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: September 30, 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 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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Annual Report
September 30, 2009
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Front Cover
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Table of Contents
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First Trust Exchange-Traded Fund II
September 30, 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.......................... 25
First Trust ISE Global Engineering and Construction Index Fund......... 27
Statements of Assets and Liabilities....................................... 30
Statements of Operations................................................... 32
Statements of Changes in Net Assets........................................ 34
Financial Highlights....................................................... 37
Notes to Financial Statements.............................................. 40
Report of Independent Registered Public Accounting Firm.................... 47
Additional Information .................................................... 48
Board of Trustees and Officers............................................. 50
Risk Considerations........................................................ 52
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Caution Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
any series of First Trust Exchange-Traded Fund 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
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
(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 Fund regulatory filings.
Page 1
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Shareholder Letter
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First Trust Exchange-Traded Fund II
Annual Report
September 30, 2009
Dear Shareholders:
The first three quarters of 2009 brought more positive news to the U.S. and
global markets, easing some of the worries of both economists and investors.
In fact, many economists now believe that the recession that began in December
2007 ended in March 2009. The Dow Jones Industrial Average's total return from
March 9 (the statistical end of the bear market) to September 30, 2009, was
50.91%. Of course, no one can predict that this trend will continue.
Yet, regardless of the market, First Trust Advisors L.P. ("First Trust")
believes 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, has always experienced ups and downs. But
history has shown that the patient investor is typically rewarded over the long
term. While no one has the ability to predict market ups and downs, 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 will give you detailed information about the Funds that
comprise the First Trust Exchange-Traded Fund II for the period covered by the
report. 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.
Our goal at First Trust has always been to provide a wide range of investment
products, including our family of exchange-traded funds, to help us meet the
challenge of maximizing our customers' financial opportunities. We have
continued to expand our product line to ensure that you have many choices to fit
your investment needs. We offer a variety of products to help those 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 have current information 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
Annual Report
September 30, 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 22 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
The recession in the U.S. may have ended in the second quarter of 2009. The GDP
growth rate for third quarter 2009 was 3.5%. This was welcome news considering
that GDP growth over the previous three quarters was -5.4% (fourth quarter
2008), -6.4% (first quarter 2009) and -0.7% (second quarter 2009). Economists
believe the U.S. economy will register annualized growth of 2.4% in 2009's
fourth quarter, according to the consensus of 52 economists in the Blue Chip
Economic Indicators survey conducted in early September. Due to the degree of
economic weakness in the first quarter of 2009, its consensus estimate for all
of 2009 is a disappointing -2.6%. In 2010, however, the consensus calls for the
economy to expand at a 2.7% rate. Brian Wesbury, Chief Economist at First Trust
Advisors L.P., is even more optimistic. He is forecasting annualized growth of
4.5% for fourth quarter 2009 and 4.5% for 2010. From an international
perspective, the International Monetary Fund raised its global growth forecast
for 2010 from 2.5% to 3.1% at the end of September.
Since the origin of the global credit crunch can be traced to the subprime
mortgage meltdown in the U.S., the health of the U.S. banking system is
noteworthy. A report from the Federal Reserve revealed the nation's commercial
banks reduced loan balances by more than $400 billion over the past year (TARP
was enacted in October 2008), but increased their cash holdings by $500 billion.
Commercial banks had $993.4 billion in cash assets as of September 30, 2009, up
from $493.0 billion a year ago. Commercial and industrial lending, for example,
declined by $217.6 billion, or 12%. The silver lining is that banks are better
capitalized moving forward and the recession likely ended in the second quarter.
The availability of credit is paramount to any economic recovery. Companies
around the globe have had much greater success in tapping the capital markets
since equities bottomed in early March. Even the speculative-grade high yield
corporate bond market has experienced a surge in new issuance in the second half
of 2009. Some of the industries hit especially hard during the global credit
crisis were commercial real estate, alternative energy and infrastructure. Clean
energy and infrastructure projects are often delayed or shelved when capital is
not available. That is why we saw initiatives launched by the governments of
China and the U.S. in the first half of 2009 to provide funding for large-scale
infrastructure projects. The banks and capital markets were not in a position to
do so.
Global Markets
Retail investors favored foreign stocks over U.S. stocks in the first nine
months of 2009. Investors poured a net $20.4 billion into International/Global
Equity funds in the first nine months of 2009, while U.S. Diversified Equity
funds experienced net outflows totaling $4.0 billion, according to Strategic
Insight, LLC. The most encouraging take from this data, in our opinion, is that
investors have been willing to assume more risk in an attempt to generate higher
returns than the paltry yields offered by savings accounts and short maturity
Treasuries.
For the 12-month period ended September 30, 2009, the MSCI World (ex U.S.) Index
and MSCI Emerging Markets Index were up 3.1% (USD) and 18.6% (USD),
respectively. The S&P 500 fell 6.9%. With respect to the debt markets, the
Barclays Capital Global Aggregate Index and Barclays Capital Global Emerging
Markets Index gained 13.5% (USD) and 19.6% (USD), respectively. The Barclays
Capital U.S. Aggregate Index was up 10.6%. The U.S. dollar declined by 2.4%
against a basket of major currencies.
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"),
formerly known as the First Trust DJ STOXX(R) Select Dividend 30 Index Fund,
seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the Dow Jones
STOXX(R) Select Dividend 30 Index (the "STOXX Index"). The shares of the Fund
are listed and trade on the NYSE Arca, Inc. 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 STOXX
Index.
The STOXX Index consists of 30 high dividend-yielding 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 covers 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 September 30, 2009
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Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (08/27/07) Inception (08/27/07)
09/30/09 to 09/30/09 to 09/30/09
FUND PERFORMANCE
NAV -6.83% -26.95% -48.18%
Market Price -7.45% -26.89% -48.09%
INDEX PERFORMANCE
Dow Jones STOXX(R) Select Dividend 30 Index -4.78% -26.30% -47.25%
Dow Jones STOXX(R) 600 Index 2.06% -12.91% -25.16%
MSCI Europe Index 1.57% -13.03% -25.38%
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(See Notes to Fund Performance Overview on page 14.)
Performance Review
The Fund's net asset value return of -6.83% for the twelve months ended
September 30, 2009 underperformed the benchmark MSCI Europe Index return of
1.57% by -8.40%. While the local return of the Fund was -5.3%, the effect of
holding foreign currency served to detract another -1.5% from total return as
flows to U.S. Treasuries generally pushed the U.S. dollar higher during the
first half of the fiscal year, hurting domestic investors. The effect was muted
in the second half of the fiscal year, as the U.S. dollar retreated, to the
benefit of the Fund's holdings which are denominated in foreign (local)
currency. For the year, the Fund's British holdings were the main driver of the
negative currency return, as the Pound Sterling dropped -10.2% against the U.S.
dollar. On a local basis, holdings in the U.K. were also the primary drag on
performance, with consumer electronic retailer DSG International being the
primary laggard as it returned -81.5% (local) and detracted -10.0% from total
return (local). The company faced multiple headwinds during the period including
a 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 -2.3% on a local basis; as in the U.K., financials stocks were
a major drag on local performance during the first half of the fiscal year as
deteriorating economic conditions and falling land prices hurt the performance
of most banks. The trend reversed in the second half of the year as battered
financials stocks rallied back. For example, institutional investment company
Man Group PLC (116.7% local) was a top performer during the quarter, returning
129.9% since its low on March 5, 2009; the stock was added to the portfolio 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 12 months ended September 30, 2009)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Banco Santander S.A. Cattles PLC
Man Group PLC NKT Holding A/S
Vallourec S.A. Lloyds Banking Group PLC
Koninklijke BAM Groep N.V. voestalpine AG
Metso Oyj DSG International PLC
________________________
"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 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 September 30, 2009
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% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Financials 34.99%
Industrials 31.85
Materials 11.45
Utilities 10.54
Telecommunication Services 8.08
Consumer Staples 2.00
Energy 1.09
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Total 100.00%
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Top Ten Portfolio Holdings as of September 30, 2009
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% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Banco Santander S.A. 7.99%
Man Group PLC 7.48
Koninklijke BAM Groep N.V. 6.53
Vallourec S.A. 5.24
Helvetia Holding AG 4.85
Metso Oyj 4.49
Enel S.p.A. 4.29
BRIT Insurance Holdings PLC 3.92
CRH PLC 3.77
Koninklijke Boskalis Westminster N.V. 3.66
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Total 52.22%
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GROWTH OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - SEPTEMBER 30, 2009
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
FUND/INDEX 8/27/07 9/30/07 3/31/08 9/30/08 3/31/09 9/30/09
- ---------- ------- ------- ------- ------- ------- -------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund $10,000 $10,323 $ 8,841 $ 5,562 $ 3,201 $ 5,182
Dow Jones STOXX(R) Select Dividend 30 Index 10,000 10,304 9,039 5,539 3,263 5,275
Dow Jones STOXX(R) 600 Index 10,000 10,622 9,670 7,333 4,836 7,484
MSCI Europe Index 10,000 10,636 9,675 7,347 4,846 7,462
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV through September 30, 2009
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period August 30, 2007 (commencement
of trading) through September 30, 2009.
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Number of Days Bid/Ask Midpoint At/Above NAV
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For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
8/30/07 - 9/30/07 7 9 4 0
10/1/07 - 9/30/08 38 55 74 30
10/1/08 - 9/30/09 34 27 43 84
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Number of Days Bid/Ask Midpoint Below NAV
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For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
8/30/07 - 9/30/07 1 0 0 0
10/1/07 - 9/30/08 25 12 10 9
10/1/08 - 9/30/09 19 18 15 12
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"), formerly known as the First Trust FTSE EPRA/NAREIT Global Real Estate
Index Fund, seeks investment results that correspond generally to the price and
yield (before the Fund's fees and expenses) of an equity index called the FTSE
EPRA/NAREIT Developed Index, which was formerly known as the FTSE EPRA/NAREIT
Global Real Estate Index (the "FTSE Index"). The shares of the Fund are listed
and trade on the NYSE Arca, Inc. 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 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 September 30, 2009
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Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (08/27/07) Inception (08/27/07)
09/30/09 to 09/30/09 to 09/30/09
FUND PERFORMANCE
NAV -12.66% -18.60% -35.00%
Market Price -10.82% -18.26% -34.43%
INDEX PERFORMANCE
FTSE EPRA/NAREIT Developed Index -10.45% -17.72% -33.55%
S&P/Citigroup Global REIT Index -18.15% -18.33% -34.58%
MSCI World REIT Index -22.98% -21.10% -39.14%
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(See Notes to Fund Performance Overview on page 14.)
Performance Review
The Fund's net asset value return of -12.66% for the twelve months ended
September 30, 2009 outperformed the benchmark MSCI World REIT Index return of
- -22.98% by 10.32%. The local return of -14.6% closely matched the Fund's total
return for the fiscal year with foreign currency exposure adding 1.9% to total
return. Strength in the Australian Dollar and Japanese Yen offset weakness in
the Pound Sterling relative to the U.S. dollar. Over the last year, the REIT
industry has faced a perfect storm of difficult conditions which 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. As the pace of negative economic news slowed and eventually turned
positive in the second half of the fiscal year, the industry and the Fund also
provided positive returns. REITs based in Hong Kong rallied back the quickest,
with Sun Hung Kai Properties returning 48.8% (local) and contributing 3.7% to
the Fund's absolute return.
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Top Five and Bottom Five Performing Stocks
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(by contribution to return over the 12 months ended September 30, 2009)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Sun Hung Kai Properties Ltd. Segro (NIL PD)
China Overseas Land & Investment Ltd. Mitsubishi Estate Co. Ltd.
CapitaLand Ltd. Kimco Realty Corp.
Hang Lung Properties Ltd. ProLogis
New World Development Co. Ltd. Land Securities Group PLC
________________________________
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 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 September 30, 2009
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% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Financials 99.34%
Industrials 0.44
Consumer Discretionary 0.15
Health Care 0.07
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Total 100.00%
=======
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Top Ten Portfolio Holdings as of September 30, 2009
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% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Sun Hung Kai Properties Ltd. 4.85%
Westfield Group Australia 4.76
Simon Property Group Inc. 3.37
Unibail-Rodamco S.A. 3.13
Mitsubishi Estate Co., Ltd. 2.78
Mitsui Fudosan Co., Ltd. 2.56
Vornado Realty Trust 1.97
Public Storage 1.64
Boston Properties Inc. 1.55
Sumitomo Realty & Development Co. Ltd. 1.53
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Total 28.14%
======
GROWTH OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - SEPTEMBER 30, 2009
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
FUND/INDEX 8/27/07 9/30/07 3/31/08 9/30/08 3/31/09 9/30/09
- ---------- ------- ------- ------- ------- ------- -------
First Trust FTSE EPRA/NAREIT Developed Markets
Real Estate Index Fund $10,000 $10,686 $ 9,012 $ 7,443 $ 3,849 $ 6,500
FTSE EPRA/NAREIT Developed Index 10,000 10,693 9,057 7,420 3,909 6,645
S&P/Citigroup Global REIT Index 10,000 10,590 9,162 7,992 3,833 6,542
MSCI World REIT Index 10,000 10,656 9,061 7,901 3,678 6,086
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV through September 30, 2009
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period August 30, 2007 (commencement
of trading) through September 30, 2009.
- -----------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint At/Above NAV
- -----------------------------------------------------------------------------------------------------------------
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
8/30/07 - 9/30/07 9 10 1 0
10/1/07 - 9/30/08 58 63 48 11
10/1/08 - 9/30/09 44 48 40 49
- -----------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint Below NAV
- -----------------------------------------------------------------------------------------------------------------
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
8/30/07 - 9/30/07 1 0 0 0
10/1/07 - 9/30/08 35 21 12 5
10/1/08 - 9/30/09 16 17 12 26
Page 7
- -------------------------------------------------------------------------------
Fund Performance Overview (Continued)
- -------------------------------------------------------------------------------
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 "Select Dividend Index"). The shares of the Fund are
listed and trade on the NYSE Arca, Inc. under the ticker symbol "FGD." The Fund
will normally invest at least 90% of its assets in common stocks that comprise
the Select Dividend 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 Select Dividend
Index.
The Select Dividend Index is an indicated annual dividend yield weighted index
of 100 stocks selected from the developed-market portion of the Dow Jones World
Index(SM). Indicated annual dividend yield is a stock's unadjusted indicated
annual dividend (not including any special dividends) divided by its unadjusted
price.
- ------------------------------------------------------------------------------------------------------------------
Performance as of September 30, 2009
- ------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (11/21/07) Inception (11/21/07)
09/30/09 to 09/30/09 to 09/30/09
FUND PERFORMANCE
NAV 11.80% -12.16% -21.43%
Market Price 13.64% -12.13% -21.38%
INDEX PERFORMANCE
Dow Jones Global Select Dividend Index(SM) 13.69% -12.06% -21.22%
Dow Jones World Developed Markets Index(SM) -0.65% -12.71% -22.34%
MSCI World Index -2.29% -13.50% -23.64%
- ------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 14.)
Performance Review
The Fund's net asset value return of 11.80% for the twelve months ended
September 30, 2009 outperformed the benchmark MSCI World Index return of -2.29%
by 14.09%. While the local return of the Fund was 9.5%, the effect of holding
foreign currency served to add another 2.3% to total return as strength in the
U.S. dollar in the first half of the fiscal year was more than offset by the
U.S. dollar's weakness in the second half of the fiscal year. Euro and
Australian dollar-denominated holdings were the primary contributors to the
positive currency effect as the currencies appreciated 3.9% and 11.4%,
respectively, against the U.S. dollar. Financials stocks were the primary
detractors from local performance as they returned -15.4% (local), and detracted
- -20.6% from total 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, -51.9%) were hard pressed to continue meeting
obligations as loan and real estate portfolios deteriorated during the first
half of the fiscal year. The poor returns in the financials sector was offset to
some extent by strong returns in the industrials sector (27.2% local), where
machinery and construction stocks rallied on economic optimism during the second
half of the fiscal year.
- -------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
- -------------------------------------------------------------------------------
(by contribution to return over the 12 months ended September 30, 2009)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
YIT Oyj FKP Property Group
Singapore Petroleum Bank of America Corp.
Orica Ltd. BlueScope Steel Ltd..
NCC AB Class B Mullen Group Income Fund
Metso Oyj Russel Metals Inc.
________________________
Dow Jones and Dow Jones Global 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 Global
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 8
- -------------------------------------------------------------------------------
Fund Performance Overview (Continued)
- -------------------------------------------------------------------------------
FGD - First Trust Dow Jones Global Select Dividend Index Fund (Continued)
- -------------------------------------------------------------------------------
Portfolio Sector Allocation as of September 30, 2009
- -------------------------------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Industrials 30.31%
Materials 14.17
Financials 12.39
Telecommunication Services 11.31
Consumer Discretionary 9.65
Energy 8.04
Utilities 6.63
Information Technology 3.10
Consumer Staples 3.01
Communications 0.72
Technology 0.67
-------
Total 100.00%
=======
- -------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of September 30, 2009
- -------------------------------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
R.R. Donnelley & Sons Co. 4.38%
Yit Oyj 3.81
NCC AB Class B 3.14
VTech Holdings Ltd. 3.10
Metso Oyj 2.87
David Jones Ltd. 2.87
Orica Ltd. 2.52
Keppel Corp. Ltd. 2.47
Telus Corp. 2.00
CenturyTel Inc. 1.94
------
Total 29.10%
======
GROWTH OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - SEPTEMBER 30, 2009
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
FUND/INDEX 11/21/07 3/31/08 9/30/08 3/31/09 9/30/09
- ---------- -------- ------- ------- ------- -------
First Trust Dow Jones Global Select Dividend Index Fund $10,000 $ 9.345 $ 7,028 $ 4,375 $ 7,857
Dow Jones Global Select Dividend Index(SM) 10,000 9.362 6,925 4,380 7,878
Dow Jones World Developed Markets Index(SM) 10,000 9.379 7,816 5,416 7,766
MSCI World Index 10,000 9,378 7,815 5,385 7,636
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV through September 30, 2009
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period November 27, 2007
(commencement of trading) through September 30, 2009.
- ---------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint At/Above NAV
- ---------------------------------------------------------------------------------------------------------------
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
11/27/07 - 9/30/08 21 22 54 69
10/1/08 - 9/30/09 22 33 59 71
- ---------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint Below NAV
- ---------------------------------------------------------------------------------------------------------------
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
11/27/07 - 9/30/08 17 6 12 12
10/1/08 - 9/30/09 17 12 22 16
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, Inc.
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 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.
- ------------------------------------------------------------------------------------------------------------------
Performance as of September 30, 2009
- ------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (06/16/08) Inception (06/16/08)
09/30/09 to 09/30/09 to 09/30/09
FUND PERFORMANCE
NAV -14.26% -37.42% -45.39%
Market Price -14.62% -37.57% -45.56%
INDEX PERFORMANCE
ISE Global Wind Energy Index -12.71% -36.97% -44.88%
Russell 3000(R) Index -6.42% -15.62% -19.68%
MSCI World Index -2.29% -16.57% -20.85%
- ------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 14.)
Performance Review
The Fund's net asset value return of -14.26% for the twelve months ended
September 30, 2009 underperformed the benchmark MSCI World Index return of
- -2.29% by -11.97%. While the local return of the Fund was -15.9%, the effect of
holding foreign currency served to contribute 1.6% to total return as strength
in the U.S. dollar in the first half of the fiscal year was offset by the U.S.
dollar's weakness in the second half of the fiscal year. Euro and Australian
dollar-denominated holdings were the primary contributors to the positive
currency effect as the currencies appreciated 3.9% and 11.4%, respectively,
against the U.S. dollar. The first half of the fiscal year presented challenging
headwinds for the wind industry as the prices of competing energy sources such
as oil and natural gas fell sharply, and as the global economic slowdown forced
the trimming of capital budgets. The second half of the fiscal year brought
signs of an economic recovery, easing credit markets, and a sharp increase in
competing energy inputs such as oil and gas, all leading to a strong recovery
for wind energy stocks in the portfolio. EDP Renovaveis (37.4% local), which
generates electricity from a variety of clean sources (wind, solar, wave), was
the top-performing stock in the Fund by contribution to return, while turbine
manufacturer REpower Systems (-46.8% local) struggled to cut costs as quickly as
sales prospects declined during the year; the stock was the primary laggard in
the portfolio.
- -------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
- -------------------------------------------------------------------------------
(by contribution to return over the 12 months ended September 30, 2009)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
EDP Renovaveis S/A Renewable Energy Generation Ltd.
Infigen Energy Gamesa Corporacion Tecnologica S.A.
Japan Wind Development Co. Ltd. Clipper Windpower PLC
Iberdrola Renovables S.A. Hansen Transmissions International
China WindPower Group Ltd. Repower Systems AG
______________________
"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 10
- -------------------------------------------------------------------------------
Fund Performance Overview (Continued)
- -------------------------------------------------------------------------------
FAN - First Trust ISE Global Wind Energy Index Fund (Continued)
- -------------------------------------------------------------------------------
Portfolio Sector Allocation as of September 30, 2009
- -------------------------------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Utilities 49.76%
Industrials 42.41
Energy 5.73
Materials 1.18
Consumer Discretionary 0.56
Consumer Staples 0.36
-------
Total 100.00%
=======
- -------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of September 30, 2009
- -------------------------------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Iberdrola Renovables S.A. 7.43%
EDP Renovaveis S.A. 7.42
Vestas Wind Systems A/S 6.78
Gamesa Corporacion Tecnologica S.A. 5.95
Infigen Energy 5.44
Repower Systems AG 5.33
Hansen Transmissions International 4.84
Nordex AG 3.97
Clipper Windpower PLC 3.20
Broadwind Energy, Inc. 3.14
------
Total 53.50%
======
GROWTH OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - SEPTEMBER 30, 2009
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
FUND/INDEX 6/16/08 9/30/08 3/31/09 9/30/09
- ---------- ------- ------- ------- -------
First Trust ISE Global Wind Energy Index Fund $10,000 $ 6,370 $ 3,502 $ 5,461
ISE Global Wind Energy Index 10,000 6,314 3,515 5,512
Russell 3000(R) Index 10,000 8,583 5,912 8,032
MSCI World Index 10,000 8,101 5,582 7,915
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV through September 30, 2009
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period June 18, 2008 (commencement
of trading) through September 30, 2009.
- ----------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint At/Above NAV
- ----------------------------------------------------------------------------------------------------------------
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
6/18/08 - 9/30/08 24 17 13 2
10/1/08 - 9/30/09 57 52 40 11
- ----------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint Below NAV
- ----------------------------------------------------------------------------------------------------------------
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
6/18/08 - 9/30/08 6 1 8 2
10/1/08 - 9/30/09 41 30 17 4
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, Inc.
under the ticker symbol "FLM." 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 ("ADRs"), Global Depositary Receipts
("GDRs"), European Depositary Receipts ("EDRs") or other depositary receipts
(collectively "Depositary Receipts") representing securities in the Index.
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., 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.
- -------------------------------------------------------------------------------
Performance as of September 30, 2008
- -------------------------------------------------------------------------------
Cumulative
Total Returns
Inception (10/13/08)
to 09/30/09
FUND PERFORMANCE
NAV 33.84%
Market Price 33.97%
INDEX PERFORMANCE
ISE Global Engineering and Construction Index 41.03%
Russell 3000(R) Index 9.35%
MSCI World Industrials Index 15.14%
- -------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 14.)
Performance Review
The Fund's net asset value return of 33.84% since inception (October 13, 2008)
through September 30, 2009, outperformed the benchmark MSCI World Industrials
Index return of 15.14% for the same period by 18.70%. While the local return of
the Fund was 27.0%, the effect of holding foreign currency served to contribute
6.8% to total return. Strength in the Euro and Japanese Yen offset weakness in
the Pound Sterling relative to the U.S. dollar; the Euro and Yen appreciated
3.9% and 18.3% against the U.S. dollar, respectively, while the Pound
depreciated -10.2% against the U.S. dollar. Engineering and construction
companies such as Foster Wheeler (-0.02%) have seen positive returns since their
November 21, 2008 lows on government stimulus plans, but have struggled to gain
a lot of positive traction, and pass their pre-November prices. Infrastructure
builder URS Corp. (56.6%), however, 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 approximately 11 months ended September 30, 2009)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
McDermott International Inc. Koninklijke Boskalis Westminster N.V.
URS Corp. NCC AB Class B
Hochtief AG Peab AB
Obayashi Corp. Aker Solutions ASA
ACS Actividades de Construccion y Servicios S.A. Orascom Construction Industries GDR
_______________________
"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 12
- -------------------------------------------------------------------------------
Fund Performance Overview (Continued)
- -------------------------------------------------------------------------------
FLM - First Trust ISE Global Engineering and Construction Index Fund (Continued)
- -------------------------------------------------------------------------------
Portfolio Sector Allocation as of September 30, 2009
- -------------------------------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Industrials 94.00%
Energy 6.00
-------
Total 100.00%
======0
- -------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of September 30, 2009
- -------------------------------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Leighton Holdings Ltd. 4.16%
Bouygues S.A. 3.93
Vinci S.A. 3.59
Hochtief AG 3.21
Skanska AB 3.16
Foster Wheeler AG 3.01
JGC Corp. 2.98
Jacobs Engineering Group, Inc. 2.90
KBR Inc. 2.77
ACS Actividades de Construccion y
Servicios S.A. 2.75
------
Total 32.46%
======
GROWTH OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - SEPTEMBER 30, 2009
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
FUND/INDEX 10/13/08 3/31/09 9/30/09
- ---------- ------- ------- -------
First Trust ISE Global Engineering and Construction Index Fund $10,000 $ 8,987 $13,384
ISE Global Engineering and Construction Index 10,000 9,388 14,103
Russell 3000(R) Index 10,000 8,048 10,935
MSCI World Industrials Index 10,000 7,741 11,514
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV through September 30, 2009
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period October 15, 2008
(commencement of trading) through September 30, 2009.
- ---------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint At/Above NAV
- ---------------------------------------------------------------------------------------------------------------
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
10/15/08 - 9/30/09 79 44 32 26
- ---------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint Below NAV
- ---------------------------------------------------------------------------------------------------------------
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
10/15/08 - 9/30/09 36 12 8 5
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.
Each Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint between the highest bid and the lowest offer on the the
stock exchange on which shares of the Fund are listed for trading as of the time
that the Fund's NAV is calculated. Since shares of each Fund did not trade in
the secondary market until after the Fund's inception, for the period from
inception to the first day of secondary market trading in shares of the Fund,
the NAV of each Fund is used as a proxy for the secondary market trading price
to calculate market returns. NAV and market returns assume that all dividend
distributions have been reinvested in each Fund at NAV and Market Price,
respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike 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
September 30, 2009 (Unaudited)
As 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 the beginning of the
period and held through the six-month period ended September 30, 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
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions or creation and redemption transaction fees 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
April 1, 2009 September 30, 2009 Period (a) Period (b)
- ------------------------------------------------------------------------------------------------------------
FIRST TRUST DOW JONES STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND
Actual $1,000.00 $1,619.10 0.60% $3.94
Hypothetical (5% return before expenses) $1,000.00 $1,022.06 0.60% $3.04
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
Actual $1,000.00 $1,688.80 0.60% $4.04
Hypothetical (5% return before expenses) $1,000.00 $1,022.06 0.60% $3.04
FIRST TRUST DOW JONES SELECT GLOBAL DIVIDEND INDEX FUND
Actual $1,000.00 $1,795.70 0.60% $4.21
Hypothetical (5% return before expenses) $1,000.00 $1,022.06 0.60% $3.04
Page 15
First Trust Exchange-Traded Fund II
Understanding Your Fund Expenses (Continued)
September 30, 2009 (Unaudited)
- ------------------------------------------------------------------------------------------------------------
Annualized
Expense Ratio Expenses Paid
Beginning Ending Based on the During the
Account Value Account Value Six-Month Six-Month
April 1, 2009 September 30, 2009 Period (a) Period (b)
- ------------------------------------------------------------------------------------------------------------
FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND
Actual $1,000.00 $1,559.70 0.60% $3.85
Hypothetical (5% return before expenses) $1,000.00 $1,022.06 0.60% $3.04
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND
Actual $1,000.00 $1,489.30 0.70% $4.37
Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55
_________________________________
<FN>
(a) These expense ratios reflect expense caps.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table, multiplied by the average account value over the period (April 1,
2009 through September 30, 2009), multiplied by 183/365 (to reflect the one-
half year period).
</FN>
Page 16
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund
Portfolio of Investments (a)
September 30, 2009
Shares Description Value
- -------------------------------------------------------------
Common Stocks (b) -- 99.7%
Belgium -- 2.5%
5,434 Belgacom S.A. $ 211,679
-------------
Denmark -- 4.4%
5,346 D/S Norden A/S 201,773
2,736 Danisco A/S 166,057
-------------
367,830
-------------
Finland -- 7.1%
13,265 Metso Oyj 373,282
9,013 Rautaruukki Oyj 216,304
-------------
589,586
-------------
France -- 7.3%
6,534 France Telecom S.A. 174,069
2,569 Vallourec S.A. 435,334
-------------
609,403
-------------
Germany -- 11.8%
4,724 BASF SE 250,316
12,618 Deutsche Telekom AG 172,275
3,447 RWE AG 283,837
8,058 Thyssenkrupp AG 277,460
-------------
983,888
-------------
Ireland -- 5.6%
11,335 CRH PLC 313,580
5,832 DCC PLC 150,579
-------------
464,159
-------------
Italy -- 4.3%
56,181 Enel S.p.A 356,598
-------------
Netherlands -- 12.6%
46,965 Koninklijke BAM Groep N.V. 542,184
8,890 Koninklijke Boskalis
Westminster N.V. 303,636
4,951 Koninklijke DSM N.V. 206,847
-------------
1,052,667
-------------
Norway -- 1.1%
4,037 StatoilHydro ASA 90,789
-------------
Spain -- 8.0%
41,255 Banco Santander S.A. 664,079
-------------
Sweden -- 5.1%
10,259 Ratos AB 245,756
16,425 Sandvik AB 181,418
-------------
427,174
-------------
Switzerland -- 13.0%
2,068 Baloise Holding AG 197,561
1,200 Helvetia Holding AG 402,972
1,664 Sulzer AG 143,711
317 Swisscom AG 113,411
946 Zurich Financial Services AG 225,021
-------------
1,082,676
-------------
Shares Description Value
- -------------------------------------------------------------
United Kingdom -- 16.9%
99,999 Brit Insurance Holdings PLC $ 325,861
117,470 Man Group PLC 621,781
15,414 Provident Financial PLC 223,677
32,280 United Utilities PLC 235,553
-------------
1,406,872
-------------
Total Investments -- 99.7%
(Cost $6,915,425) (c) 8,307,400
Net Other Assets and
Liabilities -- 0.3% 22,574
-------------
Net Assets -- 100.0% $ 8,329,974
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Portfolio securities are categorized based upon their country of
incorporation.
(c) Aggregate cost for federal income tax purposes is $6,965,183. As of
September 30, 2009, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$1,788,128 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was $445,911.
__________________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of September 30,
2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
- ------------------------------------------------------------------
Common Stocks* $ 8,307,400 $ -- $ --
==============================================
* See Portfolio of Investments for country breakout.
See Notes to Financial Statements Page 17
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund
Portfolio of Investments (a) (Continued)
September 30, 2009
% of
Industry (Unaudited) Net Assets
- -------------------------------------------------------
Insurance 13.8%
Machinery 13.6
Capital Markets 10.4
Construction & Engineering 10.1
Diversified Telecommunication Services 8.1
Commercial Banks 8.0
Multi-Utilities 6.2
Metals & Mining 5.9
Chemicals 5.5
Electric Utilities 4.3
Construction Materials 3.8
Consumer Finance 2.7
Marine 2.4
Food Products 2.0
Industrial Conglomerates 1.8
Oil, Gas & Consumable Fuels 1.1
- --------------------------------------------------------
Total Investments 99.7
Net Other Assets and Liabilities 0.3
-----------
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)
September 30, 2009
Shares Description Value
- -------------------------------------------------------------
Common Stocks (b) -- 100.1%
Australia -- 10.7%
10,671 Bunnings Warehouse Property
Trust $ 16,427
47,762 CFS Retail Property Trust 84,693
48,334 Commonwealth Property Office
Fund 40,508
122,345 Dexus Property Group 91,203
22,663 FKP Property Group 15,195
156,384 Goodman Group 91,745
241,459 GPT Group 145,915
196,196 GPT Group, In Specie (d)(e) 0
71,027 ING Office Fund 35,090
38,117 Macquarie CountryWide Trust 21,521
119,316 Macquarie Office Trust 31,578
73,015 Mirvac Group 108,215
62,021 Stockland 223,237
59,247 Westfield Group 726,521
-------------
1,631,848
-------------
Austria -- 0.4%
2,271 CA Immobilien Anlagen AG (c) 29,378
2,222 Conwert Immobilien Invest AG (c) 30,532
-------------
59,910
-------------
Belgium -- 0.6%
437 Befimmo S.C.A 39,648
233 Cofinimmo S.A. 32,569
181 Intervest Offices N.V. 5,925
42 Leasinvest Real Estate S.C.A 3,538
224 Warehouses de Pauw S.C.A 10,080
56 Wereldhave Belgium S.C.A 4,085
-------------
95,845
-------------
Bermuda -- 2.2%
7,498 Great Eagle Holdings Ltd. 18,517
43,922 Hongkong Land Holdings Ltd. 191,061
16,541 Hopson Development Holdings Ltd. 28,770
14,507 Kerry Properties Ltd. 77,589
2,000 Orient-Express Hotels Ltd., Class A 23,020
-------------
338,957
-------------
Canada -- 3.6%
816 Allied Properties Real Estate
Investment Trust 12,598
1,262 Boardwalk Real Estate Investment
Trust 45,440
9,632 Brookfield Properties Corp. 109,216
2,153 Calloway Real Estate Investment
Trust 38,208
1,765 Canadian Apartment Properties
Real Estate Investment Trust 24,316
1,721 Canadian Real Estate Investment
Trust 41,472
2,606 Chartwell Seniors Housing Real
Estate Investment Trust 16,186
1,418 Cominar Real Estate Investment
Trust 25,826
Shares Description Value
- -------------------------------------------------------------
Canada (Continued)
537 Dundee Real Estate Investment
Trust $ 9,760
1,808 Extendicare Real Estate
Investment Trust 14,185
3,838 H&R Real Estate Investment Trust 49,900
1,932 InnVest Real Estate Investment
Trust 8,030
1,126 Morguard Real Estate Investment
Trust 12,116
592 Northern Property Real Estate
Investment Trust 11,335
1,624 Primaris Retail Real Estate
Investment Trust 23,056
6,066 RioCan Real Estate Investment
Trust 101,983
-------------
543,627
-------------
Cayman Islands -- 1.9%
38,229 Agile Property Holdings Ltd. 44,987
48,637 China Resources Land Ltd. 106,561
85,311 Country Garden Holdings Co., Ltd. 30,822
29,712 New World China Land Ltd. 14,070
37,069 Shimao Property Holdings Ltd. 62,849
39,278 Shui On Land Ltd. 22,553
-------------
281,842
-------------
Finland -- 0.3%
4,289 Citycon Oyj 18,201
5,407 Sponda Oyj (c) 21,443
1,492 Technopolis PLC 7,838
-------------
47,482
-------------
France -- 5.8%
105 Affine Group 2,735
909 Fonciere des Regions Group 105,870
486 Gecina S.A. 57,962
512 Icade 54,844
2,299 Klepierre LLC 91,188
1,177 Mercialys 46,763
135 Societe de la Tour Eiffel 9,086
338 Societe Immobiliere de Location
pour l'Industrie et le Commerce 43,595
2,298 Unibail-Rodamco S.A. 477,349
-------------
889,392
-------------
Germany -- 0.4%
729 Alstria Office AG 8,406
741 Colonia Real Estate AG (c) 4,641
984 Deutsche Euroshop AG 34,487
687 Deutsche Wohnen AG (c) 6,776
612 DIC Asset AG 8,015
678 Patrizia Immobilien AG (c) 3,562
-------------
65,887
-------------
Greece -- 0.1%
662 Babis Vovos International
Construction S.A. (c) 4,766
See Notes to Financial Statements Page 19
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
Portfolio of Investments (a) (Continued)
September 30, 2009
Shares Description Value
- -------------------------------------------------------------
Common Stocks (b) (Continued)
Greece (Continued)
476 Eurobank Properties Real Estate
Investment Co. $ 5,754
342 Lamda Development S.A. (c) 3,583
-------------
14,103
-------------
Guernsey -- 0.2%
6,950 FCPT Ltd. 9,274
8,628 ING UK Real Estate Income Trust
Ltd. 5,860
8,422 Invista Foundation Property Trust
Ltd. 5,922
2,157 IRP Property Investments Ltd. 2,534
1,477 ISIS Property Trust Ltd. 1,959
2,707 Standard Life Investment Property
Income Trust PLC 2,358
6,547 UK Commercial Property Trust Ltd. 7,356
-------------
35,263
-------------
Hong Kong -- 12.2%
57,278 Champion Real Estate Investment
Trust 23,872
106,717 China Overseas Land &
Investment Ltd. 230,783
54,259 Hang Lung Properties Ltd. 199,882
28,343 Henderson Land Development
Co., Ltd. 186,514
19,970 Hysan Development Co., Ltd. 49,989
15,063 Kowloon Development Co., Ltd. 15,354
55,778 Link (The) REIT 122,783
75,142 New World Development Co., Ltd. 161,724
45,453 Shenzhen Investment Ltd. 17,595
62,232 Sino Land Co., Ltd. 111,455
50,219 Sun Hung Kai Properties Ltd. 739,996
-------------
1,859,947
-------------
Italy -- 0.1%
9,966 Beni Stabili S.p.A 8,590
3,219 Immobiliare Grande Distribuzione 6,340
-------------
14,930
-------------
Japan -- 11.5%
2,316 AEON Mall Co., Ltd. 48,221
1,537 DAIBIRU Corp. 13,373
3,840 HEIWA Real Estate Co., Ltd. 13,176
16 Japan Prime Realty Investment
Corp. 38,893
11 Japan Real Estate Investment Corp. 89,946
10 Japan Retail Fund Investment Corp. 54,253
5 Kenedix Realty Investment Corp.,
Class A 18,771
26,930 Mitsubishi Estate Co., Ltd. 423,608
23,081 Mitsui Fudosan Co., Ltd. 390,576
2 MORI TRUST Sogo Reit, Inc. 16,153
14 Nippon Building Fund, Inc. 124,926
8 Nomura Real Estate Office Fund, Inc. 53,206
34 NTT Urban Development Corp. 31,210
Shares Description Value
- -------------------------------------------------------------
Japan (Continued)
7 ORIX JREIT, Inc., Class A $ 36,261
3 Premier Investment Co. 12,466
12,744 Sumitomo Realty & Development
Co., Ltd. 233,258
2,692 TOC Co., Ltd. 11,846
6,375 Tokyo Tatemono Co., Ltd. 31,177
10,297 Tokyu Land Corp. 41,181
3 TOKYU REIT, Inc. 14,972
4 Top REIT, Inc., Class A 19,250
5 United Urban Investment Corp.,
Class A 29,299
-------------
1,746,022
-------------
Luxembourg -- 0.2%
2,342 Gagfah S.A. 25,944
1,473 ProLogis European Properties 9,174
-------------
35,118
-------------
Netherlands -- 1.9%
1,987 Corio N.V. 137,039
930 Eurocommercial Properties N.V. 36,827
1,024 Nieuwe Steen Investments Funds
N.V. 19,106
488 VastNed Offices/Industrial N.V. 8,641
483 Vastned Retail N.V. 31,092
554 Wereldhave N.V. 54,560
-------------
287,265
-------------
New Zealand -- 0.1%
20,784 Kiwi Income Property Trust 15,911
-------------
Norway -- 0.1%
11,797 Norwegian Property ASA (c) 19,913
-------------
Singapore -- 3.6%
20,000 Allgreen Properties Ltd. 16,044
48,400 Ascendas Real Estate Investment
Trust 66,313
54,890 CapitaCommercial Trust 40,525
82,530 Capitaland Ltd. 217,947
61,883 CapitaMall Trust 81,272
18,521 Keppel Land Ltd. 36,026
37,790 Mapletree Logistics Trust 20,657
4,000 Singapore Land Ltd. 15,391
42,197 Suntec Real Estate Investment Trust 31,753
15,087 Wing Tai Holdings Ltd. 17,993
-------------
543,921
-------------
Sweden -- 0.9%
4,477 Castellum AB 43,349
4,406 Fabege AB 25,913
2,113 Hufvudstaden AB 16,974
3,251 Klovern AB 10,399
3,553 Kungsleden AB 23,597
969 Wihlborgs Fastigheter AB 17,965
-------------
138,197
-------------
Switzerland -- 1.0%
148 Allreal Holding AG 18,138
Page 20 See Notes to Financial Statements
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
Portfolio of Investments (a) (Continued)
September 30, 2009
Shares Description Value
- -------------------------------------------------------------
Common Stocks (b) (Continued)
Switzerland (Continued)
83 Jelmoli Holding AG $ 35,721
1,221 PSP Swiss Property AG (c) 70,694
551 Swiss Prime Site AG (c) 29,110
997 Zueblin Immobilien Holding AG (c) 4,743
-------------
158,406
-------------
United Kingdom -- 6.3%
625 A.J. Mucklow Group PLC 2,969
3,306 Big Yellow Group PLC (c) 19,813
22,188 British Land Co., PLC 168,506
625 CLS Holdings PLC (c) 5,294
127 Daejan Holdings PLC 5,533
2,617 Derwent London PLC 51,025
2,141 Development Securities PLC 11,582
2,700 Grainger PLC 12,842
8,138 Great Portland Estates PLC 34,426
18,141 Hammerson PLC 114,316
2,787 Helical Bar PLC 16,707
19,674 Land Securities Group PLC 196,514
14,724 Liberty International PLC 112,950
918 Primary Health Properties PLC 4,196
3,367 Quintain Estates & Development
PLC (c) 11,354
19,110 Segro PLC 112,238
5,865 Shaftesbury PLC 33,490
3,911 St. Modwen Properties PLC (c) 13,876
3,289 Unite Group PLC 13,837
27,079 Workspace Group PLC 9,521
-------------
950,989
-------------
United States -- 36.0%
1,032 Acadia Realty Trust 15,552
213 Agree Realty Corp. 4,884
53 Alexander's, Inc. 15,682
1,021 Alexandria Real Estate Equities, Inc. 55,491
3,806 AMB Property Corp. 87,348
1,358 American Campus Communities, Inc. 36,462
3,041 Apartment Investment &
Management Co. 44,855
1,765 Ashford Hospitality Trust 6,107
431 Associated Estates Realty Corp. 4,146
2,079 AvalonBay Communities, Inc. 151,206
2,529 BioMed Realty Trust, Inc. 34,900
3,605 Boston Properties, Inc. 236,308
3,346 Brandywine Realty Trust 36,940
1,375 BRE Properties, Inc. 43,037
1,669 Camden Property Trust 67,261
3,587 CBL & Associates Properties, Inc. 34,794
1,173 Cedar Shopping Centers, Inc. 7,566
1,300 Colonial Properties Trust 12,649
1,510 Corporate Office Properties Trust 55,689
2,997 Corrections Corp. of America (c) 67,882
1,049 Cousins Properties, Inc. 8,686
5,318 DCT Industrial Trust, Inc. 27,175
Shares Description Value
- -------------------------------------------------------------
United States (Continued)
4,199 Developers Diversified Realty Corp. $ 38,799
2,810 DiamondRock Hospitality Co. (c) 22,761
1,975 Digital Realty Trust, Inc. 90,277
2,367 Douglas Emmett, Inc. 29,067
5,825 Duke Realty Corp. 69,958
1,086 DuPont Fabros Technology, Inc. 14,476
676 EastGroup Properties, Inc. 25,837
1,380 Education Realty Trust, Inc. 8,183
910 Entertainment Properties Trust 31,067
789 Equity Lifestyle Properties, Inc. 33,761
1,120 Equity One, Inc. 17,550
7,100 Equity Residential 217,970
734 Essex Property Trust, Inc. 58,412
2,248 Extra Space Storage, Inc. 23,716
1,585 Federal Realty Investment Trust 97,271
1,684 FelCor Lodging Trust, Inc. 7,629
1,163 First Industrial Realty Trust, Inc. 6,106
745 First Potomac Realty Trust 8,612
3,480 Forest City Enterprises, Inc., Class A 46,528
481 Getty Realty Corp. 11,804
419 Government Properties Income Trust (c) 10,060
7,628 HCP, Inc. 219,229
3,117 Health Care REIT, Inc. 129,730
1,531 Healthcare Realty Trust, Inc. 32,350
1,279 Hersha Hospitality Trust 3,965
1,844 Highwoods Properties, Inc. 57,994
1,100 Hilltop Holdings, Inc. (c) 13,486
856 Home Properties, Inc. 36,885
3,179 Hospitality Properties Trust 64,756
15,683 Host Hotels & Resorts, Inc. 184,589
5,822 HRPT Properties Trust 43,781
2,221 Inland Real Estate Corp. 19,456
1,651 Investors Real Estate Trust 14,925
1,123 Kilroy Realty Corp. 31,152
9,795 Kimco Realty Corp. 127,727
1,639 Kite Realty Group Trust 6,835
1,650 LaSalle Hotel Properties 32,439
2,950 Lexington Realty Trust 15,045
2,906 Liberty Property Trust 94,532
603 LTC Properties, Inc. 14,496
2,135 Macerich (The) Co. 64,755
2,036 Mack-Cali Realty Corp. 65,824
2,086 Medical Properties Trust, Inc. 16,292
734 Mid-America Apartment
Communities, Inc. 33,125
266 National Healthcare Corp. 9,919
2,080 National Retail Properties, Inc. 44,658
2,778 Nationwide Health Properties, Inc. 86,090
2,167 OMEGA Healthcare Investors, Inc. 34,715
563 Parkway Properties, Inc. 11,091
1,126 Pennsylvania Real Estate
Investment Trust 8,569
1,143 Post Properties, Inc. 20,574
11,519 ProLogis 137,306
466 PS Business Parks, Inc. 23,915
3,322 Public Storage 249,947
See Notes to Financial Statements Page 21
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
Portfolio of Investments (a) (Continued)
September 30, 2009
Shares Description Value
- -------------------------------------------------------------
Common Stocks (b) (Continued)
United States (Continued)
721 Ramco-Gershenson Properties Trust $ 6,431
2,714 Realty Income Corp. 69,614
2,083 Regency Centers Corp. 77,175
348 Saul Centers, Inc. 11,171
3,133 Senior Housing Properties Trust 59,872
7,399 Simon Property Group, Inc. 513,713
1,999 SL Green Realty Corp. 87,656
609 Sovran Self Storage, Inc. 18,532
485 Sun Communities, Inc. 10,437
1,957 Sunstone Hotel Investors, Inc. 13,895
1,048 Tanger Factory Outlet Centers, Inc. 39,132
1,033 Taubman Centers, Inc. 37,271
3,916 UDR, Inc. 61,638
309 Universal Health Realty Income Trust 10,058
477 Urstadt Biddle Properties, Inc.,
Class A 6,959
2,417 U-Store-It Trust 15,106
4,073 Ventas, Inc. 156,811
4,658 Vornado Realty Trust 300,022
1,510 Washington Real Estate Investment
Trust 43,488
3,113 Weingarten Realty Investors 62,011
307 Winthrop Realty Trust, Inc. 2,990
-------------
5,478,598
-------------
Total Common Stocks--100.1%
(Cost $15,207,485) 15,253,373
-------------
Rights -- 0.0%
Germany -- 0.0%
687 Deutsche Wohnen AG, expiring
10/07/09 (c) 4,715
-------------
United Kingdom -- 0.0%
185 Primary Health Properties PLC,
expiring 10/05/09 (c) (d) 166
544 Unite Group PLC, expiring
10/05/09 (c) (d) 115
-------------
281
-------------
Total Rights -- 0.0%
(Cost $4,915) 4,996
-------------
Total Investments -- 100.1%
(Cost $15,212,400) (f) 15,258,369
Net Other Assets and
Liabilities -- (0.1)% (20,223)
-------------
Net Assets -- 100.0% $ 15,238,146
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Portfolio securities are categorized based upon their country of
incorporation.
(c) Non-income producing security.
(d) This security is fair valued in accordance with procedures adopted by the
Trust's Board of Trustees.
(e) This is a restricted security which cannot be traded as a result of the in-
specie distribution. It was aquired on August 6, 2009 at a cost of zero and
has a carrying value per share of zero.
(f) Aggregate cost for federal income tax purposes is $17,035,632. As of
September 30, 2009, the aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost was
$316,175 and the aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value was $2,093,438.
REIT - Real Estate Investment Trust
__________________________
Valuation Inputs
A summary of the inputs used to value the Fund's
investments as of September 30, 2009 is as follows
(see Note 2A - Portfolio Valuation in the Notes to
Financial Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
- ---------------------------------------------------------------------
Common Stocks* $15,253,373 $ -- $ --
Rights* 4,715 281 --
---------------------------------------------
Total Investments $15,258,088 $ 281 $ --
=============================================
* See Portfolio of Investments for country breakout.
% of
Industry (Unaudited) Net Assets
- -----------------------------------------------------
Real Estate Investment Trusts 68.9%
Real Estate Management & Development 30.5
Commercial Services & Supplies 0.4
Hotels, Restaurants & Leisure 0.1
Insurance 0.1
Health Care Providers & Services 0.1
Capital Markets 0.0
- -----------------------------------------------------
Total Investments 100.1
Net Other Assets and Liabilities (0.1)
-----------
Total 100.0%
===========
Page 22 See Notes to Financial Statements
First Trust Dow Jones Global Select Dividend Index Fund
Portfolio of Investments (a)
September 30, 2009
Shares Description Value
- -------------------------------------------------------------
Common Stocks (b) -- 100.1%
Australia -- 26.1%
143,388 Adelaide Brighton Ltd. $ 352,926
17,958 Australia & New Zealand Banking
Group Ltd. 386,400
17,824 Billabong International Ltd. 188,692
7,767 Commonwealth Bank of Australia 354,594
194,129 Commonwealth Property Office Fund 162,698
190,587 CSR Ltd. 316,095
160,426 David Jones Ltd. 826,522
23,176 Felix Resources Ltd. 350,647
14,195 Lion Nathan Ltd. 143,386
151,644 Macquarie Airports 379,936
40,575 Metcash Ltd. 161,079
13,424 National Australia Bank Ltd. 364,280
35,070 Orica Ltd. 727,061
17,638 Sims Metal Management Ltd. 355,240
100,325 Stockland 361,107
51,225 Suncorp-Metway Ltd. 401,293
43,230 Telstra Corp., Ltd. 124,710
23,061 United Group Ltd. 301,504
16,973 Wesfarmers Ltd. 396,650
14,564 Westfield Group 178,592
13,350 Westpac Banking Corp. 309,156
14,151 WorleyParsons Ltd. 370,900
-------------
7,513,468
-------------
Austria -- 3.7%
5,379 OMV AG 217,015
21,873 Telekom Austria AG 394,339
12,891 Voestalpine AG 460,096
-------------
1,071,450
-------------
Belgium -- 0.2%
948 Mobistar S.A. 65,604
-------------
Bermuda -- 5.0%
233,277 Cosco Pacific Ltd. 334,713
16,899 Esprit Holdings Ltd. 113,386
103,594 VTech Holdings Ltd. 892,239
35,257 Yue Yuen Industrial Holdings Ltd. 97,809
-------------
1,438,147
-------------
Canada -- 6.0%
12,193 Bell Aliant Regional
Communications Income Fund 318,762
17,271 Canadian Oil Sands Trust 496,038
3,582 Manitoba Telecom Services, Inc. 111,476
13,551 Russel Metals, Inc. 215,925
17,849 Telus Corp. 575,823
-------------
1,718,024
-------------
Finland -- 9.5%
4,971 Fortum Oyj 127,447
8,416 KCI Konecranes Oyj 239,908
29,402 Metso Oyj 827,383
19,095 Rautaruukki Oyj 458,262
57,625 Yit Oyj 1,097,081
-------------
2,750,081
-------------
Shares Description Value
- -------------------------------------------------------------
France -- 4.2%
6,649 France Telecom S.A. $ 177,132
2,154 Neopost S.A. 193,317
3,445 PPR 441,564
12,841 Vivendi S.A. 397,335
-------------
1,209,348
-------------
Germany -- 1.7%
4,535 BASF SE 240,302
2,577 K+S AG 140,623
1,127 RWE AG 104,675
-------------
485,600
-------------
Hong Kong -- 2.1%
12,064 CLP Holdings Ltd. 81,879
126,019 CNOOC Ltd. 169,433
15,201 Hongkong Electric Holdings 83,360
62,603 Television Broadcasts Ltd. 269,797
-------------
604,469
-------------
Italy -- 2.1%
5,807 ENI S.p.A 145,141
80,337 Milano Assicurazioni S.p.A 284,499
100,497 Telecom Italia S.p.A 176,329
-------------
605,969
-------------
Netherlands -- 4.8%
4,981 Fugro N.V. 287,660
44,207 Koninklijke BAM Groep N.V. 510,344
12,729 Koninklijke Boskalis Westminster N.V. 434,756
1,897 Smit Internationale N.V. 146,628
-------------
1,379,388
-------------
New Zealand -- 2.1%
47,599 Fletcher Building Ltd. 287,039
161,521 Telecom Corp. of New Zealand Ltd. 310,290
-------------
597,329
-------------
Portugal -- 0.4%
13,283 CIMPOR Cimentos de Portugal
SGPS S.A. 109,726
-------------
Singapore -- 4.6%
18,504 Jardine Cycle & Carriage Ltd. 319,204
124,000 Keppel Corp. Ltd. 713,023
54,000 SembCorp Industries Ltd. 129,954
64,000 UOL Group Ltd. 156,292
-------------
1,318,473
-------------
Spain -- 0.8%
10,761 Gas Natural SDG S.A. 237,782
-------------
Sweden -- 6.3%
59,274 NCC AB, Class B 903,392
26,075 Sandvik AB 288,004
20,209 SSAB Svenskt Stal AB 313,077
7,060 Svenska Handelsbanken AB 180,263
18,678 TeliaSonera AB 122,710
-------------
1,807,446
-------------
See Notes to Financial Statements Page 23
First Trust Dow Jones Global Select Dividend Index Fund
Portfolio of Investments (a) (Continued)
September 30, 2009
Shares Description Value
- -------------------------------------------------------------
Common Stocks (b) (Continued)
United Kingdom -- 7.1%
13,021 Amlin PLC $ 79,805
31,504 BP PLC 278,427
36,399 Brit Insurance Holdings PLC 118,611
103,923 BT Group PLC 215,911
90,332 Cable & Wireless PLC 207,164
139,084 Hays PLC 231,169
74,933 HMV Group PLC 125,623
35,802 IMI PLC 256,105
9,339 Jardine Lloyd Thompson Group PLC 72,462
11,066 Provident Financial PLC 160,582
23,473 Rexam PLC 97,910
5,829 Severn Trent PLC 90,409
13,390 United Utilities PLC 97,709
-------------
2,031,887
-------------
United States -- 13.4%
9,417 Altria Group, Inc. 167,717
3,933 American Electric Power Co., Inc. 121,884
3,891 AT&T, Inc. 105,096
20,753 CenterPoint Energy, Inc. 257,960
16,649 CenturyTel, Inc. 559,406
2,565 Consolidated Edison, Inc. 105,011
8,485 Dow Chemical (The) Co. 221,204
2,871 DTE Energy Co. 100,887
8,873 General Electric Co. 145,695
14,271 MeadWestvaco Corp. 318,386
6,331 Pepco Holdings, Inc. 94,205
2,769 Progress Energy, Inc. 108,157
59,377 R.R. Donnelley & Sons Co. 1,262,355
2,675 SCANA Corp. 93,357
2,222 Southern Co. 70,371
9,711 TECO Energy, Inc. 136,731
-------------
3,868,422
-------------
Total Investments -- 100.1%
(Cost $25,065,123) (c) 28,812,613
Net Other Assets and
Liabilities -- (0.1)% (23,079)
-------------
Net Assets -- 100.0% $ 28,789,534
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Portfolio securities are categorized based upon their country of
incorporation.
(c) Aggregate cost for federal income tax purposes is $25,593,634. As of
September 30, 2009, the aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost was
$3,557,823 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was $338,844.
__________________________
Valuation Inputs
A summary of the inputs used to value the Fund's
investments as of September 30, 2009 is as follows
(see Note 2A - Portfolio Valuation in the Notes to
Financial Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
- ------------------------------------------------------------------
Common Stocks* $28,812,613 $ -- $ --
===========================================
* See Portfolio of Investments for country breakout.
% of
Industry (Unaudited) Net Assets
- ------------------------------------------------------------------
Diversified Telecommunication Services 11.8%
Construction & Engineering 11.3
Oil, Gas & Consumable Fuels 5.8
Machinery 5.6
Commercial Banks 5.5
Metals & Mining 5.5
Chemicals 4.6
Industrial Conglomerates 4.5
Multiline Retail 4.4
Commercial Services & Supplies 4.4
Insurance 3.3
Multi-Utilities 3.1
Communications Equipment 3.1
Transportation Infrastructure 3.0
Construction Materials 2.6
Real Estate Investment Trusts 2.5
Electric Utilities 2.4
Media 2.3
Energy Equipment & Services 2.3
Food & Staples Retailing 2.0
Distributors 1.1
Paper & Forest Products 1.1
Textiles, Apparel & Luxury Goods 1.0
Specialty Retail 0.8
Gas Utilities 0.8
Professional Services 0.8
Trading Companies & Distributors 0.8
Office Electronics 0.7
Tobacco 0.6
Consumer Finance 0.6
Real Estate Management & Development 0.5
Beverages 0.5
Containers & Packaging 0.3
Water Utilities 0.3
Wireless Telecommunication Services 0.2
- ------------------------------------------------------------------
Total Investments 100.1
Net Other Assets and Liabilities (0.1)
-----------
Total 100.0%
===========
Page 24 See Notes to Financial Statements
First Trust ISE Global Wind Energy Index Fund
Portfolio of Investments (a)
September 30, 2009
Shares Description Value
- -------------------------------------------------------------
Common Stocks (b) -- 99.9%
Australia -- 6.3%
69,887 AGL Energy Ltd. $ 842,814
4,112,035 Infigen Energy 5,477,732
-------------
6,320,546
-------------
Belgium -- 4.8%
2,380,619 Hansen Transmissions
International (c) 4,879,409
-------------
Bermuda -- 0.4%
4,085,623 China Windpower Group Ltd. (c) 358,478
-------------
Brazil -- 1.1%
75,174 Centrais Eletricas Brasileiras
S.A. ADR 1,162,942
-------------
Canada -- 0.7%
37,330 Boralex, Inc. (c) 313,800
77,747 Canadian Hydro Developers, Inc. (c) 373,976
-------------
687,776
-------------
Cayman Islands -- 0.8%
392,317 China High Speed Transmission
Equipment Group Co., Ltd. 804,877
-------------
China -- 0.2%
249,761 Harbin Power Equipment Co., Ltd. 235,902
-------------
Denmark -- 8.4%
320,338 Greentech Energy Systems A/S (c) 1,649,847
94,506 Vestas Wind Systems A/S (c) 6,831,972
-------------
8,481,819
-------------
France -- 4.4%
16,625 Alstom S.A. 1,213,253
15,572 EDF Energies Nouvelles S.A. 858,402
325,856 Theolia S.A. (c) 2,322,229
-------------
4,393,884
-------------
Germany -- 14.4%
258,818 Conergy AG (c) 321,932
36,683 E.ON AG ADR 1,555,656
229,529 Nordex AG (c) 4,003,725
526,497 PNE Wind AG (c) 1,679,588
33,961 Repower Systems AG (c) 5,366,788
17,135 Siemens AG ADR 1,592,870
-------------
14,520,559
-------------
Greece -- 0.6%
73,949 Terna Energy S.A. 649,283
-------------
Guernsey -- 1.8%
1,980,737 Renewable Energy Generation Ltd. 1,804,354
-------------
Japan -- 4.2%
677 Japan Wind Development Co. Ltd. 2,911,179
98,000 Mitsui & Co., Ltd. 1,281,702
-------------
4,192,881
-------------
Portugal -- 1.2%
266,880 EDP-Energias de Portugal S.A. 1,222,393
-------------
Shares Description Value
- -------------------------------------------------------------
Spain -- 26.6%
8,146 Acciona S.A. $ 1,108,607
679,332 EDP Renovaveis S.A. (c) 7,470,704
53,061 Endesa S.A. 1,753,274
903,511 Fersa Energias Renovables S.A. 3,040,967
267,707 Gamesa Corp. Tecnologica S.A. 5,997,709
1,522,004 Iberdrola Renovables S.A. 7,483,513
-------------
26,854,774
-------------
Sweden -- 1.0%
62,950 SKF AB 988,765
-------------
Switzerland -- 1.2%
10,550 BKW FMB Energie AG 915,222
481 Gurit Holding AG 312,374
-------------
1,227,596
-------------
United Kingdom -- 5.9%
25,471 BP PLC ADR 1,355,821
1,164,156 Clipper Windpower PLC (c) 3,227,979
23,969 Royal Dutch Shell PLC ADR 1,370,787
-------------
5,954,587
-------------
United States -- 15.9%
97,595 AES Corp. (c) 1,446,358
18,683 Allegheny Technologies, Inc. 653,718
31,184 Alliant Energy Corp. 868,474
18,771 American Superconductor Corp. (c) 629,579
4,383 Ameron International Corp. 306,722
400,497 Broadwind Energy, Inc. (c) 3,159,921
217,353 Capstone Turbine Corp. (c) 286,906
23,303 Deere & Co. 1,000,165
71,117 Duke Energy Corp. 1,119,382
46,743 Federal Mogul Corp. (c) 564,188
18,179 FPL Group, Inc. 1,004,026
96,530 General Electric Co. 1,585,023
14,812 Kaydon Corp. 480,205
32,108 NRG Energy, Inc. (c) 905,125
23,907 Otter Tail Corp. 572,095
34,939 Trinity Industries, Inc. 600,601
24,184 Woodward Governor Co. 586,704
21,485 Zoltek Cos., Inc. (c) 225,592
-------------
15,994,784
-------------
Total Common Stocks -- 99.9%
(Cost $125,739,095) 100,735,609
-------------
Warrants -- 0.0%
United States -- 0.0%
959 GreenHunter Energy, Inc.,
expiring 9/15/11 @ $0 (c)(d) 0
(Cost $0) -------------
Money Market Fund -- 0.1%
128,577 Morgan Stanley Institutional Treasury
Money Market Fund - 0.05% (e)
(Cost $128,577) 128,577
-------------
See Notes to Financial Statements Page 25
First Trust ISE Global Wind Energy Index Fund
Portfolio of Investments (a) (Continued)
September 30, 2009
Description Value
- -------------------------------------------------------------
Total Investments -- 100.0%
(Cost $114,327,249) (f) $ 100,864,186
Net Other Assets and
Liabilities -- 0.0% (14,468)
-------------
Net Assets -- 100.0% $ 100,849,718
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Portfolio securities are categorized based upon their country of
incorporation.
(c) Non-income producing security.
(d) This security is fair valued in accordance with valuation procedures adopted
by the First Trust's Board of Trustees.
(e) Represents annualized 7-day yield at September 30, 2009.
(f) Aggregate cost for federal income tax purposes is $125,867,702. As of
September 30, 2009, the aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost was
$5,352,876 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$30,356,392.
ADR - American Depositary Receipt
__________________________
Valuation Inputs
A summary of the inputs used to value the Fund's
investments as of September 30, 2009 is as follows
(see Note 2A - Portfolio Valuation in the Notes to
Financial Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
- --------------------------------------------------------------------
Common Stocks* $100,735,609 $ -- $ --
Money Market Fund 128,577 -- --
----------------------------------------------
Total Investments $100,864,186 $ -- $ --
==============================================
* See Portfolio of Investments for country breakout.
% of
Industry (Unaudited) Net Assets
- --------------------------------------------------------------------
Independent Power Producers & Energy Traders 35.7%
Electrical Equipment 29.2
Electric Utilities 12.6
Machinery 7.9
Oil, Gas & Consumable Fuels 5.7
Industrial Conglomerates 3.7
Multi-Utilities 1.7
Trading Companies & Distributors 1.3
Metals & Mining 0.7
Auto Components 0.6
Chemicals 0.5
Building Products 0.3
Money Market Fund 0.1
Warrants 0.0
- -------------------------------------------------------------
Total Investments 100.0
Net Other Assets and Liabilities 0.0
-----------
Total 100.0%
===========
Page 26 See Notes to Financial Statements
First Trust ISE Global Engineering and Construction Index Fund
Portfolio of Investments (a)
September 30, 2009
Shares Description Value
- -------------------------------------------------------------
Common Stocks (b) -- 99.7%
Australia -- 4.2%
46,563 Leighton Holdings Ltd. $ 1,485,787
-------------
Bermuda -- 0.0%
185,624 HKC Holdings Ltd. 14,610
-------------
Canada -- 3.2%
20,675 SNC-Lavalin Group, Inc. 933,672
8,134 Stantec, Inc. (c) 203,607
-------------
1,137,279
-------------
China -- 3.9%
684,666 China Communications
Construction Co. Ltd. 741,202
777,186 China Railway Group Ltd. (c) 667,874
-------------
1,409,076
-------------
Egypt -- 2.1%
18,132 Orascom Construction Industries
GDR 761,544
-------------
Finland -- 1.8%
34,315 Yit Oyj 653,299
-------------
France -- 9.2%
27,569 Bouygues S.A. 1,401,930
9,397 Eiffage S.A. 598,726
22,637 Vinci S.A. 1,280,652
-------------
3,281,308
-------------
Germany -- 3.2%
15,041 Hochtief AG 1,145,859
-------------
Italy -- 2.6%
122,078 Impregilo S.p.A 534,145
34,586 Maire Tecnimont S.p.A 168,031
12,557 Trevi Finanziaria S.p.A 218,483
-------------
920,659
-------------
Japan -- 17.9%
70,000 Chiyoda Corp. 551,329
36,300 COMSYS Holdings Corp. 397,919
52,000 JGC Corp. 1,063,577
254,000 Kajima Corp. 650,810
36,000 Kandenko Co. Ltd. 249,050
51,000 Kinden Corp. 426,681
32,600 Kyowa Exeo Corp. 319,953
23,000 Maeda Corp. 74,049
7,000 Maeda Road Construction Co., Ltd. 62,931
145,000 Obayashi Corp. 634,824
51,000 Okumura Corp. 192,035
174,000 Shimizu Corp. 684,253
2,900 SHO-BOND Holdings Co. Ltd. 56,698
200,000 Taisei Corp. 396,591
61,000 Toda Corp. 215,418
17,000 Toshiba Plant Systems & Services
Corp. 226,503
64,000 Toyo Engineering Corp. 218,170
-------------
6,420,791
-------------
Shares Description Value
- -------------------------------------------------------------
Netherlands -- 7.2%
9,005 Arcadis N.V. $ 165,180
45,094 Chicago Bridge & Iron Co. N.V. 842,356
17,700 Imtech N.V. 451,332
37,646 Koninklijke BAM Groep N.V. 434,602
19,705 Koninklijke Boskalis Westminster
N.V. 673,020
-------------
2,566,490
-------------
Norway -- 2.3%
74,298 Aker Solutions ASA 836,738
-------------
Panama -- 2.7%
37,579 McDermott International, Inc. (c) 949,621
-------------
Portugal -- 0.3%
22,224 Mota-Engil SGPS S.A. 123,582
-------------
Spain -- 7.3%
18,813 ACS Actividades de Construccion
y Servicios S.A. 981,174
15,306 Obrascon Huarte Lain S.A. 426,573
34,362 Sacyr Vallehermoso S.A. 650,422
10,138 Tecnicas Reunidas S.A. 554,255
-------------
2,612,424
-------------
Sweden -- 3.2%
76,818 Skanska AB 1,127,254
-------------
Switzerland -- 3.0%
33,695 Foster Wheeler AG (c) 1,075,207
-------------
United Kingdom -- 4.4%
62,083 AMEC PLC 749,100
31,322 Atkins WS PLC 314,361
94,417 Balfour Beatty PLC 485,877
3,476 Keller Group PLC 40,386
-------------
1,589,724
-------------
United States -- 21.2%
22,820 Aecom Technology Corp. (c) 619,335
25,369 EMCOR Group, Inc. (c) 642,343
19,170 Fluor Corp. 974,794
16,290 Granite Construction, Inc. 504,012
22,498 Jacobs Engineering Group, Inc. (c) 1,033,783
42,411 KBR, Inc. 987,752
36,821 Quanta Services, Inc. (c) 814,849
24,963 Shaw Group (The), Inc. (c) 801,063
19,892 Tutor Perini Corp. (c) 423,700
17,818 URS Corp. (c) 777,756
-------------
7,579,387
-------------
Total Investments -- 99.7%
(Cost $28,943,496) (d) 35,690,639
Net Other Assets and
Liabilities -- 0.3% 93,612
-------------
Net Assets -- 100.0% $ 35,784,251
=============
See Notes to Financial Statements Page 27
First Trust ISE Global Engineering and Construction Index Fund
Portfolio of Investments (a) (Continued)
September 30, 2009
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Portfolio securities are categorized based upon their country of
incorporation.
(c) Non-income producing security.
(d) Aggregate cost for federal income tax purposes is $29,105,020. As of
September 30, 2009, the aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost was
$7,173,573 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$587,954.
GDR - Global Depositary Receipt
________________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of September 30,
2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
- ---------------------------------------------------------------------
Common Stocks* $35,690,639 $ -- $ --
=====================================================================
* See Portfolio of Investments for country breakout.
% of
Industry (Unaudited) Net Assets
- ---------------------------------------------------------------------
Construction & Engineering 89.7%
Energy Equipment & Services 6.0
Industrial Conglomerates 2.6
Professional Services 1.4
- -------------------------------------------------------------
Total Investments 99.7
Net Other Assets and Liabilities 0.3
-----------
Total 100.0%
===========
Page 28 See Notes to Financial Statements
This page is intentionally left blank.
Page 29
First Trust Exchange-Traded Fund II
Statements of Assets and Liabilities
September 30, 2009
First Trust First Trust
Dow Jones STOXX(R) FTSE EPRA/NAREIT
European Select Developed Markets
Dividend Index Fund Real Estate Index Fund
--------------------------- ----------------------------
ASSETS:
Investments at value...................................................... $ 8,307,400 $ 15,258,369
Cash...................................................................... -- --
Foreign currency at value................................................. 1,026 16,038
Receivables:
Foreign tax reclaims................................................... 60,238 4,434
From investment advisor................................................ 14,010 19,853
Dividends.............................................................. 2,573 37,731
Capital shares sold.................................................... -- --
Investment securities sold............................................. -- 3,730
Interest............................................................... -- --
Prepaid expenses.......................................................... 22,210 3,581
----------------- -----------------
Total Assets........................................................... 8,407,457 15,343,736
----------------- -----------------
LIABILITIES:
Due to custodian.......................................................... 28,495 25,208
Payables:
Investment securities purchased........................................ -- 14,078
Audit and tax fees..................................................... 28,425 31,575
Licensing fees......................................................... -- 3,616
Accrued expenses and other liabilities.................................... 20,563 31,113
----------------- -----------------
Total Liabilities...................................................... 77,483 105,590
----------------- -----------------
NET ASSETS................................................................ $ 8,329,974 $ 15,238,146
================= =================
NET ASSETS consist of:
Paid-in capital........................................................... $ 17,804,861 $ 16,993,307
Par value................................................................. 6,033 5,000
Accumulated net investment income (loss).................................. (1,709) 80,000
Accumulated net realized gain (loss) on investments and
foreign currency transactions.......................................... (10,871,205) (1,886,569)
Net unrealized appreciation (depreciation) on investments and
foreign currency translation........................................... 1,391,994 46,408
----------------- -----------------
NET ASSETS................................................................ $ 8,329,974 $ 15,238,146
================= =================
NET ASSET VALUE, per share................................................ $ 13.81 $ 30.48
================= =================
Number of shares outstanding
(unlimited number of shares authorized, par value $0.01 per share)........ 603,334 500,002
----------------- -----------------
Investments at cost....................................................... $ 6,915,425 $ 15,212,400
================= =================
Foreign currency at cost.................................................. $ 989 $ 16,003
================= =================
Page 30 See Notes to Financial Statements
First Trust First Trust First Trust
Dow Jones ISE Global ISE Global
Global Select Dividend Wind Energy Engineering and
Index Fund Index Fund Construction Index Fund
---------------------------- ------------------------- -------------------------------
$ 28,812,613 $ 100,864,186 $ 35,690,639
-- -- 38,773
4,200 32,754 23,557
3,098 37,649 12,499
16,870 16,659 8,005
52,752 25,731 65,910
990,434 -- --
2,992 -- --
1 2 --
12,160 8,229 5,502
--------------------- --------------------- ---------------------
29,895,120 100,985,210 35,844,885
--------------------- --------------------- ---------------------
46,571 649 --
998,043 18,021 --
31,800 28,425 28,419
-- 23,749 7,972
29,172 64,648 24,243
--------------------- --------------------- ---------------------
1,105,586 135,492 60,634
--------------------- --------------------- ---------------------
$ 28,789,534 $ 100,849,718 $ 35,784,251
===================== ===================== =====================
$ 27,008,678 $ 132,779,930 $ 29,181,349
13,500 62,000 9,000
78,216 302,583 70,106
(2,059,493) (18,833,919) (224,398)
3,748,633 (13,460,876) 6,748,194
--------------------- --------------------- ---------------------
$ 28,789,534 $ 100,849,718 $ 35,784,251
===================== ===================== =====================
$ 21.33 $ 16.27 $ 39.76
===================== ===================== =====================
1,350,002 6,200,002 900,002
--------------------- --------------------- ---------------------
$ 25,065,123 $ 114,327,249 $ 28,943,496
===================== ===================== =====================
$ 4,082 $ 32,788 $ 23,410
===================== ===================== =====================
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
Dividend Index Fund Real Estate Index Fund
--------------------------- ----------------------------
For the Year For the Year
Ended Ended
September 30, 2009 September 30, 2009
------------------------ ------------------------
INVESTMENT INCOME:
Dividends.................................................................. $ 331,060 $ 387,710
Foreign tax withholding.................................................... (30,952) (22,006)
Interest................................................................... -- 37
----------------- -----------------
Total investment income................................................. 300,108 365,741
----------------- -----------------
EXPENSES:
Licensing fees............................................................. 75,000 9,380
Audit and tax fees......................................................... 31,425 32,825
Listing fees............................................................... 30,813 34,504
Investment advisory fees................................................... 20,349 31,268
Accounting and administration fees......................................... 11,387 40,316
Legal fees................................................................. 3,014 4,758
Trustees' fees and expenses................................................ 2,317 3,668
Custodian fees............................................................. 934 5,139
Registration and filing fees............................................... 488 339
Transfer agent fees........................................................ 254 391
Printing fees.............................................................. -- --
Other expenses............................................................. 837 730
----------------- -----------------
Total expenses.......................................................... 176,818 163,318
Less fees waived and expenses reimbursed by the investment advisor...... (146,295) (116,416)
----------------- -----------------
Net expenses............................................................ 30,523 46,902
----------------- -----------------
NET INVESTMENT INCOME (LOSS)............................................... 269,585 318,839
----------------- -----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................................. (7,825,343) (2,319,561)
In-kind redemptions..................................................... (2,257,554) 86,991
Foreign currency transactions........................................... (7,922) (7,767)
----------------- -----------------
Net realized gain (loss)................................................... (10,090,819) (2,240,337)
----------------- -----------------
Net change in unrealized appreciation (depreciation) on:
Investments............................................................. 7,670,683 2,459,336
Foreign currency translation............................................ 8,907 806
----------------- -----------------
Net change in unrealized appreciation (depreciation)....................... 7,679,590 2,460,142
----------------- -----------------
NET REALIZED AND UNREALIZED GAIN (LOSS).................................... (2,411,229) 219,805
----------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS......................................................... $ (2,141,644) $ 538,644
================= =================
____________________________
<FN>
(a) Inception date.
</FN>
Page 32 See Notes to Financial Statements
First Trust First Trust First Trust
Dow Jones ISE Global ISE Global
Global Select Dividend Wind Energy Engineering and
Index Fund Index Fund Construction Index Fund
----------------------------- ------------------------- --------------------------------
For the Period
For the For the October 13, 2008 (a)
Year Ended Year Ended through
September 30, 2009 September 30, 2009 September 30, 2009
------------------------ ------------------------ ------------------------
$ 356,997 $ 1,273,117 $ 504,799
(25,517) (85,364) (49,734)
23 72 --
----------------- ----------------- -----------------
331,503 1,187,825 455,065
----------------- ----------------- -----------------
26,172 67,382 17,926
37,550 29,925 29,169
25,243 13,914 13,990
25,454 269,526 71,706
19,025 43,997 19,215
6,591 53,497 12,041
3,307 31,932 7,917
1,530 37,420 11,174
169 1,556 1,029
318 3,369 896
6,474 77,827 19,029
550 11,511 3,107
----------------- ----------------- -----------------
152,383 641,856 207,199
(114,202) (237,567) (81,714)
----------------- ----------------- -----------------
38,181 404,289 125,485
----------------- ----------------- -----------------
293,322 783,536 329,580
----------------- ----------------- -----------------
(1,835,907) (19,069,276) (243,847)
101,388 1,407,587 1,559,556
(1,396) 15,128 2,117
----------------- ----------------- -----------------
(1,735,915) (17,646,561) 1,317,826
----------------- ----------------- -----------------
4,793,296 16,621,388 6,747,143
2,900 (11,234) 1,051
----------------- ----------------- -----------------
4,796,196 16,610,154 6,748,194
----------------- ----------------- -----------------
3,060,281 (1,036,407) 8,066,020
----------------- ----------------- -----------------
$ 3,353,603 $ (252,871) $ 8,395,600
================= ================= =================
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 Year For the Year
Ended Ended
September 30, 2009 September 30, 2008
---------------------- ----------------------
OPERATIONS:
Net investment income (loss)............................................... $ 269,585 $ 886,452
Net realized gain (loss)................................................... (10,090,819) (3,464,547)
Net change in unrealized appreciation (depreciation)....................... 7,679,590 (6,384,754)
----------------- -----------------
Net increase (decrease) in net assets resulting from operations............ (2,141,644) (8,962,849)
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................................... (254,857) (887,901)
Net realized gain.......................................................... -- --
----------------- -----------------
Total distributions to shareholders........................................ (254,857) (887,901)
----------------- -----------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.................................................. 2,617,970 19,195,866
Cost of shares redeemed.................................................... (4,436,933) --
----------------- -----------------
Net increase (decrease) in net assets resulting from shareholder
transactions............................................................ (1,818,963) 19,195,866
----------------- -----------------
Total increase (decrease) in net assets.................................... (4,215,464) 9,345,116
NET ASSETS:
Beginning of period........................................................ 12,545,438 3,200,322
----------------- -----------------
End of period.............................................................. $ 8,329,974 $ 12,545,438
================= =================
Accumulated net investment income (loss) at end of period.................. $ (1,709) $ (8,661)
================= =================
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.................................... 803,334 103,334
Shares sold................................................................ 200,000 700,000
Shares redeemed............................................................ (400,000) --
----------------- -----------------
Shares outstanding, end of period.......................................... 603,334 803,334
================= =================
____________________________
<FN>
(a) Inception date.
</FN>
Page 34 See Notes to Financial Statements
First Trust First Trust First Trust
FTSE EPRA/NAREIT Dow Jones ISE
Developed Markets Real Estate Global Select Dividend Global Wind Energy
Index Fund Index Fund Index Fund
- ------------------------------------------ ------------------------------------------ --------------------------------------------
For the Period For the Period
For the Year For the Year For the Year November 21, 2007 (a) For the Year June 16, 2008 (a)
Ended Ended Ended through Ended through
September 30, 2009 September 30, 2008 September 30, 2009 September 30, 2008 September 30, 2009 September 30, 2008
- -------------------- ------------------- -------------------- -------------------- -------------------- ----------------------
$ 318,839 $ 182,979 $ 293,322 $ 171,940 $ 783,536 $ 43,466
(2,240,337) (98,545) (1,735,915) (173,305) (17,646,561) (1,569,015)
2,460,142 (2,743,454) 4,796,196 (1,047,563) 16,610,154 (30,071,030)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
538,644 (2,659,020) 3,353,603 (1,048,928) (252,871) (31,596,579)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(274,642) (155,322) (285,416) (162,183) (515,400) --
(2,775) -- -- -- -- --
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(277,417) (155,322) (285,416) (162,183) (515,400) --
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
9,825,531 4,719,835 22,706,498 5,200,996 42,372,151 100,602,595
(2,097,271) -- (975,036) -- (3,821,099) (5,939,079)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
7,728,260 4,719,835 21,731,462 5,200,996 38,551,052 94,663,516
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
7,989,487 1,905,493 24,799,649 3,989,885 37,782,781 63,066,937
7,248,659 5,343,166 3,989,885 -- 63,066,937 --
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
$ 15,238,146 $ 7,248,659 $ 28,789,534 $ 3,989,885 $ 100,849,718 $ 63,066,937
================= ================= ================= ================= ================= =================
$ 80,000 $ 34,313 $ 78,216 $ 7,499 $ 302,583 $ 19,319
================= ================= ================= ================= ================= =================
200,002 100,002 200,002 -- 3,300,002 --
400,000 100,000 1,200,000 200,002 3,150,000 3,600,002
(100,000) -- (50,000) -- (250,000) (300,000)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
500,002 200,002 1,350,002 200,002 6,200,002 3,300,002
================= ================= ================= ================= ================= =================
See Notes to Financial Statements Page 35
First Trust Exchange-Traded Fund II
Statements of Changes in Net Assets (Continued)
First Trust
ISE Global
Engineering and Construction
Index Fund
-------------------------------------
For the Period
October 13, 2008 (a)
through
September 30, 2009
----------------------
OPERATIONS:
Net investment income (loss)............................................... $ 329,580
Net realized gain (loss)................................................... 1,317,826
Net change in unrealized appreciation (depreciation)....................... 6,748,194
-----------------
Net increase (decrease) in net assets resulting from operations............ 8,395,600
-----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................................... (261,640)
Net realized gain.......................................................... --
-----------------
Total distributions to shareholders........................................ (261,640)
-----------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.................................................. 33,995,273
Cost of shares redeemed.................................................... (6,344,982)
-----------------
Net increase (decrease) in net assets resulting from shareholder
transactions............................................................ 27,650,291
-----------------
Total increase (decrease) in net assets.................................... 35,784,251
NET ASSETS:
Beginning of period........................................................ --
-----------------
End of period.............................................................. $ 35,784,251
=================
Accumulated net investment income (loss) at end of period.................. $ 70,106
=================
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.................................... --
Shares sold................................................................ 1,100,002
Shares redeemed............................................................ (200,000)
-----------------
Shares outstanding, end of period.......................................... 900,002
=================
___________________________
<FN>
(a) Inception date.
</FN>
Page 36 See Notes to Financial Statements
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 Period
For the For the August 27, 2007 (a)
Year Ended Year Ended through
September 30, 2009 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) 0.61 1.26 0.03(b)
Net realized and unrealized gain (loss) (1.83) (15.32) 0.94
----------------- ---------------- -----------------
Total from investment operations (1.22) (14.06) 0.97
Distributions paid to shareholders from:
Net investment income (0.59) (1.29) --
----------------- ---------------- -----------------
Net asset value, end of period $ 13.81 $ 15.62 $ 30.97
================= ================ =================
TOTAL RETURN (c) (6.83)% (46.12)% 3.23%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 8,330 $ 12,545 $ 3,200
Ratios to average net assets:
Ratio of total expenses to average net assets 3.48% 1.95% 19.64%(d)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60%(d)
Ratio of net investment income (loss) to average net assets 5.30% 6.43% 1.18%(d)
Portfolio turnover rate (e) 82% 80% 0%
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
For the Period
For the For the August 27, 2007 (a)
Year Ended Year Ended through
September 30, 2009 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) 0.90 1.25 0.14(b)
Net realized and unrealized gain (loss) (5.74) (17.25) 3.29
----------------- ---------------- -----------------
Total from investment operations (4.84) (16.00) 3.43
----------------- ---------------- -----------------
Distributions paid to shareholders from:
Net investment income (0.91) (1.19) --
Net realized gain (0.01) -- --
----------------- ---------------- -----------------
Total distributions (0.92) (1.19) --
----------------- ---------------- -----------------
Net asset value, end of period $ 30.48 $ 36.24 $ 53.43
================= ================ =================
TOTAL RETURN (c) (12.66)% (30.35)% 6.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 15,238 $ 7,249 $ 5,343
Ratios to average net assets:
Ratio of total expenses to average net assets 2.09% 2.68% 11.51%(d)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60%(d)
Ratio of net investment income (loss) to average net assets 4.08% 3.07% 3.22%(d)
Portfolio turnover rate (e) 19% 7% 1%
________________________
<FN>
(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.
</FN>
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 Global Select Dividend Index Fund
For the Period
For the November 21, 2007 (a)
Year Ended through
September 30, 2009 September 30, 2008
------------------ -------------------
Net asset value, beginning of period $ 19.95 $ 30.00
---------------- -----------------
Income from investment operations:
Net investment income (loss) 0.70(b) 1.38
Net realized and unrealized gain (loss) 1.37 (10.10)
---------------- -----------------
Total from investment operations 2.07 (8.72)
Distributions paid to shareholders from:
Net investment income (0.69) (1.33)
---------------- -----------------
Net asset value, end of period $ 21.33 $ 19.95
================ =================
TOTAL RETURN (c) 11.80% (29.72)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 28,790 $ 3,990
Ratios to average net assets:
Ratio of total expenses to average net assets 2.39% 4.79%(d)
Ratio of net expenses to average net assets 0.60% 0.60%(d)
Ratio of net investment income (loss) to average net assets 4.61% 6.33%(d)
Portfolio turnover rate (e) 65% 42%
First Trust ISE Global Wind Energy Index Fund
For the Period
For the June 16, 2008 (a)
Year Ended through
September 30, 2009 September 30, 2008
-------------------- -------------------
Net asset value, beginning of period $ 19.11 $ 30.00
---------------- -----------------
Income from investment operations:
Net investment income (loss) 0.14 0.01
Net realized and unrealized gain (loss) (2.88) (10.90)
---------------- -----------------
Total from investment operations (2.74) (10.89)
Distributions paid to shareholders from:
Net investment income (0.10) --
---------------- -----------------
Net asset value, end of period $ 16.27 $ 19.11
================ =================
TOTAL RETURN (c) (14.26)% (36.30)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 100,850 $ 63,067
Ratios to average net assets:
Ratio of total expenses to average net assets 0.95% 0.98%(d)
Ratio of net expenses to average net assets 0.60% 0.60%(d)
Ratio of net investment income (loss) to average net assets 1.16% 0.24%(d)
Portfolio turnover rate (e) 30% 13%
_________________________
<FN>
(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.
</FN>
Page 38 See Notes to Financial Statements
First Trust Exchange-Traded Fund II
Financial Highlights
For a Share outstanding throughout the period
First Trust ISE Global Engineering and Construction Index Fund
For the Period
October 13, 2008 (a)
through
September 30, 2009
-------------------
Net asset value, beginning of period $ 30.00
-----------------
Income from investment operations:
Net investment income (loss) 0.42
Net realized and unrealized gain (loss) 9.68
-----------------
Total from investment operations 10.10
Distributions paid to shareholders from:
Net investment income (0.34)
-----------------
Net asset value, end of period $ 39.76
=================
TOTAL RETURN (b) 33.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 35,784
Ratios to average net assets:
Ratio of total expenses to average net assets 1.16%(c)
Ratio of net expenses to average net assets 0.70%(c)
Ratio of net investment income (loss) to average net assets 1.84%(c)
Portfolio turnover rate (d) 19%
___________________________
(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.
See Notes to Financial Statements Page 39
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
September 30, 2009
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 EPRA/NAREIT Global Real Estate Index Fund
Subsequent to September 30, 2009, the date of this annual report, First Trust
NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund, an additional
series of the Trust, began trading under the ticker symbol "GRID" on the
NASDAQ(R) Stock Market.
Each Fund represents a separate series of shares of beneficial interest in the
Trust (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 blocks consisting of
50,000 shares called a "Creation Unit". Creation Units are issued and redeemed
principally in-kind for securities included in a Fund's relevant index. Except
when aggregated in Creation Units, shares are not redeemable securities of a
Fund. The investment objective of each Fund is to seek investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of the following indices:
Fund Index
First Trust Dow Jones 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
(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
Each Fund's NAV is determined daily as of the close of regular trading on the
New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day
the NYSE is open for trading. 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") or 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 asked
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 40
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
September 30, 2009
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 whose market price is not available from
a pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of 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 used by the Fund 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.
The Funds are subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical securities. An active market is a market in which
transactions for the security occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly
or indirectly, and include the following:
- Quoted prices for similar securities in active markets.
- Quoted prices for identical or similar securities in markets
that are non-active. A non-active market is a market where
there are few transactions for the security, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
- Inputs other than quoted prices that are observable for the
security (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and
default rates).
- Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
security.
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 September 30, 2009, is
included in 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 on assets and liabilities, other than investments in securities, which
Page 41
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
September 30, 2009
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. Unrealized gains and losses on
investments in securities which result from changes in foreign exchange rates
are included with fluctuations arising from changes in market price and are
shown in "Net change in unrealized appreciation (depreciation) on investments"
on the Statement 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 Statements of
Operations.
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 a Fund, timing differences and differing characterization of distributions
made by a Fund.
The tax character of distributions paid by each Fund during the period ended
September 30, 2009 was as follows:
Distributions Distributions Distributions
paid from paid from paid from
Ordinary Capital Return of
Income Gains Capital
--------------- --------------- --------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund $ 254,857 $ -- $ --
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 274,650 2,767 --
First Trust Dow Jones Global Select Dividend Index Fund 285,416 -- --
First Trust ISE Global Wind Energy Index Fund 515,400 -- --
First Trust ISE Global Engineering and Construction Index Fund 261,640 -- --
The tax character of distributions paid by each Fund during the period ended
September 30, 2008 was as follows:
Distributions Distributions Distributions
paid from paid from paid from
Ordinary Capital Return of
Income Gains 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, 2009, the components of distributable earnings on a tax
basis for each Fund were as follows:
Accumulated Net
Undistributed Capital and Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
---------------- --------------- --------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund $ 6,213 $(10,829,369) $ 1,342,217
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 854,415 (837,752) (1,777,263)
First Trust Dow Jones Global Select Dividend Index Fund 189,234 (1,642,000) 3,218,979
First Trust ISE Global Wind Energy Index Fund 1,653,296 (8,644,179) (25,003,516)
First Trust ISE Global Engineering and Construction Index Fund 71,975 (64,743) 6,585,619
E. Income Taxes
Each Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes.
Page 42
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
September 30, 2009
The Funds are subject to tax accounting standards that establish a minimum
threshold for recognizing, and a system for measuring, the benefits of a tax
position taken or expected to be taken in a tax return. Taxable years ending
2007, 2008 and 2009 remain open to federal and state audit. As of September 30,
2009, management has evaluated the application of these standards to the Funds,
and has determined that no provision for income tax is required in the Funds'
financial statements for uncertain tax positions.
At September 30, 2009 for federal income tax purposes, each Fund has capital
loss carryforwards available that are shown in the table below, to the extent
provided by regulations, to offset future capital gains through the years
indicated. To the extent that these loss carryforwards are used to offset future
capital gains, it is probable that the capital gains so offset will not be
distributed to Fund shareholders. The Funds are subject to certain limitations
under U.S. tax rules on the use of capital loss carryforwards and net unrealized
built-in losses. These limitations apply when there has been a 50% change in
ownership.
Capital Loss Capital Loss Total
Available through Available through Capital Loss
September 30, 2016 September 30, 2017 Available
------------------ ------------------- --------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund $ -- $ 5,960,236 $ 5,960,236
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund -- 68,465 68,465
First Trust Dow Jones Global Select Dividend Index Fund 131,352 208,741 340,093
First Trust ISE Global Wind Energy Index Fund 174,186 30,175 204,361
First Trust ISE Global Engineering and Construction Index Fund -- 2,011 2,011
Capital losses incurred after October 31 ("Post-October Losses") within the
taxable year can be deemed to arise on the first business day of each Fund's
next taxable year.
During the taxable year ended September 30, 2009, 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 $ 4,861,211 $ 7,922
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 761,520 7,767
First Trust Dow Jones Global Select Dividend Index Fund 1,300,511 1,396
First Trust ISE Global Wind Energy Index Fund 8,439,818 --
First Trust ISE Global Engineering and Construction Index Fund 62,732 --
In order to present paid-in capital and accumulated net realized gain (loss) on
investments on the Statements of Assets and Liabilities that more closely
represent their tax character, certain adjustments have been made to paid-in
capital, accumulated net investment income (loss) and accumulated net realized
gain (loss) on investments. These adjustments are primarily due to the
differences between book and tax treatments of income and gains on various
investment securities held by the Funds and in-kind transactions. The results of
operations and net assets were not affected by these adjustments. For the period
ended September 30, 2009, the adjustments were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss) Paid-in
Income (Loss) on Investments Capital
---------------- ---------------------------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund $ (7,776) $ 2,673,805 $ (2,666,029)
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 1,490 448,398 (449,888)
First Trust Dow Jones Global Select Dividend Index Fund 62,811 (152,531) 89,720
First Trust ISE Global Wind Energy Index Fund 15,128 (857,456) 842,328
First Trust ISE Global Engineering and Construction Index Fund 2,166 (1,542,224) 1,540,058
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 net assets of each Fund. First Trust Portfolios L.P.
("FTP") or First Trust Advisors L.P. ("First Trust" or the "Advisor") has
entered into licensing agreements with each of the following "Licensors" for the
respective Funds:
Page 43
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
September 30, 2009
Funds 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. The respective Funds are required to pay
licensing fees, which are shown on the Statements of Operations.
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
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 providing 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 the Advisor 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").
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 each Fund up to three years from
the date the fee or expense was incurred, but no reimbursement payment will be
made by a Fund if at any time it would result in the Fund exceeding its Expense
Cap.
The advisory fee waivers and expense reimbursements for the period ended
September 30, 2009 and the expenses borne by the Advisor subject to
reimbursement by each Fund from inception through September 30, 2009 were as
follows:
Expenses Borne by Advisor Subject to Reimbursement
----------------------------------------------------------------
Advisory Expense Period Ended Period Ended Period Ended
Fee Reim- September 30, September 30, September 30,
Waivers bursement 2007 2008 2009 Total
------------------------------------------------------------------------------------------------
First Trust Dow Jones STOXX(R)
European Select Dividend Index Fund $ 20,349 $125,946 $ 52,139 $186,036 $146,295 $384,470
First Trust FTSE EPRA/NAREIT
Developed Markets Real Estate
Index Fund 31,268 85,148 48,855 123,776 116,416 289,047
First Trust Dow Jones Global Select
Dividend Index Fund 25,454 88,748 -- 115,376 114,202 228,115
First Trust ISE Global Wind Energy
Index Fund 237,567 -- -- 67,700 237,567 305,267
First Trust ISE Global Engineering
and Construction Index Fund 71,706 10,008 -- -- 81,714 81,714
Page 44
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
September 30, 2009
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, 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. provides certain administrative
services to the Trust and the Funds in connection with the Trust's Board of
Trustees 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 allocated equally 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 terms ending
December 31, 2009, before rotating to serve as chairman of another Committee or
as Lead Independent Trustee. The officers and "Interested" Trustee receive no
compensation from the trusts for serving in such capacities.
4. Purchases and Sales of Securities
For the period ended September 30, 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 $ 4,426,738 $ 4,821,390
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 1,744,677 1,570,175
First Trust Dow Jones Global Select Dividend Index Fund 4,697,491 4,839,032
First Trust ISE Global Wind Energy Index Fund 21,139,124 20,605,742
First Trust ISE Global Engineering and Construction Index Fund 3,574,446 3,664,820
For the period ended September 30, 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 $ 2,610,102 $ 3,822,626
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 9,706,869 2,073,006
First Trust Dow Jones Global Select Dividend Index Fund 22,858,710 60,193
First Trust ISE Global Wind Energy Index Fund 42,052,624 3,809,360
First Trust ISE Global Engineering and Construction Index Fund 34,061,388 6,343,225
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 for each of 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
Page 45
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
September 30, 2009
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 for each of 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.
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 pursuant to a contractual
arrangement, 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.
9. Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds
through November 24 2009, the date the financial statements were issued, and
has determined that there were no subsequent events requiring recognition or
disclosure in the financial statements.
Page 46
- --------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of First Trust Exchange-Traded
Fund II:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of First Trust Exchange-Traded Fund II, comprised
of the First Trust Dow Jones STOXX(R) European Select Dividend Index Fund
(formerly First Trust DJ STOXX(R) Select Dividend 30 Index Fund), First Trust
FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (formerly First Trust
FTSE EPRA/NAREIT Global Real Estate Index Fund), First Trust Dow Jones Global
Select Dividend Index Fund, First Trust ISE Global Wind Energy Index Fund, and
First Trust ISE Global Engineering and Construction Index Fund (collectively,
the "Funds"), as of September 30, 2009, and the related statements of
operations, statements of changes in net assets and the financial highlights for
the periods presented. These financial statements and financial highlights are
the responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Funds are not required to have, nor were we engaged to perform, audits of
their internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Funds'
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of September 30, 2009, by
correspondence with the Funds' custodian and brokers; where replies were not
received, we performed other auditing procedures. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the portfolios constituting the First Trust Exchange-Traded Fund II as of
September 30, 2009, the results of their operations, changes in their net
assets, and the financial highlights for the periods presented, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
November 24, 2009
Page 47
- --------------------------------------------------------------------------------
Additional Information
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
September 30, 2009 (Unaudited)
Proxy Voting Policies and Procedures
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
its portfolio securities during the 12-months ended June 30, 2009 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 each Fund's 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 Forms N-Q are available (1) by calling
(800) 988-5891; (2) on the Trust's website located at
http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov; and
(4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
Federal Tax Information
For the taxable year ended September 30, 2009, the following percentages of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
-----------------------------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund 0.00%
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 0.00%
First Trust Dow Jones Global Select Dividend Index Fund 6.33%
First Trust ISE Global Wind Energy Index Fund 10.57%
First Trust ISE Global Engineering and Construction Index Fund 4.36%
For the taxable year ended September 30, 2009, the following percentages of
income dividends paid by the Funds is hereby designated as qualified dividend
income:
Qualified Dividend Income
-----------------------------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund 100.00%
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 17.82%
First Trust Dow Jones Global Select Dividend Index Fund 44.59%
First Trust ISE Global Wind Energy Index Fund 44.65%
First Trust ISE Global Engineering and Construction Index Fund 100.00%
The Funds meet the requirements of Section 853 of the Internal Revenue Code and
elects to pass through to its shareholders credit for foreign taxes paid. The
total amounts of income received by the Funds from sources within foreign
countries and possessions of the United States and of taxes paid to such
countries are as follows:
Income Received Foreign Taxes Paid
--------------- ------------------
Amount Per Share Amount Per Share
---------------------------- ------------------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund $300,109 $0.50 $30,952 $0.05
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 218,973 0.44 18,226 0.04
First Trust Dow Jones Global Select Dividend Index Fund 287,990 0.21 25,249 0.02
First Trust ISE Global Wind Energy Index Fund 991,085 0.16 76,830 0.01
First Trust ISE Global Engineering and Construction Index Fund 437,978 0.49 49,592 0.06
Page 48
- --------------------------------------------------------------------------------
Additional Information (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
September 30, 2009 (Unaudited)
Privacy Policy
The open-end and closed-end funds advised by First Trust Advisors L.P. (each a
"Fund") consider your privacy an important priority in maintaining our
relationship. We are committed to protecting the security and confidentiality of
your personal information.
Sources of Information
We may collect nonpublic personal information about you from the following
sources:
o Information we receive from you or your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies."
For example, we may identify the pages on our website that your
browser requests or visits.
Information Collected
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
Disclosure of Information
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. The permitted uses
include the disclosure of such information to unaffiliated companies for the
following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives and
printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information with affiliates of the Fund. Please note,
however, that the California Financial Information Privacy Act contains an "opt
out" mechanism that California consumers may use to prevent us from sharing
nonpublic personal information with affiliates.
Confidentiality and Security
With regard to our internal security procedures, the Fund restricts access to
your nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
Policy Updates and Inquiries
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time; however, if we do change
it, we will tell you promptly.
For questions about our policy, or for additional copies of this notice, please
contact us at (800) 621-1675.
Page 49
- --------------------------------------------------------------------------------
Board of Trustees and Officers
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
September 30, 2009 (Unaudited)
Each Fund's respective statement of additional information includes additional
information about the Trustees and is available, without charge, upon request,
by calling (800) 988-5891.
Number of
Portfolios in
Term of Office the First Trust Other
Name, Address, and Year First Fund Complex Trusteeships or
Date of Birth and Elected or Principal Occupations Overseen by Directorships
Position with the Trust Appointed During Past 5 Years Trustee Held by Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton 60 None
c/o First Trust Advisors L.P. Orthopedics; Co-Owner and Co-Director
120 E. Liberty Drive, o Since Inception (January 1996 to May 2007), Sports Med
Suite 400 Center for Fitness; Limited Partner,
Wheaton, IL 60187 Gundersen Real Estate Limited
D.O.B.: 04/51 Partnership; Member, Sportsmed LLC
Thomas R. Kadlec, Trustee o Indefinite Term Senior Vice President and Chief Financial 60 Director of ADM
c/o First Trust Advisors L.P. Officer (May 2007 to Present), Vice Investor Services,
120 E. Liberty Drive, o Since Inception President and Chief Financial Officer Inc. and Director
Suite 400 (1990 to May 2007), ADM Investor of Archer
Wheaton, IL 60187 Services, Inc. (Futures Commission Financial Services,
D.O.B.: 11/57 Merchant); President (May 2005 to Inc.
Present), ADM Derivatives, Inc.;
Registered Representative (2000 to
Present), Segerdahl & Company, Inc.,
a FINRA member (Broker-Dealer)
Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 60 None
c/o First Trust Advisors L.P. Enterprises (Financial and Management
120 E. Liberty Drive, o Since Inception Consulting)
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Indefinite Term President (June 2002 to Present), Covenant 60 Director of
c/o First Trust Advisors L.P. College Covenant
120 E. Liberty Drive, o Since Inception Transport Inc.
Suite 400
Wheaton, IL 60187
D.O.B.: 03/54
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term President, First Trust Advisors L.P. and 60 Trustee of
President, Chairman of the First Trust Portfolios L.P.; Chairman of Wheaton College
Board and CEO o Since Inception the Board of Directors, BondWave LLC
120 E. Liberty Drive, (Software Development Company/
Suite 400 Investment Advisor) and Stonebridge
Wheaton, IL 60187 Advisors LLC (Investment Advisor)
D.O.B.: 09/55
- -----------
<FN>
1 Mr. Bowen is deemed an "interested person" of the Trust due to his position
as President of First Trust Advisors L.P., investment advisor of the Trust.
</FN>
Page 50
- --------------------------------------------------------------------------------
Board of Trustees and Officers (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
September 30, 2009 (Unaudited)
Position and Term of Office
Name, Address Offices and Length of Principal Occupations
and Date of Birth with Trust Service During Past 5 Years
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES(2)
- -----------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley Treasurer, Controller, Chief o Indefinite Term Chief Financial Officer, First Trust
120 E. Liberty Drive, Financial Officer and Chief Advisors L.P. and First Trust Portfolios L.P.; Chief
Suite 400 Accounting Officer o Since Inception Financial Officer, BondWave LLC (Software Development
Wheaton, IL 60187 Company/Investment Advisor) and Stonebridge
D.O.B.: 11/57 Advisors LLC (Investment Advisor)
Erin E. Chapman Assistant Secretary o Indefinite Term Assistant General Counsel (October 2007 to
120 E. Liberty Drive, Present), Associate Counsel (March 2006 to
Suite 400 o Since June 2009 October 2007), First Trust Advisors L.P. and First
Wheaton, IL 60187 Trust Portfolios L.P.; Associate Attorney
D.O.B.: 08/76 (November 2003 to March 2006), Doyle & Bolotin, Ltd.
James M. Dykas Assistant Treasurer o Indefinite Term Senior Vice President (April 2007 to Present), Vice
120 E. Liberty Drive, President (January 2005 to April 2007), First Trust
Suite 400 o Since Inception Advisors L.P. and First Trust Portfolios L.P.;
Wheaton, IL 60187 Executive Director (December 2002 to January
D.O.B.: 01/66 2005), Vice President (December 2000 to December
2002), Van Kampen Asset Management and
Morgan Stanley Investment Management
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
120 E. Liberty Drive, Compliance Officer Trust Portfolios L.P.; Secretary, BondWave LLC
Suite 400 o Since Inception (Software Development Company/Investment
Wheaton, IL 60187 Advisor) and Stonebridge Advisors LLC
D.O.B.: 05/60 (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Senior Vice President (September 2005 to
120 E. Liberty Drive, Present), Vice President (April 2004 to September
Suite 400 o Since Inception 2005), First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.
D.O.B.: 02/70
Coleen D. Lynch Assistant Vice President o Indefinite Term Assistant Vice President (January 2008 to Present),
120 E. Liberty Drive, First Trust Advisors L.P. and First Trust Portfolios
Suite 400 o Since July 2008 L.P.; Vice President (May 1998 to January 2008),
Wheaton, IL 60187 Van Kampen Asset Management and Morgan
D.O.B.: 07/58 Stanley Investment Management
Kristi A. Maher Assistant Secretary and o Indefinite Term Deputy General Counsel (May 2007 to Present),
120 E. Liberty Drive, Deputy Chief Compliance o Assistant Secretary Assistant General Counsel (March 2004 to May
Suite 400 Officer Since Inception and 2007), First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Deputy Chief Portfolios L.P.
D.O.B.: 12/66 Compliance Officer
Since November 2009
Roger F. Testin Vice President o Indefinite Term Senior Vice President (November 2003 to Present),
120 E. Liberty Drive, Vice President (August 2001 to November 2003),
Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios
Wheaton, IL 60187 L.P.
D.O.B.: 06/66
Stan Ueland Vice President o Indefinite Term Vice President (August 2005 to Present), First Trust
120 E. Liberty Drive, Advisors L.P. and First Trust Portfolios L.P; Vice
Suite 400 o Since Inception President (May 2004 to August 2005), BondWave
Wheaton, IL 60187 LLC (Software Development Company/Investment
D.O.B.: 11/70 Advisor); Account Executive (January 2003 to May
2004), Mina Capital Management, LLC and
Samaritan Asset Management Services, Inc.
- -------------
<FN>
2 The term "officer" means the president, vice president, secretary, treasurer,
controller or any other officer who performs a policy making function.
</FN>
Page 51
- --------------------------------------------------------------------------------
Risk Considerations
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
September 30, 2009 (Unaudited)
Risks are inherent in all investing. You should consider each Fund's investment
objective, risks, charges and expenses carefully before investing. You can
download each Fund's prospectus at http://www.ftportfolios.com or contact First
Trust Portfolios L.P. at (800) 621-1675 to request a prospectus, which contains
this and other information about each Fund. For additional information about the
risks associated with investing in the Funds, please see the Funds' statement of
additional information, as well as other regulatory filings. Read these
documents carefully before you invest. First Trust Portfolios L.P. is the
distributor of the First Trust Exchange-Traded Fund II.
The following summarizes some of the risks that should be considered for the
Funds.
Each Fund's shares will change in value, and you could lose money by investing
in a Fund. 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 shares directly from a Fund and individual 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 developments, 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 invest 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 52
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Risk Considerations (Continued)
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First Trust Exchange-Traded Fund II
September 30, 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.
Page 53
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Risk Considerations (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
September 30, 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
- -------------------------------------------------------------------------------
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
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
- -------------------------------------------------------------------------------
Inside Back Cover
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report,
has adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.
(c) During the period covered by this report, the code of ethics that
applies to the registrant's principal executive officer, principal
financial officer, principal accounting officer or controller, or
persons performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party, and that
relates to any element of the code of ethics description was amended to
name W. Scott Jardine as the Compliance Coordinator for the
implementation and administration of the aforementioned code. The
amended code of ethics is provided as an exhibit pursuant to Item
12(a)(1).
(d) The registrant, during the period covered by this report, has not
granted any waivers, including an implicit waiver, from a provision of
the code of ethics that applies to the registrant's principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of
whether these individuals are employed by the registrant or a third
party, that relates to one or more of the items set forth in paragraph
(b) of this item's instructions.
(e) Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of
trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each of them is "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees (Registrant) -- The aggregate fees billed for each of
the last two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements were $50,000 for the fiscal year
ended September 30, 2008 and $105,250 for the fiscal year ended September 30,
2009.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in
each of the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported under paragraph
(a) of this Item were $0 for the fiscal year ended September 30, 2008 and $0 for
the fiscal year ended September 30, 2009.
Audit-Related Fees (Investment Adviser and Distributor) -- The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item were $0 for the fiscal year ended
September 30, 2008 and $0 for the fiscal year ended September 30, 2009.
(c) Tax Fees (Registrant) -- The aggregate fees billed in each of the
last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning to the registrant
were $2,250 for the fiscal year ended September 30, 2008 and $30,700 for the
fiscal year ended September 30, 2009. These fees were for tax consultation.
Tax Fees (Investment Adviser and Distributor) -- The aggregate fees
billed in each of the last two fiscal years for professional services rendered
by the principal accountant for tax compliance, tax advice, and tax planning to
the registrant's adviser and distributor were $0 for the fiscal year ended
September 30, 2008 and $0 for the fiscal year ended September 30, 2009.
(d) All Other Fees (Registrant) -- The aggregate fees billed in each of
the last two fiscal years for products and services provided by the principal
accountant to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 for the fiscal year ended September 30, 2008
and $0 for the fiscal year ended September 30, 2009.
All Other Fees (Investment Adviser and Distributor) -- The
aggregate fees billed in each of the last two fiscal years for products and
services provided by the principal accountant to the registrant's investment
adviser and distributor, other than the services reported in paragraphs (a)
through (c) of this Item were $0 for the fiscal year ended September 30, 2008
and $0 for the fiscal year ended September 30, 2009.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services
Pre-Approval Policy, the Audit Committee (the "Committee") is responsible for
the pre-approval of all audit services and permitted non-audit services
(including the fees and terms thereof) to be performed for the registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the
independent auditor's engagements for non-audit services with the registrant's
adviser (not including a sub-adviser whose role is primarily portfolio
management and is sub-contracted or overseen by another investment adviser) and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant, if the
engagement relates directly to the operations and financial reporting of the
registrant, subject to the de minimis exceptions for non-audit services
described in Rule 2-01 of Regulation S-X. If the independent auditor has
provided non-audit services to the registrant's adviser (other than any
sub-adviser whose role is primarily portfolio management and is sub-contracted
with or overseen by another investment adviser) and any entity controlling,
controlled by or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant to its
policies, the Committee will consider whether the provision of such non-audit
services is compatible with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the registrant and the registrant's investment adviser and
distributor of this Item that were approved by the audit committee pursuant to
the pre-approval exceptions included in paragraph (c)(7)(i)(C) or
paragraph(C)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:
Registrant: Adviser and Distributor:
(b) 0% (b) 0%
(c) 0% (c) 0%
(d) 0% (d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.
(g) The aggregate non-audit fees billed by the registrant's accountant
for services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the registrant for the fiscal
year ended September 30, 2008 were $2,250 for the registrant, $12,143 for the
registrant's investment adviser and $38,288 for the registrant's distributor,
and for the fiscal year ended September 30, 2009 were $30,700 for the
registrant, $36,000 for the registrant's investment adviser and $60,300 for the
registrant's distributor.
(h) The registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEMS 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
The audit committee of the registrant is comprised of: Richard E. Erickson,
Thomas R. Kadlec, Robert F. Keith and Niel B. Nielson.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of 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 of
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a) (1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a) (2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section
302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a) (3) Not Applicable
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906
of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) First Trust Exchange-Traded Fund II
By (Signature and Title)* /s/ James A. Bowen
-----------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Title: Chairman of the Board, President and Chief Executive Officer
Date: November 23, 2009
-----------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James A. Bowen
-----------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Title: Chairman of the Board, President and Chief Executive Officer
Date: November 23, 2009
-----------------------------
By (Signature and Title)* /s/ Mark R. Bradley
-----------------------------------------------------
Mark R. Bradley, Treasurer, Controller, Chief
Financial Officer and Chief Accounting Officer
(principal financial officer)
Date: November 23, 2009
-----------------------------