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 811-21944
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First Trust Exchange-Traded Fund II
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 765-8000
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Date of fiscal year end: September 30
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Date of reporting period: March 31, 2009
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. 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 semi-annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
[LOGO OMITTED] FIRST TRUST
First Trust Exchange-Traded Fund II
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First Trust Dow Jones STOXX(R) European Select Dividend
Index Fund
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate
Index Fund
First Trust Dow Jones Global Select Dividend Index Fund
First Trust ISE Global Wind Energy Index Fund
First Trust ISE Global Engineering and Construction
Index Fund
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Semi-Annual Report
March 31, 2009
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Front Cover
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TABLE OF CONTENTS
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First Trust Exchange-Traded Fund II
March 31, 2009
Shareholder Letter 2
Market Overview 3
Fund Performance Overview
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund 4
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 6
First Trust Dow Jones Global Select Dividend Index Fund 8
First Trust ISE Global Wind Energy Index Fund 10
First Trust ISE Global Engineering and Construction Index Fund 12
Notes to Fund Performance Overview 14
Understanding Your Fund Expenses 15
Portfolio of Investments
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund 17
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 19
First Trust Dow Jones Global Select Dividend Index Fund 23
First Trust ISE Global Wind Energy Index Fund 26
First Trust ISE Global Engineering and Construction Index Fund 28
Statements of Assets and Liabilities 30
Statements of Operations 32
Statements of Changes in Net Assets 34
Financial Highlights 38
Notes to Financial Statements 41
Additional Information 48
Risk Considerations 51
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CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the
meaning of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended. Forward-looking statements include
statements regarding the goals, beliefs, plans or current expectations of
First Trust Advisors L.P. ("First Trust" or the "Advisor") and its
respective 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 II (the
"Trust") to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements.
When evaluating the information included in this report, you are
cautioned not to place undue reliance on these forward-looking
statements, which reflect the judgment of the Advisor and its respective
representatives only as of the date hereof. We undertake no obligation to
publicly revise or update these forward-looking statements to reflect
events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any series of the Trust described in this
report (individually, each such series is referred to as a "Fund" and
collectively, the "Funds") will achieve its investment objective. Each
Fund is subject to market risk, which is the possibility that the market
values of securities owned by the Fund will decline and that the value of
the Fund shares may therefore be less than what you paid for them.
Accordingly, you can lose money investing in a Fund. See "Risk
Considerations" at the end of this report for a discussion of other risks
of investing in the Funds.
Performance data quoted represents past performance, which is no
guarantee of future results, and current performance may be lower or
higher than the figures shown. For the most recent month-end performance
figures, please visit http://www.ftportfolios.com or speak with your
financial advisor. Investment returns, net asset value and share price
will fluctuate and Fund shares, when sold, may be worth more or less than
their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your
investment. It includes details about each Fund's portfolio and presents
data and analysis that provide insight into each Fund's performance and
investment approach.
By reading the portfolio commentary by Robert F. Carey, Chief Investment
Officer of the Advisor, you may obtain an understanding of how the market
environment affected the performance of each Fund. The statistical
information that follows may help you understand each Fund's performance
compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel
of the Advisor are just that: informed opinions. They should not be
considered to be promises or advice. The opinions, like the statistics,
cover the period through the date on the cover of this report. The risks
of investing in each Fund are spelled out in its prospectus, statement of
additional information, this report and other regulatory filings.
Page 1
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SHAREHOLDER LETTER
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First Trust Exchange-Traded Fund II
Semi-Annual Report
March 31, 2009
Dear Shareholders:
The past 18 months have been difficult for the U.S. economy and for many
investors. Throughout 2008, the financial sector was plagued with
failures by banking, insurance and brokerage firms. By year's end, after
a meltdown in the credit markets, historically high levels of volatility
in the stock market, and the resulting turmoil to the overall economy,
the Dow Jones Industrial Average's (the "Dow") total return was -31.92% (as
of 12/31/08). In fact, 2008 was the Dow's third worst calendar year since
its inception in 1896. For the year, the negative total return
performance of the Dow was surpassed only by 1931 and 1907, two years in
which the U.S. was also enduring a major banking crisis. Of the thirty
stocks in the Dow, only two were up in 2008.
The first quarter of 2009 has given investors hope that perhaps there is
light at the end of the tunnel, as the Dow has posted positive numbers
for several weeks and there are other economic signs of recovery.
However, no one knows how long the current recession will last and when
the markets will recover, and we are not in the business of predicting
such things. Regardless of the market, First Trust Advisors L.P. ("First
Trust") has always believed that in order to be successful in reaching
your financial goals, you should be invested for the long term. A
long-term investor understands that the market, from a historical
perspective, experiences ups and downs. But history has shown that the
patient investor is typically rewarded over the long term. We believe
that staying invested in quality products and having a long-term
perspective can help investors reach their financial goals.
The report you hold contains detailed information about the Funds that
comprise First Trust Exchange-Traded Fund II for the six-month period
ended March 31, 2009. It contains each Fund's performance review and
financial statements for the period. I encourage you to read this
document and discuss it with your financial advisor.
First Trust has been through many types of markets and remains committed
to bringing you quality investment solutions regardless of the inevitable
ups and downs experienced in the market. We offer a variety of products
that may fit many financial plans to help investors seeking long-term
investment success. As well, we are committed to making available up-to-date
information about your investments so you and your financial advisor are
always current on your portfolio.
We continue to value our relationship with you, and we thank you for the
opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
President of First Trust Exchange-Traded Fund II
Page 2
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MARKET OVERVIEW
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First Trust Exchange-Traded Fund II
Semi-Annual Report
March 31, 2009
[PHOTO OMITTED] Robert F. Carey, CFA
Senior Vice President and Chief Investment Officer
First Trust Advisors L.P.
Mr. Carey is responsible for the overall management of
research and analysis of the First Trust product line.
Mr. Carey has 21 years of experience as an Equity and
Fixed-Income Analyst and is a recipient of the
Chartered Financial Analyst ("CFA") designation. He is
a graduate of the University of Illinois at
Champaign-Urbana with a B.S. in Physics. He is also a
member of the Investment Analysts Society of Chicago
and the CFA Institute. Mr. Carey has appeared as a
guest on such programs as Bloomberg TV, CNBC, and WBBM
Radio, and has been quoted by several publications,
including The Wall Street Journal, The Wall Street
Reporter, Bloomberg News Service, and Registered Rep.
State of the Global Economy
Despite the severe turbulence in the global securities markets over the
past two quarters (fourth quarter of 2008 and first quarter of 2009), a
good deal of progress was made with respect to reviving the credit
markets. A couple of metrics suggest that the debt markets are thawing
and a good chunk of the credit, in our opinion, can go to the programs
initiated by the Federal Reserve. The TED spread (gap between 3-month
Treasury Bills and 3-month LIBOR) was at 83 basis points on March 31,
2009, down from its widest point of 463 basis points in October 2008. The
lower the spread the more likely we are to see interbank lending. LIBOR
(London interbank offered rate) tracks the interest banks charge each
other. The 3-month LIBOR rate was 1.04% on March 31, 2009, down from
4.82% on October 10, 2008.
The process of stabilizing some of the world's largest banking,
brokerage, and insurance institutions is at 18 months and counting. The
Obama Administration picked up where the Bush Administration left off in
February, but hit the accelerator in March. After stumbling a bit at the
start, U.S. Treasury Secretary Timothy Geithner finally delivered the
details of the Administration's expanded recovery plan. The equity
markets responded favorably to Geithner's multi-pronged approach,
particularly the scope of the support for dealing with toxic assets.
Due to the fallout from subprime mortgages and other toxic assets, global
economic activity is expected to contract by 1.3% in 2009, according to
the International Monetary Fund (IMF). Global growth was closer to 5.0%
prior to the meltdown in the Financials sector. Financial companies in
the U.S. and Europe were impacted the most. The IMF sees global growth
resuming in 2010. It is calling for a GDP growth rate of 1.9%.
Global Markets
In our last Annual Report, we noted that the U.S. consumption-driven
economy is still the primary engine that fuels global growth. Emerging
Markets may grow at a faster clip, but they are not mature enough to
expand if the U.S. is in recession. Despite the fact that the U.S. is the
epicenter of the systemic financial meltdown, it and its currency are
still highly regarded by investors around the globe. How do we know this
to be the case? The U.S. dollar ("USD") appreciated 11.0% against a
basket of major currencies from 9/30/08-03/31/09. The price of an ounce
of gold bullion, another traditional safe haven, rose by only 5.5% over
that same span.
For the six-month period ended March 31, 2009, the MSCI World (ex U.S.)
and MSCI Emerging Markets indices were down 31.5% (USD) and 27.3% (USD),
respectively. The S&P 500 Index fell 30.5%. Since equities are
essentially down significantly across the board, we envision a "rising
tides lifts all boats" rebound in the global securities markets once the
economic recovery is established. Some asset classes may rebound faster
than others, but we do not necessarily believe that investors need to
dramatically overhaul their holdings if they are already reasonably
diversified.
Page 3
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FUND PERFORMANCE OVERVIEW
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FDD - FIRST TRUST DOW JONES STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND
First Trust Dow Jones STOXX(R) European Select 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 Dow Jones STOXX(R) Select Dividend 30 Index (the "STOXX Index"). The
Shares of the Fund are listed and trade on the NYSE Arca(R) under the
ticker symbol "FDD." The Fund will normally invest at least 90% of its
assets in non-U.S. common stocks that comprise the STOXX Index or in
depositary receipts that may include American Depositary Receipts, Global
Depositary Receipts, European Depositary Receipts, New York shares or
global shares representing securities in the Index. The Fund began
trading on August 30, 2007.
The STOXX Index consists of 30 securities selected from the Dow Jones
STOXX(R) 600 Index, including secondary lines of those companies (where
there are multiple lines of equity capital in a company), which includes
the highest dividend-yielding companies across 18 European countries:
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland,
Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland and the United Kingdom. The STOXX Index is compiled
and maintained by STOXX Limited. Only dividend-paying companies in the
Dow Jones STOXX(R) 600 Index (including secondary lines of those
companies) are considered for inclusion in the STOXX Index. In addition,
a company must have a non-negative five-year dividend-per-share growth
rate and a dividend-to-earnings ratio of 60% or less.
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Performance as of March 31, 2009
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Average Annual Cumulative
Total Returns Total Returns
Six Months Ended One Year Ended Inception (08/27/07) Inception (08/27/07)
03/31/09 03/31/09 to 03/31/09 to 03/31/09
Fund Performance
NAV -42.46% -63.80% -51.05% -67.99%
Market Price -41.32% -63.09% -50.19% -67.08%
Index Performance
Dow Jones STOXX(R) Select Dividend 30 Index -41.09% -63.90% -50.46% -67.37%
Dow Jones STOXX(R) 600 Index -34.05% -49.99% -36.59% -51.64%
MSCI Europe Index -34.03% -49.91% -36.51% -51.54%
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(See Notes to Fund Performance Overview on page 14.)
PERFORMANCE REVIEW
The Fund's six-month NAV return of -42.46% underperformed the benchmark
MSCI Europe Index return of -34.0% by -8.5%. While the local return of
the Fund ("local return" refers to a return without any currency effect,
i.e. the rate of return in an asset's local currency) was -34.9%, the
effect of holding foreign currency served to detract another -7.8% from
total return as flows to U.S. Treasuries generally pushed the U.S. dollar
higher. The effect was most noticeable in the Pound Sterling as it fell
sharply amid aggressive rate cutting and a deepening recession; the Pound
Sterling's drop of -19.6% detracted -6.6% from the Fund's return. On a
local basis, holdings in the U.K. were the primary drag on performance,
with consumer electronic retailer DSG International being the primary
laggard as it returned -81.5% and detracted -6.9% from total return (on a
local basis). DSG International faced multiple headwinds during the
period including a very weak consumer spending outlook in the U.K., a
highly leveraged capital structure (operationally and financially), and
the pending entrance of U.S. competitor Best Buy. Euro-denominated stocks
also performed poorly during the period, returning -35.6% on a local
basis; as in the U.K., financial stocks were a major drag on local
performance, as deteriorating economies and falling land prices hurt the
performance of most banks. Institutional investment company Man Group plc
contributed the most to positive return, as the stock returned 31.8%
since its purchase on March 6, 2009.
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Top Five and Bottom Five Performing Stocks
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(by contribution to return over the six months ended March 31, 2009)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Man Group PLC NKT Holding A/S
Koninklijke BAM Groep N.V. Lloyds Banking Group PLC
Vallourec SA United Utilities Group PLC
BNP Paribas SA voestalpine AG
Koninklijke Boskalis Westminster N.V. DSG International PLC
Page 4
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FUND PERFORMANCE OVERVIEW (Continued)
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FDD - FIRST TRUST DOW JONES STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND
(Continued)
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Portfolio Sector Allocation as of March 31, 2009
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% of Total
Sector Long-Term Investments
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Industrials 34.1%
Financials 29.0
Utilities 12.7
Telecommunication Services 10.7
Materials 10.6
Consumer Staples 1.6
Energy 1.3
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Total 100.0%
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Top Ten Portfolio Holdings as of March 31, 2009
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% of Total
Security Long-Term Investments
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Koninklijke BAM Groep N.V 7.9%
Man Group PLC 7.0
Banco Santander SA 5.4
Brit Insurance Holdings PLC 4.9
Vallourec SA 4.5
Enel S.p.A. 4.5
Wendel 4.2
United Utilities PLC 4.2
RWE AG 4.0
Provident Financial PLC 3.5
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Total 50.1%
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"STOXX," "Dow Jones STOXX(R) 600 Index" and "Dow Jones STOXX(R) Select Dividend
30 Index" are trademarks of Dow Jones & Company, Inc. ("Dow Jones") and have
been licensed for use for certain purposes by First Trust and the Fund. The
Fund, based on the Dow Jones STOXX(R) Select Dividend 30 Index, is not
sponsored, endorsed, sold or promoted by STOXX or Dow Jones and neither STOXX
nor Dow Jones makes any representation regarding the advisability of trading or
investing in such product.
Page 5
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FUND PERFORMANCE OVERVIEW (Continued)
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FFR - FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate 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 FTSE EPRA/NAREIT Developed Index (the "FTSE Index"). The
Shares of the Fund are listed and trade on the NYSE Arca(R) under the
ticker symbol "FFR." The Fund will normally invest at least 90% of its
assets in common stocks that comprise the FTSE Index or in depositary
receipts that may include American Depositary Receipts, Global Depositary
Receipts, European Depositary Receipts, New York shares or global shares
representing securities in the FTSE Index. The Fund began trading on
August 30, 2007.
The FTSE Index is compiled and maintained by FTSE International Limited.
The FTSE Index is modified market cap weighted based on free float market
capitalization and tracks the performance of listed real estate companies
or real estate investment trusts ("REITs") in North America, Europe and
Asia. The FTSE Index is comprised of the FTSE EPRA/NAREIT North America
Series, the FTSE EPRA/NAREIT Europe Series and the FTSE EPRA/NAREIT Asia
Series.
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Performance as of March 31, 2009
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Average Annual Cumulative
Total Returns Total Returns
Six Months Ended One Year Ended Inception (08/27/07) Inception (08/27/07)
03/31/09 03/31/09 to 03/31/09 to 03/31/09
Fund Performance
NAV -48.28% -57.29% -45.05% -61.51%
Market Price -48.09% -58.01% -45.34% -61.83%
Index Performance
FTSE EPRA/NAREIT Developed Index -47.32% -56.84% -44.52% -60.91%
S&P/Citigroup Global REIT Index -52.04% -58.17% -45.20% -61.67%
MSCI World REIT Index -53.45% -59.41% -46.60% -63.22%
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(See Notes to Fund Performance Overview on page 14.)
PERFORMANCE REVIEW
The Fund's six month NAV return of -48.28% outperformed the benchmark
MSCI World REIT Index return of -53.5% by 5.2%. The local return of
- -46.2% closely matched the total return of -48.3% during the six-month
period with weakness in the Pound Sterling and Australian Dollar being
partially offset by strength in the Japanese Yen; in total, currency
detracted -2.1% from the Fund's total return. Over the last six months,
the REIT industry has faced a "perfect storm" which has pushed prices
lower and volatility higher. The highly leveraged business model has put
REITs in a squeeze between the evaporating lending market and struggling
tenants. Falling asset values and tighter credit markets have pushed
capital costs higher, while also making it nearly impossible to sell
assets to meet maturing obligations. The REIT industry did not provide a
place to hide as the returns across all REIT classes over the last six
months were abysmal, ranging from -37.4% to -67.5% (locally). REITs that
did well during the period, such as Chinese real estate developer Shimao
Property Holdings (+51.1% locally), were merely lifting off their lows
from the prior July and August. Shimao, for example, rose from Hong Kong
Dollar ("HKD") 4.38 on September 30, 2008 to HKD 6.79 on March 31, 2009,
but traded at HKD 19.20 at the end of 2007.
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Top Five and Bottom Five Performing Stocks
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(by contribution to return over the six months ended March 31, 2009)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
China Overseas Land & Investment Ltd. Land Securities Group PLC
China Resources Land Ltd. Simon Property Group Inc.
Hang Lung Properties Ltd. Mitsui Fudosan Co. Ltd.
Shimao Property Holdings Ltd. Mitsubishi Estate Co. Ltd.
Agile Property Holdings Ltd. Westfield Group Australia
Page 6
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FUND PERFORMANCE OVERVIEW (Continued)
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FFR - FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
(Continued)
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Portfolio Sector Allocation as of March 31, 2009
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% of Total
Sector Long-Term Investments
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Financials 99.3%
Industrials 0.5
Health Care 0.1
Consumer Discretionary 0.1
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Total 100.0%
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Top Ten Portfolio Holdings as of March 31, 2009
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% of Total
Security Long-Term Investments
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Sun Hung Kai Properties Ltd. 5.3%
Westfield Group 4.8
Mitsubishi Estate Co., Ltd. 3.7
Unibail- Rodamcosa 3.6
Mitsui Fudosan Co., Ltd. 2.9
Simon Property Group, Inc. 2.5
Public Storage 2.2
China Overseas Land & Investment Ltd. 2.0
Sumitomo Realty & Development Co., Ltd. 1.7
Vornado Realty Trust 1.6
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Total 30.3%
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- ------------------------------
The FTSE EPRA/NAREIT Developed Index is calculated by FTSE International Limited
("FTSE"). FTSE does not sponsor, endorse or promote the First Trust FTSE
EPRA/NAREIT Developed Markets Real Estate Index Fund. All copyright in the index
values and constituent list vests in FTSE and/or its licensors. First Trust and
the First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund has
obtained full license from FTSE to use such copyright in the creation of the
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund.
"FTSE(R)","FT-SE(R)" and "Footsie(R)" are trademarks jointly owned by the London
Stock Exchange Plc and the Financial Times Limited and are used by FTSE under
license. "NAREIT(R)" is the trademark of the National Association of Real Estate
Investment Trusts and "EPRA(R)" is the trademark of the European Public Real
Estate Association and are used by FTSE under license.
Page 7
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FUND PERFORMANCE OVERVIEW (Continued)
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FGD - FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
First Trust Dow Jones Global Select 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 Dow
Jones Global Select Dividend Index(SM) (the "Index"). The Shares of the
Fund are listed and trade on the NYSE Arca(R) under the ticker symbol
"FGD." The Fund will normally invest at least 90% of its assets in common
stocks that comprise the Index or in depositary receipts that may include
American Depositary Receipts, Global Depositary Receipts, European
Depositary Receipts, New York shares or global shares representing
securities in the Index. The Fund began trading on November 27, 2007.
The Index is an indicated annual dividend yield weighted index of 100
stocks selected from the developed market portion of the Dow Jones World
Developed Index. Indicated annual dividend yield is a stock's unadjusted
indicated annual dividend (not including any special dividends) divided
by its unadjusted price. As of November 16, 2007, the Index covered 16
developed markets.
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Performance as of March 31, 2009
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Average Annual Cumulative
Total Returns Total Returns
Six Months Ended One Year Ended Inception (11/21/07) Inception (11/21/07)
03/31/09 03/31/09 to 03/31/09 to 03/31/09
Fund Performance
NAV -37.74% -53.18% -45.57% -56.25%
Market Price -36.73% -53.29% -45.55% -56.23%
Index Performance
Dow Jones Global Select Dividend Index(SM) -36.75% -53.22% -45.53% -56.20%
Dow Jones World Developed Markets Index(SM) -30.71% -42.25% -36.32% -45.84%
MSCI World Index -31.10% -42.58% -36.59% -46.15%
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(See Notes to Fund Performance Overview on page 14.)
PERFORMANCE REVIEW
The Fund's six-month NAV return of -37.74% underperformed the benchmark
MSCI World Index return of -31.1% by -6.6%. While the local return of the
Fund was -31.0%, the effect of holding foreign currency served to detract
another -6.7% from total return as flows to U.S. Treasuries generally
pushed the U.S. dollar higher. Weakness in the Pound Sterling and
Australian Dollar were the primary contributors to currency weakness, as
recessionary concerns and aggressive rate cuts pushed the currencies
lower. Financial stocks were the primary detractors from local
performance, as they returned -41.1% (local), and detracted -15.1% from
return (local). Commercial bank stocks and REITs were the primary drivers
of negative performance as banks such as SunTrust (-65.8%) and REITs
(such as ING Office Fund at -69.2%) were hard pressed to continue meeting
obligations as loan and real estate portfolios deteriorated during the
period.
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Top Five and Bottom Five Performing Stocks
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(by contribution to return over the six months ended March 31, 2009)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Orica Ltd. ING Office Fund
Keppel Corp. Ltd. FKP Property Group
WorleyParsons Ltd. Bank of America Corp.
PPR SA Mullen Group Income Fund
OMV AG BlueScope Steel Ltd.
Page 8
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FUND PERFORMANCE OVERVIEW (Continued)
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FGD - FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (Continued)
- -------------------------------------------------------------------
Portfolio Sector Allocation as of March 31, 2009
- -------------------------------------------------------------------
% of Total
Sector Long-Term Investments
- -------------------------------------------------------------------
Industrials 30.3%
Financials 18.3
Materials 12.3
Energy 11.4
Telecommunication Services 7.8
Consumer Discretionary 7.7
Utilities 6.9
Consumer Staples 2.8
Information Technology 2.5
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Total 100.0%
======
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Top Ten Portfolio Holdings as of March 31, 2009
- -------------------------------------------------------------------
% of Total
Security Long-Term Investments
- -------------------------------------------------------------------
Singapore Petroleum Co. Ltd. 2.7%
NCC AB, Class B 2.6
Kepple Corp. Ltd. 2.5
VTech Holdings Ltd. 2.5
Koninklijke BAM Groep N.V. 2.4
YIT Oyj 2.3
Orica Ltd. 2.2
Metso Oyj 2.1
Canadian Oil Sands Trust 2.0
David Jones Ltd. 1.9
------
Total 23.2%
======
- -------------------------------------------------------------------
- ------------------------------
Dow Jones and Dow Jones Select Dividend Index(SM) are trademarks of Dow Jones &
Company, Inc. ("Dow Jones") and have been licensed for use for certain purposes
by First Trust and the Fund. The Fund, based on the Dow Jones Select Dividend
Index(SM), is not sponsored, endorsed, sold or promoted by Dow Jones and Dow
Jones makes no representation regarding the advisability of trading or investing
in such product.
Page 9
- -------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (Continued)
- -------------------------------------------------------------------------------
FAN - FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND
First Trust ISE Global Wind 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 ISE
Global Wind Energy Index (the "ISE Index"). The shares of the Fund are
listed and trade on the NYSE Arca(R) under the ticker symbol "FAN." The
Fund will normally invest at least 90% of its assets in common stocks
that comprise the ISE Index or in depositary receipts that may include
American Depositary Receipts, Global Depositary Receipts, European
Depositary Receipts, New York shares or global shares representing
securities in the ISE Index. The Fund's shares began trading on June 18,
2008.
The ISE Index was developed and is owned by the International Securities
Exchange, LLC, in consultation with Standard & Poor's, a Division of The
McGraw-Hill Companies, Inc., which calculates and maintains the ISE
Index. The ISE Index provides a benchmark for investors interested in
tracking public companies throughout the world that are active in the
wind energy industry based on analysis of the products and services
offered by those companies. The inception date of the ISE Index was June
6, 2008, on which date there were 52 stocks that comprised the ISE Index,
of which 35 were issued by non-U.S. issuers, which represented
approximately 84% of the ISE Index.
- -----------------------------------------------------------------------------------------------
Performance as of March 31, 2009
- -----------------------------------------------------------------------------------------------
Cumulative
Total Returns
Six Months Ended Inception (06/16/08)
03/31/09 to 03/31/09
Fund Performance
NAV -45.03% -64.98%
Market Price -44.57% -64.65%
Index Performance
ISE Global Wind Energy Index -44.34% -64.85%
Russell 3000(R) Index -31.12% -40.88%
MSCI World Index -31.10% -44.18%
- -----------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 14.)
PERFORMANCE REVIEW
The Fund's six-month NAV return of -45.03% underperformed the benchmark
MSCI World Index return of -31.1% by -13.9%. While the local return of
the Fund was -41.3%, the effect of holding foreign currency served to
detract another -3.7% from total return with weakness in the Pound
Sterling driving most of the negative currency return. Front month
futures prices of competing energy sources such as oil and natural gas
continued to fall off their June 2008 peaks, dropping -50.7% and -49.2%,
respectively, during the period. The global economic slowdown, and
correlated drop in commodity prices, has significantly decreased the
competitive value of wind energy. Companies such as Hansen Transmissions
(-57.6% local) and turbine manufacturer REpower Systems (-58.2% local)
have struggled to cut costs as quickly as sales prospects have declined.
EDP Renovaveis (+12.7% local) which generates electricity from a variety
of clean sources (wind, solar, wave), was one of the few stocks to
provide a positive return during the six-month period.
- -------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
- -------------------------------------------------------------------------------
(by contribution to return over the six months ended March 31, 2009)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
EDP Renovaveis SA Vestas Wind Systems A/S
Japan Wind Development Co. Ltd. Clipper Windpower PLC
FPL Group Inc. Gamesa Corporacion Tecnologica SA
Iberdrola Renovables SA REpower Systems AG
AGL Energy Ltd Hansen Transmissions International N.V.
Page 10
- -------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (Continued)
- -------------------------------------------------------------------------------
FAN - FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND (Continued)
- -------------------------------------------------------------------
Portfolio Sector Allocation as of March 31, 2009
- -------------------------------------------------------------------
% of Total
Sector Long-Term Investments
- -------------------------------------------------------------------
Utilities 46.8%
Industrials 44.4
Energy 6.1
Materials 1.3
Consumer Discretionary 1.0
Consumer Staples 0.4
------
Total 100.0%
======
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Top Ten Portfolio Holdings as of March 31, 2009
- -------------------------------------------------------------------
% of Total
Security Long-Term Investments
- -------------------------------------------------------------------
EDP Renovaveis SA 10.9%
Iberdrola Renovables SA 9.5
Vestas Wind Systems A/S 7.3
Hansen Transmissions International 5.8
REpower Systems AG 5.6
Nordex AG 5.5
Gamesa Corporacion Tecnologica SA 4.6
Broadwind Energy, Inc. 3.9
Babcock & Brown Wind Partners Group 3.8
Fersa Energias Renovables SA 3.5
------
Total 60.4%
======
- -------------------------------------------------------------------
- ------------------------------
"International Securities Exchange(TM)", "ISE(TM)" and "ISE Global Wind Energy
Index" are trademarks of the International Securities Exchange(TM) and have been
licensed for use for certain purposes by First Trust. The Fund, based on the ISE
Global Wind Energy Index, is not sponsored, endorsed, sold or promoted by the
International Securities Exchange(TM) and the International Securities
Exchange(TM) makes no representation regarding the advisability of trading in
such products.
Page 11
- -------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (Continued)
- -------------------------------------------------------------------------------
FLM - FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND
First Trust ISE Global Engineering and Construction Index Fund seeks
investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of the ISE Global Engineering and
Construction Index (the "Index"). The shares of the Fund are listed and
trade on the NYSE Arca(R) under the ticker symbol "FLM." The Fund will
normally invest in all of the securities (including applicable Depositary
Receipts) comprising the Index in proportion to their weightings in the
Index. The Fund's shares began trading on October 13, 2008.
The Index was developed and is owned by the International Securities
Exchange, LLC, in consultation with Standard & Poor's, a Division of The
McGraw-Hill Companies, Inc. ("S&P"), which calculates and maintains the
Index. The Index provides a benchmark for investors interested in
tracking public companies throughout the world that are active in the
engineering and construction industries, based on analysis of the
products and services offered by those companies. As of September 19,
2008, there were 68 stocks that comprised the Index, of which 54 were
issued by non-U.S. issuers, which represented approximately 75% of the
Index. The issuers that comprised the Index represented 16 countries and
traded on 18 exchanges throughout the world.
- -------------------------------------------------------------------------
Performance as of March 31, 2009
- -------------------------------------------------------------------------
Cumulative
Total Returns
Inception (10/13/08)
to 03/31/09
Fund Performance
NAV -10.13%
Market Price -9.30%
Index Performance
ISE Global Engineering and Construction Index -6.12%
Russell 3000(R) Index -19.52%
MSCI World Industrials Index -22.59%
- -------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 14.)
PERFORMANCE REVIEW
The Fund's since inception (10/13/08) NAV return of -10.13% outperformed
the benchmark MSCI World Industrials Index return of -22.6% for the same
period by +12.5%. While the local return of the Fund was -8.5%, the
effect of holding foreign currency served to detract another -1.6% from
total return, with weakness in the Pound Sterling and Euro driving most
of the negative currency return. The Japanese Yen served to mute the
currency effect as it delivered a positive return to domestic investors
during the period. Engineering and construction companies such as Foster
Wheeler (-45.3%) have seen positive returns since their November 21, 2008
lows on government stimulus plans, but have struggled to claw back to
their pre-November prices. URS Corp. (+44.0%) was one of the top
performers during the period as it benefited significantly from revenue
prospects from the U.S. stimulus plan; the Fund also benefited as it
began acquiring the stock on October 13, 2008 near the stock's low of
October 27, 2008.
- -------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
- -------------------------------------------------------------------------------
(by contribution to return over the period October 15, 2008
through March 31, 2009)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
URS Corp. Koninklijke Boskalis Westminster N.V
Obayashi Corp. ORASCOM CONSTR INDS S A E SP GDR REG S
Granite Construction Inc. Chicago Bridge & Iron Co. N.V.
AECOM Technology Corp. Foster Wheeler Ltd.
Shimizu Corp. Leighton Holdings Ltd.
Page 12
- -------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (Continued)
- -------------------------------------------------------------------------------
FLM - FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND (Continued)
- -------------------------------------------------------------------
Portfolio Sector Allocation as of March 31, 2009
- -------------------------------------------------------------------
% of Total
Sector Long-Term Investments
- -------------------------------------------------------------------
Industrials 95.5%
Energy 4.5
------
Total 100.0%
======
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Top Ten Portfolio Holdings as of March 31, 2009
- -------------------------------------------------------------------
% of Total
Security Long-Term Investments
- -------------------------------------------------------------------
McDermott International, Inc. 4.0%
Quanta Services, Inc. 3.8
Shaw Group (The), Inc. 3.5
Vinci SA 3.4
ACS Actividades de Construccion y
Servicios SA 3.4
URS Corp 3.3
Bouygues SA 3.2
China Communications Construction Co., Ltd. 3.0
Jacobs Engineering Group, Inc. 2.8
Skanska AB 2.7
------
Total 33.1%
======
- -------------------------------------------------------------------
- ------------------------------
"International Securities Exchange(TM)", "ISE(TM)" and "ISE Global Engineering
and Construction Index" are trademarks of the International Securities
Exchange(TM) and have been licensed for use for certain purposes by First Trust.
The Fund, based on the ISE Global Engineering and Construction Index, is not
sponsored, endorsed, sold or promoted by the International Securities
Exchange(TM) and the International Securities Exchange(TM) makes no
representation regarding the advisability of trading in such products.
Page 13
- --------------------------------------------------------------------------------
NOTES TO FUND PERFORMANCE OVERVIEW
- --------------------------------------------------------------------------------
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.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint between the highest bid and the lowest offer on the the
stock exchange on which shares of the Fund are listed for trading as of the time
that the Fund's NAV is calculated. Since shares of the Fund did not trade in the
secondary market until after the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
the Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and market returns assume that all dividend distributions
have been reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike the Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by the Fund. These
expenses negatively impact the performance of the Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
Page 14
FIRST TRUST EXCHANGE-TRADED FUND II
Understanding Your Fund Expenses
March 31, 2009 (Unaudited)
A shareholder of First Trust Dow Jones STOXX(R) European Select Dividend Index
Fund, First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund,
First Trust Dow Jones Global Select Dividend Index Fund, First Trust ISE Global
Wind Energy Index Fund, or First Trust ISE Global Engineering and Construction
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 and other Fund expenses. This Example is
intended to help you understand your ongoing costs (in U.S. dollars) 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 October 1, 2008 (or
since inception) and held through the six-month period ended March 31, 2009.
Actual Expenses
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
six-month period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading entitled "Expenses Paid During the
Six-Month Period" to estimate the expenses you paid on your account during this
six-month period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratios and an assumed rate of return of 5% per year before expenses, which is
not each Fund's actual return. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions paid on purchases and sales of Fund shares. Therefore, the second
line in the table is useful in comparing ongoing costs only, and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Annualized
Expense Ratio Expenses Paid
Beginning Ending Based on the During the
Account Value Account Value Six-Month Six-Month
October 1, 2008 March 31, 2009 Period (a) Period (b)
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund
Actual $1,000.00 $575.40 0.60% $2.36
Hypothetical (5% return before expenses) $1,000.00 $1,021.94 0.60% $3.02
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
Actual $1,000.00 $517.20 0.60% $2.27
Hypothetical (5% return before expenses) $1,000.00 $1,021.94 0.60% $3.02
First Trust Dow Jones Global Select Dividend Index Fund
Actual $1,000.00 $622.60 0.60% $2.43
Hypothetical (5% return before expenses) $1,000.00 $1,021.94 0.60% $3.02
First Trust ISE Global Wind Energy Index Fund
Actual $1,000.00 $549.70 0.60% $2.32
Hypothetical (5% return before expenses) $1,000.00 $1,021.94 0.60% $3.02
Page 15
FIRST TRUST EXCHANGE-TRADED FUND II
Understanding Your Fund Expenses (Continued)
March 31, 2009 (Unaudited)
Annualized
Expense Ratio Expenses Paid
Beginning Ending Based on the During the Period
Account Value Account Value Number of Days October 13, 2008 (c)
October 13, 2008 (c) March 31, 2009 in the Period (a) to March 31, 2009 (d)
First Trust ISE Global Engineering and Construction Index Fund
Actual $1,000.00 $898.70 0.70% $3.06
Hypothetical (5% return before expenses) $1,000.00 $1,021.44 0.70% $3.53
<FN>
(a) These expense ratios reflect expense caps.
(b) Expenses are equal to the annualized expense ratio of 0.60%, multiplied by
the average account value over the period, multiplied by 182/365 (to reflect
the one-half year period).
(c) Inception date.
(d) Actual expenses are equal to the annualized expense ratio of 0.70%,
multiplied by the average account value over the period, multiplied by
170/365 (to reflect the actual period October 13, 2008 to March 31, 2009).
Hypothetical expenses are assumed for the most recent half-year period.
</FN>
Page 16
FIRST TRUST DOW JONES STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND
Portfolio of Investments (a)
March 31, 2009 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS--99.8%
BELGIUM--3.2%
3,664 Belgacom SA (c) $ 114,826
-------------
DENMARK--4.4%
3,604 D/S Norden A/S (c) 100,982
1,845 Danisco A/S (c) 55,287
-------------
156,269
-------------
FINLAND--5.7%
8,943 Metso Oyj (c) 105,654
6,077 Rautaruukki Oyj (c) 97,237
-------------
202,891
-------------
FRANCE--11.5%
4,405 France Telecom SA (c) 100,422
1,732 Vallourec SA(c) 160,577
5,730 Wendel (c) 151,347
-------------
412,346
-------------
GERMANY--12.3%
3,185 BASF SE (c) 96,255
8,507 Deutsche Telekom AG (c) 105,368
2,324 RWE AG (c) 144,226
5,433 ThyssenKrupp AG (c) 94,786
-------------
440,635
-------------
IRELAND--1.7%
3,932 DCC PLC (c) 59,470
-------------
ITALY--4.5%
33,263 Enel S.p.A.(c) 159,505
-------------
NETHERLANDS--13.7%
5,994 Koninklijke Boskalis
Westminster N.V. (c) 120,423
31,664 Koninklijke BAM Groep N.V. (c) 281,399
3,338 Koninklijke DSM N.V. (c) 87,832
-------------
489,654
-------------
NORWAY--1.3%
2,722 StatoilHydro ASA(b) (c) 47,637
-------------
SPAIN--5.4%
27,814 Banco Santander SA (c) 191,772
-------------
SWEDEN--4.7%
6,917 Ratos AB (c) 104,985
11,074 Sandvik AB (c) 63,437
-------------
168,422
-------------
SWITZERLAND--8.6%
1,394 Baloise Holding AG (c) 89,094
1,122 Sulzer AG (c) 57,898
214 Swisscom AG (b) (c) 60,086
638 Zurich Financial Services AG (c) 100,832
-------------
307,910
-------------
UNITED KINGDOM--22.8%
67,419 Brit Insurance Holdings PLC (c) 174,318
79,198 Man Group PLC (c) 248,188
10,392 Provident Financial PLC (c) 124,520
Shares Description Value
- -------------------------------------------------------------
UNITED KINGDOM (Continued)
67,499 Tomkins PLC (c) $ 117,115
21,763 United Utilities PLC (c) 150,849
-------------
814,990
-------------
TOTAL INVESTMENTS--99.8%
(Cost $4,344,895) (b) 3,566,327
NET OTHER ASSETS AND
LIABILITIES--0.2% 8,907
-------------
NET ASSETS--100.0% $ 3,575,234
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of March 31, 2009, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $107,053 and the aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over value was $885,621.
(c) This security is fair valued in accordance with valuation procedures adopted
by the Trust's Board of Trustees.
- ------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's investments
as of March 31, 2009 is as follows (See Note 2A):
Investments
Valuation Inputs in Securities
--------------
Level 1 - Quoted Prices - Investments $ --
Level 2 - Other Significant Observable Inputs 3,566,327
Level 3 - Significant Unobservable Inputs --
--------------
Total $ 3,566,327
==============
See Notes to Financial Statements Page 17
FIRST TRUST DOW JONES STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND
Portfolio of Investments (a) (Continued)
March 31, 2009 (Unaudited)
% of
Industry Net Assets
- ------------------------------------------------------------
Construction & Engineering 11.2%
Machinery 10.8
Diversified Telecommunication 10.6
Insurance 10.2
Capital Markets 9.9
Industrial Conglomerates 9.2
Multi-Utilities 8.3
Metals & Mining 5.4
Commercial Banks 5.4
Chemicals 5.2
Electric Utilities 4.5
Consumer Finance 3.5
Marine 2.8
Food Products 1.5
Oil, Gas & Consumable Fuels 1.3
- ------------------------------------------------------
Total Investments 99.8
Net Other Assets and Liabilities 0.2
-------
Total 100.0%
=======
Page 18 See Notes to Financial Statements
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
Portfolio of Investments (a)
March 31, 2009 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS--99.7%
AUSTRALIA--8.8%
6,015 Bunnings Warehouse Property
Trust (d) $ 6,563
36,619 CFS Retail Property Trust (d) 41,607
37,057 Commonwealth Property Office
Fund 23,314
69,376 DB RREEF Trust 36,143
55,465 Goodman Group (d) 12,590
88,400 GPT Group 26,845
34,049 ING Office Fund (d) 10,078
91,479 Macquarie Office Trust (d) 10,867
33,857 Mirvac Group (d) 19,872
31,694 Stockland (d) 67,716
44,716 Westfield Group (d) 309,970
------------
565,565
------------
AUSTRIA--0.3%
1,741 CA Immobilien Anlagen
AG (b) (d) 8,359
1,703 Conwert Immobilien Invest
AG (b) (d) 10,712
------------
19,071
------------
BELGIUM--0.8%
261 Befimmo S.C.A. 20,771
162 Cofinimmo SA (d) 17,254
139 Intervest Offices N.V.(d) 3,747
32 Leasinvest Real Estate S.C.A.(d) 2,009
129 Warehouses De Pauw S.C.A (d) 4,775
43 Wereldhave Belgium S.C.A.(d) 2,888
------------
51,444
------------
BERMUDA--1.9%
6,154 Great Eagle Holdings Ltd. (d) 8,100
33,922 Hongkong Land Holdings Ltd.(d) 77,286
11,990 Hopson Development Holdings
Ltd. (d) 7,959
11,509 Kerry Properties Ltd. (d) 27,739
1,017 Orient-Express Hotels Ltd.,
Class A 4,170
------------
125,254
------------
CANADA--3.4%
618 Allied Properties Real Estate
Investment Trust 6,299
979 Boardwalk Real Estate Investment 20,189
5,877 Brookfield Properties Corp. 33,981
1,561 Calloway Real Estate Investment
Trust 12,369
1,339 Canadian Apartment Properties
Real Estate Investment Trust 13,275
1,217 Canadian Real Estate Investment
Trust 19,296
1,962 Chartwell Seniors Housing Real
Estate Investment Trust 6,225
914 Cominar Real Estate Investment Trust 9,975
Shares Description Value
- -------------------------------------------------------------
CANADA (Continued)
342 Dundee Real Estate Investment
Trust $ 3,459
1,402 Extendicare Real Estate Investment
Trust 4,759
2,943 H&R Real Estate Investment Trust 17,974
1,482 InnVest Real Estate Investment Trust 3,761
883 Morguard Real Estate Investment Trust 6,863
454 Northern Property Real Estate
Investment Trust 6,212
1,232 Primaris Retail Real Estate Investment
Trust 8,873
4,381 RioCan Real Estate Investment Trust 43,608
------------
217,118
------------
CAYMAN ISLANDS--2.1%
30,502 Agile Property Holdings Ltd. (d) 17,296
38,390 China Resources Land Ltd. (d) 59,435
65,612 Country Garden Holdings, Co.,
Ltd. (d) 17,324
22,821 New World China Land Ltd. (d) 7,765
26,312 Shimao Property Holdings Ltd. (d) 23,002
25,061 Shui On Land Ltd. (d) 8,802
------------
133,624
------------
FINLAND--0.2%
3,289 Citycon Oyj (d) 6,358
1,658 Sponda Oyj (d) 4,555
1,144 Technopolis Oyj (d) 3,567
------------
14,480
------------
FRANCE--5.6%
932 Acanthe Developpement SA (d) 1,397
80 Affine Group (d) 925
410 Fonciere des Regions Group (d) 19,250
373 Gecina SA (d) 14,309
393 Icade( d) 27,825
1,658 Klepierre LLC (d) 29,129
600 Mercialys (d) 17,366
104 Societe de la Tour Eiffel (d) 2,401
260 Societe Immobiliere de Location
pour l'Industrie et le Commerce 19,485
1,623 Unibail-Rodamco SA (d) 229,665
------------
361,752
------------
GERMANY--0.6%
559 Alstria Office AG (d) 2,779
455 Colonia Real Estate AG (d) 1,779
686 Deutsche Euroshop AG (d) 19,767
527 Deutsche Wohnen AG (b) 7,956
469 DIC Asset AG (d) 2,220
520 Patrizia Immobilien AG (b) (d) 953
396 Vivacon AG (d) 1,100
------------
36,554
------------
GREECE--0.1%
492 Babis Vovos International
Construction SA (b) 1,376
See Notes to Financial Statements Page 19
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
Portfolio of Investments (a) (Continued)
March 31, 2009 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (Continued)
GREECE (Continued)
354 Eurobank Properties Real Estate
Investment Co. (d) $ 3,157
254 Lamda Development SA (b) (d) 1,469
------------
6,002
------------
GUERNSEY--0.2%
5,432 F&C Commercial Property Trust
Ltd. (d) 5,073
6,615 ING UK Real Estate Income Trust
Ltd. (d) 1,801
6,457 Invista Foundation Property Trust
Ltd. (d) 2,125
1,132 ISIS Property Trust Ltd. (d) 956
1,654 ISIS Property Trust 2 Ltd. (d) 1,163
2,075 Standard Life Investment Property
Income Trust PLC (d) 826
5,191 UK Commercial Property Trust
Ltd. (d) 4,350
------------
16,294
------------
HONG KONG--13.8%
43,978 Champion Real Estate Investment
Trust (d) 10,521
80,816 China Overseas Land &
Investment Ltd. (d) 126,661
41,164 Hang Lung Properties Ltd. (d) 96,841
21,852 Henderson Land Development
Co., Ltd. (d) 83,326
15,849 Hysan Development Co., Ltd. (d) 26,823
11,713 Kowloon Development Co., Ltd. (d) 4,823
42,515 Link (The) REIT (d) 84,295
57,366 New World Development Co.,
Ltd. (d) 57,264
32,760 Shenzhen Investment Ltd. (d) 8,148
48,985 Sino Land Co., Ltd. (d) 49,078
38,035 Sun Hung Kai Properties Ltd. (d) 341,286
------------
889,066
------------
ITALY--0.1%
7,641 Beni Stabili S.p.A. (d) 4,208
2,468 Immobiliare Grande
Distribuzione (d) 2,993
------------
7,201
------------
JAPAN--15.1%
1,816 AEON Mall Co., Ltd. (d) 23,359
1,137 DAIBIRU Corp. (d) 9,165
2,840 HEIWA Real Estate, Co., Ltd. (d) 6,231
12 Japan Prime Realty Investment
Corp. (d) 22,299
8 Japan Real Estate Investment
Corp. (d) 61,458
8 Japan Retail Fund Investment
Corp. (d) 30,644
4 Kenedix Realty Investment
Corp. (d) 7,466
Shares Description Value
- -------------------------------------------------------------
JAPAN (Continued)
20,930 Mitsubishi Estate Co., Ltd. (d) $ 237,436
17,081 Mitsui Fudosan Co., Ltd. (d) 187,375
2 MORI TRUST Sogo Reit, Inc. 14,266
11 Nippon Building Fund, Inc.(d) 95,072
6 Nomura Real Estate Office
Fund, Inc. (d) 33,609
26 NTT Urban Development
Corp. (d) 21,043
5 ORIX JREIT, Inc.(d) 20,640
3 Premier Investment Co. (d) 9,399
9,744 Sumitomo Realty & Development
Co., Ltd. (d) 108,864
2,092 TOC Co., Ltd. (d) 7,595
4,375 Tokyo Tatemono Co., Ltd. (d) 11,356
8,297 Tokyu Land Corp. (d) 23,137
3 TOKYU REIT, Inc. (d) 16,006
3 Top REIT, Inc. (d) 10,978
4 United Urban Investment
Corp. (d) 16,435
------------
973,833
------------
LUXEMBOURG--0.1%
898 Gagfah SA(d) 4,406
1,130 ProLogis European Properties (d) 2,025
------------
6,431
------------
NETHERLANDS--2.1%
1,342 Corio N.V.(d) 55,502
713 Eurocommercial Properties N.V. (d) 19,361
714 Nieuwe Steen Investments Funds
N.V. (d) 11,373
413 VastNed Offices/Industrial N.V. (d) 4,438
328 Vastned Retail N.V. (d) 13,234
415 Wereldhave N.V. (d) 29,017
------------
132,925
------------
NEW ZEALAND--0.1%
14,208 Kiwi Income Property Trust (d) 7,787
------------
NORWAY--0.0%
3,018 Norwegian Property ASA (d) 1,792
------------
SINGAPORE--3.4%
33,400 Ascendas Real Estate Investment
Trust (d) 26,870
20,945 CapitaCommercial Trust (d) 12,153
63,530 Capitaland Ltd.(d) 97,416
46,883 CapitaMall Trust (d) 40,837
7,064 Keppel Land Ltd. (d) 6,744
28,790 Mapletree Logistics Trust (d) 7,075
3,000 Singapore Land Ltd. (d) 6,284
31,197 Suntec Real Estate Investment
Trust (d) 12,931
12,087 Wing Tai Holdings Ltd. (d) 5,575
------------
215,885
------------
SWEDEN--1.0%
3,432 Castellum AB (d) 19,289
3,378 Fabege AB (d) 11,884
Page 20 See Notes to Financial Statements
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
Portfolio of Investments (a) (Continued)
March 31, 2009 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (Continued)
SWEDEN (Continued)
1,620 Hufvudstaden AB (d) $ 8,337
2,492 Klovern AB (d) 4,770
2,724 Kungsleden AB (d) 10,448
743 Wihlborgs Fastigheter AB (d) 8,310
------------
63,038
------------
SWITZERLAND--1.1%
114 Allreal Holding AG (d) 12,024
936 PSP Swiss Property AG (d) 39,460
384 Swiss Prime Site AG (d) 17,202
726 Zueblin Immobilien Holding AG (d) 2,620
------------
71,306
------------
UNITED KINGDOM--5.5%
479 A.J. Mucklow Group PLC 1,489
1,716 Big Yellow Group PLC (d) 4,671
17,011 British Land Co., PLC (d) 87,896
5,412 Brixton PLC (d) 1,376
479 CLS Holdings PLC (b) (d) 1,612
98 Daejan Holdings PLC (d) 2,628
2,007 Derwent London PLC (d) 19,111
812 Development Securities PLC (d) 2,805
2,070 Grainger PLC (d) 3,031
3,612 Great Portland Estates PLC (d) 12,609
13,909 Hammerson PLC (d) 50,747
2,137 Helical Bar PLC (d) 8,800
15,077 Land Securities Group PLC (d) 94,474
7,239 Liberty International PLC (d) 40,378
670 Primary Health Properties PLC (d) 2,230
2,582 Quintain Estates & Development
PLC (d) 311
8,639 Segro PLC (d) 2,816
2,698 Shaftesbury PLC (d) 11,259
1,808 St. Modwen Properties PLC (d) 2,421
2,481 Unite Group PLC (d) 2,430
20,761 Workspace Group PLC (d) 3,643
------------
356,737
------------
UNITED STATES--33.4%
641 Acadia Realty Trust 6,801
156 Agree Realty Corp. 2,448
41 Alexander's, Inc. 6,986
643 Alexandria Real Estate Equities,
Inc. 23,405
1,953 AMB Property Corp. 28,123
844 American Campus Communities, Inc. 14,652
2,332 Apartment Investment &
Management Co. 12,779
1,851 Ashford Hospitality Trust 2,851
330 Associated Estates Realty Corp. 1,874
1,536 AvalonBay Communities, Inc. 72,284
1,603 BioMed Realty Trust, Inc. 10,852
2,411 Boston Properties, Inc. 84,457
1,768 Brandywine Realty Trust 5,039
1,017 BRE Properties, Inc. 19,964
Shares Description Value
- -------------------------------------------------------------
UNITED STATES (Continued)
1,061 Camden Property Trust $ 22,896
1,417 CBL & Associates Properties, Inc. 3,344
882 Cedar Shopping Centers, Inc. 1,535
970 Colonial Properties Trust 3,696
1,030 Corporate Office Properties Trust 25,575
2,484 Corrections Corp. of America (b) 31,820
772 Cousins Properties, Inc. 4,972
3,468 DCT Industrial Trust, Inc. 10,994
2,683 Developers Diversified Realty Corp. 5,715
1,797 DiamondRock Hospitality Co. 7,206
1,514 Digital Realty Trust, Inc. 50,235
1,815 Douglas Emmett, Inc. 13,413
2,941 Duke Realty Corp. 16,176
707 DuPont Fabros Technology, Inc. 4,864
496 EastGroup Properties, Inc. 13,923
569 Education Realty Trust, Inc. 1,986
656 Entertainment Properties Trust 10,339
503 Equity Lifestyle Properties, Inc. 19,164
765 Equity One, Inc. 9,325
5,443 Equity Residential 99,878
535 Essex Property Trust, Inc. 30,677
1,706 Extra Space Storage, Inc. 9,400
1,173 Federal Realty Investment Trust 53,958
1,255 FelCor Lodging Trust, Inc. 1,707
881 First Industrial Realty Trust, Inc. 2,158
546 First Potomac Realty Trust 4,013
1,605 Forest City Enterprises, Inc.,
Class A 5,778
369 Getty Realty Corp. 6,771
5,041 HCP, Inc. 89,982
2,210 Health Care REIT, Inc. 67,604
1,174 Healthcare Realty Trust, Inc. 17,598
963 Hersha Hospitality Trust 1,830
1,268 Highwoods Properties, Inc. 27,161
843 Hilltop Holdings Inc. (b) 9,610
644 Home Properties, Inc. 19,739
1,872 Hospitality Properties Trust 22,464
10,452 Host Hotels & Resorts, Inc. 40,972
4,542 HRPT Properties Trust 14,489
1,316 Inland Real Estate Corp. 9,330
1,163 Investors Real Estate Trust 11,467
660 Kilroy Realty Corp. 11,345
5,409 Kimco Realty Corp. 41,217
679 Kite Realty Group Trust 1,664
819 LaSalle Hotel Properties 4,783
1,971 Lexington Realty Trust 4,691
1,959 Liberty Property Trust 37,103
458 LTC Properties, Inc. 8,033
1,519 Macerich (The) Co. 9,509
1,325 Mack-Cali Realty Corp. 26,248
1,563 Medical Properties Trust, Inc. 5,705
563 Mid-America Apartment
Communities, Inc. 17,357
194 National Healthcare Corp. 7,789
1,564 National Retail Properties, Inc. 24,774
2,042 Nationwide Health Properties, Inc. 45,312
1,643 OMEGA Healthcare Investors, Inc. 23,133
See Notes to Financial Statements Page 21
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
Portfolio of Investments (a) (Continued)
March 31, 2009 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (Continued)
UNITED STATES (Continued)
304 Parkway Properties, Inc. $ 3,131
794 Pennsylvania Real Estate
Investment Trust 2,819
876 Post Properties, Inc. 8,883
5,301 ProLogis 34,457
305 PS Business Parks, Inc. 11,239
2,547 Public Storage 140,721
369 Ramco-Gershenson Properties 2,380
2,081 Realty Income Corp. 39,164
1,389 Regency Centers Corp. 36,906
267 Saul Centers, Inc. 6,133
2,402 Senior Housing Properties Trust 33,676
4,700 Simon Property Group, Inc. 162,807
1,138 SL Green Realty Corp. 12,290
435 Sovran Self Storage, Inc. 8,735
1,484 Strategic Hotels & Resorts, Inc. 1,024
365 Sun Communities, Inc. 4,318
1,076 Sunstone Hotel Investors, Inc. 2,830
631 Tanger Factory Outlet Centers, Inc. 19,473
792 Taubman Centers, Inc. 13,496
2,717 UDR, Inc. 23,393
237 Universal Health Realty Income
Trust 6,928
366 Urstadt Biddle Properties, Inc. 4,912
1,151 U-Store-It Trust 2,325
2,851 Ventas, Inc. 64,461
3,099 Vornado Realty Trust 103,010
1,045 Washington Real Estate Investment
Trust 18,079
1,737 Weingarten Realty Investors 16,536
235 Winthrop Realty Trust, Inc. 1,624
------------
2,150,692
------------
TOTAL COMMON STOCKS - 99.7%
(Cost $11,725,027) 6,423,851
------------
RIGHTS--0.1%
United Kingdom--0.1%
100,512 Segro PLC, expiring 04/07/09 (b)
(Cost $0) 6,923
------------
MONEY MARKET FUND--1.1%
68,024 Morgan Stanley Institutional Treasury
Money Market Fund--0.06% (c)
(Cost $68,024) 68,024
------------
TOTAL INVESTMENTS--100.9%
(Cost $11,793,051) (e) 6,498,798
NET OTHER ASSETS AND
LIABILITIES--(0.9%) (57,961)
------------
NET ASSETS--100.0% $ 6,440,837
============
(a) All percentages shown in the Portfolio of Investments are based
on net assets.
(b) Non-income producing security.
(c) Represents 7-day annualized yield at March 31, 2009.
(d) This security is fair valued in accordance with valuation procedures adopted
by the Trust's Board of Trustees.
(e) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of March 31, 2009, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $6,185, and the aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over value was $5,300,438.
REIT - Real Estate Investment Trust
- ------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's investments
as of March 31, 2009 is as follows (See Note 2A):
Investments
Valuation Inputs in Securities
--------------
Level 1 - Quoted Prices - Investments $ 2,446,926
Level 2 - Other Significant Observable Inputs 4,051,872
Level 3 - Significant Unobservable Inputs --
-------------
Total $ 6,498,798
=============
% of
Industry Net Assets
- ------------------------------------------------------------
Real Estate Investment Trusts 66.4%
Real Estate Management & Development 32.3
Money Market Fund 1.1
Commercial Services & Supplies 0.5
Closed-End Funds 0.2
Insurance 0.1
Health Care Providers & Services 0.1
Capital Markets 0.1
Hotels, Restaurants and Leisure 0.1
- ------------------------------------------------------------
Total Investments 100.9
Net Other Assets and Liabilities (0.9)
--------
Total 100.0%
========
Page 22 See Notes to Financial Statements
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
Portfolio of Investments (a)
March 31, 2009 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS--99.7%
AUSTRALIA--24.1%
3,968 Australia & New Zealand Banking
Group Ltd. (c) $ 43,360
3,938 Billabong International Ltd. (c) 23,263
1,716 Commonwealth Bank of
Australia (c) 41,195
42,890 Commonwealth Property Office
Fund (c) 26,983
42,107 CSR Ltd. (c) 35,216
35,443 David Jones Ltd. (c) 69,015
5,120 Felix Resources Ltd. (c) 31,361
86,133 ING Office Fund (c) 25,494
3,136 Lion Nathan Ltd. (c) 17,571
33,503 Macquarie Airports (c) 42,294
42,287 Macquarie Infrastructure Group (c) 43,322
2,966 National Australia Bank Ltd. (c) 41,404
7,748 Orica Ltd. (c) 79,922
38,050 Qantas Airways Ltd. (c) 45,976
3,897 Sims Group Ltd. 46,287
22,165 Stockland 47,357
11,318 Suncorp-Metway Ltd. (c) 47,269
9,551 Telestra Corp. Ltd. (c) 21,320
3,750 Wesfarmers Ltd. (c) 49,207
3,218 Westfield Group (c) 22,307
2,949 Westpac Banking Corp. (c) 38,942
3,126 WorleyParsons Ltd. (c) 39,395
-------------
878,460
-------------
AUSTRIA--2.1%
1,189 OMV AG (c) 39,777
2,848 voestalpine AG (c) 37,226
-------------
77,003
-------------
BELGIUM--0.4%
210 Mobistar SA (c) 13,260
-------------
BERMUDA--6.4%
51,468 Cosco Pacific Ltd. (c) 50,685
3,736 Esprit Holdings Ltd. (c) 19,062
22,764 Orient Overseas International
Ltd. (c) 56,617
23,006 VTech Holdings Ltd. (c) 88,876
8,000 Yue Yuen Industrial (Holdings)
Ltd. (c) 18,272
-------------
233,512
-------------
CANADA--4.6%
2,694 Bell Aliant Regional
Communications Income Fund 51,495
3,816 Canadian Oil Sands Trust 73,396
791 Manitoba Telecom Services, Inc. 20,045
2,994 Russel Metals, Inc. 24,412
-------------
169,348
-------------
FINLAND--7.7%
1,098 Fortum Oyj (c) 20,914
1,859 KCI Konecranes Oyj (c) 31,054
6,496 Metso Oyj (c) 76,745
Shares Description Value
- -------------------------------------------------------------
FINLAND (Continued)
4,219 Rautaruukki Oyj (c) $ 67,507
12,732 YIT Oyj (c) 85,300
-------------
281,520
-------------
FRANCE--2.3%
1,469 France Telecom SA(c) 33,489
761 PPR (c) 48,788
-------------
82,277
-------------
GERMANY--2.0%
1,002 BASF SE (c) 30,282
570 K+S AG (c) 26,350
249 RWE AG (c) 17,438
-------------
74,070
-------------
HONG KONG--4.0%
33,843 BOC Hong Kong Holdings
Ltd. (c) 34,661
2,690 CLP Holdings Ltd. (c) 18,483
27,983 CNOOC Ltd. (c) 28,119
3,347 HongKong Electric Holdings
Ltd. 19,886
14,000 Television Broadcasts Ltd. (c) 44,780
-------------
145,929
-------------
ITALY--3.8%
30,947 Banca Monte dei Paschi di
Siena S.p.A. (c) 42,790
1,283 Eni S.p.A. (c) 24,842
17,749 Milano Assicurazioni S.p.A. (c) 40,816
22,203 Telecom Italia S.p.A. (c) 28,625
-------------
137,073
-------------
NETHERLANDS--7.4%
1,101 Fugro N.V. (c) 34,965
2,812 Koninklijke Boskalis
Westminster N.V. 56,495
9,767 Koninklijke BAM Groep N.V. (c) 86,799
3,299 SBM Offshore N.V. (c) 43,876
419 Smit Internationale N.V. (c) 23,984
342 Wereldhave N.V. (c) 23,913
-------------
270,032
-------------
NEW ZEALAND--2.3%
10,516 Fletcher Building Ltd. (c) 35,984
35,685 Telecom Corp. of New Zealand
Ltd. (c) 46,505
-------------
82,489
-------------
PORTUGAL--0.4%
2,935 CIMPOR Cimentos de Portugal,
SGPS, SA(c) 14,611
-------------
SINGAPORE--7.8%
3,504 Jardine Cycle & Carriage Ltd .(c) 27,355
27,000 Kepple Corp. Ltd. (c) 89,204
12,000 SembCorp Industries Ltd. (c) 18,612
5,000 Singapore Airlines Ltd. (c) 32,974
See Notes to Financial Statements Page 23
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
Portfolio of Investments (a) (Contiued)
March 31, 2009 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (Continued)
SINGAPORE (Continued)
52,000 Singapore Petroleum Co., Ltd. (c) $ 97,985
14,000 UOL Group Ltd. 17,256
-------------
283,386
-------------
SWEDEN--7.9%
5,802 Hexagon AB (c) 28,155
14,136 Kungsleden AB (c) 54,219
13,096 NCC AB, Class B (c) 93,779
5,761 Sandvik AB (c) 33,002
4,465 SSAB Svenskt Stal AB (c) 37,957
1,560 Svenska Handelsbanken AB (c) 22,044
4,127 TeliaSonera AB (c) 19,850
-------------
289,006
-------------
UNITED KINGDOM--8.7%
2,877 Amlin PLC (c) 14,180
8,042 Brit Insurance Holdings PLC (c) 20,793
22,960 BT Group PLC (c) 25,615
30,728 Hays PLC (c) 32,064
16,555 HMV Group PLC (c) 30,745
7,910 IMI PLC (c) 30,758
2,063 Jardine Lloyd Thompson Group
PLC (c) 12,958
2,445 Provident Financial PLC (c) 29,297
4,621 Rexam PLC (c) 17,857
1,288 Severn Trent PLC (c) 18,279
37,617 Tomkins PLC (c) 65,268
2,958 United Utilities PLC (c) 20,503
-------------
318,317
-------------
UNITED STATES--7.8%
2,081 Altria Group, Inc. 33,338
860 AT&T, Inc. 21,672
1,057 BB&T Corp. 17,884
567 Consolidated Edison, Inc. 22,459
1,875 Dow Chemical (The) Co. 15,806
634 DTE Energy Co. 17,562
1,960 General Electric Co. 19,816
3,153 MeadWestvaco Corp. 37,804
1,399 Pepco Holdings, Inc. 17,460
612 Progress Energy, Inc. 22,191
591 SCANA Corp. 18,256
491 Southern Co. 15,034
2,146 TECO Energy, Inc. 23,927
-------------
283,209
-------------
TOTAL COMMON STOCKS--99.7%
(Cost $4,714,572) 3,633,502
-------------
MONEY MARKET FUND--0.0%
1,128 Morgan Stanley Institutional Treasury
Money Market Fund--0.06% (b)
(Cost $1,128) 1,128
-------------
Description Value
------------------------------------------------
TOTAL INVESTMENTS--99.7%
(Cost $4,715,700) (d) $ 3,634,630
NET OTHER ASSETS AND
LIABILITIES--0.3% 10,215
-------------
NET ASSETS--100.0% $ 3,644,845
=============
(a) All percentages shown in the Portfolio of Investments are based on
net assets.
(b) Represents 7-day annualized yield at March 31, 2009.
(c) This security is fair valued in accordance with valuation procedures adopted
by the Trust's Board of Trustees.
(d) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of March 31, 2009, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $96,220 and the aggregate gross
unrealized depreciation for all securities in which there was an excess
of tax cost over value was $1,177,290.
- ------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's investments
as of March 31, 2009 is as follows (See Note 2A):
Investments
Valuation Inputs in Securities
--------------
Level 1 - Quoted Prices - Investments $ 453,686
Level 2 - Other Significant Observable Inputs 3,180,944
Level 3 - Significant Unobservable Inputs --
-------------
Total $ 3,634,630
=============
Page 24 See Notes to Financial Statements
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
Portfolio of Investments (a) (Continued)
March 31, 2009 (Unaudited)
% of
Industry Net Assets
- ------------------------------------------------------------
Construction & Engineering 8.8%
Oil, Gas & Consumable Fuels 8.1
Commercial Banks 7.8
Diversified Telecommunication 7.4
Industrial Conglomerates 6.3
Machinery 5.5
Metals & Mining 5.2
Transportation Infrastructure 4.4
Chemicals 4.2
Real Estate Investment Trusts 4.0
Insurance 3.7
Multi-Utilities 3.3
Energy Equipment & Services 3.2
Multiline Retail 3.2
Electric Utilities 3.1
Communications Equipment 2.4
Airlines 2.2
Real Estate Management & Development 2.0
Marine 1.6
Construction Materials 1.4
Specialty Retail 1.4
Food & Staples Retailing 1.4
Media 1.2
Textiles, Apparel & Luxury Goods 1.0
Paper & Forest Products 1.0
Tobacco 0.9
Professional Services 0.9
Consumer Finance 0.8
Trading Companies & Distributors 0.7
Distributors 0.7
Water Utilities 0.5
Containers & Packaging 0.5
Beverages 0.5
Wireless Telecommunication Services 0.4
Money Market Fund 0.0
- ------------------------------------------------------------
Total Investments 99.7
Net Other Assets and Liabilities 0.3
-------
Total 100.0%
=======
See Notes to Financial Statements Page 25
FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND
Portfolio of Investments (a)
March 31, 2009 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS--99.8%
AUSTRALIA--4.7%
48,092 AGL Energy Ltd. $ 498,900
3,003,001 Babcock & Brown Wind Partners
Group (d) 1,969,474
-------------
2,468,374
-------------
BELGIUM--5.8%
2,117,500 Hansen Transmissions
International (b) (d) 3,016,027
-------------
BERMUDA--0.4%
5,289,712 China Windpower Group
Ltd. (b) (d) 204,702
-------------
BRAZIL--1.1%
52,544 Centrais Eletricas Brasileiras
SA ADR (b) 569,052
-------------
CANADA--0.4%
24,473 Boralex, Inc. (b) 106,176
65,078 Canadian Hydro Developers,
Inc. (b) 123,363
-------------
229,539
-------------
CAYMAN ISLANDS--1.2%
451,016 China High Speed Transmission
Equipment Group Co., Ltd. (d) 644,614
-------------
CHINA--0.6%
478,602 Harbin Power Equipment Co.,
Ltd. (d) 311,911
-------------
DENMARK--8.2%
258,424 Greentech Energy Systems
A/S (b) (d) 494,600
86,620 Vestas Wind Systems A/S (b) (d) 3,805,231
-------------
4,299,831
-------------
FRANCE--3.1%
10,552 Alstom SA (d) 547,188
14,131 EDF Energies Nouvelles (d) 532,253
198,667 Theolia SA (b) (d) 561,579
-------------
1,641,020
-------------
GERMANY--15.4%
273,746 Conergy AG (b) (d) 243,030
22,131 E.ON AG ADR 612,586
224,211 Nordex AG (b) (d) 2,878,223
26,017 REpower Systems AG (b) (d) 2,935,837
9,510 RWE AG (d) 665,992
12,312 Siemens AG ADR (d) 701,415
-------------
8,037,083
-------------
GREECE--0.6%
62,612 Terna Energy SA(d) 327,317
-------------
JAPAN--4.2%
543 Japan Wind Development Co.,
Ltd. (d) 1,481,671
72,000 Mitsui & Co., Ltd. (d) 733,485
-------------
2,215,156
-------------
Shares Description Value
- -------------------------------------------------------------
PORTUGAL--1.3%
192,731 EDP-Energias de Portugal
SA (d) $ 668,130
-------------
SPAIN--30.3%
5,615 Acciona SA 577,575
697,544 EDP Renovaveis SA (b) (d) 5,697,433
22,559 Endesa SA(d) 422,267
692,415 Fersa Energias Renovables SA(d) 1,803,501
187,400 Gamesa Corporacion Tecnologica
SA (d) 2,403,691
1,201,200 Iberdrola Renovables SA (b) (d) 4,975,064
-------------
15,879,531
-------------
SWEDEN--0.9%
53,352 SKF AB (d) 461,816
-------------
SWITZERLAND--1.3%
7,341 BKW FMB Energie AG (d) 528,377
409 Gurit Holding AG (d) 125,426
-------------
653,803
-------------
UNITED KINGDOM--5.3%
16,730 BP PLC ADR 670,873
1,021,023 Clipper Windpower PLC (b) (d) 990,911
1,027,326 Renewable Energy Generation (d) 474,937
14,975 Royal Dutch Shell PLC ADR 663,393
-------------
2,800,114
-------------
UNITED STATES--15.0%
86,598 AES Corp (b) 503,134
19,633 Allegheny Technologies, Inc. 430,552
15,532 Alliant Energy Corp. 383,485
20,957 American Superconductor Corp. (b) 362,766
5,034 Ameron International Corp. 265,090
457,864 Broadwind Energy, Inc. (b) 2,060,388
155,447 Capstone Turbine Corp. (b) 111,922
358,725 Composite Technology Corp. (b) 91,475
76,776 Federal Mogul Corp. (b) 512,864
17,001 FPL Group, Inc. 862,460
45,994 General Electric Co. 464,999
27,166 GreenHunter Energy, Inc. (b) 51,615
10,307 Kaydon Corp. 281,690
26,531 NRG Energy, Inc. (b) 466,946
14,413 Otter Tail Corp. 317,807
32,274 Trinity Industries, Inc. 294,984
22,755 Woodward Governor Co. 254,401
19,986 Zoltek Cos., Inc. (b) 136,105
-------------
7,852,683
-------------
TOTAL COMMON STOCKS--99.8%
(Cost $104,433,213) 52,280,703
-------------
WARRANTS--0.0%
United States--0.0%
959 GreenHunter Energy, Inc.
expiring 9/15/11 @ $0 (b) (d) 0
(Cost $0)
-------------
Page 26 See Notes to Financial Statements
FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND
Portfolio of Investments (a) (Continued)
March 31, 2009 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
MONEY MARKET FUND--0.1%
26,185 Morgan Stanley Institutional Treasury
Money Market Fund--0.06% (c)
(Cost $26,185) $ 26,185
-------------
TOTAL INVESTMENTS--99.9%
(Cost $104,459,398) (d) 52,306,888
NET OTHER ASSETS AND
LIABILITIES--0.1% 48,074
-------------
NET ASSETS--100.0% $ 52,354,962
=============
(a) All percentages shown in the Portfolio of Investments are based on
net assets.
(b) Non-income producing security.
(c) Represents 7-day annualized yield at March 31, 2009.
(d) This security is fair valued in accordance with valuation procedures adopted
by the Trust's Board of Trustees.
(e) Aggregate cost for financial reporting
purposes, which approximates the aggregate cost for federal income tax
purposes. As of March 31, 2009, the aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost was $406,909 and the aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over value was $52,559,419.
ADR - American Depositary Receipt.
- ------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's investments
as of March 31, 2009 is as follows (See Note 2A):
Investments
Valuation Inputs in Securities
--------------
Level 1 - Quoted Prices - Investments $11,325,726
Level 2 - Other Significant Observable Inputs 40,981,162
Level 3 - Significant Unobservable Inputs --
------------
Total $52,306,888
============
% of
Industry Net Assets
- ------------------------------------------------------------
Independent Power Producers &Energy Traders 32.9%
Electrical Equipment 31.8
Electric Utilities 10.9
Machinery 7.7
Oil, Gas & Consumable Fuels 6.1
Multi-Utilities 3.0
Industrial Conglomerates 2.8
Trading Companies & Distributors 1.4
Auto Components 1.0
Metals & Mining 0.8
Building Products 0.5
Chemicals 0.5
Food & Staples Retailing 0.4
Money Market Fund 0.1
Warrants 0.0
- ------------------------------------------------------------
Total Investments 99.9
Net Other Assets and Liabilities 0.1
-------
Total 100.0%
=======
See Notes to Financial Statements Page 27
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND
Portfolio of Investments (a)
March 31, 2009 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS--99.7%
AUSTRALIA--2.7%
37,871 Leighton Holdings Ltd. (c) $ 507,696
-------------
CANADA--3.0%
18,092 SNC-Lavalin Group, Inc. 459,905
5,498 Stantec, Inc. (b) 99,424
-------------
559,329
-------------
CHINA--5.2%
516,279 China Communications
Construction Co., Ltd. (c) 566,552
700,139 China Railway Group Ltd. (b) (c) 408,275
-------------
974,827
-------------
EGYPT--2.4%
9,591 Orascom Construction
Industries, GDR (c) 450,257
-------------
FINLAND--1.0%
28,244 YIT Oyi (c) 189,224
-------------
FRANCE--8.4%
16,590 Bouygues SA (c) 592,845
7,747 Eiffage SA (c) 360,395
17,349 Vinci SA (c) 644,075
-------------
1,597,315
-------------
GERMANY--2.4%
11,898 Hochtief AG (c) 448,245
-------------
ITALY--3.2%
13,830 Ansaldo STS S.p.A (c) 219,591
89,754 Impregilo S.p.A (c) 236,537
40,103 Marie Tecnimont S.p.A (c) 82,764
8,493 Trevi Finanziaria S.p.A (c) 56,376
-------------
595,268
-------------
JAPAN--19.7%
65,000 Chiyoda Corp. (c) 351,878
30,000 COMSYS Holdings Corp. (c) 253,488
38,000 JGC Corp. (c) 438,775
139,000 Kajima Corp. (c) 344,350
29,000 Kandenko Co., Ltd. (c) 194,369
31,000 Kinden Corp. (c) 253,480
22,000 Kyowa Exeo Corp. (c) 179,668
9,000 Maeda Corp. (c) 31,440
5,000 Maeda Road Construction
Co., Ltd. (c) 43,903
96,000 Obayashi Corp. (c) 468,388
29,000 Okumura Corp. (c) 103,148
95,000 Shimizu Corp. (c) 397,658
1,100 SHO-BOND Holdings Co.,
Ltd. (c) 20,523
154,000 Taisei Corp. (c) 295,327
41,000 Toda Corp. (c) 126,348
11,000 Toshiba Plant Systems &
Services Corp. (c) 93,506
Shares Description Value
- -------------------------------------------------------------
JAPAN (Continued)
43,000 Toyo Engineering Corp. (c) $ 127,008
-------------
3,723,257
-------------
NETHERLANDS--5.3%
5,199 Arcadis N.V. (c) 62,684
30,042 Chicago Bridge & Iron Co., N.V. (c) 188,363
16,419 Imtech N.V. (c) 225,745
14,117 Koninkliijke Boskalis Westminster
N.V. (c) 283,620
27,538 Koninklijke BAM Groep N.V. (c) 244,731
-------------
1,005,143
-------------
PANAMA--4.0%
56,363 McDermott International, Inc. (b) 754,701
-------------
PORTUGAL--0.1%
3,808 Mota-Engil SGPS, SA (c) 12,742
-------------
SPAIN--7.8%
15,298 ACS Actividades Construccion y
Servicios SA (c) 634,533
16,492 Obrascon Huarte Lain SA (c) 148,080
37,589 Sacyr Vallehermoso SA (c) 289,529
12,705 Tecnicas Reunidas SA (c) 404,021
-------------
1,476,163
-------------
SWEDEN--2.7%
59,519 Skanska AB (c) 513,736
-------------
SWITZERLAND--2.3%
24,560 Foster Wheeler AG (b) (c) 429,063
-------------
UNITED KINGDOM--4.6%
58,092 AMEC PLC (c) 443,622
67,069 Balfour Beatty PLC (c) 314,512
15,302 WS Atkins PLC 108,423
-------------
866,557
-------------
UNITED STATES--24.9%
14,757 Aecom Technology Corp. (b) 384,863
17,837 EMCOR Group, Inc. (b) 306,261
13,911 Fluor Corp. 480,625
9,342 Granite Construction, Inc. 350,138
13,822 Jacobs Engineering Group, Inc. (b) 534,359
36,105 KBR, Inc. 498,610
12,717 Perini Corp. (b) 156,419
33,084 Quanta Services, Inc. (b) 709,652
24,231 Shaw Group (The), Inc. (b) 664,172
15,155 URS Corp. (b) 612,414
-------------
4,697,513
-------------
TOTAL INVESTMENTS--99.7%
(Cost $20,113,881) (d) $ 18,801,036
NET OTHER ASSETS AND
LIABILITIES--0.3% 65,756
-------------
NET ASSETS--100.0% $ 18,866,792
=============
Page 28 See Notes to Financial Statements
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND
Portfolio of Investments (a) (Continued)
March 31, 2009 (Unaudited)
(a) All percentages shown in the Portfolio of Investments are based on
net assets.
(b) Non-income producing security.
(c) This security is fair valued in accordance with valuation procedures adopted
by the Trust's Board of Trustees.
(d) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of March 31, 2009, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $408,077 and the aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over value was $1,720,922.
GDR - Global Depositary Receipt.
- ------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's investments
as of March 31, 2009 is as follows (See Note 2A):
Investments
Valuation Inputs in Securities
---------------
Level 1 - Quoted Prices - Investments $ 6,628,968
Level 2 - Other Significant Observable Inputs 12,172,068
Level 3 - Significant Unobservable Inputs --
-------------
Total $ 18,801,036
=============
% of
Industry Net Assets
- ------------------------------------------------------------
Construction & Engineering 88.9%
Energy Equipment & Services 4.5
Industrial Conglomerates 4.0
Transportation Infrastructure 1.2
Professional Services 1.1
- ------------------------------------------------------------
Total Investments 99.7
Net Other Assets and Liabilities 0.3
-------
Total 100.0%
=======
See Notes to Financial Statements Page 29
FIRST TRUST EXCHANGE-TRADED FUND II
Statements of Assets and Liabilities
March 31, 2009 (Unaudited)
First Trust First Trust
Dow Jones STOXX(R) FTSE EPRA/NAREIT
European Select Developed Markets Real
Dividend Index Fund Estate Index Fund
--------------------------- ---------------------------
ASSETS:
Investments at value $ 3,566,327 $ 6,498,798
Cash -- --
Foreign currency at value 1,051 --
Receivables:
Capital shares sold -- --
Investment securities sold -- 12,063
Dividends 12,280 41,092
From investment advisor 25,265 17,892
Foreign tax reclaims 41,340 1,452
Interest 4 5
Prepaid expenses 59,535 2,842
-------------- --------------
Total Assets 3,705,802 6,574,144
-------------- --------------
LIABILITIES:
Due to custodian 90,366 82,455
Payables:
Investment securities purchased -- --
Audit and tax fees 20,411 23,114
Printing fees 9,161 14,142
Licensing fees -- 1,992
Accrued expenses and other liabilities 10,630 11,604
-------------- --------------
Total Liabilities 130,568 133,307
-------------- --------------
NET ASSETS $ 3,575,234 $ 6,440,837
============== ==============
NET ASSETS consist of:
Paid-in capital $ 17,787,193 $ 13,136,506
Par value 4,033 3,500
Accumulated net investment income (loss) (4,178) 100,454
Accumulated net realized gain (loss) on investments (13,427,485) (1,505,379)
Net unrealized appreciation (depreciation) on investments, foreign
currency transactions and translation of assets and liabilities
denominated in foreign currencies (784,329) (5,294,244)
-------------- --------------
NET ASSETS $ 3,575,234 $ 6,440,837
============== ==============
NET ASSET VALUE, per share $ 8.86 $ 18.40
============== ==============
Number of shares outstanding
(unlimited number of shares authorized, par value $0.01 per share) 403,334 350,002
-------------- --------------
Investments at cost $ 4,344,895 $ 11,793,051
============== ==============
Foreign currency at cost $ 1,079 $ --
============== ==============
Page 30 See Notes to Financial Statements
First Trust First Trust First Trust
Dow Jones Global ISE Global ISE Global
Select Dividend Wind Energy Engineering and
Index Fund Index Fund Construction Index Fund
---------------------------- ------------------------- -------------------------------
$ 3,634,630 $ 52,306,888 $ 18,801,036
-- -- --
5,835 -- 14,612
-- 523,549 1,322,242
-- -- --
30,032 40,137 87,206
5,237 7,614 2,703
1,067 9,623 --
-- 4 --
20,850 42,138 4,094
------------------ ------------------- -------------------
3,697,651 52,929,953 20,231,893
------------------ ------------------- -------------------
20,704 865 15,133
-- 523,079 1,319,613
18,043 19,594 15,250
2,979 -- 1,814
-- 12,955 3,471
11,080 18,498 9,820
------------------ ------------------- -------------------
52,806 574,991 1,365,101
------------------ ------------------- -------------------
$ 3,644,845 $ 52,354,962 $ 18,866,792
================== =================== ===================
$ 6,561,850 $ 114,379,660 $ 20,191,019
3,000 50,000 7,000
13,436 143,698 91,191
(1,852,701) (10,066,483) (109,856)
(1,080,740) (52,151,913) (1,312,562)
------------------ ------------------- -------------------
$ 3,644,845 $ 52,354,962 $ 18,866,792
================== =================== ===================
$ 12.15 $ 10.47 $ 26.95
================== =================== ===================
300,002 5,000,002 700,002
------------------ ------------------- -------------------
$ 4,715,700 $ 104,459,398 $ 20,113,881
================== =================== ===================
$ 5,901 $ -- $ 14,612
================== =================== ===================
See Notes to Financial Statements Page 31
FIRST TRUST EXCHANGE-TRADED FUND II
Statements of Operations
First Trust First Trust
Dow Jones STOXX(R) FTSE EPRA/NAREIT
European Select Developed Markets Real
Dividend Index Fund Estate Index Fund
--------------------------- -----------------------------
For the Six For the Six
Months Ended Months Ended
March 31, 2009 March 31, 2009
(Unaudited) (Unaudited)
------------------------ ------------------------
INVESTMENT INCOME:
Dividends $ 83,898 $ 201,066
Foreign tax withholding (1,741) (8,968)
Interest 1 35
-------------- --------------
Total investment income 82,158 192,133
-------------- --------------
EXPENSES:
Licensing fees 37,397 3,548
Audit and tax fees 19,111 19,314
Listing fees 16,564 20,181
Investment advisory fees 9,971 11,827
Accounting and administration fees 4,478 17,405
Legal fees 1,444 2,086
Registration and filing fees 815 169
Custodian fees 692 1,451
Trustees' fees and expenses 247 1,312
Transfer agent fees 125 148
Printing fees -- --
Other expenses 150 182
-------------- --------------
Total expenses 90,994 77,623
Less fees waived and expenses reimbursed by the investment advisor (76,038) (59,882)
-------------- --------------
Net expenses 14,956 17,741
-------------- --------------
NET INVESTMENT INCOME (LOSS) 67,202 174,392
-------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (7,709,500) (1,400,062)
In-kind redemptions (2,257,554) (9,314)
Foreign currency transactions (6,240) (1,373)
-------------- --------------
Net realized gain (loss) (9,973,294) (1,410,749)
Net change in unrealized appreciation (depreciation) on:
Investments 5,500,140 (2,880,886)
Foreign currency translation 3,127 376
-------------- --------------
Net change in unrealized appreciation (depreciation) 5,503,267 (2,880,510)
-------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (4,470,027) (4,291,259)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (4,402,825) $ (4,116,867)
============== ==============
(a) Inception date.
Page 32 See Notes to Financial Statements
First Trust First Trust First Trust
Dow Jones Global ISE Global ISE Global
Select Dividend Wind Energy Engineering and
Index Fund Index Fund Construction Index Fund
----------------------------- ------------------------- -------------------------------
For the Period
For the Six For the Six October 13, 2008 (a)
Months Ended Months Ended through
March 31, 2009 March 31, 2009 March 31, 2009
(Unaudited) (Unaudited) (Unaudited)
------------------------ ------------------------ ------------------------
$ 88,570 $ 466,643 $ 125,660
(6,603) (18,597) (3,153)
21 59 --
--------------- --------------- --------------
81,988 448,105 122,507
--------------- --------------- --------------
13,398 24,929 4,159
18,743 16,794 15,250
11,016 6,524 6,714
6,434 99,718 16,637
4,159 26,920 7,657
2,296 11,688 2,470
113 182 168
1,848 3,850 1,103
1,408 4,549 1,117
80 1,247 208
1,461 3,978 2,795
133 2,650 1,315
--------------- --------------- --------------
61,089 203,029 59,593
(51,438) (53,453) (30,477)
--------------- --------------- --------------
9,651 149,576 29,116
--------------- --------------- --------------
72,337 298,529 93,391
--------------- --------------- --------------
(1,677,780) (9,642,310) (110,208)
-- (93,752) --
(3,874) (519) 352
--------------- --------------- --------------
(1,681,654) (9,736,581) (109,856)
(35,264) (22,068,060) (1,312,844)
2,087 (12,823) 282
--------------- --------------- --------------
(33,177) (22,080,883) (1,312,562)
--------------- --------------- --------------
(1,714,831) (31,817,464) (1,422,418)
--------------- --------------- --------------
$ (1,642,494) $ (31,518,935) $ (1,329,027)
=============== =============== ==============
See Notes to Financial Statements Page 33
FIRST TRUST EXCHANGE-TRADED FUND II
Statements of Changes in Net Assets
First Trust
Dow Jones STOXX(R)
European Select Dividend
Index Fund
---------------------------------------------------------
For the Six
Months Ended For the Year
March 31, 2009 Ended
(Unaudited) September 30, 2008
------------------------ ------------------------
OPERATIONS:
Net investment income (loss) $ 67,202 $ 886,452
Net realized gain (loss) (9,973,294) (3,464,547)
Net change in unrealized appreciation (depreciation) 5,503,267 (6,384,754)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations (4,402,825) (8,962,849)
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (62,719) (887,901)
Net realized gain -- --
--------------- ---------------
Total distributions to shareholders (62,719) (887,901)
--------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold -- 19,195,866
Value of shares repurchased (4,504,660) --
--------------- ---------------
Net increase (decrease) in net assets resulting from shareholder
transactions (4,504,660) 19,195,866
--------------- ---------------
Total increase (decrease) in net assets (8,970,204) 9,345,116
NET ASSETS:
Beginning of period 12,545,438 3,200,322
--------------- ---------------
End of period $ 3,575,234 $ 12,545,438
=============== ===============
Accumulated net investment income (loss) at end of period $ (4,178) $ (8,661)
=============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period 803,334 103,334
Shares sold -- 700,000
Shares repurchased (400,000) --
--------------- ---------------
Shares outstanding, end of period 403,334 803,334
=============== ===============
(a) Inception date.
Page 34 See Notes to Financial Statements
First Trust First Trust
FTSE EPRA/NAREIT Dow Jones
Developed Markets Real Estate Global Select Dividend
Index Fund Index Fund
- --------------------------------------------------------- ---------------------------------------------------------
For the Six For the Six For the Period
Months Ended For the Year Months Ended November 21, 2007 (a)
March 31, 2009 Ended March 31, 2009 through
(Unaudited) September 30, 2008 (Unaudited) September 30, 2008
- ------------------------ ------------------------ ------------------------ ---------------------------
$ 174,392 $ 182,979 $ 72,337 $ 171,940
(1,410,749) (98,545) (1,681,654) (173,305)
(2,880,510) (2,743,454) (33,177) (1,047,563)
-------------- --------------- --------------- ---------------
(4,116,867) (2,659,020) (1,642,494) (1,048,928)
-------------- --------------- --------------- ---------------
(108,251) (155,322) (66,400) (162,183)
(2,775) -- -- --
-------------- --------------- --------------- ---------------
(111,026) (155,322) (66,400) (162,183)
-------------- --------------- --------------- ---------------
4,405,011 4,719,835 1,363,854 5,200,996
(984,940) -- -- --
-------------- --------------- --------------- ---------------
3,420,071 4,719,835 1,363,854 5,200,996
-------------- --------------- --------------- ---------------
(807,822) 1,905,493 (345,040) 3,989,885
7,248,659 5,343,166 3,989,885 --
-------------- --------------- --------------- ---------------
$ 6,440,837 $ 7,248,659 $ 3,644,845 $ 3,989,885
============== =============== =============== ===============
$ 100,454 $ 34,313 $ 13,436 $ 7,499
============== =============== =============== ===============
200,002 100,002 200,002 --
200,000 100,000 100,000 200,002
(50,000) -- -- --
-------------- --------------- --------------- ---------------
350,002 200,002 300,002 200,002
============== =============== =============== ===============
See Notes to Financial Statements Page 35
FIRST TRUST EXCHANGE-TRADED FUND II
Statements of Changes in Net Assets (Continued)
First Trust
ISE Global
Wind Energy
Index Fund
---------------------------------------------------------
For the Six For the Period
Months Ended June 16, 2008 (a)
March 31, 2009 through
(Unaudited) September 30, 2008
------------------------ ------------------------
OPERATIONS:
Net investment income (loss) $ 298,529 $ 43,466
Net realized gain (loss) (9,736,581) (1,569,015)
Net change in unrealized appreciation (depreciation) (22,080,883) (30,071,030)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations (31,518,935) (31,596,579)
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (174,150) --
Net realized gain -- --
--------------- ---------------
Total distributions to shareholders (174,150) --
--------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 20,981,110 100,602,595
Value of shares repurchased -- (5,939,079)
--------------- ---------------
Net increase (decrease) in net assets resulting from shareholder
transactions 20,981,110 94,663,516
--------------- ---------------
Total increase (decrease) in net assets (10,711,975) 63,066,937
NET ASSETS:
Beginning of period 63,066,937 --
--------------- ---------------
End of period $ 52,354,962 $ 63,066,937
=============== ===============
Accumulated net investment income (loss) at end of period $ 143,698 $ 19,319
=============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period 3,300,002 --
Shares sold 1,700,000 3,600,002
Shares repurchased -- (300,000)
---------------- ----------------
Shares outstanding, end of period 5,000,002 3,300,002
================ ================
(a) Inception date.
Page 36 See Notes to Financial Statements
First Trust
ISE Global
Engineering and Construction
Index Fund
- ----------------------------------------
For the Period
October 13, 2008 (a)
through
March 31, 2009
(Unaudited)
- ----------------------------------------
$ 93,391
(109,856)
(1,312,562)
----------------
(1,329,027)
----------------
(2,200)
--
----------------
(2,200)
----------------
20,198,019
--
----------------
20,198,019
----------------
18,866,792
--
----------------
$ 18,866,792
----------------
$ 91,191
================
--
700,002
--
----------------
700,002
================
See Notes to Financial Statements Page 37
FIRST TRUST EXCHANGE-TRADED FUND II
Financial Highlights
For a Share outstanding throughout each period
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund
For the For the Period
Six Months Ended For the August 27, 2007 (a)
March 31, 2009 Year Ended through
(Unaudited) September 30, 2008 September 30, 2007
------------------ -------------------- ----------------------
Net asset value, beginning of period $ 15.62 $ 30.97 $ 30.00
--------- --------- ---------
Income from investment operations:
Net investment income (loss) 0.16 1.26 0.03 (b)
Net realized and unrealized gain (loss) (6.76) (15.32) 0.94
--------- --------- ---------
Total from investment operations (6.60) (14.06) 0.97
Distributions paid to shareholders from:
Net investment income (0.16) (1.29) --
--------- --------- ---------
Net asset value, end of period $ 8.86 $ 15.62 $ 30.97
========= ========= =========
TOTAL RETURN (c) (42.46)% (46.12)% 3.23%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 3,575 $ 12,545 $ 3,200
Ratios to average net assets:
Ratio of total expenses to average net assets 3.65% (d) 1.95% 19.64% (d)
Ratio of net expenses to average net assets 0.60% (d) 0.60% 0.60% (d)
Ratio of net investment income (loss) to average net assets 2.70% (d) 6.43% 1.18% (d)
Portfolio turnover rate (e) 76% 80% 0%
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
For the For the Period
Six Months Ended For the August 27, 2007 (a)
March 31, 2009 Year Ended through
(Unaudited) September 30, 2008 September 30, 2007
------------------ -------------------- ----------------------
Net asset value, beginning of period $ 36.24 $ 53.43 $ 50.00
--------- --------- ---------
Income from investment operations:
Net investment income (loss) 0.63 (b) 1.25 0.14 (b)
Net realized and unrealized gain (loss) (18.03) (17.25) 3.29
--------- --------- ---------
Total from investment operations (17.40) (16.00) 3.43
Distributions paid to shareholders from:
Net investment income (0.43) (1.19) --
Net realized gain (0.01) -- --
--------- --------- ---------
Total distributions (0.44) (1.19) --
--------- --------- ---------
Net asset value, end of period $ 18.40 $ 36.24 $ 53.43
========= ========= =========
TOTAL RETURN (c) (48.28)% (30.35)% 6.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 6,441 $ 7,249 $ 5,343
Ratios to average net assets:
Ratio of total expenses to average net assets 2.63% (d) 2.68% 11.51% (d)
Ratio of net expenses to average net assets 0.60% (d) 0.60% 0.60% (d)
Ratio of net investment income (loss) to average net assets 5.90% (d) 3.07% 3.22% (d)
Portfolio turnover rate (e) 10% 7% 1%
(a) Inception date.
(b) Per share amounts have been calculated using the average share method.
(c) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. 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
calculated for a period of less than one year is not annualized. The total
returns would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 38 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND II
Financial Highlights
For a Share outstanding throughout each period
First Trust Dow Jones Global Select Dividend Index Fund
For the For the Period
Six Months Ended November 21, 2007 (a)
March 31, 2009 through
(Unaudited) September 30, 2008
------------------ -------------------
Net asset value, beginning of period $ 19.95 $ 30.00
--------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.30 1.38
Net realized and unrealized gain (loss) (7.80) (10.10)
--------- ---------
Total from investment operations (7.50) (8.72)
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.30) (1.33)
--------- ---------
Net asset value, end of period $ 12.15 $ 19.95
========= =========
TOTAL RETURN (b) (37.74)% (29.72)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 3,645 $ 3,990
Ratios to average net assets:
Ratio of total expenses to average net assets 3.80% (c) 4.79% (c)
Ratio of net expenses to average net assets 0.60% (c) 0.60% (c)
Ratio of net investment income (loss) to average net assets 4.50% (c) 6.33% (c)
Portfolio turnover rate (d) 58% 42%
First Trust ISE Global Wind Energy Index Fund
For the For the Period
Six Months Ended June 16, 2008 (a)
March 31, 2009 through
(Unaudited) September 30, 2008
------------------ -------------------
Net asset value, beginning of period $ 19.11 $ 30.00
--------- ---------
Income from investment operations:
Net investment income (loss) 0.06 0.01
Net realized and unrealized gain (loss) (8.66) (10.90)
--------- ---------
Total from investment operations (8.60) (10.89)
Distributions paid to shareholders from:
Net investment income (0.04) --
--------- ---------
Net asset value, end of period $ 10.47 $ 19.11
========= =========
TOTAL RETURN (b) (45.03)% (36.30)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 52,355 $ 63,067
Ratios to average net assets:
Ratio of total expenses to average net assets 0.81% (c) 0.98% (c)
Ratio of net expenses to average net assets 0.60% (c) 0.60% (c)
Ratio of net investment income (loss) to average net assets 1.20% (c) 0.24% (c)
Portfolio turnover rate (d) 19% 13%
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. 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
calculated for a period of less than one year is not annualized. The total
returns would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 39
FIRST TRUST EXCHANGE-TRADED FUND II
Financial Highlights
For a Share outstanding throughout each period
First Trust ISE Global Engineering and Construction Index Fund
For the Period
October 13, 2008 (a)
through
March 31, 2009
(Unaudited)
---------------------
Net asset value, beginning of period $ 30.00
---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.14
Net realized and unrealized gain (loss) (3.18)
---------
Total from investment operations (3.04)
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.01)
---------
Net asset value, end of period $ 26.95
=========
TOTAL RETURN (b) (10.13)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 18,867
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 1.43% (c)
Ratio of net expenses to average net assets 0.70% (c)
Ratio of net investment income (loss) to average net assets 2.25% (c)
Portfolio turnover rate (d) 11%
<FN>
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. 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
calculated for a period of less than one year is not annualized. The total
return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
</FN>
Page 40 See Notes to Financial Statements
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
March 31, 2009 (Unaudited)
1. Organization
First Trust Exchange-Traded Fund II (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on July 20, 2006,
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 five Funds:
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund(1)
- (NYSE Arca, Inc. ticker "FDD")
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund(2)
- (NYSE Arca, Inc. ticker "FFR")
First Trust Dow Jones Global Select Dividend Index Fund
- (NYSE Arca, Inc. ticker "FGD")
First Trust ISE Global Wind Energy Index Fund
- (NYSE Arca, Inc. ticker "FAN")
First Trust ISE Global Engineering and Construction Index Fund
- (NYSE Arca, Inc. ticker "FLM")
(1) Formerly First Trust DJ STOXX(R) Select Dividend 30 Index Fund
(2) Formerly First Trust FTSE/NAREIT Global Real Estate Index Fund
Each Fund represents a separate series of shares of beneficial interest in the
Trust (individually, each a "Fund" and collectively, the "Funds"). Each Fund's
shares currently are listed and traded on the NYSE Arca, Inc. ("NYSE Arca").
Unlike conventional mutual funds, each Fund issues and redeems shares on a
continuous basis, at net asset value ("NAV"), only in large specified amounts of
shares called "Creation Units". Creation Units are issued and redeemed
principally in-kind for securities included in a Fund's relevant index. Except
when aggregated in Creation Units, shares are not redeemable securities of a
Fund. The investment objective of each Fund is to seek investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of the following indices:
Fund Index
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund Dow Jones STOXX(R) Select Dividend 30 Index
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund FTSE EPRA/NAREIT Developed Index(3)
First Trust Dow Jones Global Select Dividend Index Fund Dow Jones Global Select Dividend Index(SM)
First Trust ISE Global Wind Energy Index Fund ISE Global Wind Energy Index
First Trust ISE Global Engineering and Construction Index Fund ISE Global Engineering and Construction Index Fund
(3) The FTSE EPRA/NAREIT Developed Index was formerly known as the FTSE
EPRA/NAREIT Global Real Estate Index. The changes to the Fund name and
underlying index name had no effect on the investment strategies or risks of the
Fund. The ticker symbol and CUSIP number remain the same.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of the financial statements. The
preparation of the financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
The NAV of each Fund's shares is determined daily as of the close of regular
trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern
time, on each day the NYSE is open for trading. The NAV is calculated by
dividing the value of all assets of the Fund (including accrued interest and
dividends), less all liabilities (including accrued expenses and dividends
declared but unpaid), by the total number of shares outstanding.
Each Fund's investments are valued at market value or, in the absence of market
value with respect to any portfolio securities, at fair value in accordance with
valuation procedures adopted by the Trust's Board of Trustees and in accordance
with the 1940 Act. Portfolio securities listed on any exchange other than the
NASDAQ National Market ("NASDAQ") and the London Stock Exchange Alternative
Investment Market ("AIM") are valued at the last sale price on the business day
as of which such value is being determined. Securities listed on the NASDAQ or
the AIM are valued at the official closing price on the business day as of which
such value is being determined. If there has been no sale on such day, or no
official closing price in the case of securities traded on the NASDAQ or the
AIM, the securities are valued at the mean of the most recent bid and ask prices
on such day. Portfolio securities traded on more than one securities exchange
are valued at the last sale price or official closing price, as applicable, on
the business day as of which such value is being determined at the close of the
exchange representing the principal market for such securities. Portfolio
securities traded in the over-the-counter market, but excluding securities
trading on the NASDAQ and the AIM, are valued at the closing bid prices.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
Page 41
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
March 31, 2009 (Unaudited)
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board of Trustees or its delegate
at fair value. The use of fair value pricing by each Fund is governed by
valuation procedures adopted by the Board of Trustees and is in accordance with
the provisions of the 1940 Act. These securities generally include, but are not
limited to, restricted securities (securities which may not be publicly sold
without registration under the Securities Act of 1933, as amended) for which a
pricing service is unable to provide a market price; securities whose trading
has been formally suspended; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of a Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
"fair value." As a general principle, the current "fair value" of a security
would appear to be the amount which the owner might reasonably expect to receive
for the security upon its current sale. The use of fair value prices by a Fund
generally results in prices that may differ from current market quotations or
official closing prices on the applicable exchange. A variety of factors may be
considered in determining the fair value of such securities. In addition, the
use of fair value prices and certain current market quotations or official
closing prices could result in a difference between the prices used to calculate
a Fund's NAV and the prices used by such Fund's corresponding index, which, in
turn, could result in a difference between a Fund's performance and the
performance of its index.
Because foreign markets may be open on different days than the days during which
investors may purchase the shares of each Fund, the value of each Fund's
securities may change on the days when investors are not able to purchase the
shares of the Fund. The value of securities denominated in foreign currencies is
converted into U.S. dollars using exchange rates determined daily as of the
close of regular trading on the NYSE. Any use of a different rate from the rates
used by a relevant Index may adversely affect the Fund's ability to track the
Index.
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No.157, "Fair Value Measurements"
("FAS 157"), effective for fiscal years beginning after November 15, 2007. This
standard clarifies the definition of fair value for financial reporting,
establishes a framework for measuring fair value and requires additional
disclosures about the use of fair value measurements. FAS 157 became effective
for the Funds as of October 1, 2008, the beginning of each Fund's current fiscal
year; however, this standard was adopted early for each fund within the Trust.
The three levels of the fair value hierarchy under FAS 157 are as follows:
o Level 1 - quoted prices in active markets for identical securities
o Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit
risk, etc.)
o Level 3 - significant unobservable inputs (including a Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the inputs used to value each Fund's investments as of March 31, 2009 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.
A Fund may hold publicly-traded master limited partnerships ("MLPs") and real
estate investment trusts ("REITs"). Distributions from such investments may
include a return of capital component from the MLP or REIT to the extent of the
cost basis of such MLP or REIT investments. The actual character of amounts
received during the year is not known until after the fiscal year end. A Fund
records the character of distributions received from the MLPs or REITs during
the year based on estimates available. A Fund's characterization may be
subsequently revised based on information received from the MLPs or REITs after
their tax reporting periods conclude.
C. Foreign Currency
The books and records of the Funds are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at the exchange rates prevailing at the end of the period.
Purchases and sales of investment securities and items of income and expense are
translated on the respective dates of such transactions. Unrealized gains and
losses which result from changes in foreign currency exchange rates have been
included in "Net change in unrealized appreciation (depreciation) on foreign
currency translation" on the Statements of Operations. Net realized foreign
currency gains and losses include the effect of changes in exchange rates
between trade date and settlement date on investment security transactions,
foreign currency transactions and interest and dividends received. The portion
of foreign currency gains and losses related to fluctuations in exchange rates
between the initial purchase trade date and subsequent sale trade date is
included in "Net realized gain (loss) on foreign currency transactions" on the
Statement of Operations.
Page 42
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
March 31, 2009 (Unaudited)
D. Dividends and Distribution to Shareholders
Dividends from net investment income of the Funds, if any, are declared and paid
quarterly by the First Trust Dow Jones STOXX(R) European Select Dividend Index
Fund and the First Trust Dow Jones Global Select Dividend Index Fund and
semi-annually by the First Trust FTSE EPRA/NAREIT Developed Markets Real Estate
Index Fund, the First Trust ISE Global Wind Energy Index Fund and the First
Trust ISE Global Engineering and Construction Index Fund or as the Board of
Trustees may determine from time to time. Distributions of net realized capital
gains earned by each Fund, if any, are distributed at least annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from accounting principles generally
accepted in the United States of America. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by the Funds, timing differences and differing characterization of distributions
made by the Funds.
The tax character of distributions paid by each Fund during the period ended
September 30, 2008 were as follows:
Distributions paid from Distributions paid from
Ordinary Income Return of Capital
---------------------------- ----------------------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund $ 887,901 $ --
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 155,322 --
First Trust Dow Jones Global Select Dividend Index Fund 162,183 --
First Trust ISE Global Wind Energy Index Fund -- --
As of September 30, 2008, the components of distributable earnings on a tax basis for the Funds were as follows:
Accumulated Net Unrealized
Undistributed Capital Appreciation
Ordinary Income Gain (Loss) (Depreciation)
---------------------- ---------------------- ---------------------
First Trust Dow Jones STOXX(R) European Select Dividend
Index Fund $ 22,038 $ -- $ (7,074,371)
First Trust FTSE EPRA/NAREIT Developed Markets
Real Estate Index Fund 66,332 2,767 (2,433,953)
First Trust Dow Jones Global Select Dividend Index Fund 10,907 -- (1,090,666)
First Trust ISE Global Wind Energy Index Fund 19,319 -- (30,226,746)
E. 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.
In June 2006, FASB issued Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 48"). FIN 48 establishes 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, and is effective for the Funds' current
fiscal year. As of March 31, 2009, management has evaluated the application of
FIN 48 to the Funds, and has determined that no provision for income tax is
required in the Funds' financial statements for uncertain tax positions.
At September 30, 2008 for federal income tax purposes, each Fund that has
capital loss carryforwards available is shown in the table below, to the extent
provided by regulations, to offset future capital gains through the year
indicated. To the extent that these loss carryforwards are used to offset future
capital gains, it is probable that the capital gains so offset will not be
distributed to Fund shareholders.
Capital Loss Available
Through
September 30, 2016
--------------------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund $ --
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund --
First Trust Dow Jones Global Select Dividend Index Fund 131,352
First Trust ISE Global Wind Energy Index Fund 174,186
Page 43
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
March 31, 2009 (Unaudited)
During the year ended September 30, 2008 the FTSE EPRA/NAREIT Developed Markets
Real Estate Index Fund utilized capital loss carryforwards of $1,389 to offset
realized gains. 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 losses incurred after October 31 ("Post-October Losses") within the
taxable year can be deemed to arise on the first business day of the Fund's next
taxable year.
During the 2008 taxable year, the following Funds incurred and elected to defer
net capital and currency losses as follows:
Post October Losses
Capital Losses Currency Losses
------------------------- ------------------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund $ 2,667,562 $ 30,553
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 75,259 31,163
First Trust Dow Jones Global Select Dividend Index Fund -- --
First Trust ISE Global Wind Energy Index Fund -- --
F. 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 average net assets of each Fund. First Trust Portfolios
L.P. ("FTP") or First Trust Advisors L.P. has entered into licensing agreements
with each of the following "Licensors" for the respective Funds:
Fund Licensor
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund STOXX Limited
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund FTSE International Limited
First Trust Dow Jones Global Select Dividend Index Fund Dow Jones & Company, Inc.
First Trust ISE Global Wind Energy Index Fund International Securities Exchange, LLC
First Trust ISE Global Engineering and Construction Index Fund International Securities Exchange, LLC
The respective license agreements allow for the use of certain trademarks and
trade names of the respective Licensors. The Funds are sub-licensees to the
applicable license agreements. As such, the Funds pay licensing fees, which are
shown on the Statements of Operations.
G. Accounting Pronouncement
In March 2008, FASB released Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities" ("FAS
161"). FAS 161 requires qualitative disclosures about objectives and strategies
for using derivatives, quantitative disclosures about fair value amounts of and
gains and losses on derivative instruments, and disclosures about credit
risk-related contingent features in derivative agreements. The application of
FAS 161 is required for fiscal years beginning after November 15, 2008 and
interim periods within those fiscal years. Management is currently evaluating
the impact the adoption of FAS 161 will have on the Funds' financial statement
disclosures, if any.
3. Investment Advisory Fee and Other Affiliated Transactions
First Trust Advisors L.P. ("First Trust") is a limited partnership with one
limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. First Trust serves as investment advisor to the Funds
pursuant to an Investment Management Agreement. First Trust is responsible for
the selection and ongoing monitoring of the securities in each Fund's portfolio
and certain other services necessary for the management of the Funds.
For these services, First Trust is entitled to receive monthly fees from each
Fund calculated at an annual rate of 0.40% of such Fund's average daily net
assets.
The Trust and First Trust have entered into an Expense Reimbursement, Fee Waiver
and 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,
taxes and extraordinary expenses) exceed the below amount as a percentage of
average daily net assets per year (the "Expense Cap").
Page 44
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
March 31, 2009 (Unaudited)
Expense Cap
--------------------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund 0.60%
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 0.60%
First Trust Dow Jones Global Select Dividend Index Fund 0.60%
First Trust ISE Global Wind Energy Index Fund 0.60%
First Trust ISE Global Engineering and Construction Index Fund 0.70%
The Expense Cap for First Trust Dow Jones STOXX(R) European Select Dividend
Index Fund, First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index
Fund and First Trust Dow Jones Global Select Dividend Index Fund will be in
effect at least until March 31, 2010. The Expense Cap for First Trust ISE Global
Wind Energy Index Fund will be in effect at least until June 18, 2010. The
Expense Cap for First Trust ISE Global Engineering and Construction Index Fund
will be in effect at least until October 15, 2010. Fees waived or expenses borne
by the Advisor are subject to reimbursement by the Funds up to three years from
the date the fee or expense was incurred, but no reimbursement payment will be
made by a Fund if it would result in the Fund exceeding its Expense Cap.
The advisory fee waivers and expense reimbursements for the six months ended
March 31, 2009 and the expenses borne by the Advisor subject to reimbursement by
each Fund from inception through March 31, 2009 were as follows:
Expenses Borne by
Advisory Fee Expense Advisor Subject
Waivers Reimbursements to Reimbursement
---------------------- ---------------------- ---------------------
First Trust Dow Jones STOXX(R) European Select Dividend
Index Fund $ 9,971 $ 66,067 $ 326,639
First Trust FTSE EPRA/NAREIT Developed Markets
Real Estate Index Fund 11,827 48,055 232,510
First Trust Dow Jones Global Select Dividend Index Fund 6,434 45,004 163,113
First Trust ISE Global Wind Energy Index Fund 53,453 -- 121,153
First Trust ISE Global Engineering and Construction Index Fund 16,637 13,840 30,477
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
the Trust. As custodian, BNYM is responsible for custody of the Trust's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of the Trust's securities and cash. As transfer agent, BNYM is
responsible for performing transfer agency services for the Trust. BNYM is a
subsidiary of the Bank of New York Mellon Corporation, a financial holding
company.
PNC Global Investment Servicing (U.S.) Inc. ("PNC"), formerly known as PFPC,
Inc., provides certain administrative services to the Trust and the Funds in
connection with the Board's meetings and other related matters.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid an annual retainer
of $10,000 per trust for the first 14 trusts of the First Trust Fund Complex and
an annual retainer of $7,500 per trust for each subsequent trust in the First
Trust Fund Complex. The annual retainer is allocated equally among each of the
trusts. No additional meeting fees are paid in connection with board or
committee meetings.
Additionally, the Lead Independent Trustee is paid $10,000 annually, the
Chairman of the Audit Committee is paid $5,000 annually, and each of the
chairmen of the Nominating and Governance Committee and Valuation Committee are
paid $2,500 annually to serve in such capacities, with such compensation paid by
the trusts in the First Trust Fund Complex and divided among those trusts.
Trustees are also reimbursed by the trusts in the First Trust Fund Complex for
travel and out-of-pocket expenses in connection with all meetings. The Lead
Independent Trustee and each Committee chairman will serve two-year periods
ending December 31, 2009. The officers and "Interested" Trustee receive no
compensation from the trusts for serving in such capacities.
Page 45
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
March 31, 2009 (Unaudited)
4. Purchases and Sales of Securities
For the six months ended March 31, 2009, the cost of purchases and proceeds from
sales of investment securities for each Fund, excluding short-term investments
and in-kind transactions, were as follows:
Purchases Sales
-------------------- --------------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund $ 3,947,495 $ 4,418,418
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 714,239 614,460
First Trust Dow Jones Global Select Dividend Index Fund 1,959,889 1,996,875
First Trust ISE Global Wind Energy Index Fund 10,179,276 9,837,938
First Trust ISE Global Engineering and Construction Index Fund 1,124,919 1,216,845
For the six months ended March 31, 2009, the cost of in-kind purchases and
proceeds from in-kind sales for each Fund were as follows:
Purchases Sales
-------------------- --------------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund $ -- $ 3,822,626
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 4,379,286 981,269
First Trust Dow Jones Global Select Dividend Index Fund 1,386,673 --
First Trust ISE Global Wind Energy Index Fund 20,744,223 --
First Trust ISE Global Engineering and Construction Index Fund 20,316,016 --
Gains on in-kind transactions are not considered taxable for federal income tax
purposes.
5. Creations, Redemptions and Transaction Fees
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares. Prior to December 1, 2008, shares were created
and redeemed by each Fund except First Trust ISE Global Engineering and
Construction Index Fund in Creation Unit size aggregations of 100,000 shares. In
order to purchase Creation Units of a Fund, an investor must deposit (i) cash in
lieu of all or a portion of the Deposit Securities, as defined below, and/or
(ii) a designated portfolio of equity securities determined by First Trust (the
"Deposit Securities") and generally make a cash payment referred to as the "Cash
Component." Purchasers of Creation Units must pay to BNYM, as transfer agent, a
creation fee (the "Creation Transaction Fee"), which is currently $4,000 for the
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund, $500 for
the First Trust Dow Jones STOXX(R) European Select Dividend Index Fund, and
$1,000 each for the First Trust Dow Jones Global Select Dividend Index Fund ,
the First Trust ISE Global Wind Energy Index Fund and the First Trust ISE Global
Engineering and Construction Index Fund, regardless of the number of Creation
Units purchased in the transaction. The Creation Transaction Fee may vary and is
based on the composition of the securities included in each Fund's portfolio and
the countries in which the transactions are settled. The Creation Transaction
Fee may increase or decrease as each Fund's portfolio is adjusted to conform to
changes in the composition of its corresponding Index. The price for each
Creation Unit will equal the daily NAV per share times the number of shares in a
Creation Unit plus the fees described above and, if applicable, any operational
processing and brokerage costs, transfer fees or stamp taxes. When a Fund
permits an Authorized Participant to substitute cash or a different security in
lieu of depositing one or more of the requisite Deposit Securities, the
Authorized Participant may also be assessed an amount to cover the cost of
purchasing the Deposit Securities and/or disposing of the substituted
securities, including operational processing and brokerage costs, transfer fees,
stamp taxes, and part or all of the spread between the expected bid and offer
side of the market related to such Deposit Securities and/or substitute
securities.
Parties redeeming Creation Units must pay to BNYM, as transfer agent, a
redemption transaction fee (the "Redemption Transaction Fee"), which is
currently $4,000 for the First Trust FTSE EPRA/NAREIT Developed Markets Real
Estate Index Fund, $500 for the First Trust Dow Jones STOXX(R) European Select
Dividend Index Fund, and $1,000 each for the First Trust Dow Jones Global Select
Dividend Index Fund, the First Trust ISE Global Wind Energy Index Fund and the
First Trust ISE Global Engineering and Construction Index Fund, regardless of
the number of Creation Units redeemed in the transaction. The Redemption
Transaction Fee may vary and is based on the composition of the securities
included in each Fund's portfolio and the countries in which the transactions
are settled. The Redemption Transaction Fee may increase or decrease as each
Fund's portfolio is adjusted to conform to changes in the composition of its
corresponding Index. Each Fund reserves the right to effect redemptions in cash.
A shareholder may request a cash redemption in lieu of securities; however, each
Fund may, in its discretion, reject any such request.
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Notes to Financial Statements (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2009 (Unaudited)
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 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 the Funds will not pay 12b-1
fees any time before May 15, 2010.
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. Concentration Risk
Each Fund may be concentrated in stocks of companies in an individual industry
or sector if the Fund's corresponding index is concentrated in an individual
industry or sector. You should be aware that an investment in a portfolio that
is concentrated in an individual industry or sector involves additional risk,
including limited diversification.
Page 47
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Additional Information
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First Trust Exchange-Traded Fund II
March 31, 2009 (Unaudited)
Proxy Voting Policies and Procedures
A description of the policies and procedures that the Funds use to determine how
to vote proxies and information on how the Funds voted proxies relating to
portfolio securities during the period ending June 30, 2008 is available (1)
without charge, upon request, by calling (800) 988-5891; (2) on the Trust's
website located at http://www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's website at http://www.sec.gov.
Portfolio Holdings
The Trust files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Trust's Form N-Q is available (1) by calling (800)
988-5891; (2) on the Trust's website located at http://www.ftportfolios.com; (3)
on the SEC's website at http://www.sec.gov; and (4) for review and copying at
the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding
the operation of the PRR may be obtained by calling (800) SEC-0330.
Investment Management Agreement
Board Considerations Regarding Approval of Continuation of
Investment Management Agreement
The Board of Trustees of the First Trust Exchange-Traded Fund II (the "Trust"),
including the Independent Trustees, unanimously approved the continuation of the
Investment Management Agreement (the "Agreement") with First Trust Advisors L.P.
(the "Advisor") on behalf of the following three series of the Trust (each a
"Fund" and collectively, the "Funds"):
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
(formerly known as First Trust FTSE EPRA/NAREIT Global Real
Estate Index Fund)
First Trust Dow Jones Global Select Dividend Index Fund
The Board approved the continuation of the Agreement for a one-year period
ending March 31, 2010 for each Fund at a meeting held on March 1-2, 2009. The
Board of Trustees determined that the terms of the Agreement are fair and
reasonable and that the Agreement continues to be in the best interests of the
Trust and each Fund.
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
each Fund, the Independent Trustees received a report in advance of the Board
meeting responding to a request for information from counsel to the Independent
Trustees. The report, among other things, outlined the services provided by the
Advisor to each Fund (including the relevant personnel responsible for these
services and their experience); the advisory fee for each Fund as compared to
fees charged by investment advisors to comparable funds and as compared to fees
charged to other clients of the Advisor; expenses of each Fund compared to
expense ratios of comparable funds; the nature of expenses incurred in providing
services to each 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.; 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 arrangements
between the Trust and the Advisor are reasonable business arrangements from each
Fund's perspective as well as from the perspective of shareholders.
In reviewing the Agreement for each Fund, the Board considered the nature,
extent and quality of services provided under the Agreement. The Board
considered that the Advisor is responsible for the overall management and
administration of the Trust and each Fund. The Board considered the compliance
program that had been developed by the Advisor and noted the enhancements made
by the Advisor to the compliance program in 2008. In light of the information
presented and the considerations made, the Board concluded that the nature,
quality and extent of services provided to the Trust and each Fund by the
Advisor under the Agreement have been and are expected to remain satisfactory
and that the Advisor has managed each Fund consistent with its investment
objective and policies.
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Additional Information (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2009 (Unaudited)
The Board considered the advisory fees payable by each Fund under the Agreement.
The Board considered that the Advisor agreed to extend the current expense cap
for each Fund through at least March 31, 2010. For each Fund, the Board noted
that expenses borne by the Advisor are proposed to be subject to reimbursement
by the Fund for up to three years from the date the fee or expense was incurred,
but no reimbursement payment would be made by the Fund if it would result in the
Fund exceeding its expense cap, or if the expense cap is no longer in effect,
would result in the Fund exceeding an expense ratio equal to its most recent
expense cap. The Board considered the fees charged by the Advisor to other
exchange-traded funds ("ETFs") and other advisory clients with investment
objectives and policies similar to the Funds', noting that those fees generally
were similar to the fees charged to the Funds. In addition, the Board received
data prepared by Lipper Inc. ("Lipper"), an independent source, showing the
management fees and expense ratios of each Fund as compared to the management
fees and expense ratios of a combined peer group selected by Lipper and the
Advisor. The Board discussed with representatives of the Advisor the limitations
in creating a relevant peer group for each Fund, including that (i) many of the
Funds are unique in their composition which makes assembling peers with similar
strategies and asset mix difficult, and (ii) many of the peer funds are larger
than the Funds. The Board reviewed the Lipper materials, but based on its
discussions with the Advisor, the Board determined that the Lipper data was of
limited value for purposes of its consideration of the renewal of the Agreement.
The Board also considered performance information for each Fund, noting that,
similar to almost all other funds, each Fund's performance was impacted by the
severe market downturn in 2008, and the volatility in the market also affected
the Funds' premium/discount. The Board noted that the performance information
included each Fund's quarterly performance report, which is part of the process
that the Board has established for monitoring each Fund's performance on an
ongoing basis. The Board determined that this process continues to be effective
for reviewing each Fund's performance. The Board also considered the performance
of each Fund's underlying index and reviewed the correlation between each Fund's
underlying index and the Fund's performance and concluded that the correlation
between each Fund's performance, before expenses, and its underlying index was
appropriate. In addition to the Board's ongoing review of performance, the Board
also received data prepared by Lipper comparing each Fund's performance to the
combined peer group selected by Lipper and the Advisor, as well as to a larger
group and to a broad-based benchmark. The Board reviewed the Lipper materials,
but for similar reasons to those described above, the Board determined that the
performance data provided by Lipper was of limited value.
On the basis of all the information provided on the fees, expenses and
performance of each Fund, the Board concluded that the advisory fees for each
Fund were reasonable and appropriate in light of the nature, quality and extent
of services provided by the Advisor to each Fund under the Agreement.
The Board noted that the Advisor has continued to invest in personnel and
infrastructure and had noted that the advisory fee is not structured to pass the
benefits of any economies of scale on to the shareholders as each Fund's assets
grow. The Board concluded that the advisory fee for each Fund reflects an
appropriate level of sharing of any economies of scale. The Board also
considered the costs of the services provided and profits realized by the
Advisor from serving as investment manager to ETF products for the twelve months
ended December 31, 2008, as set forth in the materials provided to the Board,
noting that the Advisor incurred a loss in 2008. The Board considered that the
Advisor had identified as a fall-out benefit to the Advisor and First Trust
Portfolios L.P. their exposure to investors and brokers who, in the absence of
the Funds, may have had no dealings with the Advisor, and noted that the Advisor
does not utilize soft dollars in connection with its management of the Funds'
portfolios.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, determined that the terms of the
Agreement continue to be fair and reasonable and that the continuation of the
Agreement is in the best interests of Trust and each Fund. No single factor was
determinative in the Board's analysis.
Privacy Policy
The open-end and closed-end funds advised by First Trust Advisors L.P. (each a
"Fund") consider your privacy an important priority in maintaining our
relationship. We are committed to protecting the security and confidentiality of
your personal information.
Sources of Information
We may collect nonpublic personal information about you from the following
sources:
o Information we receive from you or your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
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Additional Information (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2009 (Unaudited)
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies."
For example, we may identify the pages on our website that your
browser requests or visits.
Information Collected
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
Disclosure of Information
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. The permitted uses
include the disclosure of such information to unaffiliated companies for the
following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians and
trustees, or that assist us in the distribution of investor materials
such as trustees, banks, financial representatives and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information to those individuals who need to know
that information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
Confidentiality and Security
With regard to our internal security procedures, the Fund restricts access to
your nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
Policy Updates and Inquiries
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time; however if we do change
it, we will tell you promptly.
For questions about our policy, or for additional copies of this notice, please
contact us at (800) 621-1675.
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Risk Considerations
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First Trust Exchange-Traded Fund II
March 31, 2009 (Unaudited)
Risk Considerations
You should consider each Fund's investment objective, risks, and charges and
expenses carefully before investing. You can download each Fund's prospectus at
http://www.ftportfolios.com or contact First Trust Portfolios L.P. at
1-800-621-1675 to request a prospectus, which contains this and other
information about the particular Fund. Read it carefully before you invest.
First Trust Portfolios L.P. is the distributor of First Trust Exchange-Traded
Fund II.
Each Fund's shares will change in value, and you could lose money by investing
in a Fund. An investment in a Fund involves risks similar to those of investing
in any fund of equity securities traded on an exchange. Investors buying or
selling Fund shares on the secondary market may incur brokerage commissions. In
addition, investors who sell Fund shares may receive less than the shares' net
asset value. Unlike shares of open-end funds, investors are generally not able
to purchase ETF shares directly from a Fund and individual ETF shares are not
redeemable. However, specified large blocks of shares called creation units can
be purchased from, or redeemed to, the Fund.
Each Fund's shares are subject to market fluctuations caused by such factors as
economic, political, regulatory or market develop ments, changes in interest
rates and perceived trends in stock prices. Overall stock values could decline
generally or could underperform other investments. In 2008 and early 2009,
securities markets were significantly negatively affected by the financial
crisis that initially resulted from the downturn in the subprime mortgage market
in the United States. The impact of the financial crisis on securities markets
has proven to be significant and may be long-lasting and may have a substantial
impact on the value of a Fund.
You should anticipate that the value of each Fund's shares will decline, more or
less, in correlation with any decline in the value of that Fund's corresponding
index.
Each Fund's return may not match the return of its corresponding index for a
number of reasons. For example, the Funds incur operating expenses not
applicable to their corresponding indexes, and may incur costs in buying and
selling securities, especially when rebalancing the Fund's portfolio holdings to
reflect changes in the composition of its corresponding index. In addition, each
Fund's portfolio holdings may not exactly replicate the securities included in
its corresponding index or the ratios between the securities included in such
index.
Each Fund is exposed to additional market risk due to its policy of investing
principally in the securities included in its corresponding index. As a result
of this policy, 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. Therefore, the Funds 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 a Fund's
corresponding index.
Each Fund relies on a license and related sublicense that permits it to use its
corresponding index and associated trade names, trademarks and service marks in
connection with the name and investment strategies of the Fund. Such license and
related sublicense may be terminated by the index provider and, as a result, a
Fund may lose its ability to use such intellectual property. There is also no
guarantee that an index provider has all rights to lease intellectual property
on behalf of a Fund. Accordingly, in the event the license is terminated or the
index provider does not have rights to license such intellectual property, it
may have a significant effect on the operation of the respective Fund.
The value of an individual security or 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 a given industry if the
Fund's corresponding index is concentrated in such individual industry. A
concentration makes a Fund more susceptible to any single occurrence affecting
the industry and may subject a Fund to greater market risk than less controlled
funds.
The Funds are not actively managed. The Funds may be affected by a general
decline in certain market segments relating to their corresponding index. The
Funds invests in securities included in or representative of its index
regardless of their investment merit. The Funds generally will not attempt to
take defensive positions in declining markets.
Each Fund is classified as "non-diversified" under the Investment Company Act of
1940, as amended. As a result, each Fund is only limited as to the percentage of
its assets which may be invested in the securities of any one issuer by the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended. Because the Funds may invest a relatively high percentage of their
assets in a limited number of issuers, the Funds may be more susceptible to any
single economic, political or regulatory occurrence and to the financial
conditions of the issuers in which they invest.
Page 51
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Risk Considerations (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2009 (Unaudited)
Each Fund invests in securities of non-U.S. issuers. Investing in securities of
non-U.S. issuers, which are generally denominated in non-U.S. currencies, may
involve certain risks not typically associated with investing in securities of
U.S. issuers. Some of these risks may include, but are not limited to, the
following: (i) there may be less publicly available information about non-U.S.
issuers or markets due to less rigorous disclosure or accounting standards or
regulatory practices; (ii) non-U.S. markets may be smaller, less liquid and more
volatile than the U.S. market; (iii) potential adverse effects of fluctuations
in currency exchange rates or controls on the value of a Fund's investments;
(iv) the economies of non-U.S. countries may grow at slower rates than expected
or may experience a downturn or recession; (v) the impact of economic,
political, social or diplomatic events; (vi) certain non-U.S. countries may
impose restrictions on the ability of non-U.S. issuers to make distribution
payments to investors located in the United States due to blockage of non-U.S.
currency exchanges or otherwise; and (vii) withholding and other non-U.S. taxes
may decrease a Fund's return. These risks may be more pronounced to the extent
that the Fund invests a significant amount of its assets in companies located in
one country.
Because each Fund's NAV is determined on the basis of U.S. dollars, you may lose
money if the local currency of a foreign market depreciates against the U.S.
dollar, even if the local currency value of a Fund's holdings goes up.
Each Fund may hold securities of certain non-U.S. and non-Canadian companies in
the form of Depositary Receipts. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. The issuers of unsponsored Depositary Receipts are not
obligated to disclose material information in the United States; therefore,
there may be less information available regarding such issuers and there may not
be a correlation between such information and the market value of the Depositary
Receipts.
Each Fund invests in small and/or mid capitalization companies. Such companies
may be more vulnerable to adverse general market or economic developments, and
their securities may be less liquid and may experience greater price volatility
than larger, more established companies as a result of several factors,
including limited trading volumes, products or financial resources, management
inexperience and less publicly available information. Accordingly, such
companies are generally subject to greater market risk than larger, more
established companies.
Each Fund invests in companies that are considered to be PFICs, which are
generally certain non-U.S. corporations that receive at least 75% of their
annual gross income from passive sources (such as interest, dividends, certain
rents and royalties or capital gains) or that hold at least 50% of their assets
in investments producing such passive income. Therefore, such Funds could be
subject to U.S. federal income tax and additional interest charges on gains and
certain distributions with respect to those equity interests, even if all the
income or gain is distributed to its shareholders in a timely manner. Such Fund
will not be able to pass through to its shareholders any credit or deduction for
such taxes.
Each Fund invests in securities issued by companies headquartered in Europe.
Such Funds are therefore subject to certain risks associated specifically with
Europe. A significant number of countries in Europe are member states in the EU,
and the member states no longer control their own monetary policies by directing
independent interest rates for their currencies. In these member states, the
authority to direct monetary policies, including money supply and official
interest rates for the Euro, is exercised by the European Central Bank. In
addition, European corporations, and other entities with significant markets or
operations in Europe (whether or not in the participating countries), face
strategic challenges as these entities adapt to a single transnational currency.
The Euro conversion may have a material impact on revenues, expenses or income
from operations; increase competition due to the increased price transparency of
EU markets; affect issuers' currency exchange rate risk and derivatives
exposure; disrupt current contracts; cause issuers to increase spending on
information technology updates required for the conversion; and result in
potential adverse tax consequences.
The First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
invests in securities issued by companies headquartered in Asia and is therefore
subject to certain risks associated specifically with Asia. For example, some of
the currencies of these countries have experienced devaluations relative to the
U.S. dollar, and adjustments have been made periodically in certain of such
currencies. Certain countries, such as Indonesia, face serious exchange
constraints. Jurisdictional disputes also exist, for example, between South
Korea and North Korea. The Tokyo stock market, as measured by the Tokyo Stock
Price Index, has been volatile. Declines in the Tokyo stock market have made the
country's banks and financial institutions vulnerable because of their large
share portfolios. Japanese banks have been left with large numbers of
nonperforming loans. The Japanese economy labors under a heavy government budget
deficit and historically low interest rates. As a result of these factors,
several high-profile bankruptcies of Japanese banks, brokerage firms and
insurance companies have occurred.
The First Trust Dow Jones Global Select Dividend Index Fund and the First Trust
Dow Jones STOXX(R) European Select Dividend Index Fund invest in the securities
of companies in the financials sector. Banks, thrifts and their holding
companies are especially subject to the adverse effects of economic recession;
volatile interest rates; portfolio concentrations in geographic markets and in
commercial and residential real estate loans; and competition from new entrants
in their fields of business. These industries are generally extensively
regulated and may be adversely affected by increased regulations.
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Risk Considerations (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2009 (Unaudited)
The First Trust Dow Jones Global Select Dividend Index Fund and the First Trust
Dow Jones STOXX(R) European Select Dividend Index Fund may invest in companies
that may be significantly affected by the downturn in the U.S. and world
economies that began with the significant decline in the subprime mortgage
lending market in the United States. Due to the downturn, subprime mortgage
loans have in recent periods experienced increased rates of delinquency,
foreclosure, bankruptcy and loss, and are likely to continue to be subject to
interest rates that are significantly higher than those experienced by mortgage
loans underwritten in a traditional manner. The downturn in the subprime
mortgage lending market and the resulting impact in the world's economies has
had a significant adverse effect on the financials sector and the economy and
may have far-reaching consequences into various aspects of the financials
sector, and consequently, the value of the Fund may decline in response to such
developments.
The First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
invests in companies in the real estate industry, including REITs and therefore,
the Fund is subject to the risks associated with investing in real estate, 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. Because the Fund invests in REITs it
is subject to certain other risks related to REIT structure and focus, which
include, but are not limited to, dependency upon management skills, limited
diversification, the risks of locating and managing financing for projects,
heavy cash flow dependency, possible default by borrowers, the costs and
potential losses of selfliquidation of one or more holdings, and, in many cases,
relatively small market capitalization, which may result in less market
liquidity and greater price volatility.
The First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund is
also subject to interest rate risk. 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. Because the market price of
REIT stocks may change based upon investors' collective perceptions of future
earnings, the value of the Fund will generally decline when investors anticipate
or experience rising interest rates.
The First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund may
invest in real estate companies that may be affected by the downturn in the
subprime mortgage lending market in the United States. Subprime loans have
higher defaults and losses than prime loans. Subprime loans also have higher
serious delinquency rates than prime loans. The downturn in the subprime
mortgage lending market may have far-reaching consequences into many aspects and
geographic regions of the real estate business, and consequently, the value of
the Global Real Estate Index Fund may decline in response to such developments.
The First Trust ISE Global Wind Energy Index Fund invests in wind energy
companies. Wind energy companies can be significantly affected by obsolescence
of existing technology, short product cycles, falling prices and profits,
competition from new market entrants and general economic conditions. This can
be significantly affected by fluctuations in energy prices and supply and demand
of alternative energy fuels, energy conservation, the success of exploration
projects and tax and other government regulations. Wind energy companies could
be adversely affected by commodity price volatility, changes in exchange rates,
imposition of import controls, increased competition, depletion of resources,
technological developments and labor relations.
The First Trust ISE Global Wind Energy Index Fund invests in the securities of
companies in the industrials sector. Many companies in this sector convert
unfinished goods into finished durables used to manufacture other goods or
provide services. Some industries included in this sector are electrical
equipment and components, industrial products, manufactured housing and
telecommunications equipment. 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 ISE Global Wind Energy Index Fund invests in the securities of
companies in the utilities sector. General problems of issuers in the utilities
sector include 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. All
of such issuers have been experiencing certain of these problems in varying
degrees.
The First Trust ISE Global Engineering and Construction Index Fund invests in
the securities of companies in the industrials sector which includes companies
in the engineering and construction business. 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.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
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[LOGO OMITTED] FIRST TRUST
FIRST TRUST EXCHANGE-TRADED FUND II
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INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
BOARD ADMINISTRATOR
PNC Global Investment Servicing (U.S.) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
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Inside Back Cover
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEMS 6. SCHEDULE OF INVESTMENTS.
Schedules of Investments in securities of unaffiliated issuers as of the close
of the reporting period are included as part of the report to shareholders filed
under Item 1 of this form.
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 directors, 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 that have materially
affected, or are reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302
of the Sarbanes-Oxley Act of 2002 are attached hereto.
(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 II
-------------------------------------
By: /s/ James A. Bowen
-----------------------------
Name: James A. Bowen
Title: Chairman of the Board, President and Chief Executive Officer
Date: May 28, 2009
----------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ James A. Bowen
-----------------------------
Name: James A. Bowen
Title: Chairman of the Board, President and Chief Executive Officer
Date: May 28, 2009
----------------------------
By: /s/ Mark R. Bradley
-----------------------------
Name: Mark R. Bradley
Title: Treasurer, Controller, Chief Financial Officer and Chief
Accounting Officer
Date: May 28, 2009
----------------------------