
QUARTER ENDED 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 66 0 0 0
01/01/14 - 12/31/14 96 0 0 0
01/01/15 - 12/31/15 147 0 0 0
01/01/16 - 12/31/16 132 0 0 0
01/01/17 - 12/31/17 189 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
QUARTER ENDED 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 185 1 0 0
01/01/14 - 12/31/14 155 1 0 0
01/01/15 - 12/31/15 105 0 0 0
01/01/16 - 12/31/16 120 0 0 0
01/01/17 - 12/31/17 62 0 0 0
Page 19
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
The First Trust NASDAQ(R) ABA Community Bank Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ OMX(R) ABA
Community Bank Index(SM) (the "Index"). The Fund will normally invest at least
90% of its net assets (including investment borrowings) in common stocks that
comprise the Index. The Index includes a subset of banks and thrifts or their
holding companies listed on Nasdaq. The Index is jointly owned and was developed
by Nasdaq and the American Bankers Association ("ABA"). For the purposes of the
Index, a "community bank" is considered to be all U.S. banks and thrifts or
their holding companies listed on Nasdaq excluding the 50 largest U.S. banks by
asset size. Also excluded are banks that have an international specialization
and those banks that have a credit-card specialization, as screened by the ABA
based on the most recent data from the Federal Deposit Insurance Company. Banks
with an international specialization are those institutions with assets greater
than $10 billion and more than 25% of total assets in foreign offices. Banks
with a credit-card specialization are those institutions with credit-card loans
plus securitized receivables in excess of 50% of total assets plus securitized
receivables. Securities in the Index must have a market capitalization of at
least $200 million and a three-month average daily trading volume of at least
$500 thousand. The Index is rebalanced quarterly and reconstituted
semi-annually. The Fund's shares are listed for trading on the Nasdaq. The first
day of secondary market trading in shares of the Fund was July 1, 2009.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (6/29/09) Ended (6/29/09)
12/31/17 12/31/17 to 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 0.55% 16.98% 13.60% 119.04% 195.81%
Market Value 0.65% 17.18% 13.63% 120.96% 196.56%
INDEX PERFORMANCE
NASDAQ OMX(R) ABA Community Bank Index(SM) 1.20% 17.72% 14.33% 126.06% 212.39%
S&P Composite 1500(R) Financials Index 20.89% 18.13% 15.50% 130.08% 240.69%
Russell 3000(R) Index 21.13% 15.58% 15.74% 106.26% 246.74%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 0.55% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500(R) Financials Index
("benchmark") generated a return of 20.89%. Regional banks from California were
the heaviest allocated banks in the Fund over the period with a 13.5%
allocation. Due to their size, they were also the top contributing banks with a
0.7% contribution, which was limited due to their return being a meager 5.9%.
Regional banks from Colorado were the top performing banks with a 18.2% return,
0.1% contribution, and 0.6% allocation. Regional banks from West Virginia were
the worst performing banks with a -13.6% return and -0.4% contribution. On a
relative basis, the Fund underperformed the benchmark. Relative underperformance
of -19.9% is attributable to the Fund allocating 53.1% more to the banking
industry and underperforming the benchmark amongst banking securities by -18.6%.
Bank of America Corp. in particular caused -2.2% of relative drag on performance
as the Fund did not have any exposure to the 35.7% returning banks, versus the
benchmark which had a 7.2% allocation.
-----------------------------
Nasdaq(R), OMX(R), Nasdaq OMX(R), and NASDAQ OMX(R) ABA Community Bank Index(SM)
are trademarks of Nasdaq, Inc. ("Nasdaq") and American Bankers Association
("ABA") (Nasdaq and ABA, collectively with their affiliates, are referred to as
the "Corporations") and are licensed for use by First Trust. The Fund has not
been passed on by the Corporations as to its legality or suitability. The Fund
is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS
MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
Page 20
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
INDUSTRY CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Banks 88.70%
Thrifts & Mortgage Finance 11.03
IT Services 0.27
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
East West Bancorp, Inc. 3.38%
PacWest Bancorp 2.50
Bank of the Ozarks 2.39
BOK Financial Corp. 2.32
Commerce Bancshares, Inc. 2.29
Pinnacle Financial Partners, Inc. 1.98
Wintrust Financial Corp. 1.77
Umpqua Holdings Corp. 1.76
First Citizens BancShares, Inc.,
Class A 1.70
Texas Capital Bancshares, Inc. 1.69
-------
Total 21.78%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JUNE 29, 2009 - DECEMBER 31, 2017
First Trust
NASDAQ(R) ABA NASDAQ OMX(R)
Community Bank ABA Community S&P Composite 1500(R) Russell 3000(R)
Index Fund Bank Index(SM) Financials Index Index
06/09 $10,000 $10,000 $10,000 $10,000
12/09 11,280 11,318 12,112 12,224
06/10 11,438 11,505 11,744 11,484
12/10 12,721 12,846 13,722 14,293
06/11 12,520 12,688 13,420 15,201
12/11 11,898 12,095 11,662 14,439
06/12 13,081 13,343 13,227 15,785
12/12 13,507 13,817 14,806 16,809
06/13 16,006 16,427 17,584 19,172
12/13 19,302 19,873 19,879 22,448
06/14 19,296 19,929 20,907 24,006
12/14 19,827 20,537 22,839 25,266
06/15 21,637 22,484 22,892 25,761
12/15 21,390 22,288 22,677 25,388
06/16 21,026 21,976 22,310 26,307
12/16 29,426 30,865 28,184 28,619
06/17 28,402 29,883 29,940 31,175
12/17 29,581 31,239 34,069 34,674
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 139 24 0 0
01/01/14 - 12/31/14 115 9 0 0
01/01/15 - 12/31/15 137 5 0 0
01/01/16 - 12/31/16 133 0 0 0
01/01/17 - 12/31/17 128 5 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 72 17 0 0
01/01/14 - 12/31/14 116 12 0 0
01/01/15 - 12/31/15 110 0 0 0
01/01/16 - 12/31/16 119 0 0 0
01/01/17 - 12/31/17 116 1 1 0
Page 21
--------------------------------------------------------------------------------
NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
Total returns for the periods since inception are calculated from the inception
date of each Fund. "Average annual total returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative total
returns" represent the total change in value of an investment over the periods
indicated. The total returns would have been lower if certain fees had not been
waived and expenses reimbursed by the Advisor.
Each Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint between the highest bid and the lowest offer on the stock
exchange on which shares of the Fund are listed for trading as of the time that
the Fund's NAV is calculated. Since shares of each Fund did not trade in the
secondary market until after the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
each Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and market returns assume that all distributions have been
reinvested in each Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike each Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by each Fund. These
expenses negatively impact the performance of each Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of each
Fund will vary with changes in market conditions. Shares of each Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. Each Fund's past performance is no guarantee of future performance.
Page 22
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2017 (UNAUDITED)
As a shareholder of First Trust NASDAQ-100 Equal Weighted Index Fund, First
Trust NASDAQ-100-Technology Sector Index Fund, First Trust NASDAQ-100
Ex-Technology Sector Index Fund, First Trust NASDAQ(R) Clean Edge(R) Green
Energy Index Fund, First Trust S&P REIT Index Fund, First Trust Water ETF, First
Trust Natural Gas ETF, First Trust Chindia ETF or First Trust NASDAQ(R)ABA
Community Bank Index Fund (each a "Fund" and collectively, the "Funds"), you
incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service fees, if any, and other
Fund expenses. This Example is intended to help you understand your ongoing
costs of investing in the Funds and to compare these costs with the ongoing
costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended December 31, 2017.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
--------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2017 DECEMBER 31, 2017 PERIOD (a) PERIOD (b)
--------------------------------------------------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX
FUND (QQEW)
Actual $1,000.00 $1,087.90 0.60% $3.16
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX
FUND (QTEC)
Actual $1,000.00 $1,158.00 0.58% $3.15
Hypothetical (5% return before expenses) $1,000.00 $1,022.28 0.58% $2.96
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR
INDEX FUND (QQXT)
Actual $1,000.00 $1,053.60 0.60% $3.11
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY
INDEX FUND (QCLN)
Actual $1,000.00 $1,126.80 0.60% $3.22
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST S&P REIT INDEX FUND (FRI)
Actual $1,000.00 $1,019.70 0.49% $2.49
Hypothetical (5% return before expenses) $1,000.00 $1,022.74 0.49% $2.50
FIRST TRUST WATER ETF (FIW)
Actual $1,000.00 $1,138.00 0.56% $3.02
Hypothetical (5% return before expenses) $1,000.00 $1,022.38 0.56% $2.85
Page 23
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES (CONTINUED)
DECEMBER 31, 2017 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2017 DECEMBER 31, 2017 PERIOD (a) PERIOD (b)
--------------------------------------------------------------------------------------------------------------------------
FIRST TRUST NATURAL GAS ETF (FCG)
Actual $1,000.00 $1,110.50 0.63% $3.35
Hypothetical (5% return before expenses) $1,000.00 $1,022.03 0.63% $3.21
FIRST TRUST CHINDIA ETF (FNI)
Actual $1,000.00 $1,147.60 0.60% $3.25
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK
INDEX FUND (QABA)
Actual $1,000.00 $1,041.80 0.60% $3.09
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
(a) These expense ratios reflect an expense cap for certain Funds. See Note 3
in Notes to Financial Statements.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (July 1,
2017 through December 31, 2017), multiplied by 184/365 (to reflect the
one-half year period).
Page 24
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
AIRLINES -- 1.0%
104,456 American Airlines Group, Inc. $ 5,434,846
--------------
AUTOMOBILES -- 0.9%
15,600 Tesla, Inc. (a) (b) 4,857,060
--------------
BEVERAGES -- 1.0%
83,466 Monster Beverage Corp. (b) 5,282,563
--------------
BIOTECHNOLOGY -- 10.0%
46,103 Alexion Pharmaceuticals, Inc. (b) 5,513,458
30,123 Amgen, Inc. 5,238,390
16,269 Biogen, Inc. (b) 5,182,815
59,102 BioMarin Pharmaceutical, Inc. (b) 5,270,125
48,732 Celgene Corp. (b) 5,085,671
70,448 Gilead Sciences, Inc. 5,046,895
55,647 Incyte Corp. (b) 5,270,327
13,866 Regeneron Pharmaceuticals,
Inc. (b) 5,213,061
35,647 Shire PLC, ADR 5,529,563
36,817 Vertex Pharmaceuticals, Inc. (b) 5,517,396
--------------
52,867,701
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 1.0%
33,567 Cintas Corp. 5,230,746
--------------
COMMUNICATIONS EQUIPMENT
-- 1.0%
139,731 Cisco Systems, Inc. 5,351,697
--------------
FOOD & STAPLES RETAILING -- 2.0%
27,540 Costco Wholesale Corp. 5,125,745
73,892 Walgreens Boots Alliance, Inc. 5,366,037
--------------
10,491,782
--------------
FOOD PRODUCTS -- 2.0%
66,868 Kraft Heinz (The) Co. 5,199,656
122,434 Mondelez International, Inc.,
Class A 5,240,175
--------------
10,439,831
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 4.9%
22,820 Align Technology, Inc. (b) 5,070,376
80,015 DENTSPLY SIRONA, Inc. 5,267,387
122,546 Hologic, Inc. (b) 5,238,841
33,889 IDEXX Laboratories, Inc. (b) 5,299,562
14,286 Intuitive Surgical, Inc. (b) 5,213,533
--------------
26,089,699
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 2.0%
74,602 Express Scripts Holding Co. (b) 5,568,293
75,507 Henry Schein, Inc. (b) 5,276,429
--------------
10,844,722
--------------
HEALTH CARE TECHNOLOGY -- 1.0%
76,830 Cerner Corp. (b) 5,177,574
--------------
HOTELS, RESTAURANTS & LEISURE
-- 3.1%
41,342 Marriott International, Inc.,
Class A 5,611,350
90,926 Starbucks Corp. 5,221,880
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE
(CONTINUED)
32,157 Wynn Resorts Ltd. $ 5,421,348
--------------
16,254,578
--------------
INTERNET & DIRECT MARKETING
RETAIL -- 7.0%
4,520 Amazon.com, Inc. (b) 5,286,004
121,124 Ctrip.com International Ltd.,
ADR (b) 5,341,568
44,176 Expedia, Inc. 5,290,960
132,573 JD.com, Inc., ADR (b) 5,491,174
108,018 Liberty Interactive Corp. QVC
Group, Class A (b) 2,637,800
47,034 Liberty Ventures, Series A (b) 2,551,124
27,964 Netflix, Inc. (b) 5,367,969
3,009 Priceline Group (The), Inc. (b) 5,228,860
--------------
37,195,459
--------------
INTERNET SOFTWARE & SERVICES
-- 6.0%
2,484 Alphabet, Inc., Class A (b) 2,616,646
2,505 Alphabet, Inc., Class C (b) 2,621,232
22,927 Baidu, Inc., ADR (b) 5,369,733
140,210 eBay, Inc. (b) 5,291,525
29,495 Facebook, Inc., Class A (b) 5,204,688
16,732 MercadoLibre, Inc. 5,264,891
15,017 NetEase, Inc., ADR 5,181,916
--------------
31,550,631
--------------
IT SERVICES -- 5.0%
44,963 Automatic Data Processing, Inc. 5,269,214
74,026 Cognizant Technology Solutions
Corp., Class A 5,257,326
40,638 Fiserv, Inc. (b) 5,328,861
76,308 Paychex, Inc. 5,195,049
71,041 PayPal Holdings, Inc. (b) 5,230,038
--------------
26,280,488
--------------
LEISURE PRODUCTS -- 0.9%
55,548 Hasbro, Inc. 5,048,758
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 1.0%
24,823 Illumina, Inc. (b) 5,423,577
--------------
MACHINERY -- 1.0%
76,462 PACCAR, Inc. 5,434,919
--------------
MEDIA -- 6.1%
16,484 Charter Communications, Inc.,
Class A (b) 5,537,965
135,722 Comcast Corp., Class A 5,435,666
109,632 DISH Network Corp., Class A (b) 5,234,928
76,189 Liberty Global PLC, Class A (b) 2,730,614
79,293 Liberty Global PLC, Class C (b) 2,683,275
1,007,778 Sirius XM Holdings, Inc. (a) 5,401,690
75,743 Twenty-First Century Fox, Inc.,
Class A 2,615,406
76,868 Twenty-First Century Fox, Inc.,
Class B 2,622,736
--------------
32,262,280
--------------
See Notes to Financial Statements Page 25
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MULTILINE RETAIL -- 1.0%
49,892 Dollar Tree, Inc. (b) $ 5,353,911
--------------
PHARMACEUTICALS -- 1.1%
131,887 Mylan N.V. (b) 5,580,139
--------------
PROFESSIONAL SERVICES -- 1.0%
55,925 Verisk Analytics, Inc. (b) 5,368,800
--------------
ROAD & RAIL -- 2.1%
100,757 CSX Corp. 5,542,643
47,428 J.B. Hunt Transport Services,
Inc. 5,453,271
--------------
10,995,914
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 15.1%
61,168 Analog Devices, Inc. 5,445,787
101,734 Applied Materials, Inc. 5,200,642
30,762 ASML Holding N.V. 5,347,051
20,193 Broadcom Ltd. 5,187,582
120,004 Intel Corp. 5,539,385
50,599 KLA-Tencor Corp. 5,316,437
28,666 Lam Research Corp. 5,276,551
101,778 Maxim Integrated Products, Inc. 5,320,954
61,104 Microchip Technology, Inc. 5,369,819
125,465 Micron Technology, Inc. (b) 5,159,121
27,765 NVIDIA Corp. 5,372,527
81,416 QUALCOMM, Inc. 5,212,252
55,916 Skyworks Solutions, Inc. 5,309,224
52,535 Texas Instruments, Inc. 5,486,755
77,071 Xilinx, Inc. 5,196,127
--------------
79,740,214
--------------
SOFTWARE -- 13.7%
80,003 Activision Blizzard, Inc. 5,065,790
30,074 Adobe Systems, Inc. (b) 5,270,168
48,982 Autodesk, Inc. (b) 5,134,783
157,658 CA, Inc. 5,246,858
122,209 Cadence Design Systems, Inc. (b) 5,110,780
49,845 Check Point Software Technologies
Ltd. (b) 5,164,939
60,397 Citrix Systems, Inc. (b) 5,314,936
49,323 Electronic Arts, Inc. (b) 5,181,874
33,423 Intuit, Inc. 5,273,481
61,227 Microsoft Corp. 5,237,358
183,418 Symantec Corp. 5,146,709
60,442 Synopsys, Inc. (b) 5,152,076
47,898 Take-Two Interactive Software,
Inc. (b) 5,258,243
51,326 Workday, Inc., Class A (b) 5,221,907
--------------
72,779,902
--------------
SPECIALTY RETAIL -- 3.1%
21,981 O'Reilly Automotive, Inc. (b) 5,287,310
69,765 Ross Stores, Inc. 5,598,641
24,462 Ulta Beauty, Inc. (b) 5,471,171
--------------
16,357,122
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
TECHNOLOGY HARDWARE, STORAGE &
PERIPHERALS -- 3.0%
30,671 Apple, Inc. $ 5,190,454
126,886 Seagate Technology PLC 5,308,910
65,772 Western Digital Corp. 5,230,847
--------------
15,730,211
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 1.0%
99,318 Fastenal Co. 5,431,701
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 2.0%
84,206 T-Mobile US, Inc. (b) 5,347,923
171,340 Vodafone Group PLC, ADR 5,465,746
--------------
10,813,669
--------------
TOTAL COMMON STOCKS -- 100.0% 529,670,494
(Cost $440,917,154) --------------
MONEY MARKET FUNDS -- 0.7%
3,622,785 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class - 1.24%
(c) (d) 3,622,785
(Cost $3,622,785) --------------
PRINCIPAL
VALUE DESCRIPTION VALUE
-------------------------------------------------------------
REPURCHASE AGREEMENTS -- 1.2%
$ 6,587,885 RBC Capital Markets LLC,
1.35% (c), dated 12/29/17, due
01/02/18, with a maturity value
of $6,588,873. Collateralized
by U.S. Treasury Notes,
interest rates of 1.375% to
2.250%, due 09/30/18 to
03/31/21. The value of the
collateral including accrued
interest is $6,746,517. (d) 6,587,885
(Cost $6,587,885) --------------
TOTAL INVESTMENTS -- 101.9% 539,881,164
(Cost $451,127,824) (e)
NET OTHER ASSETS AND
LIABILITIES -- (1.9)% (10,249,014)
--------------
NET ASSETS -- 100.0% $ 529,632,150
==============
(a) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $9,903,978 and the total value of the collateral held by the
Fund is $10,210,670.
(b) Non-income producing security.
(c) Rate shown reflects yield as of December 31, 2017.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $455,707,382. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$97,218,009 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$13,044,227. The net unrealized appreciation was $84,173,782.
ADR - American Depositary Receipt
Page 26 See Notes to Financial Statements
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 529,670,494 $ -- $ --
Money Market
Funds 3,622,785 -- --
Repurchase
Agreements -- 6,587,885 --
----------------------------------------------------
Total Investments $ 533,293,279 $ 6,587,885 $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 9.903,978
Non-cash Collateral(2) (9.903,978)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2017, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 6,587,885
Non-cash Collateral(4) (6,587,885)
--------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2017, the value of the collateral received from each
seller exceeded the value of the repurchase agreements.
See Notes to Financial Statements Page 27
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
COMMUNICATIONS EQUIPMENT
-- 2.8%
1,618,526 Cisco Systems, Inc. $ 61,989,546
--------------
HEALTH CARE TECHNOLOGY -- 2.7%
891,742 Cerner Corp. (a) 60,094,493
--------------
INTERNET SOFTWARE & SERVICES
-- 11.1%
28,807 Alphabet, Inc., Class A (a) 30,345,294
29,048 Alphabet, Inc., Class C (a) 30,395,827
266,117 Baidu, Inc., ADR (a) 62,327,263
342,564 Facebook, Inc., Class A (a) 60,448,843
174,612 NetEase, Inc., ADR 60,253,363
--------------
243,770,590
--------------
IT SERVICES -- 2.8%
859,481 Cognizant Technology Solutions
Corp., Class A 61,040,341
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 42.1%
710,827 Analog Devices, Inc. 63,284,928
1,181,858 Applied Materials, Inc. 60,416,581
357,077 ASML Holding NV 62,067,124
234,711 Broadcom Ltd. 60,297,256
1,394,065 Intel Corp. 64,350,040
587,988 KLA-Tencor Corp. 61,779,899
333,358 Lam Research Corp. 61,361,207
1,182,221 Maxim Integrated Products, Inc. 61,806,514
710,420 Microchip Technology, Inc. 62,431,709
1,456,175 Micron Technology, Inc. (a) 59,877,916
324,122 NVIDIA Corp. 62,717,607
946,538 QUALCOMM, Inc. 60,597,363
650,359 Skyworks Solutions, Inc. 61,751,587
610,384 Texas Instruments, Inc. 63,748,505
896,661 Xilinx, Inc. 60,452,885
--------------
926,941,121
--------------
SOFTWARE -- 30.2%
348,645 Adobe Systems, Inc. (a) 61,096,550
569,317 Autodesk, Inc. (a) 59,681,501
1,829,168 CA, Inc. 60,874,711
1,418,229 Cadence Design Systems, Inc. (a) 59,310,337
578,245 Check Point Software
Technologies Ltd. (a) 59,917,747
700,670 Citrix Systems, Inc. (a) 61,658,960
388,101 Intuit, Inc. 61,234,576
709,686 Microsoft Corp. 60,706,541
2,126,367 Symantec Corp. 59,665,858
701,864 Synopsys, Inc. (a) 59,826,887
596,187 Workday, Inc., Class A (a) 60,656,065
--------------
664,629,733
--------------
TECHNOLOGY HARDWARE, STORAGE &
PERIPHERALS -- 8.3%
356,234 Apple, Inc. 60,285,480
1,471,438 Seagate Technology PLC 61,564,966
762,792 Western Digital Corp. 60,664,847
--------------
182,515,293
--------------
DESCRIPTION VALUE
-------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% $2,200,981,117
(Cost $1,773,327,659) (b)
NET OTHER ASSETS AND
LIABILITIES -- (0.0)% (269,795)
--------------
NET ASSETS -- 100.0% $2,200,711,322
==============
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $1,782,500,369. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$423,995,807 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$5,515,059. The net unrealized appreciation was $418,480,748.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $2,200,981,117 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
Page 28 See Notes to Financial Statements
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (a) -- 100.0%
AIRLINES -- 1.6%
31,217 American Airlines Group, Inc. $ 1,624,220
--------------
AUTOMOBILES -- 1.4%
4,681 Tesla, Inc. (b) (c) 1,457,429
--------------
BEVERAGES -- 1.6%
25,011 Monster Beverage Corp. (b) 1,582,946
--------------
BIOTECHNOLOGY -- 15.5%
13,804 Alexion Pharmaceuticals, Inc. (b) 1,650,820
9,013 Amgen, Inc. 1,567,361
4,861 Biogen, Inc. (b) 1,548,569
17,685 BioMarin Pharmaceutical, Inc. (b) 1,576,971
14,604 Celgene Corp. (b) 1,524,073
21,098 Gilead Sciences, Inc. 1,511,461
16,671 Incyte Corp. (b) 1,578,910
4,155 Regeneron Pharmaceuticals,
Inc. (b) 1,562,114
10,689 Shire PLC, ADR 1,658,078
11,022 Vertex Pharmaceuticals, Inc. (b) 1,651,757
--------------
15,830,114
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 1.5%
10,061 Cintas Corp. 1,567,806
--------------
FOOD & STAPLES RETAILING -- 3.1%
8,227 Costco Wholesale Corp. 1,531,209
22,113 Walgreens Boots Alliance, Inc. 1,605,846
--------------
3,137,055
--------------
FOOD PRODUCTS -- 3.1%
20,020 Kraft Heinz (The) Co. 1,556,755
36,713 Mondelez International, Inc.,
Class A 1,571,317
--------------
3,128,072
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 7.7%
6,840 Align Technology, Inc. (b) 1,519,780
23,966 DENTSPLY SIRONA, Inc. 1,577,682
36,730 Hologic, Inc. (b) 1,570,207
10,170 IDEXX Laboratories, Inc. (b) 1,590,385
4,280 Intuitive Surgical, Inc. (b) 1,561,943
--------------
7,819,997
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 3.2%
22,317 Express Scripts Holding Co. (b) 1,665,741
22,624 Henry Schein, Inc. (b) 1,580,965
--------------
3,246,706
--------------
HOTELS, RESTAURANTS & LEISURE
-- 4.8%
12,382 Marriott International, Inc.,
Class A 1,680,609
27,315 Starbucks Corp. 1,568,700
9,623 Wynn Resorts Ltd. 1,622,342
--------------
4,871,651
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
INTERNET & DIRECT MARKETING
RETAIL -- 10.9%
1,355 Amazon.com, Inc. (b) $ 1,584,632
36,337 Ctrip.com International Ltd.,
ADR (b) 1,602,462
13,252 Expedia, Inc. 1,587,192
39,741 JD.com, Inc., ADR (b) 1,646,072
32,331 Liberty Interactive Corp. QVC
Group, Class A (b) 789,523
14,102 Liberty Ventures, Series A (b) 764,892
8,375 Netflix, Inc. (b) 1,607,665
901 Priceline Group (The), Inc. (b) 1,565,704
--------------
11,148,142
--------------
INTERNET SOFTWARE & SERVICES
-- 3.1%
42,023 eBay, Inc. (b) 1,585,948
5,019 MercadoLibre, Inc. 1,579,279
--------------
3,165,227
--------------
IT SERVICES -- 6.2%
13,448 Automatic Data Processing, Inc. 1,575,971
12,177 Fiserv, Inc. (b) 1,596,770
22,834 Paychex, Inc. 1,554,539
21,264 PayPal Holdings, Inc. (b) 1,565,456
--------------
6,292,736
--------------
LEISURE PRODUCTS -- 1.5%
16,628 Hasbro, Inc. 1,511,319
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 1.6%
7,440 Illumina, Inc. (b) 1,625,566
--------------
MACHINERY -- 1.6%
22,892 PACCAR, Inc. 1,627,163
--------------
MEDIA -- 9.5%
4,934 Charter Communications, Inc.,
Class A (b) 1,657,627
40,663 Comcast Corp., Class A 1,628,553
32,864 DISH Network Corp., Class A (b) 1,569,256
22,738 Liberty Global PLC, Class A (b) 814,930
23,661 Liberty Global PLC, Class C (b) 800,688
301,550 Sirius XM Holdings, Inc. (c) 1,616,308
22,713 Twenty-First Century Fox, Inc.,
Class A 784,280
23,052 Twenty-First Century Fox, Inc.,
Class B 786,534
--------------
9,658,176
--------------
MULTILINE RETAIL -- 1.6%
14,949 Dollar Tree, Inc. (b) 1,604,177
--------------
PHARMACEUTICALS -- 1.6%
39,349 Mylan N.V. (b) 1,664,856
--------------
PROFESSIONAL SERVICES -- 1.6%
16,755 Verisk Analytics, Inc. (b) 1,608,480
--------------
ROAD & RAIL -- 3.2%
30,336 CSX Corp. 1,668,783
14,209 J.B. Hunt Transport Services,
Inc. 1,633,751
--------------
3,302,534
--------------
See Notes to Financial Statements Page 29
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
SOFTWARE -- 4.5%
23,918 Activision Blizzard, Inc. $ 1,514,488
14,768 Electronic Arts, Inc. (b) 1,551,526
14,302 Take-Two Interactive Software,
Inc. (b) 1,570,073
--------------
4,636,087
--------------
SPECIALTY RETAIL -- 4.8%
6,585 O'Reilly Automotive, Inc. (b) 1,583,956
20,899 Ross Stores, Inc. 1,677,145
7,328 Ulta Beauty, Inc. (b) 1,638,980
--------------
4,900,081
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 1.6%
29,756 Fastenal Co. 1,627,356
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 3.2%
25,332 T-Mobile US, Inc. (b) 1,608,835
51,375 Vodafone Group PLC, ADR 1,638,863
--------------
3,247,698
--------------
TOTAL COMMON STOCKS -- 100.0% 101,885,594
(Cost $88,089,304) --------------
MONEY MARKET FUNDS -- 1.1%
1,019,764 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class - 1.24%
(d) (e) 1,019,764
151,889 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 1.19% (d) 151,889
--------------
TOTAL MONEY MARKET FUNDS
-- 1.1% 1,171,653
(Cost $1,171,653) --------------
PRINCIPAL
VALUE DESCRIPTION VALUE
-------------------------------------------------------------
REPURCHASE AGREEMENTS -- 1.8%
$ 1,854,399 RBC Capital Markets LLC,
1.35% (d), dated 12/29/17, due
01/02/18, with a maturity value
of $1,854,677. Collateralized
by U.S. Treasury Notes,
interest rates of 1.375% to
2.250%, due 09/30/18 to
03/31/21. The value of the
collateral including accrued
interest is $1,899,052. (e) 1,854,399
(Cost $1,854,399) --------------
TOTAL INVESTMENTS -- 102.9% 104,911,646
(Cost $91,115,356) (f)
NET OTHER ASSETS AND
LIABILITIES -- (2.9)% (2,997,598)
--------------
NET ASSETS -- 100.0% $ 101,914,048
==============
(a) The industry allocation is based on Standard & Poor's Global Industry
Classification Standard (GICS), and is different than the industry sector
classification system used by the Index to select securities, which is the
Industry Classification Benchmark (ICB) system, which is maintained by
FTSE International Limited.
(b) Non-income producing security.
(c) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $2,788,834 and the total value of the collateral held by the
Fund is $2,874,163.
(d) Rate shown reflects yield as of December 31, 2017.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $92,091,946. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$16,918,635 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$4,098,935. The net unrealized appreciation was $12,819,700.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 101,885,594 $ -- $ --
Money Market
Funds 1,171,653 -- --
Repurchase
Agreements -- 1,854,399 --
----------------------------------------------------
Total Investments $ 103,057,247 $ 1,854,399 $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
Page 30 See Notes to Financial Statements
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 2,788,834
Non-cash Collateral(2) (2,788,834)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2017, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 1,854,399
Non-cash Collateral(4) (1,854,399)
--------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2017, the value of the collateral received from each
seller exceeded the value of the repurchase agreements.
See Notes to Financial Statements Page 31
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 4.0%
58,637 Hexcel Corp. $ 3,626,698
--------------
AUTOMOBILES -- 8.0%
23,542 Tesla, Inc. (a) (b) 7,329,802
--------------
ELECTRICAL EQUIPMENT -- 15.2%
41,278 Acuity Brands, Inc. 7,264,928
194,460 Ballard Power Systems, Inc.
(a) (b) 857,568
46,102 EnerSys 3,210,082
250,043 Plug Power, Inc. (a) (b) 590,101
116,870 Sunrun, Inc. (a) (b) 689,533
37,221 TPI Composites, Inc. (b) 761,542
125,599 Vivint Solar, Inc. (a) (b) 508,676
--------------
13,882,430
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 14.5%
184,196 AVX Corp. 3,186,591
42,382 Itron, Inc. (b) 2,890,452
40,577 Maxwell Technologies, Inc.
(a) (b) 233,724
40,171 Universal Display Corp. 6,935,523
--------------
13,246,290
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 13.7%
30,737 8point3 Energy Partners, L.P.
(a) (c) 467,510
109,680 Atlantica Yield PLC 2,326,313
59,373 NextEra Energy Partners, L.P. (c) 2,559,570
70,828 NRG Yield, Inc., Class C 1,338,649
55,375 Ormat Technologies, Inc. 3,541,785
107,151 Pattern Energy Group, Inc. 2,302,675
--------------
12,536,502
--------------
MORTGAGE REAL ESTATE INVESTMENT
TRUSTS -- 1.5%
58,078 Hannon Armstrong Sustainable
Infrastructure Capital, Inc. 1,397,357
--------------
OIL, GAS & CONSUMABLE FUELS
-- 1.6%
45,049 Green Plains, Inc. 759,075
48,123 Pacific Ethanol, Inc. (b) 218,960
42,499 Renewable Energy Group, Inc. (b) 501,488
--------------
1,479,523
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 40.3%
43,402 Advanced Energy Industries,
Inc. (b) 2,928,767
63,480 Canadian Solar, Inc. (a) (b) 1,070,273
102,294 Cree, Inc. (b) 3,799,199
102,264 First Solar, Inc. (b) 6,904,865
120,821 Integrated Device Technology,
Inc. (b) 3,592,008
44,090 JA Solar Holdings Co., Ltd.,
ADR (a) (b) 328,911
31,071 JinkoSolar Holding Co., Ltd.,
ADR (a) (b) 747,258
68,789 Microsemi Corp. (b) 3,552,952
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (CONTINUED)
362,103 ON Semiconductor Corp. (b) $ 7,582,437
32,523 Power Integrations, Inc. 2,392,067
47,074 SolarEdge Technologies, Inc. (b) 1,767,629
152,750 SunPower Corp. (a) (b) 1,287,682
52,863 Veeco Instruments, Inc. (b) 785,016
--------------
36,739,064
--------------
SOFTWARE -- 1.1%
59,254 Silver Spring Networks, Inc. (b) 962,285
--------------
TOTAL COMMON STOCKS -- 99.9% 91,199,951
(Cost $78,526,631) --------------
MONEY MARKET FUNDS -- 4.9%
4,420,547 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
1.24% (d) (e) 4,420,547
(Cost $4,420,547) --------------
PRINCIPAL
VALUE DESCRIPTION VALUE
-------------------------------------------------------------
REPURCHASE AGREEMENTS -- 8.8%
$ 8,038,583 RBC Capital Markets LLC,
1.35% (d), dated 12/29/17, due
01/02/18, with a maturity value
of $8,039,788. Collateralized
by U.S. Treasury Notes,
interest rates of 1.375% to
2.250%, due 09/30/18 to
03/31/21. The value of the
collateral including accrued
interest is $8,232,147. (e) 8,038,583
(Cost $8,038,583) --------------
TOTAL INVESTMENTS -- 113.6% 103,659,081
(Cost $90,985,761) (f)
NET OTHER ASSETS AND
LIABILITIES -- (13.6)% (12,397,106)
--------------
NET ASSETS -- 100.0% $ 91,261,975
==============
(a) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $11,978,147 and the total value of the collateral held by
the Fund is $12,459,130.
(b) Non-income producing security.
(c) Security is a Master Limited Partnership ("MLP"). (d) Rate shown reflects
yield as of December 31, 2017.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $92,100,970. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$18,351,930 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$6,793,819. The net unrealized appreciation was $11,558,111.
ADR - American Depositary Receipt
Page 32 See Notes to Financial Statements
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 91,199,951 $ -- $ --
Money Market
Funds 4,420,547 -- --
Repurchase
Agreements -- 8,038,583 --
----------------------------------------------------
Total Investments $ 95,620,498 $ 8,038,583 $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 11,978,147
Non-cash Collateral(2) (11,978,147)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2017, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 8,038,583
Non-cash Collateral(4) (8,038,583)
--------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2017, the value of the collateral received from each
seller exceeded the value of the repurchase agreements.
See Notes to Financial Statements Page 33
FIRST TRUST S&P REIT INDEX FUND (FRI)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.4%
DIVERSIFIED REITS -- 7.9%
9,013 Alexander & Baldwin, Inc. $ 250,021
8,084 American Assets Trust, Inc. 309,132
8,757 Armada Hoffler Properties, Inc. 135,996
106,365 Colony NorthStar, Inc., Class A 1,213,625
25,050 Empire State Realty Trust, Inc.,
Class A 514,276
52,008 Forest City Realty Trust, Inc.,
Class A 1,253,393
5,402 Gladstone Commercial Corp. 113,766
13,119 Global Net Lease, Inc. 269,989
31,327 Gramercy Property Trust 835,178
23,512 Investors Real Estate Trust 133,548
13,297 iStar, Inc. (a) 150,256
42,224 Lexington Realty Trust 407,462
28,743 Liberty Property Trust 1,236,236
3,113 One Liberty Properties, Inc. 80,689
3,879 PS Business Parks, Inc. 485,224
12,548 Select Income REIT 315,331
88,889 Spirit Realty Capital, Inc. 762,668
32,229 STORE Capital Corp. 839,243
189,941 VEREIT, Inc. 1,479,640
15,299 Washington Real Estate Investment
Trust 476,105
20,845 WP Carey, Inc. 1,436,221
--------------
12,697,999
--------------
HEALTH CARE REITS -- 11.9%
14,799 CareTrust REIT, Inc. 248,031
3,336 Community Healthcare Trust, Inc. 93,742
3,711 Global Medical REIT, Inc. 30,430
91,465 HCP, Inc. 2,385,407
24,351 Healthcare Realty Trust, Inc. 782,154
39,948 Healthcare Trust of America, Inc.,
Class A 1,200,038
7,715 LTC Properties, Inc. 335,988
6,198 MedEquities Realty Trust, Inc. 69,542
71,002 Medical Properties Trust, Inc. 978,408
8,098 National Health Investors, Inc. 610,427
16,013 New Senior Investment Group, Inc. 121,058
38,620 Omega Healthcare Investors, Inc. 1,063,595
34,943 Physicians Realty Trust 628,625
18,291 Quality Care Properties, Inc. (a) 252,599
34,751 Sabra Health Care REIT, Inc. 652,276
46,332 Senior Housing Properties Trust 887,258
2,464 Universal Health Realty Income
Trust 185,071
69,441 Ventas, Inc. 4,167,154
72,211 Welltower, Inc. 4,604,895
--------------
19,296,698
--------------
HOTEL & RESORT REITS -- 6.7%
40,880 Apple Hospitality REIT, Inc. 801,657
6,228 Ashford Hospitality Prime, Inc. 60,598
17,284 Ashford Hospitality Trust, Inc. 116,321
8,847 Chatham Lodging Trust 201,358
11,717 Chesapeake Lodging Trust 317,414
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
HOTEL & RESORT REITS (CONTINUED)
39,055 DiamondRock Hospitality Co. $ 440,931
7,626 Hersha Hospitality Trust 132,692
32,044 Hospitality Properties Trust 956,513
144,293 Host Hotels & Resorts, Inc. 2,864,216
22,075 LaSalle Hotel Properties 619,645
31,409 Park Hotels & Resorts, Inc. 903,009
13,444 Pebblebrook Hotel Trust 499,714
34,072 RLJ Lodging Trust 748,562
9,981 Ryman Hospitality Properties,
Inc. 688,889
20,323 Summit Hotel Properties, Inc. 309,519
43,937 Sunstone Hotel Investors, Inc. 726,279
20,809 Xenia Hotels & Resorts, Inc. 449,266
--------------
10,836,583
--------------
INDUSTRIAL REITS -- 7.8%
18,159 DCT Industrial Trust, Inc. 1,067,386
69,439 Duke Realty Corp. 1,889,435
6,712 EastGroup Properties, Inc. 593,207
23,367 First Industrial Realty Trust,
Inc. 735,359
14,494 Monmouth Real Estate Investment
Corp. 257,993
103,743 Prologis, Inc. 6,692,461
15,188 Rexford Industrial Realty, Inc. 442,882
18,344 STAG Industrial, Inc. 501,342
10,636 Terreno Realty Corp. 372,898
--------------
12,552,963
--------------
OFFICE REITS -- 13.8%
18,663 Alexandria Real Estate Equities,
Inc. 2,437,201
30,088 Boston Properties, Inc. 3,912,343
34,214 Brandywine Realty Trust 622,353
5,309 City Office REIT, Inc. 69,070
23,359 Columbia Property Trust, Inc. 536,089
19,421 Corporate Office Properties Trust 567,093
81,889 Cousins Properties, Inc. 757,473
31,070 Douglas Emmett, Inc. 1,275,734
8,554 Easterly Government Properties,
Inc. 182,543
24,194 Equity Commonwealth (a) 738,159
20,908 Franklin Street Properties Corp. 224,552
19,331 Government Properties Income
Trust 358,397
20,131 Highwoods Properties, Inc. 1,024,869
30,280 Hudson Pacific Properties, Inc. 1,037,090
18,207 JBG SMITH Properties 632,329
19,182 Kilroy Realty Corp. 1,431,936
17,518 Mack-Cali Realty Corp. 377,688
10,775 NorthStar Realty Europe Corp. 144,708
39,787 Paramount Group, Inc. 630,624
28,149 Piedmont Office Realty Trust, Inc.,
Class A 552,002
19,160 SL Green Realty Corp. 1,933,819
9,328 Tier REIT, Inc. 190,198
33,616 Vornado Realty Trust 2,628,099
--------------
22,264,369
--------------
Page 34 See Notes to Financial Statements
FIRST TRUST S&P REIT INDEX FUND (FRI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
RESIDENTIAL REITS -- 16.8%
26,600 American Campus Communities,
Inc. $ 1,091,398
49,089 American Homes 4 Rent, Class A 1,072,104
30,616 Apartment Investment &
Management Co., Class A 1,338,225
26,923 AvalonBay Communities, Inc. 4,803,332
4,720 Bluerock Residential Growth
REIT, Inc. 47,719
18,067 Camden Property Trust 1,663,248
2,952 Clipper Realty, Inc. 29,490
14,770 Education Realty Trust, Inc. 515,768
17,126 Equity LifeStyle Properties, Inc. 1,524,557
71,651 Equity Residential 4,569,184
12,876 Essex Property Trust, Inc. 3,107,880
16,284 Independence Realty Trust, Inc. 164,306
55,596 Invitation Homes, Inc. 1,310,398
22,155 Mid-America Apartment
Communities, Inc. 2,227,907
3,737 NexPoint Residential Trust, Inc. 104,412
7,154 Preferred Apartment Communities,
Inc., Class A 144,869
15,470 Sun Communities, Inc. 1,435,307
52,170 UDR, Inc. 2,009,588
6,197 UMH Properties, Inc. 92,335
--------------
27,252,027
--------------
RETAIL REITS -- 20.2%
16,321 Acadia Realty Trust 446,542
5,696 Agree Realty Corp. 293,002
737 Alexander's, Inc. 291,741
59,447 Brixmor Property Group, Inc. 1,109,281
33,360 CBL & Associates Properties, Inc. 188,818
15,846 Cedar Realty Trust, Inc. 96,344
59,629 DDR Corp. 534,276
14,145 Federal Realty Investment Trust 1,878,597
6,410 Getty Realty Corp. 174,096
121,733 GGP, Inc. 2,847,335
82,993 Kimco Realty Corp. 1,506,323
16,299 Kite Realty Group Trust 319,460
21,135 Macerich (The) Co. 1,388,147
29,647 National Retail Properties, Inc. 1,278,675
13,631 Pennsylvania Real Estate
Investment Trust 162,073
15,474 Ramco-Gershenson Properties
Trust 227,932
54,941 Realty Income Corp. 3,132,736
28,850 Regency Centers Corp. 1,995,843
21,395 Retail Opportunity Investments
Corp. 426,830
44,279 Retail Properties of America, Inc.,
Class A 595,110
2,348 Saul Centers, Inc. 144,989
5,032 Seritage Growth Properties,
Class A 203,595
60,605 Simon Property Group, Inc. 10,408,303
18,431 Tanger Factory Outlet Centers,
Inc. 488,606
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
RETAIL REITS (CONTINUED)
11,838 Taubman Centers, Inc. $ 774,560
20,638 Urban Edge Properties 526,063
5,797 Urstadt Biddle Properties, Inc.,
Class A 126,027
36,220 Washington Prime Group, Inc. 257,886
23,286 Weingarten Realty Investors 765,411
1,691 Wheeler Real Estate Investment
Trust, Inc. 16,876
7,511 Whitestone REIT 108,233
--------------
32,713,710
--------------
SPECIALIZED REITS -- 14.3%
23,047 CoreCivic, Inc. 518,557
6,667 CoreSite Realty Corp. 759,371
35,268 CubeSmart 1,019,951
17,800 CyrusOne, Inc. 1,059,634
40,057 Digital Realty Trust, Inc. 4,562,492
12,495 EPR Properties 817,923
24,550 Extra Space Storage, Inc. 2,146,898
6,305 Farmland Partners, Inc. 54,727
11,931 Four Corners Property Trust, Inc. 306,627
38,944 Gaming and Leisure Properties,
Inc. 1,440,928
24,183 GEO Group (The), Inc. 570,719
2,207 Gladstone Land Corp. 29,640
7,595 InfraREIT, Inc. 141,115
54,874 Iron Mountain, Inc. 2,070,396
9,074 Life Storage, Inc. 808,221
9,658 National Storage Affiliates Trust 263,277
29,183 Public Storage 6,099,247
9,807 QTS Realty Trust, Inc., Class A 531,147
--------------
23,200,870
--------------
TOTAL COMMON STOCKS -- 99.4% 160,815,219
(Cost $176,815,149) --------------
MONEY MARKET FUNDS -- 1.4%
2,242,228 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 1.19% (b) 2,242,228
(Cost $2,242,228) --------------
TOTAL INVESTMENTS -- 100.8% 163,057,447
(Cost $179,057,377) (c)
NET OTHER ASSETS AND
LIABILITIES -- (0.8)% (1,266,734)
--------------
NET ASSETS -- 100.0% $ 161,790,713
==============
(a) Non-income producing security.
(b) Rate shown reflects yield as of December 31, 2017.
(c) Aggregate cost for federal income tax purposes is $180,136,472. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$5,269,785 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$22,348,810. The net unrealized depreciation was $17,079,025.
See Notes to Financial Statements Page 35
FIRST TRUST S&P REIT INDEX FUND (FRI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $160,815,219 $ -- $ --
Money Market
Funds 2,242,228 -- --
----------------------------------------------------
Total Investments $163,057,447 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
Page 36 See Notes to Financial Statements
FIRST TRUST WATER ETF (FIW)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
BUILDING PRODUCTS -- 6.2%
192,512 A.O. Smith Corp. $ 11,797,135
275,604 Advanced Drainage Systems, Inc. 6,573,156
--------------
18,370,291
--------------
CHEMICALS -- 3.6%
80,428 Ecolab, Inc. 10,791,829
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 3.0%
188,750 Tetra Tech, Inc. 9,088,312
--------------
CONSTRUCTION & ENGINEERING
-- 9.2%
280,026 AECOM (a) 10,402,966
247,369 Aegion Corp. (a) 6,290,594
65,349 Valmont Industries, Inc. 10,838,131
--------------
27,531,691
--------------
CONSTRUCTION MATERIALS -- 3.8%
1,009,128 Forterra, Inc. (a) (b) 11,201,321
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 4.8%
116,786 Badger Meter, Inc. 5,582,371
129,213 Itron, Inc. (a) 8,812,326
--------------
14,394,697
--------------
HEALTH CARE EQUIPMENT & SUPPLIES
-- 7.6%
128,518 Danaher Corp. 11,929,041
68,976 IDEXX Laboratories, Inc. (a) 10,786,467
--------------
22,715,508
--------------
INDUSTRIAL CONGLOMERATES -- 4.0%
46,480 Roper Technologies, Inc. 12,038,320
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 3.7%
165,652 Agilent Technologies, Inc. 11,093,714
--------------
MACHINERY -- 31.3%
238,821 Flowserve Corp. 10,061,529
139,053 Franklin Electric Co., Inc. 6,382,533
176,100 Gorman-Rupp (The) Co. 5,496,081
91,180 IDEX Corp. 12,033,024
61,920 Lindsay Corp. 5,461,344
179,701 Mueller Industries, Inc. 6,366,806
670,620 Mueller Water Products, Inc.,
Class A 8,402,869
172,780 Pentair PLC 12,201,724
336,715 Rexnord Corp. (a) 8,761,324
86,880 Watts Water Technologies, Inc.,
Class A 6,598,536
172,724 Xylem, Inc. 11,779,777
--------------
93,545,547
--------------
WATER UTILITIES -- 22.8%
163,098 American States Water Co. 9,445,005
132,521 American Water Works Co., Inc. 12,124,346
280,864 Aqua America, Inc. 11,018,295
220,997 AquaVenture Holdings Ltd. (a) 3,429,873
214,706 California Water Service Group 9,736,917
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
WATER UTILITIES (CONTINUED)
526,054 Cia de Saneamento Basico do
Estado de Sao Paulo, ADR $ 5,497,264
61,768 Connecticut Water Service, Inc. 3,546,101
88,212 Middlesex Water Co. 3,520,541
96,831 SJW Group 6,180,723
101,833 York Water (The) Co. 3,452,139
--------------
67,951,204
--------------
TOTAL COMMON STOCKS -- 100.0% 298,722,434
(Cost $241,707,917) --------------
MONEY MARKET FUNDS -- 1.3%
3,315,206 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
1.24% (c) (d) 3,315,206
656,178 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 1.19% (c) 656,178
--------------
TOTAL MONEY MARKET FUNDS
-- 1.3% 3,971,384
(Cost $3,971,384) --------------
PRINCIPAL
VALUE DESCRIPTION VALUE
-------------------------------------------------------------
REPURCHASE AGREEMENTS -- 2.0%
$ 6,028,565 RBC Capital Markets LLC,
1.35% (c), dated 12/29/17, due
01/02/18, with a maturity value
of $6,029,469. Collateralized
by U.S. Treasury Notes,
interest rates of 1.375% to
2.250%, due 09/30/18 to
03/31/21. The value of the
collateral including accrued
interest is $6,173,729. (d) 6,028,565
(Cost $6,028,565) --------------
TOTAL INVESTMENTS -- 103.3% 308,722,383
(Cost $251,707,866) (e)
NET OTHER ASSETS AND
LIABILITIES -- (3.3)% (9,947,521)
--------------
NET ASSETS -- 100.0% $ 298,774,862
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $9,013,400 and the total value of the collateral held by the
Fund is $9,343,771.
(c) Rate shown reflects yield as of December 31, 2017.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $253,488,913. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$57,859,734 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$2,626,264. The net unrealized appreciation was $55,233,470.
ADR - American Depositary Receipt
See Notes to Financial Statements Page 37
FIRST TRUST WATER ETF (FIW)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 298,722,434 $ -- $ --
Money Market
Funds 3,971,384 -- --
Repurchase
Agreements -- 6,028,565 --
----------------------------------------------------
Total Investments $ 302,693,818 $ 6,028,565 $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 9,013,400
Non-cash Collateral(2) (9,013,400)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2017, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 6,028,565
Non-cash Collateral(4) (6,028,565)
--------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2017, the value of the collateral received from each
seller exceeded the value of the repurchase agreements.
Page 38 See Notes to Financial Statements
FIRST TRUST NATURAL GAS ETF (FCG)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.8%
ENERGY EQUIPMENT & SERVICES
-- 0.7%
56,973 Unit Corp. (a) $ 1,253,406
--------------
GAS UTILITIES -- 2.7%
91,190 National Fuel Gas Co. 5,007,243
--------------
OIL, GAS & CONSUMABLE FUELS
-- 96.4%
184,572 Anadarko Petroleum Corp. 9,900,442
70,293 Antero Midstream Partners,
L.P. (b) 2,041,309
359,177 Antero Resources Corp. (a) 6,824,363
275,939 Cabot Oil & Gas Corp. 7,891,855
68,801 Cimarex Energy Co. 8,394,410
63,464 Concho Resources, Inc. (a) 9,533,562
168,781 Continental Resources, Inc. (a) 8,940,330
62,000 DCP Midstream, L.P. (b) 2,252,460
230,365 Devon Energy Corp. 9,537,111
32,321 Enable Midstream Partners,
L.P. (b) 459,605
674,697 Encana Corp. 8,993,711
374,553 Enerplus Corp. 3,666,874
166,529 EnLink Midstream Partners,
L.P. (b) 2,559,551
148,925 EQT Corp. 8,476,811
45,860 EQT Midstream Partners, L.P. (b) 3,352,366
304,658 Gulfport Energy Corp. (a) 3,887,436
136,351 Matador Resources Co. (a) 4,244,607
128,260 MPLX, L.P. (b) 4,549,382
209,281 Murphy Oil Corp. 6,498,175
258,275 Newfield Exploration Co. (a) 8,143,411
303,740 Noble Energy, Inc. 8,850,984
100,778 PDC Energy, Inc. (a) 5,194,098
403,686 QEP Resources, Inc. (a) 3,863,275
443,307 Range Resources Corp. 7,562,817
26,194 SandRidge Energy, Inc. (a) 551,908
200,742 SM Energy Co. 4,432,383
1,034,685 Southwestern Energy Co. (a) 5,773,542
53,243 Spectra Energy Partners, L.P. (b) 2,105,228
278,227 SRC Energy, Inc. (a) 2,373,276
23,821 TC PipeLines, L.P. (b) 1,264,895
279,561 Ultra Petroleum Corp. (a) 2,532,823
117,542 Vermilion Energy, Inc. (c) 4,269,125
81,014 Western Gas Partners, L.P. (b) 3,895,963
125,324 Williams Partners, L.P. (b) 4,860,065
--------------
177,678,153
--------------
TOTAL COMMON STOCKS -- 99.8% 183,938,802
(Cost $194,735,899) --------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
MONEY MARKET FUNDS -- 0.9%
1,169,848 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
1.24% (d) (e) $ 1,169,848
430,828 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 1.19% (d) 430,828
--------------
TOTAL MONEY MARKET FUNDS
-- 0.9% 1,600,676
(Cost $1,600,676) --------------
PRINCIPAL
VALUE DESCRIPTION VALUE
-------------------------------------------------------------
REPURCHASE AGREEMENTS -- 1.1%
$ 2,127,320 RBC Capital Markets LLC,
1.35% (d), dated 12/29/17, due
01/02/18, with a maturity value
of $2,127,639. Collateralized
by U.S. Treasury Notes,
interest rates of 1.375% to
2.250%, due 09/30/18 to
03/31/21. The value of the
collateral including accrued
interest is $2,178,545. (e) 2,127,320
(Cost $2,127,320) --------------
TOTAL INVESTMENTS -- 101.8% 187,666,798
(Cost $198,463,895) (f)
NET OTHER ASSETS AND
LIABILITIES -- (1.8)% (3,405,047)
--------------
NET ASSETS -- 100.0% $ 184,261,751
==============
(a) Non-income producing security.
(b) Security is a Master Limited Partnership ("MLP").
(c) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $3,221,584 and the total value of the collateral held by the
Fund is $3,297,168.
(d) Rate shown reflects yield as of December 31, 2017.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $205,351,625. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$12,600,991 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$30,285,818. The net unrealized depreciation was $17,684,827.
See Notes to Financial Statements Page 39
FIRST TRUST NATURAL GAS ETF (FCG)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 183,938,802 $ -- $ --
Money Market
Funds 1,600,676 -- --
Repurchase
Agreements -- 2,127,320 --
----------------------------------------------------
Total Investments $ 185,539,478 $ 2,127,320 $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 3,221,584
Non-cash Collateral(2) (3,221,584)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2017, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 2,127,320
Non-cash Collateral(4) (2,127,320)
--------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2017, the value of the collateral received from each
seller exceeded the value of the repurchase agreements.
Page 40 See Notes to Financial Statements
FIRST TRUST CHINDIA ETF (FNI)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.1%
AIR FREIGHT & LOGISTICS -- 0.7%
155,514 ZTO Express Cayman, Inc.,
ADR (a) (b) $ 2,464,897
--------------
AUTOMOBILES -- 4.1%
465,891 Tata Motors Ltd., ADR (b) 15,407,015
--------------
BANKS -- 14.0%
261,890 HDFC Bank Ltd., ADR 26,626,356
2,665,567 ICICI Bank Ltd., ADR 25,935,967
--------------
52,562,323
--------------
BIOTECHNOLOGY -- 1.4%
31,220 BeiGene Ltd., ADR (b) 3,050,818
29,879 China Biologic Products Holdings,
Inc. (b) 2,353,569
--------------
5,404,387
--------------
CAPITAL MARKETS -- 0.8%
61,821 Noah Holdings Ltd., ADR (a) (b) 2,861,076
--------------
CONSUMER FINANCE -- 0.7%
62,658 Yirendai Ltd., ADR (a) 2,755,072
--------------
DIVERSIFIED CONSUMER SERVICES
-- 3.5%
137,077 Bright Scholar Education Holdings
Ltd., ADR (a) (b) 2,559,228
85,618 New Oriental Education &
Technology Group, Inc., ADR 8,048,092
89,582 TAL Education Group, ADR 2,661,481
--------------
13,268,801
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.3%
51,506 China Telecom Corp., Ltd., ADR 2,444,990
171,534 China Unicom (Hong Kong) Ltd.,
ADR (b) 2,320,855
--------------
4,765,845
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 0.6%
227,670 China Cord Blood Corp. (a) (b) 2,265,316
--------------
HOTELS, RESTAURANTS & LEISURE
-- 3.5%
23,405 China Lodging Group Ltd., ADR 3,380,384
95,655 Melco Resorts & Entertainment
Ltd., ADR 2,777,821
177,947 Yum China Holdings, Inc. 7,121,439
--------------
13,279,644
--------------
INSURANCE -- 0.6%
152,662 China Life Insurance Co., Ltd.,
ADR (a) 2,383,054
--------------
INTERNET & DIRECT MARKETING
RETAIL -- 14.0%
315,346 Ctrip.com International Ltd.,
ADR (b) 13,906,759
679,025 JD.com, Inc., ADR (b) 28,125,215
238,999 MakeMyTrip Ltd. (a) (b) 7,134,120
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
INTERNET & DIRECT MARKETING
RETAIL (CONTINUED)
303,468 Vipshop Holdings Ltd., ADR (b) $ 3,556,645
--------------
52,722,739
--------------
INTERNET SOFTWARE & SERVICES
-- 25.5%
34,814 58.com, Inc., ADR (b) 2,491,638
143,604 Alibaba Group Holding Ltd.,
ADR (b) 24,761,638
45,107 Autohome, Inc., ADR (b) 2,917,070
106,587 Baidu, Inc., ADR (b) 24,963,741
88,096 Baozun, Inc., ADR (a) (b) 2,780,310
84,291 Bitauto Holdings Ltd., ADR (a) (b) 2,680,454
538,263 Fang Holdings Ltd., ADR (a) (b) 3,003,508
104,064 Momo, Inc., ADR (b) 2,547,487
44,206 NetEase, Inc., ADR 15,254,164
25,546 SINA Corp. (b) 2,562,519
51,612 Sohu.com, Inc. (b) 2,237,380
66,927 Weibo Corp., ADR (b) 6,924,267
24,204 YY, Inc., ADR (b) 2,736,504
--------------
95,860,680
--------------
IT SERVICES -- 12.9%
1,634,287 Infosys Ltd., ADR 26,508,135
2,695,946 Wipro Ltd., ADR 14,746,825
176,649 WNS (Holdings) Ltd., ADR (b) 7,088,924
--------------
48,343,884
--------------
MARINE -- 0.8%
425,476 Seaspan Corp. 2,871,963
--------------
MEDIA -- 0.5%
198,218 Eros International PLC (a) (b) 1,912,804
--------------
METALS & MINING -- 5.1%
150,093 Aluminum Corp. of China Ltd.,
ADR (a) (b) 2,691,167
797,538 Vedanta Ltd., ADR 16,612,717
--------------
19,303,884
--------------
OIL, GAS & CONSUMABLE FUELS
-- 2.1%
34,640 China Petroleum & Chemical
Corp., ADR (a) 2,541,537
18,252 CNOOC Ltd., ADR 2,620,257
36,978 PetroChina Co., Ltd., ADR 2,586,241
--------------
7,748,035
--------------
PHARMACEUTICALS -- 2.1%
207,469 Dr. Reddy's Laboratories Ltd.,
ADR (a) 7,792,536
--------------
PROFESSIONAL SERVICES -- 0.7%
43,435 51job, Inc., ADR (b) 2,643,020
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 0.7%
101,774 JinkoSolar Holding Co., Ltd.,
ADR (a) (b) 2,447,665
--------------
SOFTWARE -- 0.7%
68,464 Changyou.com Ltd., ADR (b) 2,494,144
--------------
See Notes to Financial Statements Page 41
FIRST TRUST CHINDIA ETF (FNI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
WIRELESS TELECOMMUNICATION
SERVICES -- 3.8%
285,822 China Mobile Ltd., ADR $ 14,445,444
--------------
TOTAL COMMON STOCKS -- 100.1% 376,004,228
(Cost $305,557,912) --------------
MONEY MARKET FUNDS -- 2.3%
8,712,977 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
1.24% (c) (d) 8,712,977
(Cost $8,712,977) --------------
PRINCIPAL
VALUE DESCRIPTION VALUE
-------------------------------------------------------------
REPURCHASE AGREEMENTS -- 4.2%
$ 15,844,189 RBC Capital Markets LLC,
1.35% (c), dated 12/29/17, due
01/02/18, with a maturity value
of $15,846,566. Collateralized
by U.S. Treasury Notes,
interest rates of 1.375% to
2.250%, due 09/30/18 to
03/31/21. The value of the
collateral including accrued
interest is $16,225,707. (d) 15,844,189
(Cost $15,844,189) --------------
TOTAL INVESTMENTS -- 106.6% 400,561,394
(Cost $330,115,078) (e)
NET OTHER ASSETS AND
LIABILITIES -- (6.6)% (24,645,959)
--------------
NET ASSETS -- 100.0% $ 375,915,435
==============
(a) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $24,175,072 and the total value of the collateral held by
the Fund is $24,557,166.
(b) Non-income producing security.
(c) Rate shown reflects yield as of December 31, 2017.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $336,428,845. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$70,309,063 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$6,176,514. The net unrealized appreciation was $64,132,549.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 376,004,228 $ -- $ --
Money Market
Funds 8,712,977 -- --
Repurchase
Agreements -- 15,844,189 --
----------------------------------------------------
Total Investments $ 384,717,205 $ 15,844,189 $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
Page 42 See Notes to Financial Statements
FIRST TRUST CHINDIA ETF (FNI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 24,175,072
Non-cash Collateral(2) (24,175,072)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2017, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 15,844,189
Non-cash Collateral(4) (15,844,189)
--------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2017, the value of the collateral received from each
seller exceeded the value of the repurchase agreements.
See Notes to Financial Statements Page 43
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.9%
BANKS -- 88.6%
31,270 1st Source Corp. $ 1,546,301
24,659 Access National Corp. 686,507
15,893 Allegiance Bancshares, Inc. (a) 598,371
44,888 Ameris Bancorp 2,163,602
16,783 Arrow Financial Corp. 569,783
31,020 Atlantic Capital Bancshares,
Inc. (a) 545,952
38,425 BancFirst Corp. 1,965,439
67,348 Bancorp (The), Inc. (a) 665,398
7,449 Bank of Marin Bancorp 506,532
7,897 Bank of (The) Princeton (a) 271,183
154,544 Bank of the Ozarks 7,487,657
9,305 Bankwell Financial Group, Inc. 319,534
39,554 Banner Corp. 2,180,216
18,123 BCB Bancorp, Inc. 262,783
32,344 Blue Hills Bancorp, Inc. 650,114
78,919 BOK Financial Corp. 7,285,802
101,566 Boston Private Financial Holdings,
Inc. 1,569,195
23,764 Bridge Bancorp, Inc. 831,740
92,418 Brookline Bancorp, Inc. 1,450,963
20,572 Bryn Mawr Bank Corp. 909,282
4,205 C&F Financial Corp. 243,890
18,707 Camden National Corp. 788,126
20,455 Capital City Bank Group, Inc. 469,238
13,695 Capstar Financial Holdings,
Inc. (a) 284,445
25,392 Carolina Financial Corp. 943,313
97,442 Cathay General Bancorp 4,109,129
72,470 CenterState Bank Corp. 1,864,653
16,375 Central Valley Community
Bancorp 330,447
4,347 Century Bancorp, Inc., Class A 340,153
85,806 Chemical Financial Corp. 4,588,047
18,830 City Holding Co. 1,270,460
12,263 Civista Bancshares, Inc. 269,786
18,427 CNB Financial Corp. 483,524
50,920 CoBiz Financial, Inc. 1,017,891
88,032 Columbia Banking System, Inc. 3,824,110
128,654 Commerce Bancshares, Inc. 7,184,039
21,332 Community Trust Bancorp, Inc. 1,004,737
38,600 ConnectOne Bancorp, Inc. 993,950
132,813 CVB Financial Corp. 3,129,074
41,207 Eagle Bancorp, Inc. (a) 2,385,885
174,271 East West Bancorp, Inc. 10,600,905
27,809 Enterprise Financial Services Corp. 1,255,576
17,510 Equity Bancshares, Inc.,
Class A (a) 620,029
11,173 Farmers & Merchants Bancorp, Inc. 455,858
33,209 Farmers National Banc Corp. 489,833
32,353 Fidelity Southern Corp. 705,295
18,840 Financial Institutions, Inc. 585,924
35,741 First Bancorp 1,262,015
13,494 First Bancshares, (The), Inc. 461,495
58,637 First Busey Corp. 1,755,592
13,269 First Citizens BancShares, Inc.,
Class A 5,347,407
20,481 First Community Bancshares, Inc. 588,419
19,234 First Connecticut Bancorp, Inc. 502,969
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
BANKS (CONTINUED)
74,824 First Financial Bancorp $ 1,971,612
79,847 First Financial Bankshares, Inc. 3,597,107
14,738 First Financial Corp. 668,368
46,054 First Foundation, Inc. (a) 853,841
168,295 First Hawaiian, Inc. 4,910,848
10,141 First Internet Bancorp 386,879
40,249 First Interstate BancSystem, Inc.,
Class A 1,611,972
59,250 First Merchants Corp. 2,492,055
15,213 First Mid-Illinois Bancshares,
Inc. 586,309
123,857 First Midwest Bancorp, Inc. 2,973,807
29,697 First of Long Island (The) Corp. 846,364
34,747 Flushing Financial Corp. 955,543
211,140 Fulton Financial Corp. 3,779,406
27,646 German American Bancorp, Inc. 976,733
94,051 Glacier Bancorp, Inc. 3,704,669
16,950 Great Southern Bancorp, Inc. 875,468
44,948 Green Bancorp, Inc. (a) 912,444
35,255 Guaranty Bancorp 974,801
13,333 Guaranty Bancshares, Inc. 408,656
102,700 Hancock Holding Co. 5,083,650
39,075 Hanmi Financial Corp. 1,185,926
39,380 HarborOne Bancorp, Inc. (a) 754,521
36,109 Heartland Financial USA, Inc. 1,937,248
46,057 Heritage Commerce Corp. 705,593
36,085 Heritage Financial Corp. 1,111,418
209,357 Home BancShares, Inc. 4,867,550
22,862 HomeTrust Bancshares, Inc. (a) 588,697
163,366 Hope Bancorp, Inc. 2,981,430
30,723 Horizon Bancorp 854,099
64,950 IBERIABANK Corp. 5,033,625
33,087 Independent Bank Corp./MA 2,311,127
25,719 Independent Bank Corp./MI 574,820
33,997 Independent Bank Group, Inc. 2,298,197
79,664 International Bancshares Corp. 3,162,661
369,125 Investors Bancorp, Inc. 5,123,455
57,092 Lakeland Bancorp, Inc. 1,099,021
30,377 Lakeland Financial Corp. 1,472,981
57,921 LegacyTexas Financial Group, Inc. 2,444,845
42,480 Live Oak Bancshares, Inc. 1,013,148
101,149 MB Financial, Inc. 4,503,153
19,884 Mercantile Bank Corp. 703,297
23,027 Midland States Bancorp, Inc. 747,917
14,732 MidWestOne Financial Group, Inc. 493,964
17,825 National Commerce Corp. (a) 717,456
52,492 NBT Bancorp, Inc. 1,931,706
11,818 Nicolet Bankshares, Inc. (a) 646,917
8,263 Northrim BanCorp, Inc. 279,703
15,032 Old Line Bancshares, Inc. 442,542
183,336 Old National Bancorp 3,199,213
35,721 Old Second Bancorp, Inc. 487,592
43,289 Opus Bank (a) 1,181,790
55,726 Pacific Premier Bancorp, Inc. (a) 2,229,040
155,454 PacWest Bancorp 7,834,882
6,584 Paragon Commercial Corp. (a) 350,335
22,015 Peapack-Gladstone Financial Corp. 770,965
5,653 Penns Woods Bancorp, Inc. 263,317
22,041 Peoples Bancorp, Inc. 718,977
Page 44 See Notes to Financial Statements
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
BANKS (CONTINUED)
21,733 People's Utah Bancorp $ 658,510
93,708 Pinnacle Financial Partners, Inc. 6,212,840
123,051 Popular, Inc. 4,367,080
17,943 Preferred Bank 1,054,690
16,745 QCR Holdings, Inc. 717,523
59,464 Renasant Corp. 2,431,483
22,447 Republic Bancorp, Inc., Class A 853,435
68,711 Republic First Bancorp, Inc. (a) 580,608
42,173 S&T Bancorp, Inc. 1,678,907
28,928 Sandy Spring Bancorp, Inc. 1,128,771
56,578 Seacoast Banking Corp. of
Florida (a) 1,426,331
63,876 ServisFirst Bancshares, Inc. 2,650,854
15,298 Shore Bancshares, Inc. 255,477
18,349 Sierra Bancorp 487,349
55,426 Simmons First National Corp.,
Class A 3,164,825
35,319 South State Corp. 3,078,051
8,824 Southern First Bancshares,
Inc. (a) 363,990
28,835 Southern National Bancorp of
Virginia, Inc. 462,225
35,487 Southside Bancshares, Inc. 1,195,202
47,011 State Bank Financial Corp. 1,402,808
27,333 Stock Yards Bancorp, Inc. 1,030,454
14,984 Summit Financial Group, Inc. 394,379
59,833 Texas Capital Bancshares,
Inc. (a) 5,319,154
75,503 TowneBank 2,321,717
27,660 TriCo Bancshares 1,047,208
34,534 TriState Capital Holdings,
Inc. (a) 794,282
25,103 Triumph Bancorp, Inc. (a) 790,745
81,675 Trustmark Corp. 2,602,166
60,124 UMB Financial Corp. 4,324,118
265,527 Umpqua Holdings Corp. 5,522,962
52,727 Union Bankshares Corp. 1,907,136
126,586 United Bankshares, Inc. 4,398,864
93,557 United Community Banks, Inc. 2,632,694
34,946 Univest Corp. of Pennsylvania 980,235
27,307 Veritex Holdings, Inc. (a) 753,400
20,763 Washington Trust Bancorp, Inc. 1,105,630
53,090 WesBanco, Inc. 2,158,109
19,551 West Bancorporation, Inc. 491,708
31,764 Westamerica Bancorporation (b) 1,891,546
67,425 Wintrust Financial Corp. 5,553,797
--------------
278,407,491
--------------
IT SERVICES -- 0.3%
14,809 Cass Information Systems, Inc. 862,032
--------------
THRIFTS & MORTGAGE FINANCE
-- 11.0%
21,762 BankFinancial Corp. 333,829
91,346 Beneficial Bancorp, Inc. 1,502,642
76,748 BofI Holding, Inc. (a) (b) 2,294,765
166,661 Capitol Federal Financial, Inc. 2,234,924
18,221 Charter Financial Corp. 319,596
45,120 Dime Community Bancshares, Inc. 945,264
12,245 First Defiance Financial Corp. 636,373
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE
(CONTINUED)
4,431 FS Bancorp, Inc. $ 241,800
2,571 Hingham Institution for Savings 532,197
8,977 Home Bancorp, Inc. 387,986
32,418 HomeStreet, Inc. (a) 938,501
97,681 Kearny Financial Corp. 1,411,490
65,070 Meridian Bancorp, Inc. 1,340,442
11,655 Meta Financial Group, Inc. 1,079,836
58,933 Northfield Bancorp, Inc. 1,006,576
123,727 Northwest Bancshares, Inc. 2,069,953
39,284 OceanFirst Financial Corp. 1,031,205
55,798 Oritani Financial Corp. 915,087
27,168 Riverview Bancorp, Inc. 235,547
10,358 Southern Missouri Bancorp, Inc. 389,357
11,913 Territorial Bancorp, Inc. 367,754
338,879 TFS Financial Corp. 5,062,852
8,872 Timberland Bancorp, Inc. 235,552
115,874 TrustCo Bank Corp. NY 1,066,041
60,006 United Community Financial Corp. 547,855
61,310 United Financial Bancorp, Inc. 1,081,508
104,757 Washington Federal, Inc. 3,587,927
35,554 Waterstone Financial, Inc. 606,196
36,935 Western New England Bancorp,
Inc. 402,591
37,846 WSFS Financial Corp. 1,810,931
--------------
34,616,577
--------------
TOTAL COMMON STOCKS --99.9% 313,886,100
(Cost $299,399,168) --------------
MONEY MARKET FUNDS -- 0.2%
623,178 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
1.24% (c) (d) 623,178
(Cost $623,178) --------------
PRINCIPAL
VALUE DESCRIPTION VALUE
-------------------------------------------------------------
REPURCHASE AGREEMENTS -- 0.4%
$ 1,133,223 RBC Capital Markets LLC,
1.35% (c), dated 12/29/17, due
01/02/18, with a maturity value
of $1,133,393. Collateralized
by U.S. Treasury Notes,
interest rates of 1.375% to
2.250%, due 09/30/18 to
03/31/21. The value of the
collateral including accrued
interest is $1,160,511. (d) 1,133,223
(Cost $1,133,223) --------------
TOTAL INVESTMENTS -- 100.5% 315,642,501
(Cost $301,155,569) (e)
NET OTHER ASSETS AND
LIABILITIES -- (0.5)% (1,610,458)
--------------
NET ASSETS -- 100.0% $ 314,032,043
==============
See Notes to Financial Statements Page 45
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
(a) Non-income producing security.
(b) All or a portion of this security is on loan (see Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $1,720,795 and the total value of the collateral held by the
Fund is $1,756,401.
(c) Rate shown reflects yield as of December 31, 2017.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $304,314,824. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$18,992,094 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$7,664,417. The net unrealized appreciation was $11,327,677.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 313,886,100 $ -- $ --
Money Market
Funds 623,178 -- --
Repurchase
Agreements -- 1,133,223 --
----------------------------------------------------
Total Investments $ 314,509,278 $ 1,133,223 $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 1,720,795
Non-cash Collateral(2) (1,720,795)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2017, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 1,133,223
Non-cash Collateral(4) (1,133,223)
--------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2017, the value of the collateral received from each
seller exceeded the value of the repurchase agreements.
Page 46 See Notes to Financial Statements
This page intentionally left blank.
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2017
FIRST TRUST FIRST TRUST
NASDAQ-100 FIRST TRUST NASDAQ-100
EQUAL NASDAQ-100- EX-TECHNOLOGY
WEIGHTED TECHNOLOGY SECTOR SECTOR
INDEX FUND INDEX FUND INDEX FUND
(QQEW) (QTEC) (QQXT)
---------------- ----------------- ----------------
ASSETS:
Investments, at value............................................... $ 539,881,164 $ 2,200,981,117 $ 104,911,646
Cash................................................................ 999,236 6,120,477 --
Receivables:
Investment securities sold.................................... 2,493,126 -- 741,099
Capital shares sold........................................... -- 7,252,550 --
Dividends..................................................... 415,444 1,483,752 83,863
Securities lending income..................................... 5,941 -- 1,684
Prepaid expenses.................................................... 4,622 18,769 876
-------------- --------------- --------------
Total Assets.................................................. 543,799,533 2,215,856,665 105,739,168
-------------- --------------- --------------
LIABILITIES:
Payables:
Investment securities purchased............................... 2,511,340 7,252,255 746,961
Capital shares redeemed....................................... -- -- --
Collateral for securities on loan............................. 10,210,670 -- 2,874,163
Distributions payable......................................... 979,965 6,108,271 94,080
Investment advisory fees...................................... 182,025 755,484 33,213
Licensing fees................................................ 132,266 558,684 25,006
Printing fees................................................. 24,783 84,371 8,100
Audit and tax fees............................................ 22,925 22,925 22,925
Trustees' fees................................................ 1 3 --
Other liabilities................................................... 103,408 363,350 20,672
-------------- --------------- --------------
Total Liabilities............................................. 14,167,383 15,145,343 3,825,120
-------------- --------------- --------------
NET ASSETS.......................................................... $ 529,632,150 $ 2,200,711,322 $ 101,914,048
============== =============== ==============
NET ASSETS CONSIST OF:
Paid-in capital..................................................... $ 478,255,880 $ 1,798,569,889 $ 102,226,732
Par value........................................................... 91,500 306,000 21,000
Accumulated net investment income (loss)............................ -- -- --
Accumulated net realized gain (loss) on investments and
foreign currency transactions.................................... (37,468,570) (25,818,025) (14,129,974)
Net unrealized appreciation (depreciation) on investments and
foreign currency translation..................................... 88,753,340 427,653,458 13,796,290
-------------- --------------- --------------
NET ASSETS.......................................................... $ 529,632,150 $ 2,200,711,322 $ 101,914,048
============== =============== ==============
NET ASSET VALUE, per share.......................................... $ 57.88 $ 71.92 $ 48.53
============== =============== ==============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share)........................... 9,150,002 30,600,002 2,100,002
============== =============== ==============
Investments, at cost................................................ $ 451,127,824 $ 1,773,327,659 $ 91,115,356
============== =============== ==============
Securities on loan, at value........................................ $ 9,903,978 $ -- $ 2,788,834
============== =============== ==============
Page 48 See Notes to Financial Statements
FIRST TRUST FIRST TRUST
NASDAQ(R) FIRST TRUST NASDAQ(R) ABA
CLEAN EDGE(R) S&P FIRST TRUST FIRST TRUST FIRST TRUST COMMUNITY
GREEN ENERGY REIT WATER NATURAL GAS CHINDIA BANK
INDEX FUND INDEX FUND ETF ETF ETF INDEX FUND
(QCLN) (FRI) (FIW) (FCG) (FNI) (QABA)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 103,659,081 $ 163,057,447 $ 308,722,383 $ 187,666,798 $ 400,561,394 $ 315,642,501
202,360 -- 3,645 9,745 5,188,616 1,541,720
2,026,832 -- -- 1,135,727 3,956,882 --
-- -- -- -- -- --
74,618 1,025,281 119,516 58,835 -- 376,755
23,361 -- 26,365 1,343 82,240 1,601
709 1,907 2,301 1,510 3,015 2,911
-------------- -------------- -------------- -------------- -------------- --------------
105,986,961 164,084,635 308,874,210 188,873,958 409,792,147 317,565,488
-------------- -------------- -------------- -------------- -------------- --------------
-- -- -- -- -- --
2,028,009 -- -- 1,137,629 3,956,089 --
12,459,130 -- 9,343,771 3,297,168 24,557,166 1,756,401
137,700 2,053,726 525,820 -- 5,047,176 1,489,801
26,825 41,928 100,127 63,338 125,559 105,207
21,991 129,881 35,558 43,087 71,998 72,778
7,471 12,515 16,612 14,948 12,380 23,881
22,925 22,925 22,925 22,925 22,925 22,925
-- -- -- 1 -- 1
20,935 32,947 54,535 33,111 83,419 62,451
-------------- -------------- -------------- -------------- -------------- --------------
14,724,986 2,293,922 10,099,348 4,612,207 33,876,712 3,533,445
-------------- -------------- -------------- -------------- -------------- --------------
$ 91,261,975 $ 161,790,713 $ 298,774,862 $ 184,261,751 $ 375,915,435 $ 314,032,043
============== ============== ============== ============== ============== ==============
$ 118,047,442 $ 178,442,619 $ 252,468,230 $ 680,979,559 $ 368,269,056 $ 305,367,740
45,000 69,500 61,500 80,984 95,000 60,000
-- 394,562 -- -- (2,371,548) --
(39,503,787) (1,116,038) (10,769,385) (486,001,696) (60,523,389) (5,882,629)
12,673,320 (15,999,930) 57,014,517 (10,797,096) 70,446,316 14,486,932
-------------- -------------- -------------- -------------- -------------- --------------
$ 91,261,975 $ 161,790,713 $ 298,774,862 $ 184,261,751 $ 375,915,435 $ 314,032,043
============== ============== ============== ============== ============== ==============
$ 20.28 $ 23.28 $ 48.58 $ 22.75 $ 39.57 $ 52.34
============== ============== ============== ============== ============== ==============
4,500,002 6,950,002 6,150,002 8,098,365 9,500,002 6,000,002
============== ============== ============== ============== ============== ==============
$ 90,985,761 $ 179,057,377 $ 251,707,866 $ 198,463,895 $ 330,115,078 $ 301,155,569
============== ============== ============== ============== ============== ==============
$ 11,978,147 $ -- $ 9,013,400 $ 3,221,584 $ 24,175,072 $ 1,720,795
============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 49
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2017
FIRST TRUST FIRST TRUST
NASDAQ-100 FIRST TRUST NASDAQ-100
EQUAL NASDAQ-100- EX-TECHNOLOGY
WEIGHTED TECHNOLOGY SECTOR SECTOR
INDEX FUND INDEX FUND INDEX FUND
(QQEW) (QTEC) (QQXT)
---------------- ----------------- ----------------
INVESTMENT INCOME:
Dividends........................................................... $ 5,182,754 $ 27,029,625 $ 813,092
Non-cash dividends.................................................. -- -- --
Securities lending income (net of fees)............................. 107,792 7,882 32,111
Interest............................................................ -- -- --
Foreign tax withholding............................................. -- -- --
-------------- --------------- --------------
Total investment income....................................... 5,290,546 27,037,507 845,203
-------------- --------------- --------------
EXPENSES:
Investment advisory fees............................................ 2,022,220 8,072,484 400,074
Licensing fees...................................................... 505,555 2,018,121 100,018
Accounting and administration fees.................................. 253,099 907,345 49,721
Custodian fees...................................................... 62,362 228,925 16,583
Expenses previously waived or reimbursed............................ 50,678 20,694 --
Printing fees....................................................... 46,127 214,358 12,128
Transfer agent fees................................................. 25,277 75,455 5,001
Audit and tax fees.................................................. 23,248 23,248 23,248
Legal fees.......................................................... 15,435 92,363 1,758
Trustees' fees and expenses......................................... 8,027 10,970 7,355
Listing fees........................................................ 6,700 8,312 6,149
Registration and filing fees........................................ 3,443 (23,321) --
Excise tax.......................................................... -- -- --
Other expenses...................................................... 11,159 27,049 4,976
-------------- --------------- --------------
Total expenses................................................ 3,033,330 11,676,003 627,011
Less fees waived and expenses reimbursed by the investment
advisor.................................................... -- -- (26,900)
-------------- --------------- --------------
Net expenses.................................................. 3,033,330 11,676,003 600,111
-------------- --------------- --------------
NET INVESTMENT INCOME (LOSS)........................................ 2,257,216 15,361,504 245,092
-------------- --------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................... (9,175,199) (4,851,081) (4,075,863)
In-kind redemptions........................................... 49,123,693 255,859,978 9,321,966
Foreign currency transactions................................. -- -- --
-------------- --------------- --------------
Net realized gain (loss)............................................ 39,948,494 251,008,897 5,246,103
-------------- --------------- --------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................... 66,809,610 347,761,259 13,165,675
Foreign currency translation.................................. -- -- --
-------------- --------------- --------------
Net change in unrealized appreciation (depreciation)................ 66,809,610 347,761,259 13,165,675
-------------- --------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)............................. 106,758,104 598,770,156 18,411,778
-------------- --------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................................. $ 109,015,320 $ 614,131,660 $ 18,656,870
============== =============== ==============
Page 50 See Notes to Financial Statements
FIRST TRUST FIRST TRUST
NASDAQ(R) FIRST TRUST NASDAQ(R) ABA
CLEAN EDGE(R) S&P FIRST TRUST FIRST TRUST FIRST TRUST COMMUNITY
GREEN ENERGY REIT WATER NATURAL GAS CHINDIA BANK
INDEX FUND INDEX FUND ETF ETF ETF INDEX FUND
(QCLN) (FRI) (FIW) (FCG) (FNI) (QABA)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 323,777 $ 6,793,108 $ 4,483,889 $ 958,255 $ 2,854,474 $ 7,435,120
-- -- -- -- 424,216 --
249,134 -- 94,215 39,699 864,014 51,780
-- -- 1,875 -- -- --
-- -- -- (47,175) (122,930) (16,297)
-------------- -------------- -------------- -------------- -------------- --------------
572,911 6,793,108 4,579,979 950,779 4,019,774 7,470,603
-------------- -------------- -------------- -------------- -------------- --------------
276,840 627,677 1,009,560 733,713 1,064,847 1,518,412
69,210 167,380 126,195 183,428 212,969 341,643
35,428 103,716 126,791 92,755 134,266 189,181
13,182 29,572 33,693 26,480 43,729 55,543
-- -- -- -- 31,863 39,804
12,431 16,702 36,390 27,191 21,641 54,268
3,461 10,461 12,619 9,172 13,311 18,980
23,248 23,248 23,248 23,248 23,248 23,248
2,017 1,707 9,116 4,231 8,445 15,971
7,323 7,523 7,659 7,528 7,626 7,889
6,171 9,000 11,906 12,286 12,286 6,289
1,846 (1,183) 415 (804) 15,288 (2,110)
-- -- -- 53,198 -- --
3,358 8,275 6,074 6,506 7,751 8,499
-------------- -------------- -------------- -------------- -------------- --------------
454,515 1,004,078 1,403,666 1,178,932 1,597,270 2,277,617
(39,255) -- -- (25,164) -- --
-------------- -------------- -------------- -------------- -------------- --------------
415,260 1,004,078 1,403,666 1,153,768 1,597,270 2,277,617
-------------- -------------- -------------- -------------- -------------- --------------
157,651 5,789,030 3,176,313 (202,989) 2,422,504 5,192,986
-------------- -------------- -------------- -------------- -------------- --------------
(2,633,603) (1,820,125) 641,083 (10,974,232) 1,155,265 (3,995,074)
2,836,617 4,327,509 18,733,622 6,034,069 3,591,471 38,015,274
-- -- -- 301 -- --
-------------- -------------- -------------- -------------- -------------- --------------
203,014 2,507,384 19,374,705 (4,939,862) 4,746,736 34,020,200
-------------- -------------- -------------- -------------- -------------- --------------
17,631,024 (285,345) 32,146,174 (21,923,977) 80,982,652 (46,391,038)
-- -- -- 16 -- --
-------------- -------------- -------------- -------------- -------------- --------------
17,631,024 (285,345) 32,146,174 (21,923,961) 80,982,652 (46,391,038)
-------------- -------------- -------------- -------------- -------------- --------------
17,834,038 2,222,039 51,520,879 (26,863,823) 85,729,388 (12,370,838)
-------------- -------------- -------------- -------------- -------------- --------------
$ 17,991,689 $ 8,011,069 $ 54,697,192 $ (27,066,812) $ 88,151,892 $ (7,177,852)
============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 51
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST
NASDAQ-100 NASDAQ-100-
EQUAL WEIGHTED TECHNOLOGY SECTOR
INDEX FUND INDEX FUND
(QQEW) (QTEC)
------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/2017 12/31/2016 12/31/2017 12/31/2016
-------------- -------------- -------------- --------------
OPERATIONS:
Net investment income (loss)................................ $ 2,257,216 $ 2,820,495 $ 15,361,504 $ 6,413,896
Net realized gain (loss).................................... 39,948,494 5,845,032 251,008,897 43,643,640
Net change in unrealized appreciation (depreciation)........ 66,809,610 4,631,267 347,761,259 59,587,597
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations.......................................... 109,015,320 13,296,794 614,131,660 109,645,133
-------------- -------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................... (2,664,196) (3,070,171) (18,099,151) (6,834,167)
Return of capital........................................... -- -- -- --
-------------- -------------- -------------- --------------
Total distributions to shareholders......................... (2,664,196) (3,070,171) (18,099,151) (6,834,167)
-------------- -------------- -------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................... 186,618,945 53,443,431 900,379,473 1,382,978,541
Cost of shares redeemed..................................... (167,382,228) (192,304,559) (866,555,377) (217,669,917)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions............................ 19,236,717 (138,861,128) 33,824,096 1,165,308,624
-------------- -------------- -------------- --------------
Total increase (decrease) in net assets..................... 125,587,841 (128,634,505) 629,856,605 1,268,119,590
NET ASSETS:
Beginning of period......................................... 404,044,309 532,678,814 1,570,854,717 302,735,127
-------------- -------------- -------------- --------------
End of period............................................... $ 529,632,150 $ 404,044,309 $2,200,711,322 $1,570,854,717
============== ============== ============== ==============
Accumulated net investment income (loss)
at end of period......................................... $ -- $ -- $ -- $ --
============== ============== ============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period..................... 8,750,002 12,250,002 29,850,002 7,100,002
Shares sold................................................. 3,550,000 1,200,000 13,950,000 27,350,000
Shares redeemed as a result of reverse share split
(See Note 4)............................................. -- -- -- --
Shares redeemed............................................. (3,150,000) (4,700,000) (13,200,000) (4,600,000)
-------------- -------------- -------------- --------------
Shares outstanding, end of period........................... 9,150,002 8,750,002 30,600,002 29,850,002
============== ============== ============== ==============
Page 52 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST
NASDAQ-100 NASDAQ(R) S&P FIRST TRUST
EX-TECHNOLOGY SECTOR CLEAN EDGE(R) GREEN ENERGY REIT WATER
INDEX FUND INDEX FUND INDEX FUND ETF
(QQXT) (QCLN) (FRI) (FIW)
----------------------------- ------------------------------- ------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/2017 12/31/2016 12/31/2017 12/31/2016 12/31/2017 12/31/2016 12/31/2017 12/31/2016
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 245,092 $ 311,986 $ 157,651 $ 681,645 $ 5,789,030 $ 7,211,736 $ 3,176,313 $ 802,504
5,246,103 11,593,705 203,014 (7,697,036) 2,507,384 13,949,681 19,374,705 (20,952)
13,165,675 (18,610,059) 17,631,024 5,128,516 (285,345) (9,738,996) 32,146,174 33,980,246
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
18,656,870 (6,704,368) 17,991,689 (1,886,875) 8,011,069 11,422,421 54,697,192 34,761,798
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
(336,720) (399,080) (353,370) (738,910) (5,399,046) (8,613,812) (3,256,646) (827,655)
-- -- -- -- -- -- -- --
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
(336,720) (399,080) (353,370) (738,910) (5,399,046) (8,613,812) (3,256,646) (827,655)
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
20,432,764 22,735,602 29,586,328 2,142,506 26,735,727 166,972,713 101,855,142 111,623,834
(39,956,628) (96,961,872) (7,799,880) (17,334,393) (103,982,757) (159,605,559) (76,311,985) (26,198,610)
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
(19,523,864) (74,226,270) 21,786,448 (15,191,887) (77,247,030) 7,367,154 25,543,157 85,425,224
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
(1,203,714) (81,329,718) 39,424,767 (17,817,672) (74,635,007) 10,175,763 76,983,703 119,359,367
103,117,762 184,447,480 51,837,208 69,654,880 236,425,720 226,249,957 221,791,159 102,431,792
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 101,914,048 $ 103,117,762 $ 91,261,975 $ 51,837,208 $ 161,790,713 $ 236,425,720 $ 298,774,862 $ 221,791,159
============= ============= ============== ============== ============== ============== ============== ==============
$ -- $ -- $ -- $ -- $ 394,562 $ -- $ -- $ --
============= ============= ============== ============== ============== ============== ============== ==============
2,550,002 4,450,002 3,350,002 4,350,002 10,250,002 10,250,002 5,600,002 3,400,002
450,000 600,000 1,550,000 150,000 1,150,000 6,950,000 2,350,000 2,950,000
-- -- -- -- -- -- -- --
(900,000) (2,500,000) (400,000) (1,150,000) (4,450,000) (6,950,000) (1,800,000) (750,000)
------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
2,100,002 2,550,002 4,500,002 3,350,002 6,950,002 10,250,002 6,150,002 5,600,002
============= ============= ============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 53
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST FIRST TRUST
NATURAL GAS CHINDIA
ETF ETF
(FCG) (FNI)
------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/2017 12/31/2016 12/31/2017 12/31/2016
-------------- -------------- -------------- --------------
OPERATIONS:
Net investment income (loss)................................ $ (202,989) $ 1,147,156 $ 2,422,504 $ 1,536,815
Net realized gain (loss).................................... (4,939,862) (129,930,231) 4,746,736 (11,566,495)
Net change in unrealized appreciation (depreciation)........ (21,923,961) 177,660,242 80,982,652 2,877,754
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations.......................................... (27,066,812) 48,877,167 88,151,892 (7,151,926)
-------------- -------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................... (1,778,865) (4,197,410) (7,008,527) (2,037,296)
Return of capital........................................... (1,015,203) -- -- --
-------------- -------------- -------------- --------------
Total distributions to shareholders......................... (2,794,068) (4,197,410) (7,008,527) (2,037,296)
-------------- -------------- -------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................... 44,818,055 400,163,152 175,541,076 2,725,776
Cost of shares redeemed..................................... (81,719,422) (346,861,336) (12,234,853) (83,258,296)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions............................ (36,901,367) 53,301,816 163,306,223 (80,532,520)
-------------- -------------- -------------- --------------
Total increase (decrease) in net assets..................... (66,762,247) 97,981,573 244,449,588 (89,721,742)
NET ASSETS:
Beginning of period......................................... 251,023,998 153,042,425 131,465,847 221,187,589
-------------- -------------- -------------- --------------
End of period............................................... $ 184,261,751 $ 251,023,998 $ 375,915,435 $ 131,465,847
============== ============== ============== ==============
Accumulated net investment income (loss)
at end of period......................................... $ -- $ -- $ (2,371,548) $ (518,720)
============== ============== ============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period..................... 9,598,365 6,860,000 4,800,002 7,800,002
Shares sold................................................. 2,000,000 45,050,000 5,050,000 100,000
Shares redeemed as a result of reverse share split
(See Note 4)............................................. -- (9,561,635) -- --
Shares redeemed............................................. (3,500,000) (32,750,000) (350,000) (3,100,000)
-------------- -------------- -------------- --------------
Shares outstanding, end of period........................... 8,098,365 9,598,365 9,500,002 4,800,002
============== ============== ============== ==============
Page 54 See Notes to Financial Statements
FIRST TRUST
NASDAQ(R) ABA
COMMUNITY BANK
INDEX FUND
(QABA)
-----------------------------
Year Ended Year Ended
12/31/2017 12/31/2016
------------- -------------
$ 5,192,986 $ 3,031,721
34,020,200 177,973
(46,391,038) 65,114,595
------------- -------------
(7,177,852) 68,324,289
------------- -------------
(5,233,697) (3,108,936)
-- --
------------- -------------
(5,233,697) (3,108,936)
------------- -------------
129,887,132 202,615,894
(207,466,414) (87,710,500)
------------- -------------
(77,579,282) 114,905,394
------------- -------------
(89,990,831) 180,120,747
404,022,874 223,902,127
------------- -------------
$ 314,032,043 $ 404,022,874
============= =============
$ -- $ --
============= =============
7,650,002 5,750,002
2,500,000 4,150,000
-- --
(4,150,000) (2,250,000)
------------- -------------
6,000,002 7,650,002
============= =============
See Notes to Financial Statements Page 55
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 46.18 $ 43.48 $ 42.80 $ 36.35 $ 26.10
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.24 0.31 0.22 0.41 0.17
Net realized and unrealized gain (loss) 11.74 2.73 0.73 6.49 10.25
------------ ------------ ------------ ------------ ------------
Total from investment operations 11.98 3.04 0.95 6.90 10.42
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.28) (0.34) (0.27) (0.45) (0.17)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 57.88 $ 46.18 $ 43.48 $ 42.80 $ 36.35
============ ============ ============ ============ ============
TOTAL RETURN (a) 26.00% 7.02% 2.22% 19.13% 39.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 529,632 $ 404,044 $ 532,679 $ 577,828 $ 288,945
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.60% 0.61% 0.60% 0.61% 0.63%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.45% 0.72% 0.51% 1.10% 0.60%
Portfolio turnover rate (b) 26% 29% 31% 27% 38%
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 52.62 $ 42.64 $ 43.67 $ 35.43 $ 25.86
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.48 0.67 0.37 0.45 0.24
Net realized and unrealized gain (loss) 19.39 9.99 (0.98) 8.32 9.59
------------ ------------ ------------ ------------ ------------
Total from investment operations 19.87 10.66 (0.61) 8.77 9.83
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.57) (0.68) (0.42) (0.53) (0.26)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 71.92 $ 52.62 $ 42.64 $ 43.67 $ 35.43
============ ============ ============ ============ ============
TOTAL RETURN (a) 37.86% 25.27% (1.37)% 24.83% 38.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 2,200,711 $ 1,570,855 $ 302,735 $ 366,869 $ 177,165
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.58% 0.60% 0.60% 0.61% 0.62%
Ratio of net expenses to average net assets 0.58% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.76% 1.40% 0.83% 1.32% 0.80%
Portfolio turnover rate (b) 21% 27% 23% 20% 33%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 56 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 40.44 $ 41.45 $ 39.73 $ 34.77 $ 24.70
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.12 0.09 0.13 0.32 0.10
Net realized and unrealized gain (loss) 8.13 (0.98) 1.75 4.97 10.06
------------ ------------ ------------ ------------ ------------
Total from investment operations 8.25 (0.89) 1.88 5.29 10.16
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.16) (0.12) (0.16) (0.33) (0.09)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 48.53 $ 40.44 $ 41.45 $ 39.73 $ 34.77
============ ============ ============ ============ ============
TOTAL RETURN (a) 20.41% (2.13)% 4.75% 15.35% 41.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 101,914 $ 103,118 $ 184,447 $ 117,195 $ 90,396
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.63% 0.64% 0.63% 0.64% 0.67%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.25% 0.23% 0.33% 0.90% 0.38%
Portfolio turnover rate (b) 25% 30% 39% 23% 33%
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 15.47 $ 16.01 $ 17.23 $ 17.90 $ 9.48
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.05 0.17 0.11 0.13 0.07
Net realized and unrealized gain (loss) 4.85 (0.52) (1.21) (0.66) 8.42
------------ ------------ ------------ ------------ ------------
Total from investment operations 4.90 (0.35) (1.10) (0.53) 8.49
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.09) (0.19) (0.12) (0.14) (0.07)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 20.28 $ 15.47 $ 16.01 $ 17.23 $ 17.90
============ ============ ============ ============ ============
TOTAL RETURN (a) 31.73% (2.12)% (6.43)% (3.05)% 89.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 91,262 $ 51,837 $ 69,655 $ 89,616 $ 97,574
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.66% 0.68% 0.65% 0.64% 0.70%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.23% 1.18% 0.65% 0.61% 0.60%
Portfolio turnover rate (b) 32% 49% 35% 37% 49%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 57
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST S&P REIT INDEX FUND (FRI)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 23.07 $ 22.07 $ 22.24 $ 17.54 $ 17.75
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.71 0.62 0.55 0.41 0.52
Net realized and unrealized gain (loss) 0.16 1.13 (0.13) 4.75 (0.19)
------------ ------------ ------------ ------------ ------------
Total from investment operations 0.87 1.75 0.42 5.16 0.33
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.66) (0.75) (0.59) (0.46) (0.54)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 23.28 $ 23.07 $ 22.07 $ 22.24 $ 17.54
============ ============ ============ ============ ============
TOTAL RETURN (a) 3.79% 7.92% 1.97% 29.61% 1.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 161,791 $ 236,426 $ 226,250 $ 339,130 $ 148,210
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.48% 0.49% 0.48% 0.50% 0.50%
Ratio of net expenses to average net assets 0.48% 0.49% 0.48% 0.50% 0.50%
Ratio of net investment income (loss) to
average net assets 2.77% 2.52% 2.30% 2.35% 2.31%
Portfolio turnover rate (b) 7% 6% 8% 11% 11%
FIRST TRUST WATER ETF (FIW)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 39.61 $ 30.13 $ 33.65 $ 33.79 $ 25.99
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.54 0.20 0.23 0.25 0.21
Net realized and unrealized gain (loss) 8.98 9.48 (3.52) (0.14) 7.80
------------ ------------ ------------ ------------ ------------
Total from investment operations 9.52 9.68 (3.29) 0.11 8.01
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.55) (0.20) (0.23) (0.25) (0.21)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 48.58 $ 39.61 $ 30.13 $ 33.65 $ 33.79
============ ============ ============ ============ ============
TOTAL RETURN (a) 24.25% 32.21% (9.81)% 0.36% 30.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 298,775 $ 221,791 $ 102,432 $ 198,550 $ 197,643
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.56% 0.57% 0.57% 0.59% 0.60%
Ratio of net expenses to average net assets 0.56% 0.57% 0.57% 0.59% 0.60%
Ratio of net investment income (loss) to
average net assets 1.26% 0.58% 0.70% 0.75% 0.75%
Portfolio turnover rate (b) 24% 42% 17% 24% 45%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 58 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NATURAL GAS ETF (FCG)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2017 2016 2015 (a) 2014 (a) 2013 (a)
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 26.15 $ 22.30 $ 56.10 $ 97.65 $ 78.35
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.02) 0.13 1.00 0.70 0.35
Net realized and unrealized gain (loss) (3.02) 4.16 (33.75) (41.50) 19.30
------------ ------------ ------------ ------------ ------------
Total from investment operations (3.04) 4.29 (32.75) (40.80) 19.65
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.23) (0.44) (1.05) (0.75) (0.35)
Return of capital (0.13) -- -- -- --
------------ ------------ ------------ ------------ ------------
Total distributions (0.36) (0.44) (1.05) (0.75) (0.35)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 22.75 $ 26.15 $ 22.30 $ 56.10 $ 97.65
============ ============ ============ ============ ============
TOTAL RETURN (b) (11.53)% 19.48% (59.10)% (42.02)% 25.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 184,262 $ 251,024 $ 153,042 $ 246,946 $ 464,795
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.64% (c) 0.64% (c) 0.62% 0.61% 0.60%
Ratio of net expenses to average net assets 0.63% (c) 0.61% (c) 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets (0.11)% 0.54% 2.44% 0.74% 0.40%
Portfolio turnover rate (d) 53% 103% 67% 42% 49%
FIRST TRUST CHINDIA ETF (FNI)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 27.39 $ 28.36 $ 28.63 $ 28.22 $ 20.97
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.34 0.25 0.15 0.20 0.20
Net realized and unrealized gain (loss) 12.61 (0.85) (0.24) 0.48 7.26
------------ ------------ ------------ ------------ ------------
Total from investment operations 12.95 (0.60) (0.09) 0.68 7.46
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.77) (0.37) (0.18) (0.27) (0.21)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 39.57 $ 27.39 $ 28.36 $ 28.63 $ 28.22
============ ============ ============ ============ ============
TOTAL RETURN (b) 47.36% (2.15)% (0.32)% 2.37% 35.81%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 375,915 $ 131,466 $ 221,188 $ 111,663 $ 71,962
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.60% 0.60% 0.62% 0.65% 0.66%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.91% 0.91% 0.64% 0.54% 0.79%
Portfolio turnover rate (d) 35% 47% 68% 40% 40%
(a) All per share amounts and net asset values have been adjusted to reflect
the impact of the 1-for-5 reverse share split on May 2, 2016. The net
asset values reported on December 31, 2015, 2014 and 2013 prior to the
reverse share split restatement were $4.46, $11.22 and $19.53,
respectively.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(c) For the years ended December 31, 2017 and 2016, ratios reflect excise tax
of 0.03% and 0.01%, respectively, which are not included in the expense
cap.
(d) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 59
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 52.81 $ 38.94 $ 36.61 $ 36.11 $ 25.56
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.74 0.58 0.56 0.47 0.37
Net realized and unrealized gain (loss) (0.46) 13.89 2.31 0.50 10.55
------------ ------------ ------------ ------------ ------------
Total from investment operations 0.28 14.47 2.87 0.97 10.92
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.75) (0.60) (0.54) (0.47) (0.37)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 52.34 $ 52.81 $ 38.94 $ 36.61 $ 36.11
============ ============ ============ ============ ============
TOTAL RETURN (a) 0.55% 37.57% 7.88% 2.72% 42.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 314,032 $ 404,023 $ 223,902 $ 109,818 $ 52,362
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.60% 0.61% 0.62% 0.64% 0.76%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 1.37% 1.54% 1.52% 1.41% 1.38%
Portfolio turnover rate (b) 14% 16% 19% 26% 29%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 60 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
1. ORGANIZATION
First Trust Exchange-Traded Fund (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on August 8,
2003, and is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of twenty exchange-traded funds. This report covers
the nine funds listed below:
First Trust NASDAQ-100 Equal Weighted Index Fund - (The Nasdaq Stock
Market LLC ("Nasdaq") ticker "QQEW")
First Trust NASDAQ-100-Technology Sector Index Fund - (Nasdaq ticker
"QTEC")
First Trust NASDAQ-100 Ex-Technology Sector Index Fund - (Nasdaq
ticker "QQXT")
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund - (Nasdaq
ticker "QCLN")
First Trust S&P REIT Index Fund - (NYSE Arca, Inc. ("NYSE Arca") ticker
"FRI")
First Trust Water ETF - (NYSE Arca ticker "FIW")
First Trust Natural Gas ETF - (NYSE Arca ticker "FCG")
First Trust Chindia ETF - (NYSE Arca ticker "FNI")
First Trust NASDAQ(R) ABA Community Bank Index Fund - (Nasdaq ticker
"QABA")
Each fund represents a separate series of shares of beneficial interest in the
Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual
funds, each Fund issues and redeems shares on a continuous basis, at net asset
value ("NAV"), only in large specified blocks consisting of 50,000 shares called
a "Creation Unit." Creation Units are generally issued and redeemed in-kind for
securities in which a Fund invests and, in certain circumstances, for cash, and
only to and from broker-dealer and large institutional investors that have
entered into participation agreements. Except when aggregated in Creation Units,
each Fund's shares are not redeemable securities. The investment objective of
each Fund is to seek investment results that correspond generally to the price
and yield (before the Fund's fees and expenses) of the following indices:
FUND INDEX
First Trust NASDAQ-100 Equal Weighted Index Fund NASDAQ-100 Equal Weighted Index(SM)
First Trust NASDAQ-100-Technology Sector Index Fund NASDAQ-100 Technology Sector Index(SM)
First Trust NASDAQ-100 Ex-Technology Sector Index Fund NASDAQ-100 Ex-Tech Sector Index(SM)
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund NASDAQ(R) Clean Edge(R) Green Energy Index(SM)
First Trust S&P REIT Index Fund S&P United States REIT Index
First Trust Water ETF ISE Clean Edge Water Index
First Trust Natural Gas ETF ISE-Revere Natural Gas(TM) Index
First Trust Chindia ETF ISE ChIndia(TM) Index
First Trust NASDAQ(R) ABA Community Bank Index Fund NASDAQ OMX(R) ABA Community Bank Index(SM)
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds are each considered an investment company and follow accounting and
reporting guidance under Financial Accounting Standards Board Accounting
Standards Codification Topic 946, "Financial Services-Investment Companies." The
following is a summary of significant accounting policies consistently followed
by the Funds in the preparation of the financial statements. The preparation of
the financial statements in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP") requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
A. PORTFOLIO VALUATION
Each Fund's NAV is determined daily as of the close of regular trading on the
New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day
the NYSE is open for trading. If the NYSE closes early on a valuation day, the
NAV is determined as of that time. Foreign securities are priced using the data
reflecting the earlier closing of the principal markets for those securities.
Each Fund's NAV is calculated by dividing the value of all assets of each Fund
(including accrued interest and dividends), less all liabilities (including
accrued expenses and dividends declared but unpaid), by the total number of
shares outstanding.
Each Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Funds'
Page 61
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. Investments valued
by the Advisor's Pricing Committee, if any, are footnoted as such in the
footnotes to the Portfolio of Investments. Each Fund's investments are valued as
follows:
Common stocks, real estate investment trusts ("REITs"), master limited
partnerships ("MLPs") and other equity securities listed on any national
or foreign exchange (excluding Nasdaq and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for Nasdaq and
AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the principal market for such securities.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Overnight repurchase agreements are valued at amortized cost when it
represents the best estimate of fair value.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a third-party pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of a Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or third-party pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
In addition, differences between the prices used to calculate a Fund's NAV and
the prices used by such Fund's corresponding index could result in a difference
between a Fund's performance and the performance of its underlying index.
The Funds are subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
Page 62
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value each Fund's investments as of December 31, 2017, is
included with each Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis.
Withholding taxes and tax reclaims on foreign dividends have been provided for
in accordance with each Fund's understanding of the applicable country's tax
rules and rates.
Distributions received from a Fund's investments in MLPs generally are comprised
of return of capital and investment income. A Fund records estimated return of
capital and investment income based on historical information available from
each MLP. These estimates may subsequently be revised based on information
received from the MLPs after their tax reporting periods are concluded.
Distributions received from a Fund's investments in REITs may be comprised of
return of capital, capital gains and income. The actual character of the amounts
received during the year is not known until after the REITs' fiscal year end. A
Fund records the character of distributions received from the REITs during the
year based on estimates available. The characterization of distributions
received by a Fund may be subsequently revised based on information received
from the REITs after their tax reporting periods conclude.
C. OFFSETTING ON THE STATEMENTS OF ASSETS AND LIABILITIES
Offsetting Assets and Liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset on the
Statements of Assets and Liabilities, and disclose instruments and transactions
subject to master netting or similar agreements. These disclosure requirements
are intended to help investors and other financial statement users better assess
the effect or potential effect of offsetting arrangements on a fund's financial
position. The transactions subject to offsetting disclosures are derivative
instruments, repurchase agreements and reverse repurchase agreements, and
securities borrowing and securities lending transactions.
This disclosure, if applicable, is included within each Fund's Portfolio of
Investments under the heading "Offsetting Assets and Liabilities". For financial
reporting purposes, the Funds do not offset financial assets and financial
liabilities that are subject to master netting arrangements ("MNAs") or similar
agreements on the Statements of Assets and Liabilities. MNAs provide the right,
in the event of default (including bankruptcy and insolvency), for the
non-defaulting counterparty to liquidate the collateral and calculate the net
exposure to the defaulting party or request additional collateral.
D. SECURITIES LENDING
The Funds may lend securities representing up to 33 1/3% of the value of their
total assets to broker-dealers, banks and other institutions to generate
additional income. When a Fund loans its portfolio securities, it will receive,
at the inception of each loan, collateral equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
loaned securities. The collateral amount is valued at the beginning of each
business day and is compared to the market value of the loaned securities from
the prior business day to determine if additional collateral is required. If
additional collateral is required, a request is sent to the borrower. Securities
lending involves the risk that the Fund may lose money because the borrower of
the Fund's loaned securities fails to return the securities in a timely manner
or at all. The Fund could also lose money in the event of (i) a decline in the
value of the collateral provided for the loaned securities, (ii) a decline in
the value of any investments made with cash collateral or (iii) an increase in
the value of the loaned securities if the borrower does not increase the
collateral accordingly and the borrower fails to return the securities. These
events could also trigger adverse tax consequences for the Funds.
Under the Funds' Securities Lending Agency Agreement, the securities lending
agent will generally bear the risk that a borrower may default on its obligation
to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the
Funds' securities lending agent and is responsible for executing the lending of
the portfolio securities to creditworthy borrowers. The Funds, however, will be
responsible for the risks associated with the investment of cash collateral. A
Fund may lose money on its investment of cash collateral, which may affect its
ability to repay the collateral to the borrower without the use of other Fund
assets. Each Fund that engages in securities lending receives compensation (net
of any rebate and securities lending agent fees) for lending its securities.
Compensation can be in the form of fees received from the securities lending
agent or dividends or interest earned from the investment of cash collateral.
The dividend and interest earned on the securities loaned is accounted for in
the same manner as other dividend and interest income. At December 31, 2017,
QQEW, QQXT, QCLN, FIW, FCG, FNI, and QABA have securities in the securities
lending program. During the fiscal year ended December 31, 2017, QQEW, QTEC,
QQXT, QCLN, FIW, FCG, FNI, and QABA participated in the securities lending
program.
Page 63
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
In the event of a default by a borrower with respect to any loan, BBH will
exercise any and all remedies provided under the applicable borrower agreement
to make the Funds whole. These remedies include purchasing replacement
securities by applying the collateral held from the defaulting broker against
the purchase cost of the replacement securities. If, despite such efforts by BBH
to exercise these remedies, a Fund sustains losses as a result of a borrower's
default, BBH will indemnify the Fund by purchasing replacement securities at its
own expense, or paying the Fund an amount equal to the market value of the
replacement securities, subject to certain limitations which are set forth in
detail in the Securities Lending Agency Agreement between the Trust on behalf of
the Funds and BBH.
E. REPURCHASE AGREEMENTS
Repurchase agreements involve the purchase of securities subject to the seller's
agreement to repurchase the securities at a mutually agreed upon date and price,
under the terms of a Master Repurchase Agreement ("MRA"). During the term of a
repurchase agreement, the value of the underlying securities held as collateral
on behalf of a Fund, including accrued interest, is required to exceed the value
of the repurchase agreement, including accrued interest. The underlying
securities for all repurchase agreements are held at the Funds' custodian or
designated sub-custodians under tri-party repurchase agreements.
MRAs govern transactions between a Fund and select counterparties. The MRAs
contain provisions for, among other things, initiation, income payments, events
of default, and maintenance of collateral for repurchase agreements.
Repurchase agreements received for lending securities are collateralized by U.S.
Treasury securities. The U.S. Treasury securities are held in a joint custody
account at BBH on behalf of the Funds participating in the securities lending
program. In the event the counterparty defaults on the repurchase agreement, the
U.S. Treasury securities can either be maintained as part of a Fund's portfolio
or sold for cash. A Fund could suffer a loss to the extent that the proceeds
from the sale of the underlying collateral held by the Fund are less than the
repurchase price and the Fund's costs associated with the delay and enforcement
of the MRA.
While the Funds may invest in repurchase agreements, any repurchase agreements
held by the Funds during the year ended December 31, 2017, were received as
collateral for lending securities.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income of each Fund, if any, are declared and paid
quarterly, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by each Fund, if any, are distributed
at least annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Funds and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the year ended
December 31, 2017 was as follows:
Distributions Distributions Distributions
paid from paid from paid from
Ordinary Income Capital Gains Return of Capital
------------------ ---------------- -----------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 2,664,196 $ -- $ --
First Trust NASDAQ-100-Technology Sector Index Fund 18,099,151 -- --
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 336,720 -- --
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 353,370 -- --
First Trust S&P REIT Index Fund 5,399,046 -- --
First Trust Water ETF 3,256,646 -- --
First Trust Natural Gas ETF 1,778,865 -- 1,015,203
First Trust Chindia ETF 7,008,527 -- --
First Trust NASDAQ(R) ABA Community Bank Index Fund 5,233,697 -- --
Page 64
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
The tax character of distributions paid by each Fund during the year ended
December 31, 2016 was as follows:
Distributions Distributions Distributions
paid from paid from paid from
Ordinary Income Capital Gains Return of Capital
------------------ ---------------- -----------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 3,070,171 $ -- $ --
First Trust NASDAQ-100-Technology Sector Index Fund 6,834,167 -- --
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 399,080 -- --
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 738,910 -- --
First Trust S&P REIT Index Fund 8,613,812 -- --
First Trust Water ETF 827,655 -- --
First Trust Natural Gas ETF 4,197,410 -- --
First Trust Chindia ETF 2,037,296 -- --
First Trust NASDAQ(R) ABA Community Bank Index Fund 3,108,936 -- --
As of December 31, 2017, the components of distributable earnings on a tax basis
for each Fund were as follows:
Accumulated
Undistributed Capital and Net Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
------------------ ---------------- -----------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ -- $ (32,889,012) $ 84,173,782
First Trust NASDAQ-100-Technology Sector Index Fund -- (16,645,315) 418,480,748
First Trust NASDAQ-100 Ex-Technology Sector Index Fund -- (13,153,384) 12,819,700
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- (38,388,578) 11,558,111
First Trust S&P REIT Index Fund 394,562 (36,943) (17,079,025)
First Trust Water ETF -- (8,988,338) 55,233,470
First Trust Natural Gas ETF -- (479,113,966) (17,684,827)
First Trust Chindia ETF 710,636 (57,291,806) 64,132,549
First Trust NASDAQ(R) ABA Community Bank Index Fund -- (2,723,374) 11,327,677
G. INCOME TAXES
Each Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, each Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of each Fund's taxable income
exceeds the distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2014, 2015,
2016, and 2017 remain open to federal and state audit. As of December 31, 2017,
management has evaluated the application of these standards to the Funds, and
has determined that no provision for income tax is required in the Funds'
financial statements for uncertain tax positions.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses arising in taxable years after December 22, 2010, may be
carried forward indefinitely, and their character is retained as short-term
and/or long-term losses. Previously, net capital losses were carried forward for
up to eight years and treated as short-term losses. As a transition rule, the
Act requires that post-enactment net capital losses be used before pre-enactment
net capital losses. At December 31, 2017, the Funds had net capital losses for
federal income tax purposes as shown in the following table. To the extent that
these loss carryforwards are used to offset future capital gains, it is probable
that the capital gains so offset will not be distributed to Fund shareholders.
The Funds are subject to certain limitations, under U.S. tax rules, on the use
of capital loss carryforwards and net unrealized built-in losses. These
limitations apply when there has been a 50% change in ownership.
Page 65
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
Capital Loss Post- Total
Available Enactment - Capital
Through No Loss
2018 Expiration Available
------------------ ---------------- -----------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ -- $ 32,889,012 $ 32,889,012
First Trust NASDAQ-100-Technology Sector Index Fund -- 16,645,315 16,645,315
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 80,899 13,072,485 13,153,384
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 5,884,801 32,503,777 38,388,578
First Trust S&P REIT Index Fund -- 36,943 36,943
First Trust Water ETF 2,198,674 6,789,664 8,988,338
First Trust Natural Gas ETF 40,089,981 439,023,985 479,113,966
First Trust Chindia ETF 7,245,147 50,046,659 57,291,806
First Trust NASDAQ(R) ABA Community Bank Index Fund 116,604 2,606,770 2,723,374
During the taxable year ended December 31, 2017, the following Funds utilized
capital loss carryforwards in the following amounts:
Pre-Enactment Post-Enactment
Capital Loss Capital Loss
Carryforward Carryforward
Utilized Utilized
------------------ ----------------
First Trust Water ETF $ -- $ 1,482,878
First Trust Chindia ETF -- 796,754
At the taxable year ended December 31, 2017, the following Funds' capital loss
carryforwards expired in the following amounts:
Capital Loss
Carryforward
Expired
------------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 4,681,103
First Trust NASDAQ-100-Technology Sector Index Fund 2,016,911
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 1,051,894
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 7,483,633
First Trust Water ETF 5,768,328
First Trust Natural Gas ETF 32,569,413
First Trust Chindia ETF 11,686,955
First Trust NASDAQ(R) ABA Community Bank Index Fund 4,787
In order to present paid-in capital, accumulated net investment income (loss)
and accumulated net realized gain (loss) on investments on the Statements of
Assets and Liabilities that more closely represent their tax character, certain
adjustments have been made to paid-in capital, accumulated net investment income
(loss) and accumulated net realized gain (loss) on investments. These
adjustments are primarily due to the difference between book and tax treatments
of income and gains on various investment securities held by the Funds and
in-kind transactions. The results of operations and net assets were not affected
by these adjustments. For the year ended December 31, 2017, the adjustments for
each Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss) Paid-in
Income (Loss) on Investments Capital
------------------ ---------------- -----------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 406,980 $ (42,444,825) $ 42,037,845
First Trust NASDAQ-100-Technology Sector Index Fund 2,737,647 (250,288,227) 247,550,580
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 91,628 (7,786,426) 7,694,798
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 195,719 4,831,065 (5,026,784)
First Trust S&P REIT Index Fund 4,578 (1,712,061) 1,707,483
First Trust Water ETF 80,333 (11,797,943) 11,717,610
First Trust Natural Gas ETF 1,981,854 26,713,832 (28,695,686)
First Trust Chindia ETF 2,733,195 5,432,517 (8,165,712)
First Trust NASDAQ(R) ABA Community Bank Index Fund 40,711 (36,009,259) 35,968,548
Page 66
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
H. EXPENSES
Expenses that are directly related to one of the Funds are charged directly to
the respective Fund. General expenses of the Trust are allocated to all the
Funds based upon the net assets of each Fund.
First Trust has entered into licensing agreements with each of the following
"Licensors" for the respective Funds:
FUND LICENSOR
First Trust NASDAQ-100 Equal Weighted Index Fund Nasdaq, Inc.
First Trust NASDAQ-100-Technology Sector Index Fund Nasdaq, Inc.
First Trust NASDAQ-100 Ex-Technology Sector Index Fund Nasdaq, Inc.
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund Nasdaq, Inc.
First Trust S&P REIT Index Fund S&P Dow Jones Indices LLC
First Trust Water ETF International Securities Exchange, LLC
First Trust Natural Gas ETF International Securities Exchange, LLC
First Trust Chindia ETF International Securities Exchange, LLC
First Trust NASDAQ(R) ABA Community Bank Index Fund The Nasdaq Stock Market LLC
The respective license agreements allow for the use by First Trust of certain
trademarks and trade names of the respective Licensors. The Funds are
sub-licensees to the applicable license agreement. The respective Funds are
required to pay licensing fees, which are shown on the Statements of Operations.
I. NEW AND AMENDED FINANCIAL REPORTING RULES AND FORMS
On October 13, 2016, the SEC adopted new rules and forms, and amended existing
rules and forms. The new and amended rules and forms are intended to modernize
the reporting of information provided by funds and to improve the quality and
type of information that funds provide to the SEC and investors. In part, the
new and amended rules and forms amend Regulation S-X and require standardized,
enhanced disclosures about derivatives in a fund's financial statements, as well
as other amendments. The compliance date for the amendments of Regulation S-X
was August 1, 2017, which resulted in no change to the financial statements. The
new form types and other rule amendments will be effective for the First Trust
funds, including the Funds, for reporting periods beginning on and after June 1,
2018. Management is evaluating the new form types and other rule amendments that
are effective on and after June 1, 2018 to determine the impact to the Funds.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Funds, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in each Fund's portfolio, managing the Funds' business affairs and providing
certain administrative services necessary for the management of the Funds.
For these services, First Trust is entitled to receive monthly fees from each
Fund calculated at the following annual rates:
% of Average
Daily Net Assets
----------------
First Trust NASDAQ-100 Equal Weighted Index Fund 0.40%
First Trust NASDAQ-100-Technology Sector Index Fund 0.40%
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 0.40%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.40%
First Trust S&P REIT Index Fund 0.30%
First Trust Water ETF 0.40%
First Trust Natural Gas ETF 0.40%
First Trust Chindia ETF 0.40%
First Trust NASDAQ(R) ABA Community Bank Index Fund 0.40%
The Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver
and Recovery Agreement ("Recovery Agreement") in which First Trust has agreed to
waive fees and/or reimburse Fund expenses to the extent that the operating
expenses of each Fund (excluding interest expense, brokerage commissions and
other trading expenses, acquired fund fees and expenses, taxes and extraordinary
expenses) exceed the below amount as a percentage of average daily net assets
per year (the "Expense Cap"). The Expense Cap will be in effect until at least
April 30, 2019.
Page 67
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
Expense Cap
----------------
First Trust NASDAQ-100 Equal Weighted Index Fund 0.60%
First Trust NASDAQ-100-Technology Sector Index Fund 0.60%
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 0.60%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.60%
First Trust S&P REIT Index Fund 0.50%
First Trust Water ETF 0.60%
First Trust Natural Gas ETF 0.60%
First Trust Chindia ETF 0.60%
First Trust NASDAQ(R) ABA Community Bank Index Fund 0.60%
Expenses reimbursed and fees waived by First Trust under the Recovery Agreement
are subject to recovery by First Trust for up to three years from the date the
fee was waived or expense was incurred, but no reimbursement payment will be
made by a Fund if it results in the Fund exceeding an expense ratio equal to the
Expense Cap in place at the time the expenses were reimbursed or fees were
waived by First Trust. These amounts are included in "Expenses previously waived
or reimbursed" on the Statements of Operations.
The advisory fee waivers and expense reimbursements for the year ended December
31, 2017 and fees waived or expenses borne by First Trust subject to recovery
from the applicable Fund for the periods indicated were as follows:
Fees Waived or Expenses Borne by
First Trust Subject to Recovery
------------------------------------------------
Advisory Year Year Year
Fee Expense Ended Ended Ended
Waivers Reimbursement 12/31/2015 12/31/2016 12/31/2017 Total
--------- ------------- ---------- ---------- ---------- ---------
First Trust NASDAQ-100 Equal Weighted Index
Fund $ -- $ -- $ -- $ 27,809 $ -- $ 27,809
First Trust NASDAQ-100 Ex-Technology Sector
Index Fund 26,900 -- 38,410 49,128 26,900 114,438
First Trust NASDAQ(R) Clean Edge(R) Green Energy
Index Fund 39,255 -- 38,617 44,163 39,255 122,035
First Trust Natural Gas ETF 25,164 -- 37,153 54,736 25,164 117,053
First Trust Chindia ETF -- -- 27,371 5,970 -- 33,341
First Trust NASDAQ(R) ABA Community Bank
Index Fund -- -- 20,009 21,616 -- 41,625
During the year ended December 31, 2017, First Trust recovered fees that were
previously waived from First Trust NASDAQ-100 Equal Weighted Index Fund, First
Trust NASDAQ-100-Technology Sector Index Fund, First Trust Chindia ETF and First
Trust NASDAQ(R) ABA Community Bank Index Fund of $50,678, $20,694, $31,863 and
$39,804, respectively. First Trust NASDAQ-100-Technology Sector Index Fund,
First Trust S&P REIT Index Fund and First Trust Water ETF do not have any
remaining fees previously waived or expenses reimbursed that are subject to
recovery.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
each Fund. As custodian, BNYM is responsible for custody of each Fund's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of each Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for each Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen rotate every three years. The officers and "Interested" Trustee receive
no compensation from the Trust for acting in such capacities.
Page 68
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
4. REVERSE SHARE SPLIT
On April 22, 2016, the Trust's Board of Trustees approved a one-for-five reverse
share split, whereby every five outstanding shares of FCG as of the close of
business on April 29, 2016 automatically converted to one share as of the
opening of business on May 2, 2016. For the fiscal year ended December 31, 2016,
the share transactions on the Statements of Changes in Net Assets reflect the
actual transactions, including the impact of the reverse share split. As a
result of the reverse share split, fractional shares totaling 1,635 shares were
redeemed and paid out to shareholders. The reverse share split had no impact on
the overall value of a shareholder's investment in FCG.
5. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2017, the cost of purchases and proceeds from
sales of investments for each Fund, excluding short-term investments and in-kind
transactions, were as follows:
Purchases Sales
--------------- ---------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 131,490,189 $ 131,206,056
First Trust NASDAQ-100-Technology Sector Index Fund 427,555,788 425,509,626
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 24,965,624 24,994,553
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 22,223,696 22,056,547
First Trust S&P REIT Index Fund 17,456,891 15,217,865
First Trust Water ETF 62,598,209 61,653,248
First Trust Natural Gas ETF 99,096,963 101,044,544
First Trust Chindia ETF 91,110,820 95,292,991
First Trust NASDAQ(R) ABA Community Bank Index Fund 52,052,678 53,517,106
For the year ended December 31, 2017, the cost of in-kind purchases and proceeds
from in-kind sales for each Fund were as follows:
Purchases Sales
--------------- ---------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 186,339,623 $ 167,290,144
First Trust NASDAQ-100-Technology Sector Index Fund 899,338,340 866,087,556
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 20,414,924 39,914,063
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 29,575,114 7,795,795
First Trust S&P REIT Index Fund 26,650,293 103,697,447
First Trust Water ETF 101,698,571 76,673,626
First Trust Natural Gas ETF 44,560,430 81,275,345
First Trust Chindia ETF 175,340,261 12,223,761
First Trust NASDAQ(R) ABA Community Bank Index Fund 129,714,112 205,923,845
6. CREATION, REDEMPTION AND TRANSACTION FEES
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker-dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Such transactions are generally permitted on an
in-kind basis, with a balancing cash component to equate the transaction to the
daily NAV per Share of each Fund on the transaction date times the number of
Shares in a Creation Unit. Authorized Participants purchasing Creation Units
must pay to BNYM, as transfer agent, a standard creation transaction fee (the
"Creation Transaction Fee"), which is based on the number of different
securities in a Creation Unit of each Fund according to the fee schedule set
forth below:
Number of Securities Creation
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-499 $1,000
500 or more $1,500
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by a Fund with respect to
transactions effected outside of the clearing process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. The price for each Creation Unit will equal the daily
NAV per Share of a Fund on the transaction date times the number of Shares in a
Creation Unit plus the fees described above and, if applicable, any transfer
taxes.
Page 69
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
Authorized Participants redeeming Creation Units must pay to BNYM, as transfer
agent, a standard redemption transaction fee (the "Redemption Transaction Fee"),
which is based on the number of different securities in a Creation Unit of each
Fund according to the fee schedule set forth below:
Number of Securities Redemption
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-499 $1,000
500 or more $1,500
The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable fee of up to three times the Redemption Transaction Fee may
be charged to approximate additional expenses incurred by a Fund with respect to
redemptions effected outside of the clearing process or to the extent that
redemptions are for cash. Each Fund reserves the right to effect redemptions in
cash. A shareholder may request cash redemption in lieu of securities; however,
a Fund may, in its discretion, reject any such request.
7. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
in the sale of Creation Units or the provision of investor services. FTP may
also use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before April 30, 2019.
8. INDEMNIFICATION
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
9. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined that
there were no subsequent events requiring recognition or disclosure in the
financial statements that have not already been disclosed.
Page 70
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statements of assets and liabilities of First
Trust NASDAQ-100 Equal Weighted Index Fund, First Trust NASDAQ-100-Technology
Sector Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index Fund, First
Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, First Trust S&P REIT
Index Fund, First Trust Water ETF, First Trust Natural Gas ETF, First Trust
Chindia ETF, and First Trust NASDAQ(R) ABA Community Bank Index Fund (the
"Funds"), each a series of the First Trust Exchange-Traded Fund (the "Trust"),
including the portfolios of investments, as of December 31, 2017, the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, the financial
highlights for each of the five years in the period then ended, and the related
notes. In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
portfolios constituting the First Trust Exchange-Traded Fund as of December 31,
2017, and the results of their operations for the year then ended, the changes
in their net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America.
BASIS FOR OPINION
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on the Funds'
financial statements and financial highlights based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to
the Funds in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Funds are not
required to have, nor were we engaged to perform, an audit of their internal
control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2017, by correspondence with
the custodian and brokers; when replies were not received from brokers, we
performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 23, 2018
We have served as the auditor of one or more First Trust investment companies
since 2001.
Page 71
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Funds' website located at www.ftportfolios.com; and (3) on the Securities
and Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of each Fund's portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q. The
Trust's Form N-Qs are available (1) by calling (800) 988-5891; (2) on the Funds'
website located at www.ftportfolios.com; (3) on the SEC's website at
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, 2017, the following percentages of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
----------------------------
First Trust NASDAQ-100 Equal Weighted Index Fund 100.00%
First Trust NASDAQ-100-Technology Sector Index Fund 100.00%
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 100.00%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 95.96%
First Trust S&P REIT Index Fund --
First Trust Water ETF 100.00%
First Trust Natural Gas ETF 28.36%
First Trust Chindia ETF --
First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
For the taxable year ended December 31, 2017, the following percentages of
income dividends paid by the Funds are hereby designated as qualified dividend
income:
Qualified Dividend Income
----------------------------
First Trust NASDAQ-100 Equal Weighted Index Fund 100.00%
First Trust NASDAQ-100-Technology Sector Index Fund 100.00%
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 100.00%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 100.00%
First Trust S&P REIT Index Fund --
First Trust Water ETF 100.00%
First Trust Natural Gas ETF 48.37%
First Trust Chindia ETF 16.26%
First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
Page 72
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER EACH FUND'S INVESTMENT
OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN
DOWNLOAD EACH FUND'S PROSPECTUS AT WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST
PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS THIS
AND OTHER INFORMATION ABOUT EACH FUND. FOR ADDITIONAL INFORMATION ABOUT THE
RISKS ASSOCIATED WITH INVESTING IN THE FUNDS, PLEASE SEE THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION, AS WELL AS OTHER REGULATORY FILINGS. READ THESE
DOCUMENTS CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS THE
DISTRIBUTOR OF THE FIRST TRUST EXCHANGE-TRADED FUND.
The following summarizes some of the risks that should be considered for the
Funds.
Each Fund's shares will change in value, and you could lose money by investing
in a Fund. Shares are subject to market fluctuations caused by such factors as
economic, political, regulatory or market developments, changes in interest
rates and perceived trends in stock prices. Overall stock values could decline
generally or could underperform other investments. Overall stock market values
could decline generally or could underperform other investments.
An investment in a Fund involves risks similar to those of investing in any fund
of equity securities traded on an exchange. Investors buying or selling Fund
shares on the secondary market may incur brokerage commissions. In addition,
investors who sell Fund shares may receive less than the Fund shares' net asset
value. Unlike shares of open-end funds, investors are generally not able to
purchase exchange-traded fund ("ETF") shares directly from a Fund and individual
ETF shares are not redeemable. However, specified large blocks of ETF shares
called creation units can be purchased from, or redeemed to, a Fund.
Each Fund is subject to index tracking risk. You should anticipate that the
value of Fund shares will decline, more or less, in correlation with any decline
in the value of the index that the Fund seeks to track.
Each Fund's return may not match the return of the index it seeks to track for a
number of reasons. While First Trust seeks to have a correlation of 0.95 or
better, before expenses, between a Fund's performance and the performance of its
corresponding index, there can be no assurance that a Fund will be able to
achieve such a correlation. Accordingly, each Fund's performance may correlate
to a lesser extent and may possibly vary substantially from the performance of
its corresponding index.
Each Fund is also exposed to additional market risk due to a policy of investing
principally in the securities included in its corresponding index. As a result
of such policies, securities held by each Fund will generally not be bought or
sold in response to market fluctuations and the securities may be issued by
companies concentrated in a particular industry. As a result, each Fund will
generally not sell a stock because the stock's issuer is in financial trouble,
unless that stock is removed or is anticipated to be removed from the index the
Fund seeks to track.
Each Fund relies on a license from an index provider that permits the Fund to
use its corresponding index and associated trade names and trademarks in
connection with the name and investment strategies of the Fund. Such licenses
may be terminated by the respective index provider and, as a result, each Fund
may lose its ability to use such intellectual property. There is also no
guarantee that the index provider has all rights to license the respective
intellectual property to First Trust, on behalf of the Fund. Accordingly, in the
event the license is terminated or the index provider does not have rights to
license the particular intellectual property, it may have a significant effect
on the operation of the related Fund.
The Funds have become more susceptible to potential operational risks through
breaches in cyber security as the use of Internet technology has become more
prevalent in the course of business. Cyber security breaches may involve
unauthorized access to a Fund's digital information systems or those of a Fund's
third party service providers, such as its administrator, transfer agent,
custodian, or issuers in which a Fund invests. The Funds have established risk
management systems designed to reduce the risks associated with cyber security,
however, there is no guarantee that such efforts will succeed.
Each Fund is subject to issuer specific changes risk. The value of an individual
security or a particular type of security can be more volatile than the market
as a whole and can perform differently from the value of the market as a whole.
Each Fund will be concentrated in the securities of companies of a given
industry if the Fund's corresponding index is concentrated in such industry. A
concentration makes a Fund more susceptible to any single occurrence affecting
the related industry and may subject a Fund to greater market risk than less
concentrated funds.
Page 73
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
Only a party that has entered into a participation agreement (an "authorized
participant") may engage in creation or redemption transactions directly with
the Funds. The Funds have a limited number of institutions that act as
authorized participants. To the extent that these institutions exit the business
or are unable to proceed with creation and/or redemption orders with respect to
the Funds and no other authorized participant is able to step forward to create
or redeem, in either of these cases, Fund shares may trade at a discount to a
Fund's net asset value and possibly face delisting.
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund and First Trust
Chindia ETF are non-diversified. As a result, those Funds are exposed to
additional market risk. A non-diversified fund may invest a relatively high
percentage of its assets in a limited number of issuers. As a result, changes in
the market value of a single portfolio security could cause greater fluctuations
in share price than would occur in a diversified fund. Furthermore,
non-diversified funds are more susceptible to any single political, regulatory
or economic occurrence.
The Funds are not actively managed. The Funds may be affected by a general
decline in certain market segments relating to their corresponding index. The
Funds invest in securities included in or representative of their corresponding
index regardless of their investment merit. The Funds generally will not attempt
to take defensive positions in declining markets.
The First Trust NASDAQ-100 Equal Weighted Index Fund and the First Trust
NASDAQ-100-Technology Sector Index Fund invest in stocks of companies in the
technology sector. You should be aware that an investment in a portfolio which
invests in a particular sector involves additional risks, including limited
diversification. The companies engaged in the technology sector are subject to
fierce competition and high research and development costs, and their products
and services may be subject to rapid obsolescence.
The First Trust Chindia ETF, First Trust S&P REIT Index Fund and First Trust
NASDAQ(R) ABA Community Bank Index Fund invest in securities of companies in the
financials and/or real estate sectors. Banks, thrifts and their holding
companies are especially subject to the adverse effects of economic recession;
volatile interest rates; portfolio concentrations in geographic markets and in
commercial and residential real estate loans; and competition from new entrants
in their fields of business. Although recently enacted legislation repealed most
of the barriers which separated the banking, insurance and securities
industries, these industries are still extensively regulated at both the federal
and state level and may be adversely affected by increased regulations.
The First Trust Chindia ETF, the First Trust NASDAQ-100 Equal Weighted Index
Fund, the First Trust NASDAQ-100-Technology Sector Index Fund and the First
Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invest in securities of
companies in the information technology industry. Information technology
companies are generally subject to the risks of rapidly changing technologies;
short product life cycles; fierce competition; and aggressive pricing and
reduced profit margins and have experienced extreme price and volume
fluctuations that are often unrelated to their operating performance.
The First Trust Chindia ETF, First Trust NASDAQ-100 Ex-Technology Sector Index
Fund and First Trust NASDAQ-100 Equal Weighted Index Fund invest in the
securities of companies in the consumer discretionary sector. Because companies
in the consumer discretionary sector manufacture products and provide
discretionary services directly to the consumer, the success of these companies
is tied closely to the performance of the overall domestic and international
economy, interest rates, competition and consumer confidence. Success depends
heavily on disposable household income and consumer spending. Changes in
demographics and consumer tastes can also affect the demand for, and success of,
consumer discretionary products in the marketplace.
The First Trust Natural Gas ETF invests in the securities of companies in the
energy sector. General problems of issuers in the energy sector include volatile
fluctuations in price and supply of energy fuels, international politics,
terrorist attacks, reduced demand as a result of increases in energy efficiency
and energy conservation, the success of exploration projects, clean-up and
litigation costs relating to oil spills and environmental damage, and tax and
other regulatory policies of various governments. In addition, oil prices are
subject to extreme volatility.
The First Trust Water ETF and the First Trust NASDAQ(R) Clean Edge(R) Green
Energy Index Fund invest in the securities of companies in the industrials
sector. General risks of these companies include the general state of the
economy, intense competition, consolidation, domestic and international
politics, excess capacity and consumer demand and spending trends. In addition,
they may also be significantly affected by overall capital spending levels,
economic cycles, technical obsolescence, delays in modernization, labor
relations, government regulations and e-commerce initiatives.
The First Trust S&P REIT Index Fund invests in companies in the real estate
industry, including real estate investment trusts ("REITs") and is subject to
the risks associated with investing in real estate (any of which could cause the
value of a REIT's stock price to decline), which may include, but are not
limited to, possible declines in the value of real estate, adverse general and
local economic conditions, possible lack of availability of mortgage funds,
overbuilding in a REIT's market, changes in interest rates and environmental
problems. Furthermore, increases in interest rates typically lower the present
value of a REIT's future earnings stream, and may make financing property
purchases and improvements more costly. Retail REITs own and operate properties
Page 74
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
available for lease to retail companies. In addition to the risks related to
REITs generally, retail REITs are especially sensitive to local and national
economic cycles and are subject to decreases in demand for retail rental
properties, defaults by tenants and declines in rental market rates and economic
down cycles. Retail REITs are also negatively impacted by retail company
bankruptcies and restructurings, including store closings, and changes in
consumer discretionary spending.
The First Trust NASDAQ-100 Ex-Technology Sector Index Fund invests in the
securities of companies in the health care sector. Because companies in the
health care sector are involved in medical services or health care including
biotechnology research and production, drugs and pharmaceuticals and health care
facilities and services, general problems of these companies include extensive
competition, generic drug sales or the loss of patent protection, product
liability litigation and increased government regulations.
The First Trust Water ETF invests in the securities of utilities companies.
Utilities companies are subject to the imposition of rate caps, increased
competition due to deregulation, the difficulty in obtaining an adequate return
on invested capital or in financing large construction projects, the limitations
on operations and increased costs and delays attributable to environmental
considerations, and the capital market's ability to absorb utility debt. In
addition, taxes, government regulation, international politics, price and supply
fluctuations, volatile interest rates and energy conservation may cause
difficulties for utilities. Utilities issuers have been experiencing certain of
these problems to varying degrees.
The Funds may invest in small capitalization and mid-capitalization companies.
Such companies' securities may be less liquid and may experience greater price
volatility than securities of larger, more established companies.
Because a Fund's corresponding index may include American Depositary Receipts
("ADRs"), American Depositary Shares ("ADSs") and/or stocks of non-U.S.
companies, the investments of certain Funds, including but not limited to, the
First Trust Chindia ETF, the First Trust Natural Gas ETF and the First Trust
Water ETF involve risks of investing in non-U.S. securities that are in addition
to the risk associated with domestic securities. Non-U.S. companies, in general,
are not subject to the regulatory requirements of U.S. companies and, as such,
there may be less publicly available information about these companies.
Moreover, non-U.S. accounting, auditing and financial reporting standards
generally are different from those applicable to U.S. companies. In addition,
non-U.S. companies are exposed to additional economic, political, social or
diplomatic events. ADRs and ADSs also involve substantially identical risks to
those associated with investments in non-U.S. securities. In addition, the
issuers of certain depositary receipts, particularly unsponsored or unregistered
depositary receipts, are under no obligation to distribute shareholder
communications to the holders of such receipts, or to pass through to them any
voting rights with respect to the deposited securities.
The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invests in
renewable and alternative energy companies. You should be aware that share
prices of renewable and alternative energy companies have been significantly
more volatile than shares of companies operating in other more established
industries and the securities included in the First Trust NASDAQ(R) Clean
Edge(R) Green Energy Index Fund may be subject to sharp price declines. This
industry is relatively nascent and under-researched in comparison to more
established and mature sectors, and should therefore be regarded as having
greater investment risk.
The First Trust Water ETF invests in companies in the potable water and
wastewater industries. You should be aware that adverse developments in these
industries may significantly affect the value of the shares of the First Trust
ISE Water Index Fund. Companies involved in the potable water and wastewater
industries are subject to environmental considerations, taxes, government
regulation, price and supply fluctuations, competition and conservation.
The First Trust Natural Gas ETF invests in companies in the natural gas
industry. You should be aware that one of the natural gas industry's primary
risks is the competitive risk associated with the prices of alternative fuels,
such as coal and oil. Additionally, the natural gas industry is sensitive to
increased interest rates because of the industry's capital intensive nature.
Furthermore, there are additional risks and hazards that are inherent in the
natural gas industry that may cause the price of natural gas to widely
fluctuate.
The First Trust Chindia ETF invests in the securities of companies domiciled in
China and India. You should be aware that investments in such companies are
subject to additional risks, including investment restrictions which may affect
liquidity and risks associated with possible adverse economic, political and
social developments in those countries.
The First Trust NASDAQ(R) ABA Community Bank Index Fund is concentrated in the
securities of NASDAQ(R) listed community banks which were significantly impacted
by the downturn in the United States and world economies that began with the
decline in the subprime mortgage lending market in the United States, and have
brought about legislative and regulatory changes, changes in short-term and
long-term interest rates, inflation and changes in government monetary and
fiscal policies, all of which have had a significant impact on the banking
business. Community banks may also be affected by anticipated government fiscal
policy initiatives and the market reaction to those initiatives.
Page 75
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
A community bank's financial performance may be highly dependent upon the
business environment in certain geographic regions of the United States and may
be adversely impacted by any downturn or unfavorable economic or employment
developments in its local market and the United States as a whole. This impacts
the ability of borrowers to pay interest on and repay principal of outstanding
loans and the value of collateral securing those loans. Also, the securities of
community banks are often subject to low trading volume and low analyst
coverage.
First Trust NASDAQ-100-Technology Sector Index Fund and First Trust NASDAQ(R)
Clean Edge(R) Green Energy Index Fund invest in semiconductor companies.
Semiconductor companies are primarily involved in the design, distribution,
manufacture and sale of semiconductors. Semiconductor companies are
significantly affected by rapid obsolescence, intense competition and global
demand. The Fund is also subject to the risk that the securities of such issuers
will underperform the market as a whole due to legislative or regulatory
changes. The prices of the securities of semiconductor companies may fluctuate
widely in response to such events.
First Trust Natural Gas ETF invests in MLPs. An investment in MLP units involves
risks which differ from an investment in common stock of a corporation. Holders
of MLP units have limited control and voting rights on matters affecting the
partnership. In addition, there are certain tax risks associated with an
investment in MLP units and conflicts of interest may exist between common unit
holders and the general partner, including those arising from incentive
distribution payments. In addition, there is the risk that an MLP could be,
contrary to its intention, taxed as a corporation, resulting in decreased
returns from such MLP.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
REMUNERATION
First Trust Advisors L.P. ("First Trust") is authorised and regulated by the
U.S. Securities and Exchange Commission and is entitled to market shares of the
First Trust Exchange-Traded Funds it manages (the "Funds") in certain member
states in the European Economic Area in accordance with the cooperation
arrangements in Article 42 of the Alternative Investment Fund Managers Directive
(the "Directive"). First Trust is required under the Directive to make
disclosures in respect of remuneration. The following disclosures are made in
line with First Trust's interpretation of currently available regulatory
guidance on remuneration disclosures.
During the year ended December 31, 2017, the amount of remuneration paid (or to
be paid) by First Trust Advisors L.P. in respect of the Funds is $8,575,944.
This figure is comprised of $345,122 paid (or to be paid) in fixed compensation
and $8,230,822 paid (or to be paid) in variable compensation. There were a total
of 14 beneficiaries of the remuneration described above. Those amounts include
$6,004,189 paid (or to be paid) to senior management of First Trust Advisors
L.P. and $2,571,755 paid (or to be paid) to other employees whose professional
activities have a material impact on the risk profiles of First Trust Advisors
L.P. or the Funds (collectively, "Code Staff").
Code Staff included in the aggregated figures disclosed above are rewarded in
line with First Trust's remuneration policy (the "Remuneration Policy") which is
determined and implemented by First Trust's senior management. The Remuneration
Policy reflects First Trust's ethos of good governance and encapsulates the
following principal objectives:
i. to provide a clear link between remuneration and performance of
First Trust and to avoid rewarding for failure;
ii. to promote sound and effective risk management consistent with the
risk profiles of the Funds managed by First Trust; and
iii. to remunerate staff in line with the business strategy, objectives,
values and interests of First Trust and the Funds managed by First
Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when
considering and implementing remuneration for Code Staff and considers whether
any potential award to such person(s) would give rise to a conflict of interest.
First Trust does not reward failure, or consider the taking of risk or failure
to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in
respect of performance-related remuneration of Code Staff by reference to a
broad range of measures including (i) individual performance (using financial
and non-financial criteria), and (ii) the overall performance of First Trust.
Remuneration is not based upon the performance of the Funds.
The elements of remuneration are balanced between fixed and variable and the
senior management sets fixed salaries at a level sufficient to ensure that
variable remuneration incentivises and rewards strong individual performance but
does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
Page 76
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 E. Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 151 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 151 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 151 Director of Trust
(1956) Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating 151 Director of
(1954) Officer (January 2015 to Present), Pelita Covenant
o Since Inception Harapan Educational Foundation Transport Inc.
(Educational Products and Services); (May 2003 to
President and Chief Executive Officer May 2014)
(June 2012 to September 2014), Servant
Interactive LLC (Educational Products and
Services); President and Chief Executive
Officer (June 2012 to September 2014),
Dew Learning LLC (Educational Products
and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 151 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P.; Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 77
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer
(1966) Executive Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer (January
2016 to Present), BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; and Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 78
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
May 2017
Page 79
This page intentionally left blank.
FIRST TRUST
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
FIRST TRUST
First Trust Exchange-Traded Fund
Book 3
First Trust Total US Market AlphaDEX(R) ETF (TUSA)
First Trust Dorsey Wright People's Portfolio ETF (DWPP)
(formerly known as First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund)
First Trust Dow 30 Equal Weight ETF (EDOW)
Annual Report
December 31, 2017
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2017
Shareholder Letter.......................................................... 2
Market Overview............................................................. 3
Fund Performance Overview
First Trust Total US Market AlphaDEX(R) ETF (TUSA)....................... 4
First Trust Dorsey Wright People's Portfolio ETF (DWPP).................. 6
First Trust Dow 30 Equal Weight ETF (EDOW)............................... 8
Notes to Fund Performance Overview.......................................... 10
Understanding Your Fund Expenses............................................ 11
Portfolio of Investments
First Trust Total US Market AlphaDEX(R) ETF (TUSA)....................... 12
First Trust Dorsey Wright People's Portfolio ETF (DWPP).................. 27
First Trust Dow 30 Equal Weight ETF (EDOW)............................... 34
Statements of Assets and Liabilities........................................ 35
Statements of Operations.................................................... 36
Statements of Changes in Net Assets......................................... 37
Financial Highlights........................................................ 39
Notes to Financial Statements............................................... 41
Report of Independent Registered Public Accounting Firm..................... 50
Additional Information...................................................... 51
Board of Trustees and Officers.............................................. 55
Privacy Policy.............................................................. 57
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
any series of First Trust Exchange-Traded Fund (the "Trust") described in this
report (each such series is referred to as a "Fund" and collectively, as the
"Funds") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any Fund described in this report will achieve its
investment objective. Each Fund is subject to market risk, which is the
possibility that the market values of securities owned by the Fund will decline
and that the value of the Fund shares may therefore be less than what you paid
for them. Accordingly, you can lose money by investing in a Fund. See "Risk
Considerations" in the Additional Information Section of this report for a
discussion of other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
www.ftportfolios.com or speak with your financial advisor. Investment returns,
net asset value and share price will fluctuate and Fund shares, when sold, may
be worth more or less than their original cost.
The Advisor may also periodically provide additional information on Fund
performance on each Fund's webpage at www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about each Fund's portfolio and presents data and analysis that
provide insight into each Fund's performance and investment approach.
By reading the market overview by Robert F. Carey, Chief Market Strategist of
the Advisor, you may obtain an understanding of how the market environment
affected the performance of each Fund. The statistical information that follows
may help you understand each Fund's performance compared to that of relevant
market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The material risks of investing in each
Fund are spelled out in its prospectus, statement of additional information,
this report and other Fund regulatory filings.
Page 1
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
DECEMBER 31, 2017
Dear Shareholders:
First Trust is pleased to provide you with the annual report for the First Trust
Exchange-Traded Fund which contains detailed information about your investment
for the twelve months ended December 31, 2017, including a market overview and a
performance analysis for the period. We encourage you to read this report
carefully and discuss it with your financial advisor.
This was a very strong year for U.S. markets. The three major indices--the S&P
500(R) Index, the Dow Jones Industrial Average and the Nasdaq posted their best
performance since 2013. And there was more good news for Wall Street:
o The S&P 500(R) achieved something it had not previously finishing
2017 with 12 months of gains;
o The Dow Jones realized a milestone as well closing above 24,000 for
the first time ever on November 30; and
o The Nasdaq set a record by having 11 months of gains in 2017 (June
was the only down month, and by just 0.86%).
World markets were also strong in 2017. According to the MSCI AC World Index,
which captures all sources of equity returns in 23 developed and 24 emerging
markets, world stocks rose every month in 2017. The value of public companies on
global stock markets grew by $12.4 trillion during the year.
In 2017, stocks benefitted from increased global demand, growth in corporate
profits (especially technology stocks) and an accommodative Federal Reserve. The
housing market in the United States continues to grow due to a strong job
market, low interest rates and tight inventory. As the year came to a close,
President Trump signed the tax reform package, called the "Tax Cuts and Jobs
Act," which was seen as a promise kept by then-candidate Trump to accomplish
sweeping reform. It is hoped this tax reform will boost economic activity to
greater highs.
At First Trust, we are optimistic about the U.S. economy. We also continue to
believe that you should invest for the long term and be prepared for market
volatility, which can happen at any time. How can you do this? By keeping
current on your portfolio and investing goals by speaking regularly with your
investment professional. It's important to keep in mind that past performance of
the U.S. and global stock markets or investment products can never guarantee
future results. As we've said before, markets go up and they also go down, but
savvy investors are prepared for either through careful attention to their
portfolios and investment goals.
Thank you for giving First Trust the opportunity to be a part of your financial
plan through your investment. We value our relationship with you and will report
on your investment again in six months.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 2
--------------------------------------------------------------------------------
MARKET OVERVIEW
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2017
ROBERT F. CAREY, CFA
SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST
FIRST TRUST ADVISORS L.P.
Mr. Carey is responsible for the overall management of research and analysis of
the First Trust product line. Mr. Carey has over 25 years of experience as an
Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial
Analyst ("CFA") designation. He is a graduate of the University of Illinois at
Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment
Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a
guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been
quoted by several publications, including The Wall Street Journal, The Wall
Street Reporter, Bloomberg News Service, and Registered Rep.
STATE OF THE ECONOMY/INVESTING
At the midpoint of 2017, House Speaker Paul Ryan stated that he did not think
that the U.S. economy could achieve a 3% gross domestic product ("GDP") growth
rate without passing tax reform legislation. The Tax Cuts and Jobs Act was
signed into law by President Trump on December 22, 2017. One of the main goals
of cutting taxes, both corporate and individual, is to try and boost economic
activity in the U.S. It is true that real GDP growth has topped the 3.0% mark on
an annualized basis the past two quarters (3.1% in the second quarter and 3.2%
in the third quarter), but growth has only averaged 2.2% in the current
recovery, which commenced in the third quarter of 2009, according to data from
the Bureau of Economic Analysis. While it will likely take some time to
determine how effective lower tax rates will be in stimulating economic growth,
particularly the cut from 35% to 21% on the federal tax rate for corporations,
the concept of tax cuts seems to have been well-received by investors since
Trump was elected more than a year ago, in our opinion.
Both small and large companies in the U.S. seem optimistic looking ahead. The
National Federation of Independent Business ("NFIB") reported that its Small
Business Optimism Index hit 107.5 in November, the second-highest reading in its
44-year history, according to its own release. The all-time high was 108.0, set
in September 1983. The NFIB noted that "small business owners are exuberant
about the economy and are ready to lead the U.S. economy in a period of robust
growth." Chief Executive's CEO Confidence Index in Business Conditions 12 Months
Out just registered its second most optimistic year (7.08 out of 10) since the
index commenced in 2003, according to its own release. The highest mark ever
achieved for a calendar year was 7.47 in 2004. The monthly survey of 267 CEOs
revealed that two-thirds of those polled plan to add to their workforce in 2018,
while only 5% forecast a decrease in headcount. CEOs are also expecting to
increase both profitability and revenue in 2018.
ETFGI, an industry research group, reported that total assets invested in
exchange-traded funds ("ETFs") and other exchange-traded products ("ETPs")
listed globally reached an all-time high of $4.83 trillion at the close of 2017,
according to its own release. Total assets invested in ETFs and ETPs listed in
the U.S. reached a record high of $3.42 trillion.
U.S. STOCKS AND BONDS
In 2017, three of the major U.S. stock indices posted double-digit returns. The
S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index posted
total returns of 21.83%, 16.24%, and 13.23%, respectively, according to
Bloomberg. Nine of the 11 major S&P 500(R) Index sectors posted positive total
returns. The top-performing sectors were Information Technology, Materials and
Consumer Discretionary, up 38.83%, 23.84% and 22.98%, respectively, on a total
return basis. The two sectors that posted losses were Energy and
Telecommunication Services, down 1.25% and 1.01%, respectively. In general,
cyclical areas of the stock market outperformed non-cyclicals in 2017, an
indication that investors are optimistic about U.S. economic growth moving
forward.
The Federal Reserve ("the Fed") raised the federal funds target rate (upper
bound) three times, from 0.75% to 1.50%, in 2017. It is poised to hike rates
three times in 2018, according to CNBC. The Fed has already raised this rate
five times, dating back to its first hike on December 16, 2015. If the Fed
tightens three times in 2018, the rate will likely hit 2.25%, assuming 25 basis
points per hike. For comparative purposes, the target rate averaged 2.68% for
the 25-year period ended December 29, 2017, according to Bloomberg. The highest
level it reached over that period was 6.50% on May 16, 2000. So while this key
benchmark lending rate is rising, it is still low by historical standards. The
projected bump up in interest rates would not likely derail the bull market in
stocks, but it could put some downward pressure on bond prices by pushing bond
yields higher, in our opinion.
In the U.S. bond market, the top-performing major debt group was high yield
corporate bonds. The Bloomberg Barclays U.S. Corporate High Yield Index posted a
total return of 7.50% in 2017. The worst-performing debt group that we track was
Treasuries, though the group still generated a positive return. The Bloomberg
Barclays U.S. Treasury: Intermediate Index posted a total return of 1.14%. The
yield on the benchmark 10-Year Treasury note (T-note) declined by four basis
points to 2.41% in 2017, according to Bloomberg. The average yield on the
10-year T-note was 2.58% for the 10-year period ended December 29, 2017.
FOREIGN STOCKS AND BONDS
The U.S. dollar declined by 9.87% against a basket of major currencies in 2017,
as measured by the U.S. Dollar Index (DXY). With respect to U.S. investors, a
weaker U.S. dollar can positively impact returns on foreign securities.
The Bloomberg Barclays EM Hard Currency Aggregate Index of emerging markets debt
posted a total return of 9.61% (USD), while the Bloomberg Barclays Global
Aggregate Index of higher quality debt rose 7.39% (USD) in 2017. The MSCI Daily
Total Return Net Emerging Markets Index of stocks posted a total return of
37.28% (USD), while the MSCI Daily Total Return Net World Index (excluding the
U.S.) posted a total return of 24.21% (USD) in 2017.
Page 3
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
The First Trust Total US Market AlphaDEX(R) ETF (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the NASDAQ AlphaDEX(R) Total US Market
Index (the "Index"). The Fund will normally invest at least 90% of its assets in
common stocks that comprise the Index. The Index is designed to quantitatively
identify and select stocks across market capitalizations (including large-cap,
mid-cap and small-cap companies) that exhibit growth and value factors and
appear to have the greatest potential for capital appreciation. The Index is a
modified equal-dollar weighted index. The Index is reconstituted and balanced on
a quarterly basis. The Fund's shares are listed for trading on The Nasdaq Stock
Market LLC. The first day of secondary market trading in shares of the Fund was
December 7, 2006.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (12/5/06) Ended Ended (12/5/06)
12/31/17 12/31/17 12/31/17 to 12/31/17 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 19.44% 12.31% 6.19% 5.91% 78.70% 82.40% 88.78%
Market Value 19.42% 12.34% 6.17% 5.92% 78.96% 81.97% 88.98%
INDEX PERFORMANCE
NASDAQ AlphaDEX(R) Total US Market
Index* 20.36% N/A N/A N/A N/A N/A N/A
Russell 3000(R) Index 21.13% 15.58% 8.60% 8.23% 106.26% 128.22% 140.15%
------------------------------------------------------------------------------------------------------------------------------------
* On January 9, 2015, the Fund's underlying index changed from the Value Line(R)
Equity Allocation Index to the NASDAQ AlphaDEX(R) Total US Market Index.
Therefore, the Fund's performance and total returns shown for the periods prior
to January 9, 2015, are not necessarily indicative of the performance the Fund,
based on its current index, would have generated. Since the Fund's new
underlying index had an inception date of September 8, 2014, it was not in
existence for all of the periods disclosed.
(See Notes to Fund Performance Overview on page 10.)
PERFORMANCE REVIEW
The Fund generated a net asset value ("NAV") return of 19.44% during the
12-month period covered by this report. During the same period, the Russell
3000(R) Index ("benchmark") generated a return of 21.13%. The Consumer
Discretionary sector was given the highest allocation in the Fund at 18.4% over
the period. The largest contributing sector to the Fund's return was the
Information Technology sector with a 5.5% contribution, stemming from its 17.5%
allocation and 32.1% return. The Telecommunication Services sector was the only
negatively contributing sector over the period with a -0.2% contribution,
stemming from its 1.4% allocation and -11.7% return. On a relative basis, the
Fund underperformed the benchmark. The primary cause of the underperformance is
attributable to the Fund under allocating and underperforming the benchmark
amongst Information Technology securities, leading to -1.5% of drag. The Fund
outperformed the benchmark amongst Energy securities by 8.8% leading to 1.2% of
relative outperformance in this sector.
-----------------------------
The NASDAQ AlphaDEX(R) Total US Market Index (the "Index") is a trademark of The
Nasdaq OMX Group and has been licensed for use by First Trust Portfolios L.P.
AlphaDEX(R) is a trademark owned by First Trust Portfolios L.P. and has been
licensed to The Nasdaq OMX Group for use in the name of the Index. The First
Trust Total US Market AlphaDEX(R) ETF is not sponsored, endorsed, sold or
promoted by The Nasdaq OMX Group and The Nasdaq OMX Group makes no
representation or warranty regarding the advisability of investing in the First
Trust Total US Market AlphaDEX(R) ETF or as to the result to be obtained by any
person from use of the Index in connection with the trading of the First Trust
Total US Market AlphaDEX(R) ETF.
Page 4
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 19.65%
Financials 16.46
Consumer Discretionary 16.34
Industrials 14.00
Health Care 10.23
Utilities 5.82
Materials 5.22
Consumer Staples 4.69
Energy 3.68
Real Estate 2.63
Telecommunication Services 1.28
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
D.R. Horton, Inc. 0.50%
DaVita, Inc. 0.48
Intel Corp. 0.48
Total System Services, Inc. 0.48
Valero Energy Corp. 0.47
Align Technology, Inc. 0.47
Express Scripts Holding Co. 0.46
Delta Air Lines, Inc. 0.46
Boeing (The) Co. 0.46
Tyson Foods, Inc., Class A 0.45
-------
Total 4.71%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2007 - DECEMBER 31, 2017
First Trust
Total US Market Russell 3000(R)
AlphaDEX(R) ETF Index
12/07 $10,000 $10,000
06/08 9,150 8,896
12/08 6,455 6,270
06/09 6,799 6,533
12/09 8,659 8,047
06/10 8,533 7,560
12/10 10,379 9,409
06/11 10,606 10,006
12/11 9,386 9,505
06/12 9,549 10,391
12/12 10,206 11,065
06/13 11,679 12,621
12/13 13,743 14,778
06/14 14,436 15,804
12/14 14,068 16,634
06/15 14,234 16,957
12/15 13,226 16,715
06/16 13,657 17,320
12/16 15,273 18,842
06/17 16,426 20,525
12/17 18,241 22,822
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore does not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 140 0 0 0
01/01/14 - 12/31/14 178 0 0 0
01/01/15 - 12/31/15 115 15 0 0
01/01/16 - 12/31/16 121 0 0 0
01/01/17 - 12/31/17 216 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 104 8 0 0
01/01/14 - 12/31/14 68 6 0 0
01/01/15 - 12/31/15 110 12 0 0
01/01/16 - 12/31/16 131 0 0 0
01/01/17 - 12/31/17 35 0 0 0
Page 5
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DORSEY WRIGHT PEOPLE'S PORTFOLIO ETF (DWPP)
From the beginning of the period covered by this report until August 18, 2017,
the First Trust Dorsey Wright People's Portfolio ETF (the "Fund"), formerly
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund, sought investment results
that correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the CBOE(R) VIX(R) Tail Hedge Index.
Effective August 18, 2017, the Fund changed its investment objective to seek
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an index called the Nasdaq Dorsey Wright People's
Portfolio Index (the "Index"). The Fund will normally invest at least 80% of its
total assets (including investment borrowings) in common stocks or U.S. Treasury
Bills ("T-Bills") that comprise the Index. The Index is designed to provide
exposure to either the U.S. equity market or T-Bills, based upon daily relative
strength readings resulting from a wholly-quantitative process. The Index always
holds exactly one of three possible positions: all the component securities of
the Nasdaq US 500 Large Cap Index, all the component securities in the Nasdaq US
500 Large Cap Equal Weight Index or all the component securities of the Nasdaq
US T-Bill Index. Each of the Nasdaq US 500 Large Cap Index and the Nasdaq US 500
Large Cap Equal Weight Index contains the same constituent securities - the 500
securities with the highest float market capitalization comprising the NASDAQ US
Benchmark Index - but weights them differently. The Nasdaq US 500 Large Cap
Index weights the securities according to their market capitalization and the
Nasdaq US 500 Large Cap Equal Index weights them equally. The Nasdaq US T-Bill
Index is designed to act as a US dollar-denominated cash position through the
use of nine T-Bills ranging from 30 to 91 days in duration. A T-Bill is a
short-term debt obligation backed by the U.S. government with a maturity of less
than one year, sold in denominations of $1,000 up to a maximum purchase of $5
million. From the beginning of the period covered by this report until August
18, 2017, the shares of the Fund traded on the NYSE Arca. Effective August 18,
2017, the shares of the Fund are listed and trade on The Nasdaq Stock Market LLC
under the ticker symbol "DWPP." The first day of secondary market trading in
shares of the Fund was August 30, 2012.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (8/29/12) Ended (8/29/12)
12/31/17 12/31/17 to 12/31/17 12/31/17 to 12/31/17
FUND PERFORMANCE
NAV 21.71% 9.57% 8.65% 57.92% 55.76%
Market Value 21.73% 9.61% 8.68% 58.21% 55.97%
INDEX PERFORMANCE
Nasdaq Dorsey Wright People's Portfolio Index* N/A N/A N/A N/A N/A
S&P 500(R) Index 21.83% 15.79% 15.13% 108.14% 112.16%
Nasdaq US 500 Large Cap Index 21.99% N/A N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
* On August 18, 2017, the Fund's underlying index changed from the CBOE(R)
VIX(R) Tail Hedge Index to the Nasdaq Dorsey Wright People's Portfolio Index
(the "Index"). Therefore, the Fund's performance and total returns shown for the
periods prior to August 18, 2017, are not necessarily indicative of the
performance the Fund, based on its current index, would have generated. Since
the Index had an inception date of July 24, 2017, it was not in existence for
all of the periods disclosed.
(See Notes to Fund Performance Overview on page 10.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 21.71% during the 12-month period covered by
this report. During the same period, the S&P 500(R) Index ("benchmark")
generated a return of 21.83%. The Information Technology sector was the heaviest
allocated sector in the Fund over the period with a 19.8% weighting. With a
38.2% return this sector was the top performing sector and led to a contribution
of 6.9% to the Fund's return. Apple, Inc. was the highest allocated single
security with a 2.4% weighting. The Telecommunication Services sector was the
worst performing sector in the Fund with a -6.6% return, which led to a
contribution of -0.2%. On a relative basis, the Fund underperformed the
benchmark. The primary cause of the underperformance can be attributed to the
Fund overweighting and underperforming the benchmark amongst Utilities
securities by 0.8% and -1.3%, respectively, leading to -0.4% of relative drag.
The Fund's holdings amongst Industrial securities reversed -0.5% of
underperformance as the Fund outperformed the benchmark by 3.9% in this sector.
-----------------------------
The Fund is not sponsored, endorsed, sold or promoted by Nasdaq, Inc. or its
affiliates (Nasdaq, with its affiliates are referred to as the "Corporations").
The Corporations have not passed on the legality or suitability of, or the
accuracy or descriptions and disclosure 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.
S&P(R) and S&P(R) 500(R) are registered trademarks of Standard & Poor's
Financial Services LLC ("SPFS") and these trademarks have been licensed for use
by the S&P Dow Jones Indices LLC and sublicensed for certain purposes by First
Trust.
Page 6
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DORSEY WRIGHT PEOPLE'S PORTFOLIO ETF (DWPP) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 15.42%
Financials 14.78
Consumer Discretionary 14.45
Industrials 12.37
Health Care 12.02
Consumer Staples 7.20
Energy 6.61
Real Estate 6.10
Utilities 5.32
Materials 4.93
Telecommunication Services 0.80
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Diamondback Energy, Inc. 0.23%
Noble Energy, Inc. 0.23
Anadarko Petroleum Corp. 0.22
Marathon Oil Corp. 0.22
Continental Resources, Inc. 0.22
Freeport-McMoRan, Inc. 0.22
Pioneer Natural Resources Co. 0.22
Concho Resources, Inc. 0.22
Devon Energy Corp. 0.22
Halliburton Co. 0.22
-------
Total 2.22%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 29, 2012 - DECEMBER 31, 2017
First Trust
Dorsey Wright S&P 500(R)
People's Portfolio ETF Index
08/12 $10,000 $10,000
12/12 9,863 10,193
06/13 10,686 11,602
12/13 11,738 13,494
06/14 12,251 14,457
12/14 13,525 15,342
06/15 13,175 15,531
12/15 12,730 15,554
06/16 12,551 16,151
12/16 12,800 17,414
06/17 13,952 19,040
12/17 15,579 21,214
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the index does
not actually hold a portfolio of securities and therefore does not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2013 through
December 31, 2017. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 155 5 0 0
01/01/14 - 12/31/14 152 2 0 1
01/01/15 - 12/31/15 98 1 0 1
01/01/16 - 12/31/16 76 3 0 0
01/01/17 - 12/31/17 175 0 0 1
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/13 - 12/31/13 92 0 0 0
01/01/14 - 12/31/14 95 2 0 0
01/01/15 - 12/31/15 148 1 1 2
01/01/16 - 12/31/16 168 4 1 0
01/01/17 - 12/31/17 75 0 0 0
Page 7
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DOW 30 EQUAL WEIGHT ETF (EDOW)
The First Trust Dow 30 Equal Weight ETF (the "Fund") seeks investment results
that correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity Index called the Dow Jones Industrial Average Equal
Weight Index (the "Index"). The Fund will normally invest at least 90% of its
net assets (including investment borrowings) in common stocks that comprise the
Index. The Index consists of an equally weighted portfolio of the 30 securities
that comprise the Dow Jones Industrial Average(TM) (the "DJIA"). The 30
securities comprising the DJIA are domestic, blue-chip companies covering all
industries. While inclusion in the DJIA is not governed by quantitative rules, a
stock is typically only added if the company has an excellent reputation,
demonstrates sustained growth and is of interest to a large number of investors.
The Index is rebalanced quarterly. The first day of secondary market trading in
shares of the Fund was August 9, 2017.
------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
------------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
TOTAL RETURNS
Inception
(8/8/17)
to 12/31/17
FUND PERFORMANCE
NAV 11.02%
Market Value 11.22%
INDEX PERFORMANCE
Dow Jones Industrial Average(R) Equal Weight Index 11.24%
Dow Jones Industrial Average(R) 13.02%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 10.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 11.02% during the time period covered by this
report, which is from inception of the Fund on August 8, 2017 to December 31,
2017. During the same period, the Dow Jones Industrial Average(R) ("benchmark")
generated a return of 13.02%. The Information Technology sector was given the
highest allocation in the Fund with a 20.2% weighting. This sector was also the
top performing sector with a 16.2% return, which led to a 3.3% contribution. The
Materials sector was the worst performing sector with a 6.6% return. This sector
was given a 2.8% allocation in the Fund and contributed 0.2% to the Fund's
return. On a relative basis the Fund underperformed the benchmark. The Fund
underperformed the benchmark by -8.6% amongst Industrial securities, which led
to -1.8% of relative drag. The Fund over allocated and outperformed the
benchmark amongst Information Technology securities by 3.1% and 3.8%,
respectively, which led to 0.8% of relative outperformance in this sector.
-----------------------------
The Dow Jones Industrial Average(R) Equal Weight Index is a product of S&P Dow
Jones Indices LLC ("SPDJI"), and has been licensed for use by First Trust. Dow
Jones(R) and Dow Jones Industrial Average(R) Equal Weight Index are trademarks
of Dow Jones Trademark Holdings LLC ("Dow Jones") and have been licensed to
SPDJI and have been sublicensed for use for certain purposes by First Trust. The
First Trust Dow 30 Equal Weight Index Fund is not sponsored, endorsed, sold or
promoted by SPDJI, Dow Jones or their respective affiliates and none of them
makes any representation regarding the advisability of investing in such fund.
Page 8
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DOW 30 EQUAL WEIGHT ETF (EDOW) (CONTINUED)
-----------------------------------------------------------
% OF TOTAL
SECTOR CLASSIFICATION LONG-TERM INVESTMENTS
-----------------------------------------------------------
Information Technology 19.99%
Industrials 16.83
Consumer Discretionary 13.37
Financials 13.27
Health Care 13.12
Consumer Staples 9.99
Energy 6.74
Telecommunication Services 3.39
Materials 3.30
-------
Total 100.00%
=======
-----------------------------------------------------------
% OF TOTAL
TOP TEN HOLDINGS LONG-TERM INVESTMENTS
-----------------------------------------------------------
Caterpillar, Inc. 3.59%
Intel Corp. 3.49
Chevron Corp. 3.42
United Technologies Corp. 3.40
Verizon Communications, Inc. 3.39
Home Depot (The), Inc. 3.38
Walt Disney (The) Co. 3.38
Boeing (The) Co. 3.38
Wal-Mart Stores, Inc. 3.35
NIKE, Inc., Class B 3.34
-------
Total 34.12%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 8, 2017 - DECEMBER 31, 2017
Dow Jones Industrial
First Trust Dow 30 Average(R) Equal Dow Jones Industrial
Equal Weight ETF Weight Index Average(R)
08/17 $10,000 $10,000 $10,000
12/17 11,102 11,124 11,302
Performance figures assume reinvestment of all distributions and do not reflect
the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. An index is a statistical composite that
tracks a specified financial market or sector. Unlike the Fund, the indices do
not actually hold a portfolio of securities and therefore do not incur the
expenses incurred by the Fund. These expenses negatively impact the performance
of the Fund. The Fund's past performance does not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2017
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period August 9, 2017 (commencement
of trading) through December 31, 2017. Shareholders may pay more than NAV when
they buy Fund shares and receive less than NAV when they sell those shares
because shares are bought and sold at current market price. Data presented
represents past performance and cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
08/09/17 - 12/31/17 94 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
08/09/17 - 12/31/17 6 0 0 0
Page 9
--------------------------------------------------------------------------------
NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
Total returns for the periods since inception are calculated from the inception
date of each Fund. "Average annual total returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative total
returns" represent the total change in value of an investment over the periods
indicated. The total returns would have been lower if certain fees had not been
waived and expenses reimbursed by the Advisor.
Each Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint between the highest bid and the lowest offer on the stock
exchange on which shares of the Fund are listed for trading as of the time that
the Fund's NAV is calculated. Since shares of each Fund did not trade in the
secondary market until after the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
each Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and market returns assume that all distributions have been
reinvested in each Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike each Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by each Fund. These
expenses negatively impact the performance of each Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of each
Fund will vary with changes in market conditions. Shares of each Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. Each Fund's past performance is no guarantee of future performance.
Page 10
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2017 (UNAUDITED)
As a shareholder of First Trust Total US Market AlphaDEX(R) ETF, First Trust
Dorsey Wright People's Portfolio ETF or First Trust Dow 30 Equal Weight ETF
(each a "Fund" and collectively, the "Funds"), you incur two types of costs: (1)
transaction costs; and (2) ongoing costs, including management fees,
distribution and/or service fees, if any, and other Fund expenses. This Example
is intended to help you understand your ongoing costs of investing in the Funds
and to compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period (or since inception) and held through the six-month (or shorter) period
ended December 31, 2017.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
-----------------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2017 DECEMBER 31, 2017 PERIOD PERIOD (b)
-----------------------------------------------------------------------------------------------------------------------------------
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
Actual $1,000.00 $1,110.50 0.70% (a) $3.72
Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% (a) $3.57
FIRST TRUST DORSEY WRIGHT PEOPLE'S PORTFOLIO
ETF (DWPP)
Actual $1,000.00 $1,116.60 0.60% $3.20
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
-----------------------------------------------------------------------------------------------------------------------------------
ANNUALIZED EXPENSES PAID
EXPENSE RATIO DURING THE PERIOD
BEGINNING ENDING BASED ON THE AUGUST 8, 2017 (c)
ACCOUNT VALUE ACCOUNT VALUE NUMBER OF DAYS TO
AUGUST 8, 2017 (c) DECEMBER 31, 2017 IN THE PERIOD DECEMBER 31, 2017 (d)
-----------------------------------------------------------------------------------------------------------------------------------
FIRST TRUST DOW 30 EQUAL WEIGHT ETF (EDOW)
Actual $1,000.00 $1,110.20 0.50% $2.11
Hypothetical (5% return before expenses) $1,000.00 $1,022.68 0.50% $2.55
(a) These expense ratios reflect an expense cap. See Note 3 in Notes to
Financial Statements.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (July 1,
2017 through December 31, 2017), multiplied by 184/365 (to reflect the
one-half year period).
(c) Inception date.
(d) Actual expenses are equal to the annualized expense ratio as indicated in
the table, multiplied by the average account value over the period (August
8, 2017 through December 31, 2017), multiplied by 146/365. Hypothetical
expenses are assumed for the most recent half-year period.
Page 11
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
AEROSPACE & DEFENSE -- 2.5%
164 AAR Corp. $ 6,444
115 Aerovironment, Inc. (a) 6,458
156 Astronics Corp. (a) 6,469
229 Boeing (The) Co. 67,534
66 Curtiss-Wright Corp. 8,042
69 Esterline Technologies Corp. (a) 5,154
265 Harris Corp. 37,537
195 HEICO Corp. 18,398
121 Hexcel Corp. 7,484
30 Huntington Ingalls Industries,
Inc. 7,071
58 KLX, Inc. (a) 3,959
355 Kratos Defense & Security
Solutions, Inc. (a) 3,760
112 Lockheed Martin Corp. 35,958
150 Mercury Systems, Inc. (a) 7,703
37 Moog, Inc., Class A (a) 3,213
58 National Presto Industries, Inc. 5,768
202 Northrop Grumman Corp. 61,996
225 Spirit AeroSystems Holdings, Inc.,
Class A 19,631
22 Teledyne Technologies, Inc. (a) 3,985
649 Textron, Inc. 36,727
100 United Technologies Corp. 12,757
--------------
366,048
--------------
AIR FREIGHT & LOGISTICS -- 0.7%
318 Air Transport Services Group,
Inc. (a) 7,358
118 Atlas Air Worldwide Holdings,
Inc. (a) 6,921
46 C.H. Robinson Worldwide, Inc. 4,098
58 Expeditors International of
Washington, Inc. 3,752
207 FedEx Corp. 51,655
27 Forward Air Corp. 1,551
72 Hub Group, Inc., Class A (a) 3,449
258 XPO Logistics, Inc. (a) 23,630
--------------
102,414
--------------
AIRLINES -- 1.3%
46 Alaska Air Group, Inc. 3,382
736 American Airlines Group, Inc. 38,294
1,208 Delta Air Lines, Inc. 67,648
206 Hawaiian Holdings, Inc. 8,209
232 Spirit Airlines, Inc. (a) 10,405
957 United Continental Holdings,
Inc. (a) 64,502
--------------
192,440
--------------
AUTO COMPONENTS -- 0.8%
440 American Axle & Manufacturing
Holdings, Inc. (a) 7,493
207 Cooper Tire & Rubber Co. 7,317
54 Cooper-Standard Holdings, Inc. (a) 6,615
625 Dana, Inc. 20,006
180 Fox Factory Holding Corp. (a) 6,993
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
AUTO COMPONENTS (CONTINUED)
883 Gentex Corp. $ 18,499
166 Gentherm, Inc. (a) 5,271
524 Goodyear Tire & Rubber (The) Co. 16,930
54 LCI Industries 7,020
101 Lear Corp. 17,843
161 Modine Manufacturing Co. (a) 3,252
128 Standard Motor Products, Inc. 5,749
52 Tenneco, Inc. 3,044
--------------
126,032
--------------
AUTOMOBILES -- 1.2%
3,894 Ford Motor Co. 48,636
1,442 General Motors Co. 59,108
217 Harley-Davidson, Inc. 11,041
102 Tesla, Inc. (a) 31,758
138 Thor Industries, Inc. 20,799
70 Winnebago Industries, Inc. 3,892
--------------
175,234
--------------
BANKS -- 4.0%
30 1st Source Corp. 1,483
287 Associated Banc-Corp. 7,290
82 BancFirst Corp. 4,194
48 BancorpSouth Bank 1,510
919 Bank of America Corp. 27,129
72 Bank of the Ozarks 3,488
196 BankUnited, Inc. 7,981
51 Banner Corp. 2,811
247 BB&T Corp. 12,281
40 Berkshire Hills Bancorp, Inc. 1,464
39 BOK Financial Corp. 3,600
93 Boston Private Financial Holdings,
Inc. 1,437
321 Citigroup, Inc. 23,886
615 Citizens Financial Group, Inc. 25,818
21 City Holding Co. 1,417
157 CoBiz Financial, Inc. 3,138
63 Commerce Bancshares, Inc. 3,518
34 Community Trust Bancorp, Inc. 1,601
37 Cullen/Frost Bankers, Inc. 3,502
94 Customers Bancorp, Inc. (a) 2,443
24 Eagle Bancorp, Inc. (a) 1,390
117 East West Bancorp, Inc. 7,117
496 F.N.B. Corp. 6,855
1,249 Fifth Third Bancorp 37,895
45 First Bancorp 1,589
1,209 First BanCorp (a) 6,166
99 First Busey Corp. 2,964
19 First Citizens BancShares, Inc.,
Class A 7,657
229 First Hawaiian, Inc. 6,682
363 First Horizon National Corp. 7,256
36 First Merchants Corp. 1,514
51 First of Long Island (The) Corp. 1,453
111 First Republic Bank 9,617
82 Fulton Financial Corp. 1,468
123 German American Bancorp, Inc. 4,346
Page 12 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
BANKS (CONTINUED)
75 Great Western Bancorp, Inc. $ 2,985
262 Green Bancorp, Inc. (a) 5,319
56 Guaranty Bancorp 1,548
72 Hancock Holding Co. 3,564
49 Hanmi Financial Corp. 1,487
105 Heritage Financial Corp. 3,234
60 Hilltop Holdings, Inc. 1,520
174 Hope Bancorp, Inc. 3,175
43 IBERIABANK Corp. 3,332
20 Independent Bank Corp. 1,397
78 International Bancshares Corp. 3,097
366 JPMorgan Chase & Co. 39,140
618 KeyCorp 12,465
75 Lakeland Bancorp, Inc. 1,444
64 Lakeland Financial Corp. 3,103
132 Live Oak Bancshares, Inc. 3,148
78 MB Financial, Inc. 3,473
44 National Bank Holdings Corp.,
Class A 1,427
169 Old National Bancorp 2,949
69 PacWest Bancorp 3,478
192 People's United Financial, Inc. 3,590
87 PNC Financial Services Group
(The), Inc. 12,553
291 Popular, Inc. 10,328
78 Preferred Bank 4,585
107 Prosperity Bancshares, Inc. 7,497
2,295 Regions Financial Corp. 39,658
79 S&T Bancorp, Inc. 3,145
39 ServisFirst Bancshares, Inc. 1,619
390 SunTrust Banks, Inc. 25,190
37 SVB Financial Group (a) 8,649
227 Synovus Financial Corp. 10,882
363 TCF Financial Corp. 7,442
123 Texas Capital Bancshares, Inc. (a) 10,935
92 TowneBank 2,829
76 TriCo Bancshares 2,877
47 Trustmark Corp. 1,497
47 UMB Financial Corp. 3,380
357 Umpqua Holdings Corp. 7,426
93 United Bankshares, Inc. 3,232
54 United Community Banks, Inc. 1,520
48 Univest Corp. of Pennsylvania 1,346
256 Valley National Bancorp 2,872
54 Washington Trust Bancorp, Inc. 2,876
133 Webster Financial Corp. 7,469
633 Wells Fargo & Co. 38,404
38 WesBanco, Inc. 1,545
198 Western Alliance Bancorp (a) 11,211
89 Wintrust Financial Corp. 7,331
147 Zions Bancorporation 7,472
--------------
594,605
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
BEVERAGES -- 0.7%
20 Boston Beer (The) Co., Inc.,
Class A (a) $ 3,822
21 Coca-Cola Bottling Co.
Consolidated 4,520
58 Constellation Brands, Inc.,
Class A 13,257
76 MGP Ingredients, Inc. 5,843
713 Molson Coors Brewing Co.,
Class B 58,516
141 National Beverage Corp. 13,739
--------------
99,697
--------------
BIOTECHNOLOGY -- 2.5%
524 AbbVie, Inc. 50,676
278 ACADIA Pharmaceuticals, Inc. (a) 8,371
166 Alexion Pharmaceuticals, Inc. (a) 19,852
148 Alnylam Pharmaceuticals, Inc. (a) 18,803
304 Arena Pharmaceuticals, Inc. (a) 10,327
252 Array BioPharma, Inc. (a) 3,226
127 Bluebird Bio, Inc. (a) 22,619
45 Blueprint Medicines Corp. (a) 3,393
240 Celgene Corp. (a) 25,046
427 Cytokinetics, Inc. (a) 3,480
216 Dynavax Technologies Corp. (a) 4,039
258 Editas Medicine, Inc. (a) 7,928
76 Emergent BioSolutions, Inc. (a) 3,532
33 Enanta Pharmaceuticals, Inc. (a) 1,936
325 Epizyme, Inc. (a) 4,079
370 Exact Sciences Corp. (a) 19,440
433 Exelixis, Inc. (a) 13,163
57 FibroGen, Inc. (a) 2,702
38 Foundation Medicine, Inc. (a) 2,592
89 Halozyme Therapeutics, Inc. (a) 1,803
202 ImmunoGen, Inc. (a) 1,295
222 Immunomedics, Inc. (a) (b) 3,588
207 Ionis Pharmaceuticals, Inc. (a) 10,412
172 Juno Therapeutics, Inc. (a) 7,862
218 Keryx Biopharmaceuticals,
Inc. (a) (b) 1,014
34 Ligand Pharmaceuticals, Inc. (a) 4,656
130 MiMedx Group, Inc. (a) (b) 1,639
251 Momenta Pharmaceuticals, Inc. (a) 3,501
120 Natera, Inc. (a) 1,079
57 Neurocrine Biosciences, Inc. (a) 4,423
193 Portola Pharmaceuticals, Inc. (a) 9,395
48 Prothena Corp. PLC (a) 1,800
309 PTC Therapeutics, Inc. (a) 5,154
94 REGENXBIO, Inc. (a) 3,125
125 Retrophin, Inc. (a) 2,634
207 Sangamo Therapeutics, Inc. (a) 3,395
69 Sarepta Therapeutics, Inc. (a) 3,839
35 Spark Therapeutics, Inc. (a) 1,800
330 Spectrum Pharmaceuticals, Inc. (a) 6,253
87 Vanda Pharmaceuticals, Inc. (a) 1,322
384 Vertex Pharmaceuticals, Inc. (a) 57,546
--------------
362,739
--------------
See Notes to Financial Statements Page 13
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
BUILDING PRODUCTS -- 0.9%
118 A.O. Smith Corp. $ 7,231
121 Allegion PLC 9,627
30 Armstrong World Industries,
Inc. (a) 1,817
431 Builders FirstSource, Inc. (a) 9,392
179 Continental Building Products,
Inc. (a) 5,039
103 Fortune Brands Home & Security,
Inc. 7,049
139 Griffon Corp. 2,829
490 JELD-WEN Holding, Inc. (a) 19,291
39 Lennox International, Inc. 8,122
198 NCI Building Systems, Inc. (a) 3,821
181 Owens Corning 16,641
138 Patrick Industries, Inc. (a) 9,584
517 PGT Innovations, Inc. (a) 8,711
135 Quanex Building Products Corp. 3,159
63 Simpson Manufacturing Co., Inc. 3,617
69 Trex Co., Inc. (a) 7,479
189 Universal Forest Products, Inc. 7,110
214 USG Corp. (a) 8,252
--------------
138,771
--------------
CAPITAL MARKETS -- 4.1%
37 Affiliated Managers Group, Inc. 7,594
440 Bank of New York Mellon (The)
Corp. 23,699
429 BGC Partners, Inc., Class A 6,482
162 Cboe Global Markets, Inc. 20,184
72 Donnelley Financial Solutions,
Inc. (a) 1,403
1,335 E*TRADE Financial Corp. (a) 66,176
141 Eaton Vance Corp. 7,951
58 Evercore, Inc., Class A 5,220
38 FactSet Research Systems, Inc. 7,325
105 Federated Investors, Inc., Class B 3,789
1,308 Franklin Resources, Inc. 56,676
147 Goldman Sachs Group (The), Inc. 37,450
159 Houlihan Lokey, Inc. 7,223
81 INTL FCStone, Inc. (a) 3,445
332 Invesco Ltd. 12,131
308 Lazard Ltd., Class A 16,170
443 Legg Mason, Inc. 18,597
67 LPL Financial Holdings, Inc. 3,828
251 Moody's Corp. 37,050
1,209 Morgan Stanley 63,436
42 Morningstar, Inc. 4,073
119 MSCI, Inc. 15,058
81 PJT Partners, Inc., Class A 3,694
552 Raymond James Financial, Inc. 49,294
172 SEI Investments Co. 12,360
121 State Street Corp. 11,811
65 Stifel Financial Corp. 3,871
514 T. Rowe Price Group, Inc. 53,934
476 TD Ameritrade Holding Corp. 24,338
369 TPG Specialty Lending, Inc. 7,306
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
CAPITAL MARKETS (CONTINUED)
27 Virtus Investment Partners, Inc. $ 3,106
386 Waddell & Reed Financial, Inc.,
Class A 8,623
--------------
603,297
--------------
CHEMICALS -- 2.3%
171 Albemarle Corp. 21,869
313 Cabot Corp. 19,278
447 Celanese Corp., Series A 47,865
13 Chase Corp. 1,566
345 Chemours (The) Co. 17,271
515 Eastman Chemical Co. 47,710
117 FMC Corp. 11,075
295 FutureFuel Corp. 4,157
27 H.B. Fuller Co. 1,454
94 Innophos Holdings, Inc. 4,393
101 Innospec, Inc. 7,131
25 International Flavors & Fragrances,
Inc. 3,815
115 Kraton Corp. (a) 5,540
470 LyondellBasell Industries N.V.,
Class A 51,850
88 Minerals Technologies, Inc. 6,059
807 Mosaic (The) Co. 20,708
9 NewMarket Corp. 3,576
204 Olin Corp. 7,258
78 PolyOne Corp. 3,393
10 Quaker Chemical Corp. 1,508
72 Scotts Miracle-Gro (The) Co. 7,703
33 Sherwin-Williams (The) Co. 13,531
56 Stepan Co. 4,422
92 Trinseo S.A. 6,679
126 Westlake Chemical Corp. 13,423
--------------
333,234
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 1.5%
390 ACCO Brands Corp. (a) 4,758
82 Brady Corp., Class A 3,108
207 Brink's (The) Co. 16,291
330 Casella Waste Systems, Inc.,
Class A (a) 7,597
323 Cintas Corp. 50,333
202 Copart, Inc. (a) 8,724
240 Deluxe Corp. 18,442
324 Healthcare Services Group, Inc. 17,081
129 Herman Miller, Inc. 5,166
37 HNI Corp. 1,427
219 KAR Auction Services, Inc. 11,062
156 Kimball International, Inc.,
Class B 2,912
232 Knoll, Inc. 5,345
25 Matthews International Corp.,
Class A 1,320
106 McGrath RentCorp 4,980
90 Mobile Mini, Inc. 3,105
19 Multi-Color Corp. 1,422
206 Quad/Graphics, Inc. 4,656
301 Rollins, Inc. 14,006
Page 14 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMMERCIAL SERVICES & SUPPLIES
(CONTINUED)
39 SP Plus Corp. (a) $ 1,447
403 Steelcase, Inc., Class A 6,126
34 Tetra Tech, Inc. 1,637
30 UniFirst Corp. 4,947
127 Viad Corp. 7,036
148 Waste Management, Inc. 12,772
--------------
215,700
--------------
COMMUNICATIONS EQUIPMENT
-- 1.0%
64 ADTRAN, Inc. 1,238
96 Applied Optoelectronics, Inc. (a) 3,631
92 Arista Networks, Inc. (a) 21,673
267 CalAmp Corp. (a) 5,722
476 Ciena Corp. (a) 9,963
1,039 Cisco Systems, Inc. 39,794
651 Extreme Networks, Inc. (a) 8,150
349 Finisar Corp. (a) 7,102
625 Juniper Networks, Inc. 17,812
64 Lumentum Holdings, Inc. (a) 3,130
98 NETGEAR, Inc. (a) 5,757
48 NetScout Systems, Inc. (a) 1,462
70 Plantronics, Inc. 3,527
125 Ubiquiti Networks, Inc. (a) (b) 8,877
54 ViaSat, Inc. (a) (b) 4,042
655 Viavi Solutions, Inc. (a) 5,725
--------------
147,605
--------------
CONSTRUCTION & ENGINEERING
-- 0.7%
379 AECOM (a) 14,080
333 Aegion Corp. (a) 8,468
70 Argan, Inc. 3,150
151 EMCOR Group, Inc. 12,344
83 Fluor Corp. 4,287
60 Jacobs Engineering Group, Inc. 3,958
376 MasTec, Inc. (a) 18,405
106 Primoris Services Corp. 2,882
468 Quanta Services, Inc. (a) 18,304
272 Tutor Perini Corp. (a) 6,895
66 Valmont Industries, Inc. 10,946
--------------
103,719
--------------
CONSTRUCTION MATERIALS -- 0.2%
130 Eagle Materials, Inc. 14,729
98 Summit Materials, Inc.,
Class A (c) 3,081
61 US Concrete, Inc. (a) 5,103
--------------
22,913
--------------
CONSUMER FINANCE -- 1.7%
718 Ally Financial, Inc. 20,937
550 Capital One Financial Corp. 54,769
49 Credit Acceptance Corp. (a) 15,851
361 Discover Financial Services 27,768
105 Encore Capital Group, Inc. (a) 4,420
25 FirstCash, Inc. 1,686
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
CONSUMER FINANCE (CONTINUED)
156 Green Dot Corp., Class A (a) $ 9,401
928 Navient Corp. 12,361
123 Nelnet, Inc., Class A 6,738
496 OneMain Holdings, Inc. (a) 12,891
162 PRA Group, Inc. (a) 5,378
1,137 Santander Consumer USA
Holdings, Inc. 21,171
304 SLM Corp. (a) 3,435
1,126 Synchrony Financial 43,475
93 World Acceptance Corp. (a) 7,507
--------------
247,788
--------------
CONTAINERS & PACKAGING -- 1.1%
81 AptarGroup, Inc. 6,989
142 Avery Dennison Corp. 16,310
306 Bemis Co., Inc. 14,624
186 Berry Global Group, Inc. (a) 10,913
58 Crown Holdings, Inc. (a) 3,262
749 Graphic Packaging Holding Co. 11,572
27 Greif, Inc., Class A 1,636
138 Owens-Illinois, Inc. (a) 3,059
121 Packaging Corp. of America 14,587
236 Silgan Holdings, Inc. 6,936
277 Sonoco Products Co. 14,720
821 WestRock Co. 51,895
--------------
156,503
--------------
DISTRIBUTORS -- 0.1%
290 LKQ Corp. (a) 11,794
--------------
DIVERSIFIED CONSUMER SERVICES
-- 0.7%
216 Adtalem Global Education, Inc. (a) 9,083
162 Bright Horizons Family Solutions,
Inc. (a) 15,228
209 Chegg, Inc. (a) 3,411
8 Graham Holdings Co., Class B 4,467
192 Grand Canyon Education, Inc. (a) 17,190
132 H&R Block, Inc. 3,461
173 K12, Inc. (a) 2,751
425 Laureate Education, Inc.,
Class A (a) 5,763
303 Service Corp. International 11,308
298 ServiceMaster Global Holdings,
Inc. (a) 15,278
18 Strayer Education, Inc. 1,612
178 Weight Watchers International,
Inc. (a) 7,882
--------------
97,434
--------------
DIVERSIFIED FINANCIAL SERVICES
-- 0.3%
127 Berkshire Hathaway, Inc.,
Class B (a) 25,174
690 Leucadia National Corp. 18,278
--------------
43,452
--------------
See Notes to Financial Statements Page 15
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.0%
1,487 AT&T, Inc. $ 57,815
3,082 CenturyLink, Inc. 51,408
63 Cogent Communications Holdings,
Inc. 2,854
525 Frontier Communications Corp. (b) 3,549
751 Iridium Communications, Inc. (a) 8,862
235 Verizon Communications, Inc. 12,438
304 Zayo Group Holdings, Inc. (a) 11,187
--------------
148,113
--------------
ELECTRIC UTILITIES -- 2.6%
181 ALLETE, Inc. 13,459
252 Alliant Energy Corp. 10,738
416 Duke Energy Corp. 34,990
604 Edison International 38,197
112 El Paso Electric Co. 6,199
153 Entergy Corp. 12,453
578 Eversource Energy 36,518
1,547 Exelon Corp. 60,967
417 Hawaiian Electric Industries, Inc. 15,074
119 IDACORP, Inc. 10,872
387 OGE Energy Corp. 12,736
72 Otter Tail Corp. 3,200
684 PG&E Corp. 30,664
165 Pinnacle West Capital Corp. 14,055
115 PNM Resources, Inc. 4,652
381 Portland General Electric Co. 17,366
921 PPL Corp. 28,505
739 Xcel Energy, Inc. 35,553
--------------
386,198
--------------
ELECTRICAL EQUIPMENT -- 1.1%
40 Acuity Brands, Inc. 7,040
353 AMETEK, Inc. 25,582
238 Atkore International Group,
Inc. (a) 5,105
96 AZZ, Inc. 4,906
606 Eaton Corp. PLC 47,880
138 Encore Wire Corp. 6,714
67 EnerSys 4,665
61 Hubbell, Inc. 8,256
222 Regal Beloit Corp. 17,005
130 Rockwell Automation, Inc. 25,525
217 Sensata Technologies Holding
N.V. (a) 11,091
--------------
163,769
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 3.1%
550 Amphenol Corp., Class A 48,290
55 Anixter International, Inc. (a) 4,180
174 Arrow Electronics, Inc. (a) 13,991
443 Avnet, Inc. 17,552
255 AVX Corp. 4,412
94 Badger Meter, Inc. 4,493
38 Belden, Inc. 2,933
181 Benchmark Electronics, Inc. (a) 5,267
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS (CONTINUED)
264 CDW Corp. $ 18,345
317 Cognex Corp. 19,388
60 Coherent, Inc. (a) 16,933
263 Control4 Corp. (a) 7,827
388 Corning, Inc. 12,412
128 CTS Corp. 3,296
27 Dolby Laboratories, Inc., Class A 1,674
84 ePlus, Inc. (a) 6,317
209 Fabrinet (a) 5,998
179 FLIR Systems, Inc. 8,345
151 II-VI, Inc. (a) 7,089
101 Insight Enterprises, Inc. (a) 3,867
94 IPG Photonics Corp. (a) 20,128
60 Itron, Inc. (a) 4,092
244 Jabil, Inc. 6,405
367 KEMET Corp. (a) 5,527
83 Keysight Technologies, Inc. (a) 3,453
89 Littelfuse, Inc. 17,606
146 Methode Electronics, Inc. 5,855
29 MTS Systems Corp. 1,557
165 National Instruments Corp. 6,869
274 PC Connection, Inc. 7,182
110 Plexus Corp. (a) 6,679
58 Rogers Corp. (a) 9,391
208 Sanmina Corp. (a) 6,864
142 ScanSource, Inc. (a) 5,084
110 SYNNEX Corp. 14,955
292 Systemax, Inc. 9,715
421 TE Connectivity Ltd. 40,012
157 Tech Data Corp. (a) 15,381
267 Trimble, Inc. (a) 10,851
136 Universal Display Corp. 23,480
76 VeriFone Systems, Inc. (a) 1,346
247 Vishay Intertechnology, Inc. 5,125
128 Zebra Technologies Corp.,
Class A (a) 13,286
--------------
453,452
--------------
ENERGY EQUIPMENT & SERVICES
-- 0.3%
370 Archrock, Inc. 3,885
155 C&J Energy Services, Inc. (a) 5,188
534 Diamond Offshore Drilling,
Inc. (a) 9,927
134 Helmerich & Payne, Inc. 8,662
852 McDermott International, Inc. (a) 5,606
192 Nabors Industries Ltd. 1,312
58 Oceaneering International, Inc. 1,226
333 Patterson-UTI Energy, Inc. 7,662
301 Unit Corp. (a) 6,622
--------------
50,090
--------------
EQUITY REAL ESTATE INVESTMENT
TRUSTS -- 2.2%
54 Acadia Realty Trust 1,477
741 Brixmor Property Group, Inc. 13,827
738 CBL & Associates Properties,
Inc. (b) 4,177
Page 16 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
EQUITY REAL ESTATE INVESTMENT
TRUSTS (CONTINUED)
229 Chesapeake Lodging Trust $ 6,204
125 CoreSite Realty Corp. 14,237
373 Cousins Properties, Inc. 3,450
134 CubeSmart 3,875
118 CyrusOne, Inc. 7,025
120 DCT Industrial Trust, Inc. 7,054
380 DDR Corp. 3,405
708 DiamondRock Hospitality Co. 7,993
344 Equity Commonwealth (a) 10,495
44 Extra Space Storage, Inc. 3,848
291 Franklin Street Properties Corp. 3,125
94 Gaming and Leisure Properties,
Inc. 3,478
129 GEO Group (The), Inc. 3,044
330 Government Properties Income
Trust 6,118
1,255 HCP, Inc. 32,730
415 Hersha Hospitality Trust 7,221
612 Hospitality Properties Trust 18,268
138 InfraREIT, Inc. 2,564
507 Investors Real Estate Trust 2,880
525 iStar, Inc. (a) 5,933
178 Kimco Realty Corp. 3,231
601 LaSalle Hotel Properties 16,870
43 Life Storage, Inc. 3,830
64 Macerich (The) Co. 4,204
130 Mack-Cali Realty Corp. 2,803
1,061 Medical Properties Trust, Inc. 14,621
168 National Retail Properties, Inc. 7,246
123 Outfront Media, Inc. 2,854
85 Pebblebrook Hotel Trust 3,159
295 Pennsylvania Real Estate
Investment Trust 3,508
154 Piedmont Office Realty Trust, Inc.,
Class A 3,020
61 Potlatch Corp. 3,044
183 Prologis, Inc. 11,805
26 PS Business Parks, Inc. 3,252
362 Rayonier, Inc. 11,450
54 Rexford Industrial Realty, Inc. 1,575
211 RLJ Lodging Trust 4,636
331 Select Income REIT 8,318
534 Senior Housing Properties Trust 10,226
813 Spirit Realty Capital, Inc. 6,976
40 Sun Communities, Inc. 3,711
190 Tanger Factory Outlet Centers,
Inc. 5,037
43 Terreno Realty Corp. 1,508
80 Tier REIT, Inc. 1,631
929 Washington Prime Group, Inc. 6,614
368 Xenia Hotels & Resorts, Inc. 7,945
--------------
325,502
--------------
FOOD & STAPLES RETAILING -- 1.5%
45 Andersons (The), Inc. 1,402
96 Casey's General Stores, Inc. 10,746
573 CVS Health Corp. 41,542
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
FOOD & STAPLES RETAILING
(CONTINUED)
2,323 Kroger (The) Co. $ 63,766
55 Performance Food Group Co. (a) 1,821
790 Rite Aid Corp. (a) (b) 1,556
294 SpartanNash Co. 7,844
165 Sprouts Farmers Market, Inc. (a) 4,018
143 SUPERVALU, Inc. (a) 3,089
186 United Natural Foods, Inc. (a) 9,164
522 US Foods Holding Corp. (a) 16,667
151 Walgreens Boots Alliance, Inc. 10,966
448 Wal-Mart Stores, Inc. 44,240
--------------
216,821
--------------
FOOD PRODUCTS -- 2.1%
1,096 Archer-Daniels-Midland Co. 43,928
48 B&G Foods, Inc. 1,687
369 Blue Buffalo Pet Products,
Inc. (a) 12,099
670 Bunge Ltd. 44,944
64 Calavo Growers, Inc. 5,402
247 Campbell Soup Co. 11,883
353 Darling Ingredients, Inc. (a) 6,400
712 Dean Foods Co. 8,231
556 Flowers Foods, Inc. 10,736
170 Fresh Del Monte Produce, Inc. 8,104
361 Hormel Foods Corp. 13,137
116 Ingredion, Inc. 16,217
222 J.M. Smucker (The) Co. 27,581
24 John B. Sanfilippo & Son, Inc. 1,518
29 Lancaster Colony Corp. 3,747
490 Pilgrim's Pride Corp. (a) 15,219
61 Pinnacle Foods, Inc. 3,628
79 Post Holdings, Inc. (a) 6,259
48 Sanderson Farms, Inc. 6,661
827 Tyson Foods, Inc., Class A 67,045
--------------
314,426
--------------
GAS UTILITIES -- 0.6%
125 Atmos Energy Corp. 10,736
39 Chesapeake Utilities Corp. 3,064
247 National Fuel Gas Co. 13,563
247 New Jersey Resources Corp. 9,930
48 Northwest Natural Gas Co. 2,863
143 ONE Gas, Inc. 10,476
180 Southwest Gas Holdings, Inc. 14,486
141 Spire, Inc. 10,596
223 UGI Corp. 10,470
--------------
86,184
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 1.6%
83 ABIOMED, Inc. (a) 15,555
313 Align Technology, Inc. (a) 69,545
27 Anika Therapeutics, Inc. (a) 1,455
70 AtriCure, Inc. (a) 1,277
2 Atrion Corp. 1,261
33 Cantel Medical Corp. 3,395
205 CryoLife, Inc. (a) 3,926
35 Halyard Health, Inc. (a) 1,616
47 Hill-Rom Holdings, Inc. 3,962
See Notes to Financial Statements Page 17
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HEALTH CARE EQUIPMENT &
SUPPLIES (CONTINUED)
75 ICU Medical, Inc. (a) $ 16,200
33 Inogen, Inc. (a) 3,930
56 Insulet Corp. (a) 3,864
152 Integer Holdings Corp. (a) 6,886
69 Integra LifeSciences Holdings
Corp. (a) 3,302
134 Intuitive Surgical, Inc. (a) 48,902
165 LeMaitre Vascular, Inc. 5,254
146 Merit Medical Systems, Inc. (a) 6,307
40 Neogen Corp. (a) 3,288
390 Novocure Ltd. (a) 7,878
276 OraSure Technologies, Inc. (a) 5,205
142 Quidel Corp. (a) 6,156
57 Teleflex, Inc. 14,183
46 Varex Imaging Corp. (a) 1,848
73 West Pharmaceutical Services, Inc. 7,203
--------------
242,398
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 3.8%
135 AMN Healthcare Services, Inc. (a) 6,649
123 Anthem, Inc. 27,676
47 BioTelemetry, Inc. (a) 1,405
602 Centene Corp. (a) 60,730
8 Chemed Corp. 1,944
807 Community Health Systems,
Inc. (a) 3,438
115 CorVel Corp. (a) 6,083
981 DaVita, Inc. (a) 70,877
75 Encompass Health Corp. (a) 3,706
137 Ensign Group (The), Inc. 3,041
920 Express Scripts Holding Co. (a) 68,669
30 HealthEquity, Inc. (a) 1,400
144 Humana, Inc. 35,722
154 Laboratory Corp. of America
Holdings (a) 24,564
88 LHC Group, Inc. (a) 5,390
134 LifePoint Health, Inc. (a) 6,673
72 Magellan Health, Inc. (a) 6,952
379 McKesson Corp. 59,105
404 MEDNAX, Inc. (a) 21,590
124 National HealthCare Corp. 7,557
159 Owens & Minor, Inc. 3,002
180 Patterson Cos., Inc. 6,503
144 Providence Service (The) Corp. (a) 8,545
249 Quest Diagnostics, Inc. 24,524
81 Select Medical Holdings Corp. (a) 1,430
38 Tivity Health, Inc. (a) 1,389
238 UnitedHealth Group, Inc. 52,469
157 Universal Health Services, Inc.,
Class B 17,796
81 WellCare Health Plans, Inc. (a) 16,290
--------------
555,119
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
HEALTH CARE TECHNOLOGY -- 0.2%
326 Allscripts Healthcare Solutions,
Inc. (a) $ 4,743
163 Cerner Corp. (a) 10,985
134 Medidata Solutions, Inc. (a) 8,492
93 Teladoc, Inc. (a) 3,241
62 Veeva Systems, Inc., Class A (a) 3,427
198 Vocera Communications, Inc. (a) 5,983
--------------
36,871
--------------
HOTELS, RESTAURANTS & LEISURE
-- 3.3%
172 Aramark 7,351
9 Biglari Holdings, Inc. (a) 3,730
88 Bloomin' Brands, Inc. 1,878
237 Boyd Gaming Corp. 8,307
97 Brinker International, Inc. 3,767
29 Buffalo Wild Wings, Inc. (a) 4,534
463 Caesars Entertainment Corp. (a) 5,857
147 Cheesecake Factory (The), Inc. 7,082
55 Choice Hotels International, Inc. 4,268
30 Churchill Downs, Inc. 6,981
69 Cracker Barrel Old Country Store,
Inc. (b) 10,963
44 Darden Restaurants, Inc. 4,225
89 Dave & Buster's Entertainment,
Inc. (a) 4,910
125 Denny's Corp. (a) 1,655
108 DineEquity, Inc. 5,479
35 Domino's Pizza, Inc. 6,614
181 Eldorado Resorts, Inc. (a) 6,000
503 Hilton Worldwide Holdings, Inc. 40,170
75 Hyatt Hotels Corp., Class A (a) 5,515
232 ILG, Inc. 6,607
215 International Speedway Corp.,
Class A 8,568
265 La Quinta Holdings, Inc. (a) 4,892
224 Marcus (The) Corp. 6,126
317 Marriott International, Inc.,
Class A 43,026
49 Marriott Vacations Worldwide Corp. 6,625
1,430 MGM Resorts International 47,748
216 Norwegian Cruise Line Holdings
Ltd. (a) 11,502
199 Penn National Gaming, Inc. (a) 6,235
290 Pinnacle Entertainment, Inc. (a) 9,492
46 Red Robin Gourmet Burgers,
Inc. (a) 2,594
295 Royal Caribbean Cruises Ltd. 35,188
380 Scientific Games Corp., Class A (a) 19,494
57 Six Flags Entertainment Corp. 3,794
142 Texas Roadhouse, Inc. 7,481
46 Vail Resorts, Inc. 9,774
224 Wendy's (The) Co. 3,678
442 Wyndham Worldwide Corp. 51,215
391 Wynn Resorts Ltd. 65,919
--------------
489,244
--------------
Page 18 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HOUSEHOLD DURABLES -- 2.2%
476 CalAtlantic Group, Inc. $ 26,842
42 Cavco Industries, Inc. (a) 6,409
1,459 D.R. Horton, Inc. 74,511
191 Ethan Allen Interiors, Inc. 5,462
259 Garmin Ltd. 15,429
31 Helen of Troy Ltd. (a) 2,987
120 Installed Building Products,
Inc. (a) 9,114
40 iRobot Corp. (a) (b) 3,068
256 KB Home 8,179
288 La-Z-Boy, Inc. 8,985
219 Leggett & Platt, Inc. 10,453
661 Lennar Corp., Class A 41,802
160 LGI Homes, Inc. (a) (b) 12,005
251 M.D.C. Holdings, Inc. 8,002
174 Meritage Homes Corp. (a) 8,909
7 NVR, Inc. (a) 24,557
638 PulteGroup, Inc. 21,213
336 Toll Brothers, Inc. 16,135
126 Whirlpool Corp. 21,249
202 William Lyon Homes, Class A (a) 5,874
--------------
331,185
--------------
HOUSEHOLD PRODUCTS -- 0.0%
66 Spectrum Brands Holdings, Inc. 7,418
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 0.3%
632 Dynegy, Inc. (a) 7,489
681 NRG Energy, Inc. 19,395
141 TerraForm Power, Inc., Class A (b) 1,686
933 Vistra Energy Corp. (a) 17,093
--------------
45,663
--------------
INDUSTRIAL CONGLOMERATES -- 0.2%
70 Carlisle Cos., Inc. 7,955
96 Roper Technologies, Inc. 24,864
--------------
32,819
--------------
INSURANCE -- 4.8%
286 Aflac, Inc. 25,105
19 Alleghany Corp. (a) 11,326
253 Allstate (The) Corp. 26,492
90 Ambac Financial Group, Inc. (a) 1,438
107 American Equity Investment Life
Holding Co. 3,288
135 American Financial Group, Inc. 14,653
39 American National Insurance Co. 5,002
27 AMERISAFE, Inc. 1,663
575 AmTrust Financial Services,
Inc. (b) 5,790
126 Argo Group International
Holdings Ltd. 7,768
114 Arthur J. Gallagher & Co. 7,214
191 Aspen Insurance Holdings Ltd. 7,755
146 Assurant, Inc. 14,723
461 Assured Guaranty Ltd. 15,614
260 Athene Holding Ltd., Class A (a) 13,445
305 Axis Capital Holdings Ltd. 15,329
72 Brown & Brown, Inc. 3,705
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
INSURANCE (CONTINUED)
327 Chubb Ltd. $ 47,785
749 CNO Financial Group, Inc. 18,493
102 Employers Holdings, Inc. 4,529
31 Enstar Group Ltd. (a) 6,223
29 Erie Indemnity Co., Class A 3,533
76 Everest Re Group Ltd. 16,816
21 FBL Financial Group, Inc., Class A 1,463
279 First American Financial Corp. 15,635
1,360 FNF Group 53,366
215 Greenlight Capital Re, Ltd.,
Class A (a) 4,322
36 Hanover Insurance Group (The),
Inc. 3,891
33 Infinity Property & Casualty Corp. 3,498
74 James River Group Holdings Ltd. 2,961
144 Kinsale Capital Group, Inc. 6,480
317 Lincoln National Corp. 24,368
243 Loews Corp. 12,157
324 National General Holdings Corp. 6,363
18 National Western Life Group, Inc.,
Class A 5,958
27 Navigators Group (The), Inc. 1,315
708 Old Republic International Corp. 15,137
128 Primerica, Inc. 12,998
57 ProAssurance Corp. 3,258
219 Prudential Financial, Inc. 25,181
100 Reinsurance Group of America, Inc. 15,593
129 RenaissanceRe Holdings Ltd. 16,201
61 Safety Insurance Group, Inc. 4,904
57 Selective Insurance Group, Inc. 3,346
205 Stewart Information Services Corp. 8,671
496 Third Point Reinsurance Ltd. (a) 7,266
88 Torchmark Corp. 7,982
380 Travelers (The) Cos., Inc. 51,543
294 Trupanion, Inc. (a) 8,605
34 United Fire Group, Inc. 1,550
336 Universal Insurance Holdings, Inc. 9,190
684 Unum Group 37,545
283 Validus Holdings Ltd. 13,278
209 W. R. Berkley Corp. 14,975
4 White Mountains Insurance Group
Ltd. 3,405
886 XL Group Ltd. 31,152
--------------
711,246
--------------
INTERNET & DIRECT MARKETING
RETAIL -- 1.1%
81 Expedia, Inc. 9,701
2,472 Liberty Interactive Corp. QVC
Group, Class A (a) 60,366
502 Liberty TripAdvisor Holdings, Inc.,
Class A (a) 4,731
322 Netflix, Inc. (a) 61,811
83 Nutrisystem, Inc. 4,366
93 PetMed Express, Inc. 4,232
207 Wayfair, Inc., Class A (a) 16,616
--------------
161,823
--------------
See Notes to Financial Statements Page 19
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INTERNET SOFTWARE & SERVICES
-- 2.2%
111 2U, Inc. (a) $ 7,161
286 Akamai Technologies, Inc. (a) 18,601
137 Alarm.com Holdings, Inc. (a) 5,172
12 Alphabet, Inc., Class A (a) 12,641
162 Appfolio, Inc., Class A (a) 6,723
84 Apptio, Inc., Class A (a) 1,976
306 Blucora, Inc. (a) 6,763
160 Box, Inc., Class A (a) 3,379
16 Cimpress N.V. (a) 1,918
217 CommerceHub, Inc., Series C (a) 4,468
26 CoStar Group, Inc. (a) 7,721
1,514 eBay, Inc. (a) 57,138
189 Endurance International Group
Holdings, Inc. (a) 1,588
152 Envestnet, Inc. (a) 7,577
276 Etsy, Inc. (a) 5,644
272 Facebook, Inc., Class A (a) 47,997
195 Five9, Inc. (a) 4,852
80 GoDaddy, Inc., Class A (a) 4,022
132 Gogo, Inc. (a) (b) 1,489
264 GrubHub, Inc. (a) 18,955
146 GTT Communications, Inc. (a) 6,855
457 Hortonworks, Inc. (a) 9,190
119 IAC/InterActiveCorp (a) 14,551
141 Instructure, Inc. (a) 4,667
343 LivePerson, Inc. (a) 3,944
31 LogMeIn, Inc. 3,549
200 Match Group, Inc. (a) (b) 6,262
93 New Relic, Inc. (a) 5,373
69 Nutanix, Inc., Class A (a) (b) 2,434
111 Q2 Holdings, Inc. (a) 4,090
198 Quotient Technology, Inc. (a) 2,327
38 Stamps.com, Inc. (a) 7,144
126 Trade Desk (The), Inc.,
Class A (a) (b) 5,762
99 VeriSign, Inc. (a) 11,330
186 Web.com Group, Inc. (a) 4,055
107 Yelp, Inc. (a) 4,490
87 Zillow Group, Inc., Class C (a) 3,560
--------------
325,368
--------------
IT SERVICES -- 4.0%
87 Accenture PLC, Class A 13,319
93 Booz Allen Hamilton Holding Corp. 3,546
173 Broadridge Financial Solutions,
Inc. 15,670
34 CACI International, Inc.,
Class A (a) 4,500
269 Cardtronics PLC, Class A (a) 4,982
803 Cognizant Technology Solutions
Corp., Class A 57,029
299 Convergys Corp. 7,026
75 CoreLogic, Inc. (a) 3,466
78 CSG Systems International, Inc. 3,418
324 CSRA, Inc. 9,694
318 DST Systems, Inc. 19,738
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
IT SERVICES (CONTINUED)
407 DXC Technology Co. $ 38,624
119 EPAM Systems, Inc. (a) 12,784
110 Euronet Worldwide, Inc. (a) 9,270
27 ExlService Holdings, Inc. (a) 1,629
375 Fidelity National Information
Services, Inc. 35,284
386 First Data Corp., Class A (a) 6,450
93 Gartner, Inc. (a) 11,453
363 Genpact Ltd. 11,522
161 International Business Machines
Corp. 24,701
34 Jack Henry & Associates, Inc. 3,977
236 Leidos Holdings, Inc. 15,239
70 ManTech International Corp.,
Class A 3,513
330 Mastercard, Inc., Class A 49,949
163 MAXIMUS, Inc. 11,668
910 PayPal Holdings, Inc. (a) 66,994
606 Square, Inc., Class A (a) 21,010
265 Sykes Enterprises, Inc. (a) 8,334
890 Total System Services, Inc. 70,390
99 Vantiv, Inc., Class A (a) 7,281
332 Visa, Inc., Class A 37,855
--------------
590,315
--------------
LEISURE PRODUCTS -- 0.4%
349 Acushnet Holdings Corp. 7,357
507 American Outdoor Brands Corp. (a) 6,510
250 Brunswick Corp. 13,805
537 Callaway Golf Co. 7,480
106 Johnson Outdoors, Inc., Class A 6,582
900 Mattel, Inc. 13,842
120 Sturm Ruger & Co., Inc. 6,702
--------------
62,278
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 0.8%
57 Bio-Techne Corp. 7,384
351 Bruker Corp. 12,046
129 Charles River Laboratories
International, Inc. (a) 14,119
48 Medpace Holdings, Inc. (a) 1,741
56 Mettler-Toledo International,
Inc. (a) 34,693
695 NeoGenomics, Inc. (a) 6,158
51 PerkinElmer, Inc. 3,729
137 PRA Health Sciences, Inc. (a) 12,477
123 Thermo Fisher Scientific, Inc. 23,355
--------------
115,702
--------------
MACHINERY -- 2.5%
94 AGCO Corp. 6,714
57 Alamo Group, Inc. 6,434
81 Albany International Corp.,
Class A 4,977
186 Allison Transmission Holdings,
Inc. 8,011
200 American Railcar Industries, Inc. 8,328
55 Astec Industries, Inc. 3,217
110 Barnes Group, Inc. 6,960
Page 20 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MACHINERY (CONTINUED)
330 Briggs & Stratton Corp. $ 8,372
168 Colfax Corp. (a) 6,656
138 Cummins, Inc. 24,376
75 Donaldson Co., Inc. 3,671
157 Douglas Dynamics, Inc. 5,935
38 EnPro Industries, Inc. 3,553
330 Fortive Corp. 23,875
35 Franklin Electric Co., Inc. 1,607
46 Global Brass & Copper Holdings,
Inc. 1,523
47 Gorman-Rupp (The) Co. 1,467
336 Graco, Inc. 15,194
161 Greenbrier (The) Cos., Inc. 8,581
370 Harsco Corp. (a) 6,901
39 Hillenbrand, Inc. 1,743
40 Hyster-Yale Materials Handling,
Inc. 3,406
87 IDEX Corp. 11,481
315 ITT, Inc. 16,812
30 John Bean Technologies Corp. 3,324
63 Kadant, Inc. 6,325
38 Lincoln Electric Holdings, Inc. 3,480
54 Lydall, Inc. (a) 2,741
179 Meritor, Inc. (a) 4,199
27 Middleby (The) Corp. (a) 3,644
44 Mueller Industries, Inc. 1,559
175 Navistar International Corp. (a) 7,504
29 Nordson Corp. 4,246
84 Oshkosh Corp. 7,635
322 PACCAR, Inc. 22,888
58 Proto Labs, Inc. (a) 5,974
37 RBC Bearings, Inc. (a) 4,677
61 Rexnord Corp. (a) 1,587
93 Snap-on, Inc. 16,210
15 Standex International Corp. 1,528
78 Stanley Black & Decker, Inc. 13,236
144 Sun Hydraulics Corp. 9,315
215 Timken (The) Co. 10,567
56 Toro (The) Co. 3,653
548 Trinity Industries, Inc. 20,528
136 Wabash National Corp. 2,951
24 WABCO Holdings, Inc. (a) 3,444
46 Wabtec Corp. 3,746
22 Watts Water Technologies, Inc.,
Class A 1,671
134 Welbilt, Inc. (a) 3,150
90 Woodward, Inc. 6,889
--------------
366,465
--------------
MARINE -- 0.1%
94 Kirby Corp. (a) 6,279
165 Matson, Inc. 4,924
--------------
11,203
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
MEDIA -- 1.6%
422 AMC Entertainment Holdings,
Inc., Class A (b) $ 6,372
179 AMC Networks, Inc., Class A (a) 9,680
10 Cable One, Inc. 7,033
128 Charter Communications, Inc.,
Class A (a) 43,003
385 Cinemark Holdings, Inc. 13,406
821 Discovery Communications, Inc.,
Class A (a) 18,374
243 E.W. Scripps (The) Co., Class A (a) 3,798
688 Gannett Co., Inc. 7,974
395 Gray Television, Inc. (a) 6,616
335 Interpublic Group of Cos. (The),
Inc. 6,754
29 John Wiley & Sons, Inc., Class A 1,907
400 Live Nation Entertainment, Inc. (a) 17,028
49 Madison Square Garden (The) Co.,
Class A (a) 10,332
112 Meredith Corp. 7,398
209 New Media Investment Group, Inc. 3,507
237 New York Times (The) Co., Class A 4,384
125 Scholastic Corp. 5,014
116 TEGNA, Inc. 1,633
2,092 Viacom, Inc., Class B 64,454
65 World Wrestling Entertainment,
Inc., Class A 1,988
--------------
240,655
--------------
METALS & MINING -- 1.4%
224 Alcoa Corp. (a) 12,067
129 Carpenter Technology Corp. 6,578
280 Century Aluminum Co. (a) 5,499
674 Coeur Mining, Inc. (a) 5,055
325 Commercial Metals Co. 6,929
72 Compass Minerals International,
Inc. 5,202
827 Freeport-McMoRan, Inc. (a) 15,680
1,234 Hecla Mining Co. 4,899
30 Kaiser Aluminum Corp. 3,205
108 Materion Corp. 5,249
1,039 Nucor Corp. 66,060
229 Reliance Steel & Aluminum Co. 19,646
40 Royal Gold, Inc. 3,285
274 Schnitzer Steel Industries, Inc.,
Class A 9,179
304 Steel Dynamics, Inc. 13,111
407 United States Steel Corp. 14,322
101 Worthington Industries, Inc. 4,450
--------------
200,416
--------------
MORTGAGE REAL ESTATE INVESTMENT
TRUSTS -- 0.8%
807 AGNC Investment Corp. 16,293
288 ARMOUR Residential REIT, Inc. 7,408
481 Capstead Mortgage Corp. 4,161
924 Chimera Investment Corp. 17,076
452 Invesco Mortgage Capital, Inc. 8,059
337 Ladder Capital Corp. 4,593
See Notes to Financial Statements Page 21
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MORTGAGE REAL ESTATE INVESTMENT
TRUSTS (CONTINUED)
1,989 MFA Financial, Inc. $ 15,753
399 MTGE Investment Corp. 7,382
624 New Residential Investment Corp. 11,157
755 New York Mortgage Trust, Inc. 4,658
445 PennyMac Mortgage Investment
Trust 7,151
481 Starwood Property Trust, Inc. 10,269
423 Two Harbors Investment Corp. 6,878
--------------
120,838
--------------
MULTILINE RETAIL -- 1.2%
116 Big Lots, Inc. 6,513
138 Dillard's, Inc., Class A (b) 8,287
288 Dollar General Corp. 26,787
134 Dollar Tree, Inc. (a) 14,379
1,626 J.C. Penney Co., Inc. (a) 5,138
381 Kohl's Corp. 20,662
799 Macy's, Inc. 20,127
147 Nordstrom, Inc. 6,965
134 Ollie's Bargain Outlet Holdings,
Inc. (a) 7,135
987 Target Corp. 64,402
--------------
180,395
--------------
MULTI-UTILITIES -- 2.3%
805 Ameren Corp. 47,487
101 Black Hills Corp. 6,071
399 CenterPoint Energy, Inc. 11,316
251 CMS Energy Corp. 11,872
577 Consolidated Edison, Inc. 49,016
434 DTE Energy Co. 47,506
403 MDU Resources Group, Inc. 10,833
408 NiSource, Inc. 10,473
109 NorthWestern Corp. 6,507
756 Public Service Enterprise Group,
Inc. 38,934
359 SCANA Corp. 14,281
408 Sempra Energy 43,623
93 Unitil Corp. 4,243
160 Vectren Corp. 10,403
371 WEC Energy Group, Inc. 24,646
--------------
337,211
--------------
OIL, GAS & CONSUMABLE FUELS
-- 3.3%
112 Andeavor 12,806
879 Antero Resources Corp. (a) 16,701
65 Arch Coal, Inc., Class A 6,055
78 Cheniere Energy, Inc. (a) 4,200
397 Chevron Corp. 49,700
30 Cimarex Energy Co. 3,660
989 CNX Resources Corp. (a) 14,469
265 Concho Resources, Inc. (a) 39,808
1,586 Devon Energy Corp. 65,660
36 Diamondback Energy, Inc. (a) 4,545
191 Energen Corp. (a) 10,996
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS
(CONTINUED)
949 EP Energy Corp., Class A (a) (b) $ 2,240
285 Exxon Mobil Corp. 23,837
307 Green Plains, Inc. 5,173
1,138 Halcon Resources Corp. (a) 8,615
290 HollyFrontier Corp. 14,854
605 Kinder Morgan, Inc. 10,932
119 Laredo Petroleum, Inc. (a) 1,263
415 Marathon Petroleum Corp. 27,382
228 Matador Resources Co. (a) 7,098
524 Murphy Oil Corp. 16,270
470 Newfield Exploration Co. (a) 14,819
679 Oasis Petroleum, Inc. (a) 5,710
74 Par Pacific Holdings, Inc. (a) 1,427
126 PDC Energy, Inc. (a) 6,494
722 QEP Resources, Inc. (a) 6,910
712 Range Resources Corp. 12,147
321 Ring Energy, Inc. (a) 4,462
349 SM Energy Co. 7,706
757 Valero Energy Corp. 69,576
182 World Fuel Services Corp. 5,121
909 WPX Energy, Inc. (a) 12,790
--------------
493,426
--------------
PAPER & FOREST PRODUCTS -- 0.4%
133 Boise Cascade Co. 5,307
126 Clearwater Paper Corp. (a) 5,720
179 Domtar Corp. 8,864
216 KapStone Paper and Packaging
Corp. 4,901
646 Louisiana-Pacific Corp. (a) 16,964
54 Neenah, Inc. 4,895
238 P.H. Glatfelter Co. 5,103
150 Schweitzer-Mauduit International,
Inc. 6,804
--------------
58,558
--------------
PERSONAL PRODUCTS -- 0.3%
144 Edgewell Personal Care Co. (a) 8,552
108 Estee Lauder (The) Cos., Inc.,
Class A 13,742
103 Herbalife Ltd. (a) 6,975
112 Inter Parfums, Inc. 4,867
171 Nu Skin Enterprises, Inc., Class A 11,667
81 USANA Health Sciences, Inc. (a) 5,998
--------------
51,801
--------------
PHARMACEUTICALS -- 1.3%
285 Allergan PLC 46,620
548 Bristol-Myers Squibb Co. 33,582
436 Catalent, Inc. (a) 17,911
402 Corcept Therapeutics, Inc. (a) 7,260
109 Innoviva, Inc. (a) 1,547
199 Intersect ENT, Inc. (a) 6,448
168 Lannett Co., Inc. (a) (b) 3,898
1,485 Mylan N.V. (a) 62,830
145 Nektar Therapeutics (a) 8,659
287 Omeros Corp. (a) 5,576
Page 22 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS (CONTINUED)
42 Phibro Animal Health Corp.,
Class A $ 1,407
78 Supernus Pharmaceuticals, Inc. (a) 3,108
--------------
198,846
--------------
PROFESSIONAL SERVICES -- 0.7%
286 CBIZ, Inc. (a) 4,419
63 Exponent, Inc. 4,479
88 FTI Consulting, Inc. (a) 3,780
87 ICF International, Inc. (a) 4,567
142 Insperity, Inc. 8,144
308 Kelly Services, Inc., Class A 8,399
118 Korn/Ferry International 4,883
60 ManpowerGroup, Inc. 7,567
458 Navigant Consulting, Inc. (a) 8,890
57 On Assignment, Inc. (a) 3,663
138 Robert Half International, Inc. 7,665
295 TransUnion (a) 16,213
184 TriNet Group, Inc. (a) 8,159
345 TrueBlue, Inc. (a) 9,487
--------------
100,315
--------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT -- 0.4%
615 CBRE Group, Inc., Class A (a) 26,636
156 HFF, Inc., Class A 7,588
114 Jones Lang LaSalle, Inc. 16,978
423 Realogy Holdings Corp. 11,209
--------------
62,411
--------------
ROAD & RAIL -- 1.1%
37 AMERCO 13,983
186 ArcBest Corp. 6,649
204 Avis Budget Group, Inc. (a) 8,952
215 CSX Corp. 11,827
142 Genesee & Wyoming, Inc.,
Class A (a) 11,180
124 Heartland Express, Inc. 2,894
70 Hertz Global Holdings, Inc. (a) 1,547
157 J.B. Hunt Transport Services, Inc. 18,052
107 Kansas City Southern 11,259
35 Landstar System, Inc. 3,644
301 Marten Transport Ltd. 6,110
88 Norfolk Southern Corp. 12,751
159 Old Dominion Freight Line, Inc. 20,916
165 Ryder System, Inc. 13,888
124 Saia, Inc. (a) 8,773
183 Schneider National, Inc., Class B 5,226
127 Werner Enterprises, Inc. 4,909
--------------
162,560
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 4.7%
76 Advanced Energy Industries,
Inc. (a) 5,129
733 Amkor Technology, Inc. (a) 7,367
135 Analog Devices, Inc. 12,019
1,118 Applied Materials, Inc. 57,152
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (CONTINUED)
283 Axcelis Technologies, Inc. (a) $ 8,122
255 Brooks Automation, Inc. 6,082
39 Cabot Microelectronics Corp. 3,669
53 Cavium, Inc. (a) 4,443
928 Cypress Semiconductor Corp. 14,143
103 Diodes, Inc. (a) 2,953
604 Entegris, Inc. 18,392
459 FormFactor, Inc. (a) 7,183
132 Integrated Device Technology,
Inc. (a) 3,924
1,530 Intel Corp. 70,625
219 KLA-Tencor Corp. 23,010
315 Lam Research Corp. 57,982
195 Marvell Technology Group Ltd. 4,187
649 Microchip Technology, Inc. 57,034
1,482 Micron Technology, Inc. (a) 60,940
135 Microsemi Corp. (a) 6,973
184 MKS Instruments, Inc. 17,388
98 Monolithic Power Systems, Inc. 11,011
108 Nanometrics, Inc. (a) 2,691
326 NVIDIA Corp. 63,081
946 ON Semiconductor Corp. (a) 19,809
148 Qorvo, Inc. (a) 9,857
450 QUALCOMM, Inc. 28,809
116 Rambus, Inc. (a) 1,650
177 Rudolph Technologies, Inc. (a) 4,230
42 Semtech Corp. (a) 1,436
39 Silicon Laboratories, Inc. (a) 3,444
159 Synaptics, Inc. (a) 6,350
469 Teradyne, Inc. 19,637
260 Texas Instruments, Inc. 27,154
253 Ultra Clean Holdings, Inc. (a) 5,842
359 Versum Materials, Inc. 13,588
328 Xilinx, Inc. 22,114
--------------
689,420
--------------
SOFTWARE -- 3.8%
903 Activision Blizzard, Inc. 57,178
156 Adobe Systems, Inc. (a) 27,337
111 Aspen Technology, Inc. (a) 7,348
80 Blackbaud, Inc. 7,559
146 Bottomline Technologies (de),
Inc. (a) 5,063
62 BroadSoft, Inc. (a) 3,404
1,047 CA, Inc. 34,844
353 Cadence Design Systems, Inc. (a) 14,763
24 Ebix, Inc. 1,902
296 Electronic Arts, Inc. (a) 31,098
175 Everbridge, Inc. (a) 5,201
180 Guidewire Software, Inc. (a) 13,367
74 HubSpot, Inc. (a) 6,542
164 Intuit, Inc. 25,876
187 Paycom Software, Inc. (a) 15,022
31 Paylocity Holding Corp. (a) 1,462
182 Pegasystems, Inc. 8,581
121 Progress Software Corp. 5,151
80 Proofpoint, Inc. (a) 7,105
See Notes to Financial Statements Page 23
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SOFTWARE (CONTINUED)
90 Qualys, Inc. (a) $ 5,342
88 Rapid7, Inc. (a) 1,642
116 RealPage, Inc. (a) 5,139
421 Red Hat, Inc. (a) 50,562
148 RingCentral, Inc., Class A (a) 7,163
250 salesforce.com, Inc. (a) 25,558
396 ServiceNow, Inc. (a) 51,634
106 Splunk, Inc. (a) 8,781
260 SS&C Technologies Holdings, Inc. 10,525
434 Synopsys, Inc. (a) 36,994
187 Tableau Software, Inc., Class A (a) 12,940
171 Take-Two Interactive Software,
Inc. (a) 18,772
156 TiVo Corp. 2,434
20 Tyler Technologies, Inc. (a) 3,541
111 Varonis Systems, Inc. (a) 5,389
128 VMware, Inc., Class A (a) (b) 16,041
222 Workday, Inc., Class A (a) 22,586
148 Workiva, Inc. (a) 3,167
409 Zynga, Inc., Class A (a) 1,636
--------------
568,649
--------------
SPECIALTY RETAIL -- 3.0%
142 Aaron's, Inc. 5,659
429 Abercrombie & Fitch Co., Class A 7,477
106 Advance Auto Parts, Inc. 10,567
541 American Eagle Outfitters, Inc. 10,171
76 Asbury Automotive Group, Inc. (a) 4,864
367 AutoNation, Inc. (a) (b) 18,838
20 AutoZone, Inc. (a) 14,227
742 Bed Bath & Beyond, Inc. 16,317
818 Best Buy Co., Inc. 56,008
459 Buckle (The), Inc. (b) 10,901
73 Burlington Stores, Inc. (a) 8,981
152 Caleres, Inc. 5,089
865 Chico's FAS, Inc. 7,629
39 Children's Place (The), Inc. 5,669
274 Conn's, Inc. (a) 9,741
287 Dick's Sporting Goods, Inc. 8,248
360 DSW, Inc., Class A 7,708
114 Five Below, Inc. (a) 7,560
495 Foot Locker, Inc. 23,206
375 GameStop Corp., Class A (b) 6,731
592 Gap (The), Inc. 20,164
85 Group 1 Automotive, Inc. 6,032
214 Home Depot (The), Inc. 40,559
279 L Brands, Inc. 16,801
26 Lithia Motors, Inc., Class A 2,953
199 Lumber Liquidators Holdings,
Inc. (a) 6,247
487 Michaels (The) Cos., Inc. (a) 11,781
28 Monro Inc. 1,595
67 Murphy USA, Inc. (a) 5,384
1,705 Office Depot, Inc. 6,036
292 Penske Automotive Group, Inc. 13,972
159 Sally Beauty Holdings, Inc. (a) 2,983
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SPECIALTY RETAIL (CONTINUED)
262 Signet Jewelers Ltd. $ 14,816
150 Sleep Number Corp. (a) 5,639
379 Sonic Automotive, Inc., Class A 6,993
165 Tractor Supply Co. 12,334
324 Urban Outfitters, Inc. (a) 11,359
351 Williams-Sonoma, Inc. 18,147
--------------
449,386
--------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 0.9%
75 Apple, Inc. 12,692
3,168 Hewlett Packard Enterprise Co. 45,492
186 NCR Corp. (a) 6,322
387 Pure Storage, Inc., Class A (a) 6,138
210 Seagate Technology PLC 8,786
350 Super Micro Computer, Inc. (a) 7,324
539 Western Digital Corp. 42,867
--------------
129,621
--------------
TEXTILES, APPAREL & LUXURY GOODS
-- 0.6%
71 Carter's, Inc. 8,342
170 Columbia Sportswear Co. 12,220
53 G-III Apparel Group Ltd. (a) 1,955
282 Hanesbrands, Inc. 5,897
73 Oxford Industries, Inc. 5,489
83 PVH Corp. 11,388
72 Steven Madden Ltd. (a) 3,362
867 Tapestry, Inc. 38,347
211 Under Armour, Inc., Class A (a) 3,045
--------------
90,045
--------------
THRIFTS & MORTGAGE FINANCE
-- 0.8%
93 Beneficial Bancorp, Inc. 1,530
163 BofI Holding, Inc. (a) (b) 4,874
344 Essent Group Ltd. (a) 14,936
107 Federal Agricultural Mortgage
Corp., Class C 8,372
130 Flagstar Bancorp, Inc. (a) 4,865
172 HomeStreet, Inc. (a) 4,979
31 LendingTree, Inc. (a) 10,554
83 Meridian Bancorp, Inc. 1,710
835 MGIC Investment Corp. (a) 11,782
417 Nationstar Mortgage Holdings,
Inc. (a) 7,714
811 New York Community Bancorp,
Inc. 10,559
375 NMI Holdings, Inc., Class A (a) 6,375
90 Northwest Bancshares, Inc. 1,506
56 OceanFirst Financial Corp. 1,470
58 Provident Financial Services, Inc. 1,564
372 Radian Group, Inc. 7,667
84 United Financial Bancorp, Inc. 1,482
119 Walker & Dunlop, Inc. (a) 5,653
92 Washington Federal, Inc. 3,151
31 WSFS Financial Corp. 1,483
--------------
112,226
--------------
Page 24 See Notes to Financial Statements
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TOBACCO -- 0.0%
54 Universal Corp. $ 2,835
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 0.8%
327 Air Lease Corp. 15,725
348 Aircastle Ltd. 8,140
94 Applied Industrial Technologies,
Inc. 6,401
30 Beacon Roofing Supply, Inc. (a) 1,913
145 BMC Stock Holdings, Inc. (a) 3,668
218 GMS, Inc. (a) 8,205
53 H&E Equipment Services, Inc. 2,154
388 HD Supply Holdings, Inc. (a) 15,532
28 Kaman Corp. 1,648
42 MSC Industrial Direct Co., Inc.,
Class A 4,060
100 Rush Enterprises, Inc., Class A (a) 5,081
107 SiteOne Landscape Supply, Inc. (a) 8,207
46 Triton International Ltd. 1,723
101 United Rentals, Inc. (a) 17,363
39 W.W. Grainger, Inc. 9,214
53 WESCO International, Inc. (a) 3,612
--------------
112,646
--------------
WATER UTILITIES -- 0.0%
82 SJW Group 5,234
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 0.3%
362 Boingo Wireless, Inc. (a) 8,145
208 Shenandoah Telecommunications
Co. 7,031
278 Telephone & Data Systems, Inc. 7,728
189 T-Mobile US, Inc. (a) 12,003
175 United States Cellular Corp. (a) 6,585
--------------
41,492
--------------
TOTAL COMMON STOCKS -- 100.0% 14,780,077
(Cost $13,028,312) --------------
MONEY MARKET FUNDS -- 0.9%
40,311 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
1.24% (d) (e) 40,311
97,868 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 1.19% (d) 97,868
--------------
TOTAL MONEY MARKET FUNDS
-- 0.9% 138,179
(Cost $138,179) --------------
PRINCIPAL
VALUE DESCRIPTION VALUE
-------------------------------------------------------------
REPURCHASE AGREEMENTS -- 0.5%
$ 73,305 RBC Capital Markets LLC,
1.35% (d), dated 12/29/17, due
01/02/18, with a maturity value
of $73,315. Collateralized by
U.S. Treasury Notes, interest
rates of 1.375% to 2.250%, due
09/30/18 to 03/31/21. The value
of the collateral including
accrued interest is
$75,070. (e) $ 73,305
(Cost $73,305) --------------
TOTAL INVESTMENTS -- 101.4% 14,991,561
(Cost $13,239,796) (f)
NET OTHER ASSETS AND
LIABILITIES -- (1.4)% (208,163)
--------------
NET ASSETS -- 100.0% $ 14,783,398
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan (see Note 2E - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $109,630 and the total value of the collateral held by the
Fund is $113,616.
(c) Non-income producing security which makes payment-in-kind ("PIK")
distributions. For the fiscal year ended December 31, 2017, the Fund
received 1 PIK shares of Summit Materials, Inc., Class A.
(d) Rate shown reflects yield as of December 31, 2017.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $13,338,622. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$1,948,263 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$295,324. The net unrealized appreciation was $1,652,939.
See Notes to Financial Statements Page 25
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 14,780,077 $ -- $ --
Money Market
Funds 138,179 -- --
Repurchase
Agreements -- 73,305 --
----------------------------------------------------
Total Investments $ 14,918,256 $ 73,305 $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
---------------------------------
OFFSETTING ASSETS AND LIABILITIES
-------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2D - Offsetting on the Statements of Assets and Liabilities
in the Notes to Financial Statements).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 109,630
Non-cash Collateral(2) (109,630)
--------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities, which is
included in "Investments, at value", is not offset and is shown on a gross
basis.
(2) At December 31, 2017, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
-------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 73,305
Non-cash Collateral(4) (73,305)
--------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2017, the value of the collateral received from each
seller exceeded the value of the repurchase agreements.
Page 26 See Notes to Financial Statements
FIRST TRUST DORSEY WRIGHT PEOPLE'S PORTFOLIO ETF (DWPP)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 2.6%
2,365 Arconic, Inc. $ 64,446
204 Boeing (The) Co. 60,162
301 General Dynamics Corp. 61,238
415 Harris Corp. 58,785
251 Huntington Ingalls Industries,
Inc. 59,161
307 L3 Technologies, Inc. 60,740
185 Lockheed Martin Corp. 59,394
193 Northrop Grumman Corp. 59,234
313 Raytheon Co. 58,797
445 Rockwell Collins, Inc. 60,351
1,084 Textron, Inc. 61,343
216 TransDigm Group, Inc. 59,318
474 United Technologies Corp. 60,468
--------------
783,437
--------------
AIR FREIGHT & LOGISTICS -- 0.8%
694 C.H. Robinson Worldwide, Inc. 61,829
929 Expeditors International of
Washington, Inc. 60,097
249 FedEx Corp. 62,135
507 United Parcel Service, Inc.,
Class B 60,409
--------------
244,470
--------------
AIRLINES -- 1.0%
845 Alaska Air Group, Inc. 62,116
1,172 American Airlines Group, Inc. 60,979
1,067 Delta Air Lines, Inc. 59,752
925 Southwest Airlines Co. 60,542
938 United Continental Holdings,
Inc. (a) 63,221
--------------
306,610
--------------
AUTO COMPONENTS -- 0.4%
1,161 BorgWarner, Inc. 59,316
347 Lear Corp. 61,301
--------------
120,617
--------------
AUTOMOBILES -- 0.8%
4,756 Ford Motor Co. 59,402
1,461 General Motors Co. 59,886
1,186 Harley-Davidson, Inc. 60,344
174 Tesla, Inc. (a) 54,175
--------------
233,807
--------------
BANKS -- 3.6%
2,060 Bank of America Corp. 60,811
1,208 BB&T Corp. 60,062
800 Citigroup, Inc. 59,528
1,435 Citizens Financial Group, Inc. 60,241
702 Comerica, Inc. 60,941
1,993 Fifth Third Bancorp 60,468
683 First Republic Bank 59,175
4,104 Huntington Bancshares, Inc. 59,754
564 JPMorgan Chase & Co. 60,314
3,028 KeyCorp 61,075
350 M&T Bank Corp. 59,846
413 PNC Financial Services Group
(The), Inc. 59,592
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
BANKS (CONTINUED)
3,495 Regions Financial Corp. $ 60,394
921 SunTrust Banks, Inc. 59,487
252 SVB Financial Group (a) 58,910
1,098 U.S. Bancorp 58,831
999 Wells Fargo & Co. 60,609
1,196 Zions Bancorporation 60,793
--------------
1,080,831
--------------
BEVERAGES -- 1.4%
898 Brown-Forman Corp., Class B 61,666
1,295 Coca-Cola (The) Co. 59,415
267 Constellation Brands, Inc.,
Class A 61,028
637 Dr Pepper Snapple Group, Inc. 61,827
750 Molson Coors Brewing Co.,
Class B 61,552
935 Monster Beverage Corp. (a) 59,176
502 PepsiCo, Inc. 60,200
--------------
424,864
--------------
BIOTECHNOLOGY -- 1.9%
614 AbbVie, Inc. 59,380
517 Alexion Pharmaceuticals, Inc. (a) 61,828
338 Amgen, Inc. 58,778
182 Biogen, Inc. (a) 57,980
643 BioMarin Pharmaceutical, Inc. (a) 57,336
547 Celgene Corp. (a) 57,085
792 Gilead Sciences, Inc. 56,739
621 Incyte Corp. (a) 58,815
154 Regeneron Pharmaceuticals, Inc. (a) 57,898
410 Vertex Pharmaceuticals, Inc. (a) 61,442
--------------
587,281
--------------
BUILDING PRODUCTS -- 0.6%
901 Fortune Brands Home & Security,
Inc. 61,664
1,606 Johnson Controls International
PLC 61,205
1,414 Masco Corp. 62,131
--------------
185,000
--------------
CAPITAL MARKETS -- 4.6%
301 Affiliated Managers Group, Inc. 61,780
356 Ameriprise Financial, Inc. 60,331
1,104 Bank of New York Mellon (The)
Corp. 59,462
117 BlackRock, Inc. 60,104
473 Cboe Global Markets, Inc. 58,931
1,167 Charles Schwab (The) Corp. 59,949
396 CME Group, Inc. 57,836
1,200 E*TRADE Financial Corp. (a) 59,484
1,377 Franklin Resources, Inc. 59,665
233 Goldman Sachs Group (The), Inc. 59,359
849 Intercontinental Exchange, Inc. 59,905
1,637 Invesco Ltd. 59,816
397 Moody's Corp. 58,601
1,127 Morgan Stanley 59,134
468 MSCI, Inc. 59,221
772 Nasdaq, Inc. 59,313
See Notes to Financial Statements Page 27
FIRST TRUST DORSEY WRIGHT PEOPLE'S PORTFOLIO ETF (DWPP)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
CAPITAL MARKETS (CONTINUED)
612 Northern Trust Corp. $ 61,133
678 Raymond James Financial, Inc. 60,545
354 S&P Global, Inc. 59,968
836 SEI Investments Co. 60,075
607 State Street Corp. 59,249
583 T. Rowe Price Group, Inc. 61,174
1,151 TD Ameritrade Holding Corp. 58,851
--------------
1,373,886
--------------
CHEMICALS -- 2.6%
373 Air Products and Chemicals, Inc. 61,202
462 Albemarle Corp. 59,085
562 Celanese Corp., Series A 60,179
1,246 Chemours (The) Co. 62,375
663 Eastman Chemical Co. 61,420
443 Ecolab, Inc. 59,442
649 FMC Corp. 61,434
388 International Flavors & Fragrances,
Inc. 59,213
564 LyondellBasell Industries N.V.,
Class A 62,220
2,401 Mosaic (The) Co. 61,610
520 PPG Industries, Inc. 60,746
148 Sherwin-Williams (The) Co. 60,686
594 Westlake Chemical Corp. 63,279
--------------
792,891
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 0.8%
379 Cintas Corp. 59,060
905 Republic Services, Inc. 61,187
1,278 Rollins, Inc. 59,465
697 Waste Management, Inc. 60,151
--------------
239,863
--------------
COMMUNICATIONS EQUIPMENT
-- 1.0%
259 Arista Networks, Inc. (a) 61,015
1,567 Cisco Systems, Inc. 60,016
2,107 Juniper Networks, Inc. 60,050
642 Motorola Solutions, Inc. 57,998
406 Palo Alto Networks, Inc. (a) 58,846
--------------
297,925
--------------
CONSTRUCTION MATERIALS -- 0.4%
293 Martin Marietta Materials, Inc. 64,765
495 Vulcan Materials Co. 63,543
--------------
128,308
--------------
CONSUMER FINANCE -- 1.0%
2,085 Ally Financial, Inc. 60,799
607 American Express Co. 60,281
621 Capital One Financial Corp. 61,839
802 Discover Financial Services 61,690
1,609 Synchrony Financial 62,123
--------------
306,732
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
CONTAINERS & PACKAGING -- 1.0%
1,519 Ball Corp. $ 57,494
1,064 International Paper Co. 61,648
519 Packaging Corp. of America 62,566
1,229 Sealed Air Corp. 60,590
948 WestRock Co. 59,923
--------------
302,221
--------------
DISTRIBUTORS -- 0.4%
651 Genuine Parts Co. 61,852
1,514 LKQ Corp. (a) 61,574
--------------
123,426
--------------
DIVERSIFIED FINANCIAL SERVICES
-- 0.4%
303 Berkshire Hathaway, Inc.,
Class B (a) 60,061
2,331 Leucadia National Corp. 61,748
--------------
121,809
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 0.6%
1,565 AT&T, Inc. 60,847
3,522 CenturyLink, Inc. 58,747
1,136 Verizon Communications, Inc. 60,129
--------------
179,723
--------------
ELECTRIC UTILITIES -- 2.6%
1,347 Alliant Energy Corp. 57,396
782 American Electric Power Co., Inc. 57,532
681 Duke Energy Corp. 57,279
858 Edison International 54,260
714 Entergy Corp. 58,112
926 Eversource Energy 58,505
1,469 Exelon Corp. 57,893
1,880 FirstEnergy Corp. 57,566
378 NextEra Energy, Inc. 59,040
1,128 PG&E Corp. 50,568
668 Pinnacle West Capital Corp. 56,900
1,761 PPL Corp. 54,503
1,166 Southern (The) Co. 56,073
1,178 Xcel Energy, Inc. 56,673
--------------
792,300
--------------
ELECTRICAL EQUIPMENT -- 1.0%
361 Acuity Brands, Inc. 63,536
840 AMETEK, Inc. 60,875
774 Eaton Corp. PLC 61,154
890 Emerson Electric Co. 62,024
313 Rockwell Automation, Inc. 61,457
--------------
309,046
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 1.0%
671 Amphenol Corp., Class A 58,914
874 CDW Corp. 60,734
1,867 Corning, Inc. 59,725
622 TE Connectivity Ltd. 59,115
1,471 Trimble, Inc. (a) 59,782
--------------
298,270
--------------
Page 28 See Notes to Financial Statements
FIRST TRUST DORSEY WRIGHT PEOPLE'S PORTFOLIO ETF (DWPP)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ENERGY EQUIPMENT & SERVICES
-- 0.9%
1,977 Baker Hughes a GE Co. $ 62,552
1,341 Halliburton Co. 65,535
1,810 National Oilwell Varco, Inc. 65,196
964 Schlumberger Ltd. 64,964
--------------
258,247
--------------
EQUITY REAL ESTATE INVESTMENT
TRUSTS -- 5.9%
450 Alexandria Real Estate Equities,
Inc. 58,766
419 American Tower Corp. 59,779
329 AvalonBay Communities, Inc. 58,697
462 Boston Properties, Inc. 60,074
541 Crown Castle International Corp. 60,056
523 Digital Realty Trust, Inc. 59,570
2,151 Duke Realty Corp. 58,529
131 Equinix, Inc. 59,372
911 Equity Residential 58,095
240 Essex Property Trust, Inc. 57,929
683 Extra Space Storage, Inc. 59,728
453 Federal Realty Investment Trust 60,163
2,567 GGP, Inc. 60,042
2,230 HCP, Inc. 58,158
2,971 Host Hotels & Resorts, Inc. 58,974
1,588 Iron Mountain, Inc. 59,915
3,240 Kimco Realty Corp. 58,806
580 Mid-America Apartment
Communities, Inc. 58,325
907 Prologis, Inc. 58,511
283 Public Storage 59,147
1,042 Realty Income Corp. 59,415
855 Regency Centers Corp. 59,149
366 SBA Communications Corp. (a) 59,790
357 Simon Property Group, Inc. 61,311
580 SL Green Realty Corp. 58,539
1,520 UDR, Inc. 58,550
931 Ventas, Inc. 55,869
769 Vornado Realty Trust 60,120
894 Welltower, Inc. 57,010
1,670 Weyerhaeuser Co. 58,884
--------------
1,771,273
--------------
FOOD & STAPLES RETAILING -- 1.2%
310 Costco Wholesale Corp. 57,697
819 CVS Health Corp. 59,377
2,262 Kroger (The) Co. 62,092
982 Sysco Corp. 59,637
832 Walgreens Boots Alliance, Inc. 60,420
616 Wal-Mart Stores, Inc. 60,830
--------------
360,053
--------------
FOOD PRODUCTS -- 2.8%
1,475 Archer-Daniels-Midland Co. 59,118
884 Bunge Ltd. 59,299
1,207 Campbell Soup Co. 58,069
1,585 Conagra Brands, Inc. 59,707
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
FOOD PRODUCTS (CONTINUED)
1,052 General Mills, Inc. $ 62,373
524 Hershey (The) Co. 59,479
1,626 Hormel Foods Corp. 59,170
424 Ingredion, Inc. 59,275
501 J.M. Smucker (The) Co. 62,244
921 Kellogg Co. 62,610
752 Kraft Heinz (The) Co. 58,475
590 McCormick & Co., Inc. 60,127
1,379 Mondelez International, Inc.,
Class A 59,021
736 Tyson Foods, Inc., Class A 59,668
--------------
838,635
--------------
GAS UTILITIES -- 0.4%
670 Atmos Energy Corp. 57,546
1,248 UGI Corp. 58,594
--------------
116,140
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 3.5%
1,078 Abbott Laboratories 61,522
256 Align Technology, Inc. (a) 56,881
916 Baxter International, Inc. 59,210
270 Becton, Dickinson and Co. 57,796
2,321 Boston Scientific Corp. (a) 57,538
261 Cooper (The) Cos., Inc. 56,867
637 Danaher Corp. 59,126
900 DENTSPLY SIRONA, Inc. 59,247
524 Edwards Lifesciences Corp. (a) 59,060
1,375 Hologic, Inc. (a) 58,781
382 IDEXX Laboratories, Inc. (a) 59,737
162 Intuitive Surgical, Inc. (a) 59,120
717 Medtronic PLC 57,898
702 ResMed, Inc. 59,452
388 Stryker Corp. 60,078
237 Teleflex, Inc. 58,970
535 Varian Medical Systems, Inc. (a) 59,465
519 Zimmer Biomet Holdings, Inc. 62,628
--------------
1,063,376
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 3.2%
333 Aetna, Inc. 60,070
642 AmerisourceBergen Corp. 58,948
265 Anthem, Inc. 59,628
947 Cardinal Health, Inc. 58,023
631 Centene Corp. (a) 63,655
293 Cigna Corp. 59,505
848 DaVita, Inc. (a) 61,268
836 Express Scripts Holding Co. (a) 62,399
676 HCA Healthcare, Inc. (a) 59,380
853 Henry Schein, Inc. (a) 59,608
236 Humana, Inc. 58,544
376 Laboratory Corp. of America
Holdings (a) 59,976
368 McKesson Corp. 57,390
604 Quest Diagnostics, Inc. 59,488
270 UnitedHealth Group, Inc. 59,524
See Notes to Financial Statements Page 29
FIRST TRUST DORSEY WRIGHT PEOPLE'S PORTFOLIO ETF (DWPP)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HEALTH CARE PROVIDERS & SERVICES
(CONTINUED)
527 Universal Health Services, Inc.,
Class B $ 59,735
--------------
957,141
--------------
HEALTH CARE TECHNOLOGY -- 0.2%
862 Cerner Corp. (a) 58,090
--------------
HOTELS, RESTAURANTS & LEISURE
-- 3.6%
1,409 Aramark 60,221
907 Carnival Corp. 60,198
192 Chipotle Mexican Grill, Inc. (a) 55,494
677 Darden Restaurants, Inc. 65,006
323 Domino's Pizza, Inc. 61,034
776 Hilton Worldwide Holdings, Inc. 61,971
849 Las Vegas Sands Corp. 58,997
461 Marriott International, Inc.,
Class A 62,571
344 McDonald's Corp. 59,209
1,820 MGM Resorts International 60,770
1,108 Norwegian Cruise Line Holdings
Ltd. (a) 59,001
478 Royal Caribbean Cruises Ltd. 57,016
1,027 Starbucks Corp. 58,981
272 Vail Resorts, Inc. 57,792
531 Wyndham Worldwide Corp. 61,527
360 Wynn Resorts Ltd. 60,692
1,476 Yum China Holdings, Inc. 59,069
727 Yum! Brands, Inc. 59,330
--------------
1,078,879
--------------
HOUSEHOLD DURABLES -- 1.4%
1,183 D.R. Horton, Inc. 60,416
1,025 Garmin Ltd. 61,059
975 Lennar Corp., Class A 61,659
218 Mohawk Industries, Inc. (a) 60,146
1,956 Newell Brands, Inc. 60,441
18 NVR, Inc. (a) 63,148
364 Whirlpool Corp. 61,385
--------------
428,254
--------------
HOUSEHOLD PRODUCTS -- 1.0%
1,220 Church & Dwight Co., Inc. 61,207
405 Clorox (The) Co. 60,240
808 Colgate-Palmolive Co. 60,964
505 Kimberly-Clark Corp. 60,933
651 Procter & Gamble (The) Co. 59,814
--------------
303,158
--------------
INDUSTRIAL CONGLOMERATES -- 0.8%
251 3M Co. 59,078
3,358 General Electric Co. 58,597
388 Honeywell International, Inc. 59,504
237 Roper Technologies, Inc. 61,383
--------------
238,562
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
INSURANCE -- 5.0%
670 Aflac, Inc. $ 58,813
104 Alleghany Corp. (a) 61,993
576 Allstate (The) Corp. 60,313
573 American Financial Group, Inc. 62,193
1,008 American International Group, Inc. 60,057
650 Arch Capital Group Ltd. (a) 59,001
935 Arthur J. Gallagher & Co. 59,167
402 Chubb Ltd. 58,744
806 Cincinnati Financial Corp. 60,426
269 Everest Re Group Ltd. 59,519
1,514 FNF Group 59,409
1,073 Hartford Financial Services Group
(The), Inc. 60,389
785 Lincoln National Corp. 60,343
1,203 Loews Corp. 60,186
52 Markel Corp. (a) 59,235
720 Marsh & McLennan Cos., Inc. 58,601
1,164 MetLife, Inc. 58,852
850 Principal Financial Group, Inc. 59,976
1,079 Progressive (The) Corp. 60,769
517 Prudential Financial, Inc. 59,445
382 Reinsurance Group of America, Inc. 59,565
668 Torchmark Corp. 60,594
444 Travelers (The) Cos., Inc. 60,224
1,107 Unum Group 60,763
1,651 XL Group Ltd. 58,049
--------------
1,496,626
--------------
INTERNET & DIRECT MARKETING RETAIL
-- 1.0%
51 Amazon.com, Inc. (a) 59,643
495 Expedia, Inc. 59,286
2,411 Liberty Interactive Corp. QVC
Group, Class A (a) 58,877
315 Netflix, Inc. (a) 60,467
34 Priceline Group (The), Inc. (a) 59,083
--------------
297,356
--------------
INTERNET SOFTWARE & SERVICES
-- 1.2%
56 Alphabet, Inc., Class A (a) 58,990
203 CoStar Group, Inc. (a) 60,281
1,559 eBay, Inc. (a) 58,836
332 Facebook, Inc., Class A (a) 58,585
2,692 Twitter, Inc. (a) 64,635
520 VeriSign, Inc. (a) 59,509
--------------
360,836
--------------
IT SERVICES -- 3.8%
392 Accenture PLC, Class A 60,011
250 Alliance Data Systems Corp. 63,370
506 Automatic Data Processing, Inc. 59,298
665 Broadridge Financial Solutions,
Inc. 60,236
830 Cognizant Technology Solutions
Corp., Class A 58,947
628 DXC Technology Co. 59,597
631 Fidelity National Information
Services, Inc. 59,371
Page 30 See Notes to Financial Statements
FIRST TRUST DORSEY WRIGHT PEOPLE'S PORTFOLIO ETF (DWPP)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
IT SERVICES (CONTINUED)
453 Fiserv, Inc. (a) $ 59,402
315 FleetCor Technologies, Inc. (a) 60,615
488 Gartner, Inc. (a) 60,097
593 Global Payments, Inc. 59,442
392 International Business Machines
Corp. 60,141
390 Mastercard, Inc., Class A 59,030
858 Paychex, Inc. 58,413
791 PayPal Holdings, Inc. (a) 58,233
769 Total System Services, Inc. 60,820
789 Vantiv, Inc., Class A (a) 58,031
526 Visa, Inc., Class A 59,975
3,072 Western Union (The) Co. 58,399
--------------
1,133,428
--------------
LEISURE PRODUCTS -- 0.2%
636 Hasbro, Inc. 57,806
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 1.2%
885 Agilent Technologies, Inc. 59,268
276 Illumina, Inc. (a) 60,303
586 IQVIA Holdings, Inc. (a) 57,369
94 Mettler-Toledo International,
Inc. (a) 58,235
311 Thermo Fisher Scientific, Inc. 59,053
304 Waters Corp. (a) 58,730
--------------
352,958
--------------
MACHINERY -- 2.7%
408 Caterpillar, Inc. 64,293
353 Cummins, Inc. 62,354
397 Deere & Co. 62,134
614 Dover Corp. 62,008
830 Fortive Corp. 60,050
456 IDEX Corp. 60,178
362 Illinois Tool Works, Inc. 60,400
690 Ingersoll-Rand PLC 61,541
865 PACCAR, Inc. 61,484
308 Parker-Hannifin Corp. 61,471
356 Snap-on, Inc. 62,051
361 Stanley Black & Decker, Inc. 61,258
886 Xylem, Inc. 60,425
--------------
799,647
--------------
MEDIA -- 2.8%
1,016 CBS Corp., Class B 59,944
186 Charter Communications, Inc.,
Class A (a) 62,489
1,507 Comcast Corp., Class A 60,355
2,844 Discovery Communications, Inc.,
Class A (a) 63,649
1,232 DISH Network Corp., Class A (a) 58,828
2,925 Interpublic Group of Cos. (The),
Inc. 58,968
715 Liberty Broadband Corp.,
Class C (a) 60,890
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
MEDIA (CONTINUED)
1,694 Liberty Media Corp.-Liberty
Formula One, Class C (a) $ 57,867
3,735 News Corp., Class A 60,544
804 Omnicom Group, Inc. 58,555
11,143 Sirius XM Holdings, Inc. 59,727
1,710 Twenty-First Century Fox, Inc.,
Class A 59,046
1,979 Viacom, Inc., Class B 60,973
538 Walt Disney (The) Co. 57,840
--------------
839,675
--------------
METALS & MINING -- 0.9%
3,524 Freeport-McMoRan, Inc. (a) 66,815
1,668 Newmont Mining Corp. 62,584
995 Nucor Corp. 63,262
1,502 Steel Dynamics, Inc. 64,781
--------------
257,442
--------------
MORTGAGE REAL ESTATE INVESTMENT
TRUSTS -- 0.2%
4,889 Annaly Capital Management, Inc. 58,130
--------------
MULTILINE RETAIL -- 0.6%
658 Dollar General Corp. 61,201
563 Dollar Tree, Inc. (a) 60,415
956 Target Corp. 62,379
--------------
183,995
--------------
MULTI-UTILITIES -- 2.1%
982 Ameren Corp. 57,928
2,078 CenterPoint Energy, Inc. 58,932
1,215 CMS Energy Corp. 57,469
678 Consolidated Edison, Inc. 57,596
705 Dominion Energy, Inc. 57,147
528 DTE Energy Co. 57,795
2,257 NiSource, Inc. 57,937
1,144 Public Service Enterprise Group,
Inc. 58,916
1,347 SCANA Corp. 53,584
513 Sempra Energy 54,850
878 WEC Energy Group, Inc. 58,326
--------------
630,480
--------------
OIL, GAS & CONSUMABLE FUELS
-- 5.7%
1,259 Anadarko Petroleum Corp. 67,533
536 Andeavor 61,286
1,516 Apache Corp. 64,006
2,246 Cabot Oil & Gas Corp. 64,236
1,206 Cheniere Energy, Inc. (a) 64,931
500 Chevron Corp. 62,595
533 Cimarex Energy Co. 65,031
439 Concho Resources, Inc. (a) 65,947
1,147 ConocoPhillips 62,959
1,268 Continental Resources, Inc. (a) 67,166
1,588 Devon Energy Corp. 65,743
546 Diamondback Energy, Inc. (a) 68,933
607 EOG Resources, Inc. 65,501
1,094 EQT Corp. 62,271
See Notes to Financial Statements Page 31
FIRST TRUST DORSEY WRIGHT PEOPLE'S PORTFOLIO ETF (DWPP)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL, GAS & CONSUMABLE FUELS
(CONTINUED)
721 Exxon Mobil Corp. $ 60,304
1,379 Hess Corp. 65,461
3,337 Kinder Morgan, Inc. 60,300
3,986 Marathon Oil Corp. 67,483
910 Marathon Petroleum Corp. 60,042
2,332 Noble Energy, Inc. 67,954
847 Occidental Petroleum Corp. 62,390
1,147 ONEOK, Inc. 61,307
599 Phillips 66 60,589
384 Pioneer Natural Resources Co. 66,374
1,291 Targa Resources Corp. 62,510
678 Valero Energy Corp. 62,315
2,013 Williams (The) Cos., Inc. 61,376
--------------
1,726,543
--------------
PERSONAL PRODUCTS -- 0.4%
3,025 Coty, Inc., Class A 60,167
462 Estee Lauder (The) Cos., Inc.,
Class A 58,785
--------------
118,952
--------------
PHARMACEUTICALS -- 2.0%
349 Allergan PLC 57,089
959 Bristol-Myers Squibb Co. 58,768
691 Eli Lilly and Co. 58,362
441 Jazz Pharmaceuticals PLC (a) 59,381
420 Johnson & Johnson 58,682
1,064 Merck & Co., Inc. 59,871
1,477 Mylan N.V. (a) 62,492
692 Perrigo Co. PLC 60,315
1,608 Pfizer, Inc. 58,242
832 Zoetis, Inc. 59,937
--------------
593,139
--------------
PROFESSIONAL SERVICES -- 0.4%
501 Equifax, Inc. 59,078
630 Verisk Analytics, Inc. (a) 60,480
--------------
119,558
--------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT -- 0.2%
1,383 CBRE Group, Inc., Class A (a) 59,898
--------------
ROAD & RAIL -- 1.0%
1,130 CSX Corp. 62,161
532 J.B. Hunt Transport Services, Inc. 61,169
539 Kansas City Southern 56,714
424 Norfolk Southern Corp. 61,438
458 Union Pacific Corp. 61,418
--------------
302,900
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 3.0%
5,815 Advanced Micro Devices, Inc. (a) 59,778
690 Analog Devices, Inc. 61,431
1,139 Applied Materials, Inc. 58,226
1,343 Intel Corp. 61,993
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (CONTINUED)
566 KLA-Tencor Corp. $ 59,470
321 Lam Research Corp. 59,086
1,141 Maxim Integrated Products, Inc. 59,652
690 Microchip Technology, Inc. 60,637
1,411 Micron Technology, Inc. (a) 58,020
312 NVIDIA Corp. 60,372
913 Qorvo, Inc. (a) 60,806
924 QUALCOMM, Inc. 59,154
632 Skyworks Solutions, Inc. 60,008
591 Texas Instruments, Inc. 61,724
880 Xilinx, Inc. 59,330
--------------
899,687
--------------
SOFTWARE -- 4.3%
897 Activision Blizzard, Inc. 56,798
337 Adobe Systems, Inc. (a) 59,056
404 ANSYS, Inc. (a) 59,626
552 Autodesk, Inc. (a) 57,866
1,775 CA, Inc. 59,072
1,370 Cadence Design Systems, Inc. (a) 57,293
846 CDK Global, Inc. 60,303
684 Citrix Systems, Inc. (a) 60,192
739 Dell Technologies, Inc.,
Class V (a) 60,066
548 Electronic Arts, Inc. (a) 57,573
375 Intuit, Inc. 59,168
689 Microsoft Corp. 58,937
1,239 Oracle Corp. 58,580
465 Red Hat, Inc. (a) 55,847
567 salesforce.com, Inc. (a) 57,964
462 ServiceNow, Inc. (a) 60,240
3,799 Snap, Inc., Class A (a) 55,503
2,065 Symantec Corp. 57,944
681 Synopsys, Inc. (a) 58,048
538 Take-Two Interactive Software,
Inc. (a) 59,062
483 VMware, Inc., Class A (a) 60,530
578 Workday, Inc., Class A (a) 58,806
--------------
1,288,474
--------------
SPECIALTY RETAIL -- 2.4%
86 AutoZone, Inc. (a) 61,178
916 Best Buy Co., Inc. 62,718
883 CarMax, Inc. (a) 56,627
1,783 Gap (The), Inc. 60,729
328 Home Depot (The), Inc. 62,166
1,030 L Brands, Inc. 62,027
690 Lowe's Cos., Inc. 64,129
249 O'Reilly Automotive, Inc. (a) 59,894
788 Ross Stores, Inc. 63,237
590 Tiffany & Co. 61,330
807 TJX (The) Cos., Inc. 61,703
274 Ulta Beauty, Inc. (a) 61,283
--------------
737,021
--------------
Page 32 See Notes to Financial Statements
FIRST TRUST DORSEY WRIGHT PEOPLE'S PORTFOLIO ETF (DWPP)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TECHNOLOGY HARDWARE, STORAGE &
PERIPHERALS -- 1.2%
344 Apple, Inc. $ 58,215
4,152 Hewlett Packard Enterprise Co. 59,623
2,860 HP, Inc. 60,089
1,045 NetApp, Inc. 57,809
1,424 Seagate Technology PLC 59,580
733 Western Digital Corp. 58,296
--------------
353,612
--------------
TEXTILES, APPAREL & LUXURY GOODS
-- 0.8%
924 NIKE, Inc., Class B 57,796
446 PVH Corp. 61,196
1,397 Tapestry, Inc. 61,789
804 VF Corp. 59,496
--------------
240,277
--------------
TOBACCO -- 0.4%
835 Altria Group, Inc. 59,627
546 Philip Morris International, Inc. 57,685
--------------
117,312
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 0.6%
1,123 Fastenal Co. 61,417
364 United Rentals, Inc. (a) 62,575
260 W.W. Grainger, Inc. 61,425
--------------
185,417
--------------
WATER UTILITIES -- 0.2%
659 American Water Works Co., Inc. 60,292
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 0.2%
955 T-Mobile US, Inc. (a) 60,652
--------------
TOTAL INVESTMENTS -- 99.9% 30,037,238
(Cost $27,748,134) (b)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 34,666
--------------
NET ASSETS -- 100.0% $ 30,071,904
==============
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $27,845,459. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$2,676,950 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$485,171. The net unrealized appreciation was $2,191,779.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 30,037,238 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
See Notes to Financial Statements Page 33
FIRST TRUST DOW 30 EQUAL WEIGHT ETF (EDOW)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2017
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.6%
AEROSPACE & DEFENSE -- 6.8%
251 Boeing (The) Co. $ 74,022
584 United Technologies Corp. 74,501
--------------
148,523
--------------
BANKS -- 3.3%
678 JPMorgan Chase & Co. 72,505
--------------
BEVERAGES -- 3.3%
1,584 Coca-Cola (The) Co. 72,674
--------------
CAPITAL MARKETS -- 3.3%
287 Goldman Sachs Group (The), Inc. 73,116
--------------
CHEMICALS -- 3.3%
1,015 DowDuPont, Inc. 72,288
--------------
COMMUNICATIONS EQUIPMENT
-- 3.3%
1,909 Cisco Systems, Inc. 73,115
--------------
CONSUMER FINANCE -- 3.3%
728 American Express Co. 72,298
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 3.4%
1,405 Verizon Communications, Inc. 74,367
--------------
FOOD & STAPLES RETAILING -- 3.3%
743 Wal-Mart Stores, Inc. 73,371
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 3.2%
321 UnitedHealth Group, Inc. 70,768
--------------
HOTELS, RESTAURANTS & LEISURE
-- 3.2%
415 McDonald's Corp. 71,430
--------------
HOUSEHOLD PRODUCTS -- 3.3%
794 Procter & Gamble (The) Co. 72,953
--------------
INDUSTRIAL CONGLOMERATES -- 6.4%
301 3M Co. 70,846
4,053 General Electric Co. 70,725
--------------
141,571
--------------
INSURANCE -- 3.3%
537 Travelers (The) Cos., Inc. 72,839
--------------
IT SERVICES -- 6.5%
464 International Business Machines
Corp. 71,187
637 Visa, Inc., Class A 72,631
--------------
143,818
--------------
MACHINERY -- 3.6%
499 Caterpillar, Inc. 78,632
--------------
MEDIA -- 3.4%
689 Walt Disney (The) Co. 74,074
--------------
OIL, GAS & CONSUMABLE FUELS
-- 6.7%
599 Chevron Corp. 74,989
868 Exxon Mobil Corp. 72,599
--------------
147,588
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
PHARMACEUTICALS -- 9.9%
511 Johnson & Johnson $ 71,397
1,292 Merck & Co., Inc. 72,701
2,008 Pfizer, Inc. 72,730
--------------
216,828
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 3.5%
1,656 Intel Corp. 76,441
--------------
SOFTWARE -- 3.3%
853 Microsoft Corp. 72,966
--------------
SPECIALTY RETAIL -- 3.4%
391 Home Depot (The), Inc. 74,106
--------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 3.3%
424 Apple, Inc. 71,753
--------------
TEXTILES, APPAREL & LUXURY GOODS
-- 3.3%
1,171 NIKE, Inc., Class B 73,246
--------------
TOTAL INVESTMENTS -- 99.6% 2,191,270
(Cost $2,127,957) (a)
NET OTHER ASSETS AND
LIABILITIES -- 0.4% 8,946
--------------
NET ASSETS -- 100.0% $ 2,200,216
==============
(a) Aggregate cost for federal income tax purposes is $2,132,574. As of
December 31, 2017, the aggregate gross unrealized appreciation for all
investments in which there was an excess of value over tax cost was
$91,577 and the aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost over value was
$32,881. The net unrealized appreciation was $58,696.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------
Common Stocks* $ 2,191,270 $ -- $ --
====================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to occur on
the last day of the period at their current value. There were no transfers
between Levels at December 31, 2017.
Page 34 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2017
FIRST TRUST FIRST TRUST FIRST TRUST
TOTAL US MARKET DORSEY WRIGHT DOW 30
ALPHADEX(R) PEOPLE'S EQUAL WEIGHT
ETF PORTFOLIO ETF ETF
(TUSA) (DWPP) (EDOW)
---------------- ----------------- ----------------
ASSETS:
Investments, at value............................................... $ 14,991,561 $ 30,037,238 $ 2,191,270
Cash................................................................ 19 113,319 19,444
Receivables:
Dividends..................................................... 15,545 37,693 2,218
From investment advisor....................................... 6,054 -- --
Securities lending income..................................... 300 -- --
Prepaid expenses.................................................... 7,609 -- --
-------------- --------------- --------------
Total Assets.................................................. 15,021,088 30,188,250 2,212,932
-------------- --------------- --------------
LIABILITIES:
Payables:
Investment advisory fees...................................... -- 15,336 976
Collateral for securities on loan............................. 113,616 -- --
Distributions payable......................................... 42,165 101,010 11,740
Audit and tax fees............................................ 22,925 -- --
Printing fees................................................. 11,248 -- --
Licensing fees................................................ 836 -- --
Other liabilities................................................... 46,900 -- --
-------------- --------------- --------------
Total Liabilities............................................. 237,690 116,346 12,716
-------------- --------------- --------------
NET ASSETS.......................................................... $ 14,783,398 $ 30,071,904 $ 2,200,216
============== =============== ==============
NET ASSETS CONSIST OF:
Paid-in capital..................................................... $ 13,797,902 $ 28,856,144 $ 2,139,954
Par value........................................................... 4,500 10,500 1,000
Accumulated net investment income (loss)............................ (256) -- 106
Accumulated net realized gain (loss) on investments................. (770,513) (1,083,844) (4,157)
Net unrealized appreciation (depreciation) on investments........... 1,751,765 2,289,104 63,313
-------------- --------------- --------------
NET ASSETS.......................................................... $ 14,783,398 $ 30,071,904 $ 2,200,216
============== =============== ==============
NET ASSET VALUE, per share.......................................... $ 32.85 $ 28.64 $ 22.00
============== =============== ==============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share)........................... 450,002 1,050,002 100,002
============== =============== ==============
Investments, at cost................................................ $ 13,239,796 $ 27,748,134 $ 2,127,957
============== =============== ==============
Securities on loan, at value........................................ $ 109,630 $ -- $ --
============== =============== ==============
See Notes to Financial Statements Page 35
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2017
FIRST TRUST FIRST TRUST FIRST TRUST
TOTAL US MARKET DORSEY WRIGHT DOW 30
ALPHADEX(R) PEOPLE'S EQUAL WEIGHT
ETF PORTFOLIO ETF ETF
(TUSA) (DWPP) (EDOW) (a)
---------------- ----------------- ----------------
INVESTMENT INCOME:
Dividends........................................................... $ 173,267 $ 236,704 $ 21,006
Securities lending income (net of fees)............................. 2,301 -- --
Foreign tax withholding............................................. (23) -- --
-------------- --------------- --------------
Total investment income....................................... 175,545 236,704 21,006
-------------- --------------- --------------
EXPENSES:
Investment advisory fees............................................ 55,553 74,969 (b) 4,210 (b)
Custodian fees...................................................... 31,957 -- --
Audit and tax fees.................................................. 23,248 -- --
Printing fees....................................................... 21,245 -- --
Listing fees........................................................ 17,551 -- --
Accounting and administration fees.................................. 13,194 -- --
Licensing fees...................................................... 10,051 -- --
Trustees' fees and expenses......................................... 7,234 -- --
Legal fees.......................................................... 1,965 -- --
Transfer agent fees................................................. 556 -- --
Registration and filing fees........................................ 468 -- --
Other expenses...................................................... 5,247 -- --
-------------- --------------- --------------
Total expenses................................................ 188,269 74,969 4,210
Less fees waived and expenses reimbursed by the investment
advisor.................................................... (110,596) -- --
-------------- --------------- --------------
Net expenses.................................................. 77,673 74,969 4,210
-------------- --------------- --------------
NET INVESTMENT INCOME (LOSS)........................................ 97,872 161,735 16,796
-------------- --------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................... 81,320 (46,764) (14,928)
In-kind redemptions........................................... 558,353 1,664,960 165,807
-------------- --------------- --------------
Net realized gain (loss)............................................ 639,673 1,618,196 150,879
Net change in unrealized appreciation (depreciation) on investments. 1,270,377 1,449,469 63,313
-------------- --------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)............................. 1,910,050 3,067,665 214,192
-------------- --------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................................. $ 2,007,922 $ 3,229,400 $ 230,988
============== =============== ==============
(a) Inception date is August 8, 2017, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
(b) Fund is subject to a Unitary Fee (see Note 3 in the Notes to Financial
Statements).
Page 36 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST
TOTAL US MARKET DORSEY WRIGHT
ALPHADEX(R) PEOPLE'S
ETF PORTFOLIO ETF
(TUSA) (DWPP)
------------------------------- -------------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/2017 12/31/2016 12/31/2017 12/31/2016
-------------- -------------- -------------- --------------
OPERATIONS:
Net investment income (loss)................................ $ 97,872 $ 104,644 $ 161,735 $ 56,270
Net realized gain (loss).................................... 639,673 682,214 1,618,196 (353,383)
Net change in unrealized appreciation (depreciation)........ 1,270,377 785,988 1,449,469 315,766
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations.......................................... 2,007,922 1,572,846 3,229,400 18,653
-------------- -------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................... (103,705) (113,796) (163,136) (59,491)
-------------- -------------- -------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................... 7,703,270 10,272,574 30,201,881 --
Cost of shares redeemed..................................... (3,145,475) (11,927,907) (6,765,642) --
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions............................ 4,557,795 (1,655,333) 23,436,239 --
-------------- -------------- -------------- --------------
Total increase (decrease) in net assets..................... 6,462,012 (196,283) 6,502,503 (40,838)
NET ASSETS:
Beginning of period......................................... 8,321,386 8,517,669 3,569,401 3,610,239
-------------- -------------- -------------- --------------
End of period............................................... $ 14,783,398 $ 8,321,386 $ 30,071,904 $ 3,569,401
============== ============== ============== ==============
Accumulated net investment income (loss)
at end of period......................................... $ (256) $ -- $ -- $ --
============== ============== ============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period..................... 300,002 350,002 150,002 150,002
Shares sold................................................. 250,000 400,000 1,150,000 --
Shares redeemed............................................. (100,000) (450,000) (250,000) --
-------------- -------------- -------------- --------------
Shares outstanding, end of period........................... 450,002 300,002 1,050,002 150,002
============== ============== ============== ==============
See Notes to Financial Statements Page 37
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST
DOW 30
EQUAL WEIGHT
ETF
(EDOW)
--------------
Period Ended
12/31/2017 (a)
--------------
OPERATIONS:
Net investment income (loss)................................ $ 16,796
Net realized gain (loss).................................... 150,879
Net change in unrealized appreciation (depreciation)........ 63,313
--------------
Net increase (decrease) in net assets resulting
from operations.......................................... 230,988
--------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................... (16,690)
--------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................... 4,099,141
Cost of shares redeemed..................................... (2,113,223)
--------------
Net increase (decrease) in net assets resulting
from shareholder transactions........................... 1,985,918
--------------
Total increase (decrease) in net assets..................... 2,200,216
NET ASSETS:
Beginning of period......................................... --
--------------
End of period............................................... $ 2,200,216
==============
Accumulated net investment income (loss)
at end of period......................................... $ 106
==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period..................... --
Shares sold................................................. 200,002
Shares redeemed............................................. (100,000)
--------------
Shares outstanding, end of period........................... 100,002
==============
(a) Inception date is August 8, 2017, which is consistent with the commencement
of investment operations and is the date the initial creation units were
established.
Page 38 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 27.74 $ 24.34 $ 26.13 $ 25.80 $ 19.34
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.25 0.32 0.22 0.27 0.21
Net realized and unrealized gain (loss) 5.12 3.43 (1.78) 0.34 6.47
------------ ------------ ------------ ------------ ------------
Total from investment operations 5.37 3.75 (1.56) 0.61 6.68
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.26) (0.35) (0.23) (0.28) (0.22)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 32.85 $ 27.74 $ 24.34 $ 26.13 $ 25.80
============ ============ ============ ============ ============
TOTAL RETURN (a) 19.44% 15.48% (5.99)% 2.36% 34.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 14,783 $ 8,321 $ 8,518 $ 5,225 $ 5,160
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 1.69% 1.96% 1.97% 3.17% 2.01%
Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income (loss) to
average net assets 0.88% 1.17% 0.96% 1.05% 0.91%
Portfolio turnover rate (b) 112% 113% 170% 183% 186%
FIRST TRUST DORSEY WRIGHT PEOPLE'S PORTFOLIO ETF (DWPP)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2017 2016 2015 2014 2013
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 23.80 $ 24.07 $ 25.97 $ 22.86 $ 19.51
------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.30 0.38 0.37 0.34 0.34
Net realized and unrealized gain (loss) 4.84 (0.25) (1.89) 3.11 3.34
------------ ------------ ------------ ------------ ------------
Total from investment operations 5.14 0.13 (1.52) 3.45 3.68
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.30) (0.40) (0.38) (0.34) (0.33)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 28.64 $ 23.80 $ 24.07 $ 25.97 $ 22.86
============ ============ ============ ============ ============
TOTAL RETURN (a) 21.71% 0.54% (5.88)% 15.22% 19.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 30,072 $ 3,569 $ 3,610 $ 3,895 $ 5,716
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 1.29% 1.59% 1.46% 1.42% 1.53%
Portfolio turnover rate (b) 30%(c) 4% 7% 7% 4%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns for First Trust Total US Market
AlphaDEX(R) ETF would have been lower if certain fees had not been waived
and expenses reimbursed by the investment advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(c) The variation in the portfolio turnover rate is due to the change in the
Fund's underlying index effective August 18, 2017, which resulted in a
complete rebalance of the Fund's portfolio.
See Notes to Financial Statements Page 39
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
FIRST TRUST DOW 30 EQUAL WEIGHT ETF (EDOW)
PERIOD ENDED
12/31/2017 (a)
------------
Net asset value, beginning of period $ 19.97
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.17
Net realized and unrealized gain (loss) 2.03
------------
Total from investment operations 2.20
------------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.17)
------------
Net asset value, end of period $ 22.00
============
TOTAL RETURN (b) 11.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 2,200
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.50%(c)
Ratio of net expenses to average net assets 0.50%(c)
Ratio of net investment income (loss) to
average net assets 1.99%(c)
Portfolio turnover rate (d) 20%
(a) Inception date is August 8, 2017, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The return presented does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(c) Annualized.
(d) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 40 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
1. ORGANIZATION
First Trust Exchange-Traded Fund (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on August 8,
2003, and is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of twenty exchange-traded funds. This report covers
the three funds listed below:
First Trust Total US Market AlphaDEX(R) ETF - (The Nasdaq Stock Market LLC
("Nasdaq") ticker "TUSA")
First Trust Dorsey Wright People's Portfolio ETF - (Nasdaq ticker
"DWPP")(1)
First Trust Dow 30 Equal Weight ETF - (NYSE Arca, Inc. ("NYSE Arca")
ticker "EDOW")(2)
(1) Effective on August 18, 2017, First Trust CBOE(R) S&P 500(R) VIX(R) Tail
Hedge Fund (NYSE Arca ticker "VIXH") changed its name and ticker symbol to
First Trust Dorsey Wright People's Portfolio ETF (Nasdaq ticker "DWPP").
(2) Commenced investment operations on August 8, 2017.
Each fund represents a separate series of shares of beneficial interest in the
Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual
funds, each Fund issues and redeems shares on a continuous basis, at net asset
value ("NAV"), only in large specified blocks consisting of 50,000 shares called
a "Creation Unit." Creation Units are generally issued and redeemed in-kind for
securities in which a Fund invests and, in certain circumstances, for cash, and
only to and from broker-dealers and large institutional investors that have
entered into participation agreements. Except when aggregated in Creation Units,
each Fund's shares are not redeemable securities. The investment objective of
each Fund is to seek investment results that correspond generally to the price
and yield (before the Fund's fees and expenses) of the following indices:
FUND INDEX
First Trust Total US Market AlphaDEX(R) ETF NASDAQ AlphaDEX(R) Total US Market Index
First Trust Dorsey Wright People's Portfolio ETF Nasdaq Dorsey Wright People's Portfolio Index(3)
First Trust Dow 30 Equal Weight ETF Dow Jones Industrial Average(R) Equal Weight Index
(3) Effective on August 18, 2017, First Trust Dorsey Wright People's Portfolio
ETF's underlying index was changed from the CBOE(R) VIX(R) Tail Hedge
Index to the Nasdaq Dorsey Wright People's Portfolio Index.
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds are each considered an investment company and follow accounting and
reporting guidance under Financial Accounting Standards Board Accounting
Standards Codification Topic 946, "Financial Services-Investment Companies." The
following is a summary of significant accounting policies consistently followed
by the Funds in the preparation of the financial statements. The preparation of
the financial statements in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP") requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
A. PORTFOLIO VALUATION
Each Fund's NAV is determined daily as of the close of regular trading on the
New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day
the NYSE is open for trading. If the NYSE closes early on a valuation day, the
NAV is determined as of that time. Each Fund's NAV is calculated by dividing the
value of all assets of each Fund (including accrued interest and dividends),
less all liabilities (including accrued expenses and dividends declared but
unpaid), by the total number of shares outstanding.
Each Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third-party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third-party
pricing service or are determined by the Pricing Committee of the Funds'
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with provisions of the 1940 Act. Investments valued
by the Advisor's Pricing Committee, if any, are footnoted as such in the
footnotes to the Portfolio of Investments. Each Fund's investments are valued as
follows:
Common stocks and other equity securities listed on any national or
foreign exchange (excluding Nasdaq and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for Nasdaq and
AIM securities, the official closing price. Securities traded on more than
Page 41
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the principal market for such securities.
Shares of open-end funds are valued at fair value which is based on NAV
per share.
Securities traded in an over-the-counter market are fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Overnight repurchase agreements are valued at amortized cost when it
represents the best estimate of fair value.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a third-party pricing service is unable to provide a
market price; securities whose trading has been formally suspended; a security
whose market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of a Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the third-party pricing service, does not reflect the security's fair value. As
a general principle, the current fair value of a security would appear to be the
amount which the owner might reasonably expect to receive for the security upon
its current sale. When fair value prices are used, generally they will differ
from market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or third-party pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
In addition, differences between the prices used to calculate a Fund's NAV and
the prices used by such Fund's corresponding index could result in a difference
between a Fund's performance and the performance of its underlying index.
The Funds are subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value each Fund's investments as of December 31, 2017, is
included with each Fund's Portfolio of Investments.
Page 42
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
B. CALL OPTIONS
Prior to August 18, 2017, VIXH was subject to equity price risk in the normal
course of pursuing its investment objective and could purchase out-of-the-money
call options on the Chicago Board Options Exchange Market Volatility Index(R)
(the "VIX Index") to hedge against changes in the value of equities. Also, VIXH
could sell call options on the VIX Index in order to close out existing
positions. The purchase of call options involved the risk of loss of all or a
part of the cash paid for the call options (the premium). The market risk
associated with purchasing options on the VIX Index was limited to the premium
paid. When VIXH purchased a call option, the premium paid represented the cost
of the call option. Options were marked-to-market daily and their value was
affected by changes in the market value of the stocks included in the stock
index. If VIXH elected to exercise a call option on the VIX Index, settlement
did not occur by the delivery of the securities comprising the VIX Index. VIXH,
as holder of the stock index option, received an amount of cash if the closing
level of the stock index upon which the option was based was 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 was equal to the difference between the closing
price of the stock index and the exercise price of the option expressed in
dollars times a specified multiple. If VIXH elected to allow a call option to
expire, then the equity price risk for purchased options was limited to the
premium initially paid. During the period ended August 18, 2017, there were no
open, expired or closed option contracts. As a result of the index change on
August 18, 2017, DWPP no longer engages in options activities.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis.
Withholding taxes and tax reclaims on foreign dividends have been provided for
in accordance with each Fund's understanding of the applicable country's tax
rules and rates.
Distributions received from a Fund's investments in real estate investment
trusts ("REITs") may be comprised of return of capital, capital gains and
income. The actual character of the amounts received during the year is not
known until after the REITs' fiscal year end. A Fund records the character of
distributions received from the REITs during the year based on estimates
available. The characterization of distributions received by a Fund may be
subsequently revised based on information received from the REITs after their
tax reporting periods conclude.
D. OFFSETTING ON THE STATEMENTS OF ASSETS AND LIABILITIES
Offsetting Assets and Liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset on the
Statements of Assets and Liabilities, and disclose instruments and transactions
subject to master netting or similar agreements. These disclosure requirements
are intended to help investors and other financial statement users better assess
the effect or potential effect of offsetting arrangements on a fund's financial
position. The transactions subject to offsetting disclosures are derivative
instruments, repurchase agreements and reverse repurchase agreements, and
securities borrowing and securities lending transactions.
This disclosure, if applicable, is included within each Fund's Portfolio of
Investments under the heading "Offsetting Assets and Liabilities". For financial
reporting purposes, the Funds do not offset financial assets and financial
liabilities that are subject to master netting arrangements ("MNAs") or similar
agreements on the Statements of Assets and Liabilities. MNAs provide the right,
in the event of default (including bankruptcy and insolvency), for the
non-defaulting counterparty to liquidate the collateral and calculate the net
exposure to the defaulting party or request additional collateral.
E. SECURITIES LENDING
The Funds may lend securities representing up to 33 1/3% of the value of their
total assets to broker-dealers, banks and other institutions to generate
additional income. When a Fund loans its portfolio securities, it will receive,
at the inception of each loan, collateral equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
loaned securities. The collateral amount is valued at the beginning of each
business day and is compared to the market value of the loaned securities from
the prior business day to determine if additional collateral is required. If
additional collateral is required, a request is sent to the borrower. Securities
lending involves the risk that the Fund may lose money because the borrower of
the Fund's loaned securities fails to return the securities in a timely manner
or at all. The Fund could also lose money in the event of (i) a decline in the
value of the collateral provided for the loaned securities, (ii) a decline in
the value of any investments made with cash collateral or (iii) an increase in
the value of the loaned securities if the borrower does not increase the
collateral accordingly and the borrower fails to return the securities. These
events could also trigger adverse tax consequences for the Funds.
Page 43
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
Under the Funds' Securities Lending Agency Agreement, the securities lending
agent will generally bear the risk that a borrower may default on its obligation
to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the
Funds' securities lending agent and is responsible for executing the lending of
the portfolio securities to creditworthy borrowers. The Funds, however, will be
responsible for the risks associated with the investment of cash collateral. A
Fund may lose money on its investment of cash collateral, which may affect its
ability to repay the collateral to the borrower without the use of other Fund
assets. Each Fund that engages in securities lending receives compensation (net
of any rebate and securities lending agent fees) for lending its securities.
Compensation can be in the form of fees received from the securities lending
agent or dividends or interest earned from the investment of cash collateral.
The dividend and interest earned on the securities loaned is accounted for in
the same manner as other dividend and interest income. At December 31, 2017,
only TUSA had securities in the securities lending program.
In the event of a default by a borrower with respect to any loan, BBH will
exercise any and all remedies provided under the applicable borrower agreement
to make the Funds whole. These remedies include purchasing replacement
securities by applying the collateral held from the defaulting broker against
the purchase cost of the replacement securities. If, despite such efforts by BBH
to exercise these remedies, a Fund sustains losses as a result of a borrower's
default, BBH will indemnify the Fund by purchasing replacement securities at its
own expense, or paying the Fund an amount equal to the market value of the
replacement securities, subject to certain limitations which are set forth in
detail in the Securities Lending Agency Agreement between the Trust on behalf of
the Funds and BBH.
F. REPURCHASE AGREEMENTS
Repurchase agreements involve the purchase of securities subject to the seller's
agreement to repurchase the securities at a mutually agreed upon date and price,
under the terms of a Master Repurchase Agreement ("MRA"). During the term of a
repurchase agreement, the value of the underlying securities held as collateral
on behalf of a Fund, including accrued interest, is required to exceed the value
of the repurchase agreement, including accrued interest. The underlying
securities for all repurchase agreements are held at the Funds' custodian or
designated sub-custodians under tri-party repurchase agreements.
MRAs govern transactions between a Fund and select counterparties. The MRAs
contain provisions for, among other things, initiation, income payments, events
of default, and maintenance of collateral for repurchase agreements.
Repurchase agreements received for lending securities are collateralized by U.S.
Treasury securities. The U.S. Treasury securities are held in a joint custody
account at BBH on behalf of the Funds participating in the securities lending
program. In the event the counterparty defaults on the repurchase agreement, the
U.S. Treasury securities can either be maintained as part of a Fund's portfolio
or sold for cash. A Fund could suffer a loss to the extent that the proceeds
from the sale of the underlying collateral held by the Fund are less than the
repurchase price and the Fund's costs associated with the delay and enforcement
of the MRA.
While the Funds may invest in repurchase agreements, any repurchase agreements
held by the Funds during the period ended December 31, 2017, were received as
collateral for lending securities.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income of each Fund, if any, are declared and paid
quarterly, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by each Fund, if any, are distributed
at least annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Funds and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the period ended
December 31, 2017 was as follows:
Distributions Distributions
Distributions paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
------------------ ---------------- -----------------
First Trust Total US Market AlphaDEX(R) ETF $ 103,705 $ -- $ --
First Trust Dorsey Wright People's Portfolio ETF 163,136 -- --
First Trust Dow 30 Equal Weight ETF 16,690 -- --
Page 44
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
The tax character of distributions paid by each Fund during the year ended
December 31, 2016 was as follows:
Distributions Distributions
Distributions paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
------------------ ---------------- -----------------
First Trust Total US Market AlphaDEX(R) ETF $ 113,796 $ -- $ --
First Trust Dorsey Wright People's Portfolio ETF 59,491 -- --
As of December 31, 2017, the components of distributable earnings on a tax basis
for each Fund were as follows:
Accumulated
Undistributed Capital and Net Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
------------------ ---------------- -----------------
First Trust Total US Market AlphaDEX(R) ETF $ -- $ (671,943) $ 1,652,939
First Trust Dorsey Wright People's Portfolio ETF -- (986,519) 2,191,779
First Trust Dow 30 Equal Weight ETF 566 -- 58,696
H. 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, which includes distributing substantially all
of its net investment income and net realized gains to shareholders.
Accordingly, no provision has been made for federal and state income taxes.
However, due to the timing and amount of distributions, each Fund may be subject
to an excise tax of 4% of the amount by which approximately 98% of each Fund's
taxable income exceeds the distributions from such taxable income for the
calendar year.
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. For TUSA and DWPP, the taxable
years ending 2014, 2015, 2016, and 2017 remain open to federal and state audit.
For EDOW, the taxable year ending 2017 remains open for federal and state audit.
As of December 31, 2017, management has evaluated the application of these
standards to the Funds, and has determined that no provision for income tax is
required in the Funds' financial statements for uncertain tax positions.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses arising in taxable years after December 22, 2010, may be
carried forward indefinitely, and their character is retained as short-term
and/or long-term losses. Previously, net capital losses were carried forward for
up to eight years and treated as short-term losses. As a transition rule, the
Act requires that post-enactment net capital losses be used before pre-enactment
net capital losses. At December 31, 2017, for federal income tax purposes, each
Fund has capital loss carryforwards available as shown in the following table.
To the extent that these loss carryforwards are used to offset future capital
gains, it is probable that the capital gains so offset will not be distributed
to Fund shareholders. The Funds are subject to certain limitations, under U.S.
tax rules, on the use of capital loss carryforwards and net unrealized built-in
losses. These limitations apply when there has been a 50% change in ownership.
Capital Loss Post- Total
Available Enactment - Capital
Through No Loss
2018 Expiration Available
------------------ ---------------- -----------------
First Trust Total US Market AlphaDEX(R) ETF $ -- $ 671,943 $ 671,943
First Trust Dorsey Wright People's Portfolio ETF -- 986,519 986,519
First Trust Dow 30 Equal Weight ETF -- -- --
During the taxable year ended December 31, 2017, the following Funds utilized
capital loss carryforwards in the following amount:
Pre-Enactment Post-Enactment
Capital Loss Capital Loss
Carryforward Carryforward
Utilized Utilized
------------------ ----------------
First Trust Total US Market AlphaDEX(R) ETF $ -- $ 133,184
First Trust Dorsey Wright People's Portfolio ETF -- 74,478
Page 45
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
At the taxable year ended December 31, 2017, the following Fund's capital loss
carryforwards expired in the following amount:
Capital Loss
Carryforward
Expired
------------------
First Trust Total US Market AlphaDEX(R) ETF $ 2,421,122
In order to present paid-in capital, accumulated net investment income (loss)
and accumulated net realized gain (loss) on investments on the Statements of
Assets and Liabilities that more closely represent their tax character, certain
adjustments have been made to paid-in capital, accumulated net investment income
(loss) and accumulated net realized gain (loss) on investments. These
adjustments are primarily due to the difference between book and tax treatments
of income and gains on various investment securities held by the Funds and
in-kind transactions. The results of operations and net assets were not affected
by these adjustments. For the period ended December 31, 2017, the adjustments
for each Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss) Paid-in
Income (Loss) on Investments Capital
------------------ ---------------- -----------------
First Trust Total US Market AlphaDEX(R) ETF $ 5,577 $ 1,874,289 $ (1,879,866)
First Trust Dorsey Wright People's Portfolio ETF 1,401 (1,631,269) 1,629,868
First Trust Dow 30 Equal Weight ETF -- (155,036) 155,036
I. EXPENSES
Expenses that are directly related to First Trust Total US Market AlphaDEX(R)
ETF are charged directly to the Fund. Expenses for First Trust Dorsey Wright
People's Portfolio ETF and First Trust Dow 30 Equal Weight ETF (the "Unitary Fee
Funds"), other than excluded expenses (discussed in Note 3), are paid by the
Advisor. General expenses of the Trust are allocated to all the Funds based upon
the net assets of each Fund.
First Trust has entered into licensing agreements with each of the following
"Licensors" for the respective Funds:
FUND LICENSOR
First Trust Total US Market AlphaDEX(R) ETF Nasdaq, Inc.
First Trust Dorsey Wright People's Portfolio ETF Nasdaq, Inc.
First Trust Dow 30 Equal Weight ETF S&P Dow Jones Indices LLC
The respective license agreements allow for the use by First Trust of certain
trademarks and trade names of the respective Licensors. The Funds are
sub-licensees to the applicable license agreement. The First Trust Total US
Market AlphaDEX(R) ETF is required to pay licensing fees, which are shown on the
Statements of Operations.
J. NEW AND AMENDED FINANCIAL REPORTING RULES AND FORMS
On October 13, 2016, the SEC adopted new rules and forms, and amended existing
rules and forms. The new and amended rules and forms are intended to modernize
the reporting of information provided by funds and to improve the quality and
type of information that funds provide to the SEC and investors. In part, the
new and amended rules and forms amend Regulation S-X and require standardized,
enhanced disclosures about derivatives in a fund's financial statements, as well
as other amendments. The compliance date for the amendments of Regulation S-X
was August 1, 2017, which resulted in no change to the financial statements. The
new form types and other rule amendments will be effective for the First Trust
funds, including the Funds, for reporting periods beginning on and after June 1,
2018. Management is evaluating the new form types and other rule amendments that
are effective on and after June 1, 2018 to determine the impact to the Funds.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Funds, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in each Fund's portfolio, managing the Funds' business affairs and providing
certain administrative services necessary for the management of the Funds.
Page 46
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
For the First Trust Total US Market AlphaDEX(R) ETF, First Trust is paid an
annual management fee of 0.50% of the Fund's average daily net assets. For such
Fund, the Trust and the Advisor have entered into an Expense Reimbursement, Fee
Waiver and Recovery Agreement ("Recovery Agreement") in which First Trust has
agreed to waive fees and/or reimburse Fund expenses to the extent that the
operating expenses of the Fund (excluding interest expense, brokerage
commissions and other trading expenses, acquired fund fees and expenses, taxes
and extraordinary expenses) exceed 0.70% of average daily net assets per year
(the "Expense Cap"). The Expense Cap will be in effect until at least April 30,
2019.
Expenses reimbursed and fees waived by First Trust under the Recovery Agreement
are subject to recovery by First Trust for up to three years from the date the
fee was waived or expense was incurred, but no reimbursement payment will be
made by the Fund if it results in the Fund exceeding an expense ratio equal to
the Expense Cap in place at the time the expenses were reimbursed or fees were
waived by First Trust. This amount would be included in "Expenses previously
waived or reimbursed" on the Statements of Operations.
The advisory fee waivers and expense reimbursements for the year ended December
31, 2017 and fees waived or expenses borne by First Trust subject to recovery
from the Fund for the periods indicated were as follows:
Fees Waived and Expenses Borne by
First Trust Subject to Recovery
------------------------------------------------
Advisory Year Year Year
Fee Expense Ended Ended Ended
Waivers Reimbursement 12/31/2015 12/31/2016 12/31/2017 Total
--------- ------------- ---------- ---------- ---------- ---------
First Trust Total US Market AlphaDEX(R)
ETF $ 55,553 $ 55,043 $ 81,875 $ 112,511 $ 110,596 $ 304,982
For the First Trust Dorsey Wright People's Portfolio ETF and First Trust Dow 30
Equal Weight ETF, First Trust is paid an annual unitary management fee of 0.60%
and 0.50%, respectively, of such Fund's average daily net assets and is
responsible for the expenses of such Fund including the cost of transfer agency,
custody, fund administration, legal, audit, licensing and other services, but
excluding fee payments under the Investment Management Agreement, distribution
and service fees pursuant to a Rule 12b-1 plan, if any, brokerage commissions
and other expenses connected with the execution of portfolio transactions,
acquired fund fees and expenses, taxes, interest, and extraordinary expenses.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
each Fund. As custodian, BNYM is responsible for custody of each Fund's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of each Fund's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for each Fund. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated equally among each fund in the First Trust Fund
Complex. Each Independent Trustee is also paid an annual per fund fee that
varies based on whether the fund is a closed-end or other actively managed fund,
or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Independent Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and Committee
Chairmen rotate every three years. The officers and "Interested" Trustee receive
no compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the period ended December 31, 2017, the cost of purchases and proceeds from
sales of investments for each Fund, excluding short-term investments and in-kind
transactions, were as follows:
Purchases Sales
--------------- ---------------
First Trust Total US Market AlphaDEX(R) ETF $ 12,380,834 $ 12,328,098
First Trust Dorsey Wright People's Portfolio ETF 4,053,860 3,936,596
First Trust Dow 30 Equal Weight ETF 412,627 408,390
Page 47
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
For the period ended December 31, 2017, the cost of in-kind purchases and
proceeds from in-kind sales for each Fund were as follows:
Purchases Sales
--------------- ---------------
First Trust Total US Market AlphaDEX(R) ETF $ 7,668,111 $ 3,148,643
First Trust Dorsey Wright People's Portfolio ETF 30,052,689 6,755,886
First Trust Dow 30 Equal Weight ETF 4,085,163 2,112,294
5. CREATION, REDEMPTION AND TRANSACTION FEES
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares in transactions with broker-dealers or large
institutional investors that have entered into a participation agreement (an
"Authorized Participant"). Such transactions are generally permitted on an
in-kind basis, with a balancing cash component to equate the transaction to the
daily NAV per Share of each Fund on the transaction date times the number of
Shares in a Creation Unit. Authorized Participants purchasing First Trust Total
US Market AlphaDEX(R) ETF and First Trust Dow 30 Equal Weight ETF Creation Units
must pay to BNYM, as transfer agent, a standard creation transaction fee (the
"Creation Transaction Fee"), which is based on the number of different
securities in a Creation Unit of each Fund, according to the fee schedule set
forth below:
Number of Securities Creation
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-499 $1,000
500 or more $1,500
The standard creation transaction fee for First Trust Dorsey Wright People's
Portfolio ETF is currently $1,000.
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by a Fund with respect to
transactions effected outside of the clearing process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. The price for each Creation Unit will equal the daily
NAV per Share of a Fund on the transaction date times the number of Shares in a
Creation Unit plus the fees described above and, if applicable, any transfer
taxes.
Authorized Participants redeeming First Trust Total US Market AlphaDEX(R) ETF
and First Trust Dow 30 Equal Weight ETF Creation Units must pay to BNYM, as
transfer agent, a standard redemption transaction fee (the "Redemption
Transaction Fee"), which is based on the number of different securities in a
Creation Unit of each Fund, according to the fee schedule set forth below:
Number of Securities Redemption
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-499 $1,000
500 or more $1,500
The standard redemption transaction fee for First Trust Dorsey Wright People's
Portfolio ETF is currently $1,000.
The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable fee of up to three times the Redemption Transaction Fee may
be charged to approximate additional expenses incurred by a Fund with respect to
redemptions effected outside of the clearing process or to the extent that
redemptions are for cash. Each Fund reserves the right to effect redemptions in
cash. A shareholder may request cash redemption in lieu of securities; however,
a Fund may, in its discretion, reject any such request.
6. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
in the sale of Creation Units or the provision of investor services. FTP may
also use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
Page 48
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before April 30, 2019 for First
Trust Total US Market AlphaDEX(R) ETF and First Trust Dorsey Wright People's
Portfolio ETF, and August 1, 2019 for First Trust Dow 30 Equal Weight ETF.
7. INDEMNIFICATION
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined there
were no subsequent events requiring recognition or disclosure in the financial
statements that have not already been disclosed.
Page 49
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST EXCHANGE-TRADED
FUND:
OPINION ON THE FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS
We have audited the accompanying statements of assets and liabilities of First
Trust Total US Market AlphaDEX(R) ETF, First Trust Dorsey Wright People's
Portfolio ETF (formerly known as First Trust CBOE(R) S&P 500(R) VIX(R) Tail
Hedge Fund), and First Trust Dow 30 Equal Weight ETF (the "Funds"), each a
series of the First Trust Exchange-Traded Fund (the "Trust"), including the
portfolios of investments, as of December 31, 2017, the related statements of
operations for the year then ended and the statements of changes in net assets
and the financial highlights for each of the periods presented, and the related
notes. In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
portfolios constituting the First Trust Exchange-Traded Fund as of December 31,
2017, and the results of their operations for the year then ended and the
changes in their net assets and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States of America.
BASIS FOR OPINION
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on the Funds'
financial statements and financial highlights based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to
the Funds in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Funds are not
required to have, nor were we engaged to perform, an audit of their internal
control over financial reporting. As part of our audits we are required to
obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements and financial highlights. Our audits
also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2017, by correspondence with
the custodian. We believe that our audits provide a reasonable basis for our
opinion.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 23, 2018
We have served as the auditor of one or more First Trust investment companies
since 2001.
Page 50
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Funds' website located at www.ftportfolios.com; and (3) on the Securities
and Exchange Commission's ("SEC") website at www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of each Fund's portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q. The
Trust's Form N-Qs are available (1) by calling (800) 988-5891; (2) on the Funds'
website located at www.ftportfolios.com; (3) on the SEC's website at
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 period ended December 31, 2017, the following percentages of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
----------------------------
First Trust Total US Market AlphaDEX(R) ETF 100.00%
First Trust Dorsey Wright People's Portfolio ETF 100.00%
First Trust Dow 30 Equal Weight ETF 100.00%
For the taxable period ended December 31, 2017, the following percentages of
income dividends paid by the Funds are hereby designated as qualified dividend
income:
Qualified Dividend Income
----------------------------
First Trust Total US Market AlphaDEX(R) ETF 100.00%
First Trust Dorsey Wright People's Portfolio ETF 100.00%
First Trust Dow 30 Equal Weight ETF 100.00%
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER EACH FUND'S INVESTMENT
OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN
DOWNLOAD EACH FUND'S PROSPECTUS AT WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST
PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS THIS
AND OTHER INFORMATION ABOUT EACH FUND. FOR ADDITIONAL INFORMATION ABOUT THE
RISKS ASSOCIATED WITH INVESTING IN THE FUNDS, PLEASE SEE THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION, AS WELL AS OTHER REGULATORY FILINGS. READ THESE
DOCUMENTS CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS THE
DISTRIBUTOR OF THE FIRST TRUST EXCHANGE-TRADED FUND.
The following summarizes some of the risks that should be considered for the
Funds.
Each Fund's shares will change in value, and you could lose money by investing
in a Fund. Shares are subject to market fluctuations caused by such factors as
economic, political, regulatory or market developments, changes in interest
rates and perceived trends in stock prices. Overall stock values could decline
generally or could underperform other investments. Overall stock market values
could decline generally or could underperform other investments.
An investment in a Fund involves risks similar to those of investing in any fund
of equity securities traded on an exchange. Investors buying or selling Fund
shares on the secondary market may incur brokerage commissions. In addition,
investors who sell Fund shares may receive less than the Fund shares' net asset
value. Unlike shares of open-end funds, investors are generally not able to
purchase exchange-traded fund ("ETF") shares directly from a Fund and individual
ETF shares are not redeemable. However, specified large blocks of ETF shares
called creation units can be purchased from, or redeemed to, a Fund.
Each Fund is subject to index tracking risk. You should anticipate that the
value of Fund shares will decline, more or less, in correlation with any decline
in the value of the index that the Fund seeks to track.
Each Fund's return may not match the return of the index it seeks to track for a
number of reasons. While First Trust seeks to have a correlation of 0.95 or
better, before expenses, between a Fund's performance and the performance of its
corresponding index, there can be no assurance that a Fund will be able to
achieve such a correlation. Accordingly, each Fund's performance may correlate
to a lesser extent and may possibly vary substantially from the performance of
its corresponding index.
Page 51
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
Only a party that has entered into a participation agreement (an "authorized
participant") may engage in creation or redemption transactions directly with
the Funds. The Funds have a limited number of institutions that act as
authorized participants. To the extent that these institutions exit the business
or are unable to proceed with creation and/or redemption orders with respect to
the Funds and no other authorized participant is able to step forward to create
or redeem, in either of these cases, Fund shares may trade at a discount to a
Fund's net asset value and possibly face delisting.
The Funds have become more susceptible to potential operational risks through
breaches in cyber security as the use of Internet technology has become more
prevalent in the course of business. Cyber security breaches may involve
unauthorized access to a Fund's digital information systems or those of a Fund's
third party service providers, such as its administrator, transfer agent,
custodian, or issuers in which a Fund invests. The Funds have established risk
management systems designed to reduce the risks associated with cyber security,
however, there is no guarantee that such efforts will succeed.
Each Fund is also exposed to additional market risk due to a policy of investing
principally in the securities included in its corresponding index. As a result
of such policies, securities held by each Fund will generally not be bought or
sold in response to market fluctuations and the securities may be issued by
companies concentrated in a particular industry. As a result, each Fund will
generally not sell a stock because the stock's issuer is in financial trouble,
unless that stock is removed or is anticipated to be removed from the index the
Fund seeks to track.
Each Fund relies on a license from an index provider that permits the Fund to
use its corresponding index and associated trade names and trademarks in
connection with the name and investment strategies of the Fund. Such licenses
may be terminated by the respective index provider and, as a result, each Fund
may lose its ability to use such intellectual property. There is also no
guarantee that the index provider has all rights to license the respective
intellectual property to First Trust, on behalf of the Fund. Accordingly, in the
event the license is terminated or the index provider does not have rights to
license the particular intellectual property, it may have a significant effect
on the operation of the related Fund.
Each Fund is subject to issuer specific changes risk. The value of an individual
security or a particular type of security can be more volatile than the market
as a whole and can perform differently from the value of the market as a whole.
Each Fund will be concentrated in the securities of companies of a given
industry if the Fund's corresponding index is concentrated in such industry. A
concentration makes a Fund more susceptible to any single occurrence affecting
the related industry and may subject a Fund to greater market risk than less
concentrated funds.
The First Trust Dorsey Wright People's Portfolio ETF and First Trust Dow 30
Equal Weight ETF are each considered to be non-diversified. As a result, the
Funds are exposed to additional market risk. A non-diversified fund may invest a
relatively high percentage of its assets in a limited number of issuers. As a
result, changes in the market value of a single portfolio security could cause
greater fluctuations in share price than would occur in a diversified fund.
Furthermore, non-diversified funds are more susceptible to any single political,
regulatory or economic occurrence.
The Funds are not actively managed. The Funds may be affected by a general
decline in certain market segments relating to their corresponding index. The
Funds invest in securities included in or representative of their corresponding
index regardless of their investment merit. The Funds generally will not attempt
to take defensive positions in declining markets.
The First Trust Total US Market AlphaDEX(R) ETF, First Trust Dorsey Wright
People's Portfolio ETF and First Trust Dow 30 Equal Weight ETF invest in
securities of companies in the information technology industry. Information
technology companies are generally subject to the risks of rapidly changing
technologies; short product life cycles; fierce competition; and aggressive
pricing and reduced profit margins.
The Funds may invest in small capitalization and mid-capitalization companies.
Such companies' securities may be less liquid and may experience greater price
volatility than securities of larger, more established companies.
Because a Fund's corresponding index may include American Depositary Receipts
("ADRs"), American Depositary Shares ("ADSs") and/or stocks of non-U.S.
companies, the investments of the Funds involve risks of investing in non-U.S.
securities that are in addition to the risk associated with domestic securities.
Non-U.S. companies, in general, are not subject to the regulatory requirements
of U.S. companies and, as such, there may be less publicly available information
about these companies. Moreover, non-U.S. accounting, auditing and financial
reporting standards generally are different from those applicable to U.S.
companies. In addition, non-U.S. companies are exposed to additional economic,
political, social or diplomatic events. ADRs and ADSs also involve substantially
identical risks to those associated with investments in non-U.S. securities. In
addition, the issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities.
Page 52
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
Each Fund currently has fewer assets than larger funds and large inflows and
outflows may have a positive or negative impact on the Fund's market exposure
for limited periods of time.
The First Trust Total US Market AlphaDEX(R) ETF invests in consumer
discretionary companies that provide non-essential goods and services directly
to the consumer. The success of these companies is tied closely to the
performance of the overall domestic and international economies, interest rates,
competition, consumer confidence, disposable household income and consumer
spending. Changes in demographics and consumer tastes can affect the demand for
and success of these products.
The First Trust Dorsey Wright People's Portfolio ETF invests in T-Bills whose
income could decline during periods of falling interest rates.
During periods of positive stock market performance, the returns of The First
Trust Dorsey Wright People's Portfolio ETF may be lower if the Fund's net assets
are allocated to T-Bills. Momentum can turn quickly and cause significant
variation from other types of investments.
The First Trust Dorsey Wright People's Portfolio ETF invests in U.S. government
obligations including U.S. Treasury obligations and securities issued or
guaranteed by various agencies of the U.S. government or by various
instrumentalities, which have been established or sponsored by the U.S.
government. U.S. Treasury obligations are back by the "full faith and credit" of
the U.S. government. Securities issued or guaranteed by federal agencies and
U.S. government sponsored instrumentalities may or may not be backed by the full
faith and credit of the U.S. government.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
BOARD CONSIDERATIONS REGARDING APPROVAL OF THE INVESTMENT MANAGEMENT AGREEMENT
The Board of Trustees (the "Board") of First Trust Exchange-Traded Fund (the
"Trust"), including the Independent Trustees, unanimously approved the
Investment Management Agreement (the "Agreement") with First Trust Advisors L.P.
(the "Advisor"), on behalf of First Trust Dow 30 Equal Weight ETF (the "Fund"),
for an initial two-year term at a meeting held on June 11-12, 2017. The Board
determined that the Agreement is in the best interests of the Fund in light of
the extent and quality of the services expected to be provided and such other
matters as the Board considered to be relevant in the exercise of its reasonable
business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreement for
the Fund, the Independent Trustees received a report from the Advisor in advance
of the Board meeting responding to a request for information provided on behalf
of the Independent Trustees that, among other things, outlined the services to
be provided by the Advisor to the Fund (including the relevant personnel
responsible for these services and their experience); the proposed unitary fee
rate payable by the Fund as compared to fees charged to a peer group of funds
(all of which were exchange-traded funds ("ETFs")) compiled by Management
Practice, Inc. ("MPI"), an independent source (the "MPI Peer Group"), and as
compared to fees charged to other clients of the Advisor, including other ETFs
managed by the Advisor; the estimated expenses of the Fund as compared to the
expense ratios of the funds in the MPI Peer Group; the nature of the expenses to
be incurred in providing services to the Fund and the potential for economies of
scale, if any; financial data on the Advisor; any fall-out benefits to the
Advisor and its affiliate, First Trust Portfolios L.P. ("FTP"); and information
on the Advisor's compliance program. The Independent Trustees also met
separately with their independent legal counsel to discuss the information
provided by the Advisor. The Board applied its business judgment to determine
whether the arrangement between the Trust and the Advisor is a reasonable
business arrangement from the Fund's perspective as well as from the perspective
of shareholders.
In evaluating whether to approve the Agreement for the Fund, the Board
considered the nature, extent and quality of the services to be provided by the
Advisor under the Agreement and considered that employees of the Advisor provide
management services to other ETFs and to other investment companies in the First
Trust fund complex with diligence and care. The Board considered that the
Advisor will be responsible for the overall management and administration of the
Fund and reviewed all of the services to be provided by the Advisor to the Fund.
The Board considered the background and experience of the persons who will be
responsible for the day-to-day management of the Fund. In reviewing the services
to be provided, the Board considered the compliance program that had been
developed by the Advisor and considered that it includes a robust program for
monitoring the Advisor's and the Fund's compliance with the 1940 Act, as well as
the Fund's compliance with its investment objective and policies. Since the Fund
had yet to commence investment operations, the Board could not consider the
historical investment performance of the Fund, but the Board did consider the
hypothetical investment performance of the underlying index. The Board
considered reports it receives on a quarterly basis showing the correlation and
tracking error between other ETFs for which the Advisor serves as investment
Page 53
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
advisor and their applicable underlying indexes. In light of the information
presented and the considerations made, the Board concluded that the nature,
extent and quality of the services to be provided to the Fund by the Advisor
under the Agreement are expected to be satisfactory.
The Board considered the proposed unitary fee rate payable by the Fund under the
Agreement for the services to be provided. The Board noted that, under the
unitary fee arrangement, the Fund would pay the Advisor a unitary fee equal to
an annual rate of 0.50% of its average daily net assets. The Board noted that
the Advisor would be responsible for the Fund's expenses, including the cost of
transfer agency, custody, fund administration, legal, audit and other services
and license fees (if any), but excluding the fee payments under the Agreement,
interest, taxes, brokerage commissions and other expenses connected with the
execution of portfolio transactions, distribution and service fees pursuant to a
Rule 12b-1 plan, if any, and extraordinary expenses. The Board received and
reviewed information for the Fund showing the unitary fee rates and expense
ratios of the peer funds in the MPI Peer Group, as well as advisory fee rates
and expense ratios charged by the Advisor to other fund (including ETFs) and
non-fund clients, as applicable. Because the Fund's MPI Peer Group included peer
funds that pay a unitary fee and because the Fund will pay a unitary fee, the
Board determined that expense ratios were the most relevant comparative data
point. Based on the information provided, the Board noted that the unitary fee
for the Fund was above the median total (net) expense ratio of the peer funds in
its MPI Peer Group. With respect to the MPI Peer Group, the Board discussed with
representatives of the Advisor how the MPI Peer Group was assembled and how the
Fund compared and differed from the peer funds. The Board took these limitations
and differences into account in considering the peer data. With respect to fees
charged to other clients, the Board considered differences between the Fund and
other clients that limited their comparability. The Board noted that the Fund's
unitary fee rate was lower than the total (net) expense ratios of comparable
equal weighted index ETFs advised by the Advisor. In light of the information
considered and the nature, extent and quality of the services expected to be
provided to the Fund under the Agreement, the Board determined that the proposed
unitary fee for the Fund was fair and reasonable.
The Board noted that the proposed unitary fee for the Fund was not structured to
pass the benefits of any economies of scale on to shareholders as the Fund's
assets grow. The Board noted that any reduction in fixed costs associated with
the management of the Fund would benefit the Advisor, but that the unitary fee
structure provides a level of certainty in expenses for the Fund. The Board
noted that the Advisor has continued to invest in personnel and infrastructure
for the First Trust fund complex. The Board took the types of costs to be borne
by the Advisor in connection with its services to be performed for the Fund
under the Agreement into consideration and noted that the Advisor was unable to
estimate the profitability of the Agreement for the Fund to the Advisor. The
Board considered fall-out benefits described by the Advisor that may be realized
from its and FTP's relationship with the Fund. The Board also noted that the
Advisor would not utilize soft dollars in connection with its management of the
Fund's portfolio. The Board concluded that the character and amount of potential
fall-out benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement are fair and reasonable and that the approval of the Agreement
is in the best interests of the Fund. No single factor was determinative in the
Board's analysis.
Page 54
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
The following tables identify the Trustees and Officers of the Trust. Unless
otherwise indicated, the address of all persons is 120 E. Liberty Drive, Suite
400, Wheaton, IL 60187.
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS
NAME, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE
YEAR OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 151 None
(1951) Limited Partner, Gundersen Real Estate
o Since Inception Limited Partnership (June 1992 to
December 2016); Member, Sportsmed LLC
(April 2007 to November 2015)
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investors Services, Inc. 151 Director of ADM
(1957) (Futures Commission Merchant) Investor Services,
o Since Inception Inc., ADM
Investor Services
International,
Futures Industry
Association, and
National Futures
Association
Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 151 Director of Trust
(1956) Management Consulting) Company of
o Since Inception Illinois
Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating 151 Director of
(1954) Officer (January 2015 to Present), Pelita Covenant
o Since Inception Harapan Educational Foundation Transport Inc.
(Educational Products and Services); (May 2003 to
President and Chief Executive Officer May 2014)
(June 2012 to September 2014), Servant
Interactive LLC (Educational Products and
Services); President and Chief Executive
Officer (June 2012 to September 2014),
Dew Learning LLC (Educational Products
and Services)
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 151 None
Chairman of the Board Advisors L.P. and First Trust Portfolios
(1955) o Since Inception L.P.; Chairman of the Board of Directors,
BondWave LLC (Software Development
Company) and Stonebridge Advisors LLC
(Investment Advisor)
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 55
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
POSITION AND TERM OF OFFICE
NAME AND OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
YEAR OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer
(1966) Executive Officer (January 2016 to Present), Controller (January 2011
o Since January 2016 to January 2016), Senior Vice President (April 2007
to January 2016), First Trust Advisors L.P. and First
Trust Portfolios L.P.; Chief Financial Officer (January
2016 to Present), BondWave LLC (Software
Development Company) and Stonebridge Advisors
LLC (Investment Advisor)
Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice
(1972) Officer and Chief President (April 2012 to July 2016), First Trust
Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
(1960) Legal Officer Trust Portfolios L.P.; Secretary and General Counsel,
o Since Inception BondWave LLC; and Secretary, Stonebridge
Advisors LLC
Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and
(1970) First Trust Portfolios L.P.
o Since Inception
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
(1966) and Assistant Secretary and First Trust Portfolios L.P.
o Since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1966) and First Trust Portfolios L.P.
o Since Inception
Stan Ueland Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
(1970) and First Trust Portfolios L.P.
o Since Inception
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 56
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2017 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your personal
information as described above to unaffiliated financial service providers
and other companies that perform administrative or other services on our
behalf, such as transfer agents, custodians and trustees, or that assist
us in the distribution of investor materials such as trustees, banks,
financial representatives, proxy services, solicitors and printers.
o We may release information we have about you if you direct us to do so, if
we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
USE OF WEBSITE ANALYTICS
We currently use third party analytics tools, Google Analytics and AddThis, to
gather information for purposes of improving First Trust's website and marketing
our products and services to you. These tools employ cookies, which are small
pieces of text stored in a file by your web browser and sent to websites that
you visit, to collect information, track website usage and viewing trends such
as the number of hits, pages visited, videos and PDFs viewed and the length of
user sessions in order to evaluate website performance and enhance navigation of
the website. We may also collect other anonymous information, which is generally
limited to technical and web navigation information such as the IP address of
your device, internet browser type and operating system for purposes of
analyzing the data to make First Trust's website better and more useful to our
users. The information collected does not include any personal identifiable
information such as your name, address, phone number or email address unless you
provide that information through the website for us to contact you in order to
answer your questions or respond to your requests. To find out how to opt-out of
these services click on: Google Analytics and AddThis.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
May 2017
Page 57
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
FIRST TRUST
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless
of whether these individuals are employed by the registrant or a third
party.
(c) There have been no amendments, during the period covered by this report,
to a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party, and that relates to any element of the code of ethics
description.
(d) The registrant has not granted any waivers, including an implicit waiver,
from a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party, that relates to one or more of the items set forth in
paragraph (b) of this item's instructions.
(e) Not applicable.
(f) The code of ethics is filed as an exhibit to the Registrant's annual
report on this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of
trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each of them is "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees -- The aggregate fees billed for each of the last two
fiscal years for professional services rendered by the principal accountant for
the audit of the registrant's annual financial statements or services that are
normally provided by the accountant in connection with statutory and regulatory
filings or engagements were $380,000 for 2016 and $380,000 for 2017.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in each
of the last two fiscal years, for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported under paragraph
(a) of this Item were $1,746 for 2016 and $0 for 2017.
Audit-Related Fees (Investment Adviser and Distributor) -- The aggregate
fees billed in each of the last two fiscal years for assurance and related
services by the principal accountant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item were $0 for 2016 and $3,500 for 2017.
(c) Tax Fees (Registrant) -- The aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning to the registrant were $55,575
for 2016 and $55,575 for 2017. The tax fees were for review of regulated
investment company status.
Tax Fees (Investment Adviser and Distributor) -- The aggregate fees billed
in each of the last two fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning to the
registrant's adviser and distributor were $0 for 2016 and $0 for 2017.
(d) All Other Fees (Registrant) -- The aggregate fees billed in each of
the last two fiscal years for products and services provided by the principal
accountant to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 for 2016 and $0 for 2017.
All Other Fees (Investment Adviser and Distributor) -- The aggregate fees
billed in each of the last two fiscal years for products and services provided
by the principal accountant to the registrant's investment adviser and
distributor, other than the services reported in paragraphs (a) through (c) of
this Item were $ 0 for 2016 and $0 for 2017.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the registrant, if the engagement relates
directly to the operations and financial reporting of the registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the registrant and the registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the pre-approval
exceptions included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser),
and any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for 2016 were $55,575
for the registrant, $13,000 for the registrant's investment adviser and $32,500
for the registrant's distributor and for 2017 were $55,575 for the registrant,
$44,000 for the registrant's investment adviser and $63,400 for the registrant's
distributor .
(h) The registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEMS 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has a separately designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934
consisting of all the independent directors of the Registrant. The audit
committee of the registrant is comprised of: Richard E. Erickson, Thomas R.
Kadlec, Robert F. Keith and Niel B. Nielson.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407 (c) (2) (iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22 (b) (15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3 (c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal quarter of
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT
INVESTMENT COMPANIES.
(a) Not applicable.
(b) Not applicable.
ITEM 13. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not Applicable
(a)4) Not Applicable
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Exchange-Traded Fund
-------------------------------------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: February 23, 2018
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: February 23, 2018
-------------------
By (Signature and Title)* /s/ Donald P. Swade
----------------------------------------
Donald P. Swade, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: February 23, 2018
-------------------
* Print the name and title of each signing officer under his or her signature.