UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21944
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First Trust Exchange-Traded Fund II
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
Registrant's telephone number, including area code: (630) 765-8000
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Date of fiscal year end: September 30
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Date of reporting period: March 31, 2010
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
The registrant's semi-annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
[LOGO OMITTED] FIRST TRUST
FIRST TRUST EXCHANGE-TRADED FUND II
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First Trust Dow Jones STOXX(R) European Select Dividend
Index Fund
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate
Index Fund
First Trust Dow Jones Global Select Dividend Index Fund
First Trust ISE Global Wind Energy Index Fund
First Trust ISE Global Engineering and Construction
Index Fund
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure
Index Fund
First Trust ISE Global Copper Index Fund
First Trust ISE Global Platinum Index Fund
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Semi-Annual Report
March 31, 2010
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Front Cover
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Table of Contents
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First Trust Exchange-Traded Fund II
March 31, 2010
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
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund....14
First Trust ISE Global Copper Index Fund....................................16
First Trust ISE Global Platinum Index Fund..................................18
Notes to Fund Performance Overview...........................................20
Understanding Your Fund Expenses.............................................21
Portfolio of Investments
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund..........23
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund.......25
First Trust Dow Jones Global Select Dividend Index Fund.....................29
First Trust ISE Global Wind Energy Index Fund...............................32
First Trust ISE Global Engineering and Construction Index Fund..............34
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund....36
First Trust ISE Global Copper Index Fund....................................37
First Trust ISE Global Platinum Index Fund..................................38
Statements of Assets and Liabilities.........................................40
Statements of Operations.....................................................42
Statements of Changes in Net Assets..........................................44
Financial Highlights.........................................................48
Notes to Financial Statements................................................52
Additional Information ......................................................59
Risk Considerations..........................................................63
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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
Semi-Annual Report
March 31, 2010
Dear Shareholders:
I am pleased to present you with the semi-annual report for your investment in
the series of First Trust Exchange-Traded Fund II.
First Trust Advisors L.P. ("First Trust") has always believed that staying
invested in quality products and having a long-term horizon can help investors
reach their financial goals. The past eighteen months have been challenging, but
successful investors understand that the success they have achieved is typically
because of their long-term investment perspective through all kinds of markets.
The report you hold contains detailed information about the semi-annual period
for the Funds that comprise the First Trust Exchange-Traded Fund II. It also has
each Fund's performance review and financial statements for the period. I
encourage you to read this document and discuss it with your financial advisor.
First Trust offers a variety of products that can fit many financial plans to
help those investors seeking long-term financial success.
At First Trust we continue to be committed to making available up-to-date
information about your investments so you and your financial advisor have
current information on your portfolio. We value our relationship with you, and
we thank you for the opportunity to assist you in achieving your financial
goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
President of First Trust Exchange-Traded Fund II
Page 2
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Market Overview
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First Trust Exchange-Traded Fund II
Semi-Annual Report
March 31, 2010
[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
While the recession has yet to be declared over by the National Bureau of
Economic Research, the U.S. economy has expanded for three consecutive quarters.
GDP grew by an annualized 3.2% in the first quarter of 2010. It grew by 2.2% in
the third quarter of 2009 and 5.6% in the fourth quarter of 2009. The consumer
is starting to spend again and Corporate America is flush with cash. U.S.
non-financial companies alone were holding $2.8 trillion in cash and equivalents
at the start of 2010, according to Kiplinger. The last positive sign, in our
opinion, is job growth. If nonfarm payrolls can exceed 200,000 per month for a
3-4 month stretch, confidence levels (businesses and consumers) should rebound.
Global growth is expected to approach 4.50% in both 2010 and 2011, according to
the International Monetary Fund (IMF). While growth is expected to top 6.25% in
emerging economies in 2010-11, the growth rate for developed nations is expected
to be a more modest 2.25% in 2010, and 2.50% in 2011. The IMF's optimistic
outlook for growth is subject to change due to the sovereign debt crisis in
Greece. Although this commentary only covers the six months ended March 31,
2010, it is being written subsequent to that period, and it is important to note
that in the second week of May, a bailout package for Greece totaling nearly $1
trillion (approximately 750 billion Euros) was consummated. Obviously, this
package was built in an effort to stave off default and prevent a European
contagion.
Global Markets
Retail investors overwhelmingly favored foreign stocks over U.S. stocks in 2009
and maintained this bias through the end of the first quarter of 2010. Investors
poured a net $100.8 billion into International/Global Equity funds and ETFs in
2009, while U.S. Equity funds and ETFs experienced net outflows totaling $4.6
billion, according to Strategic Insight, LLC. In the first quarter of 2010, net
inflows to International/Global Equity funds and ETFs totaled $28.8 billion, vs.
$16.9 billion for U.S. Equity funds and ETFs.
For the six months ended March 31, 2010, the MSCI World (ex U.S.) Index and MSCI
Emerging Markets Index were up 4.0% (USD) and 11.1% (USD), respectively. The S&P
500 posted a gain of 11.8%. With respect to the debt markets, the Barclays
Capital Global Aggregate Index declined 1.1%, while the Barclays Capital Global
Emerging Markets Index gained 5.9% (USD). The Barclays Capital U.S. Aggregate
Index was up 2.0%. The U.S. dollar appreciated by 2.4% against a basket of major
currencies.
Page 3
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Funde Performance Overview
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FDD - First Trust Dow Jones STOXX(R) European Select Dividend Index Fund
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund (the "Fund")
seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the STOXX(R)
Europe Select Dividend 30 Index (the "Index"), formerly known as the Dow Jones
STOXX(R) Select Dividend 30 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
Index or in depositary receipts that may include American Depositary Receipts,
Global Depositary Receipts, European Depositary Receipts, New York shares or
global shares representing securities in the Index.
The Index consists of 30 high dividend-yielding securities selected from the
STOXX(R) Europe 600 Index, formerly known as the Dow Jones STOXX(R) 600 Index,
including secondary lines of those companies (where there are multiple lines of
equity capital in a company). The STOXX(R) Europe 600 Index, 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 Index is compiled and maintained by
STOXX(R) Limited. Only dividend-paying companies in the STOXX(R) Europe 600
Index (including secondary lines of those companies) are considered for
inclusion in the Index. In addition, a company must have a non-negative
five-year dividend-per-share growth rate and a dividend-to-earnings ratio of 60%
or less.
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Performance as of March 31, 2010
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Average Annual Cumulative
Total Returns Total Returns
6 Months Ended 1 Year Ended Inception (08/27/07) Inception (08/27/07)
03/31/10 03/31/10 to 03/31/10 to 03/31/10
FUND PERFORMANCE
NAV -2.48% 57.89% -23.13% -49.46%
Market Price -2.91% 53.13% -23.21% -49.60%
INDEX PERFORMANCE
STOXX(R) Europe Select Dividend 30 Index(1) -1.84% 58.66% -22.43% -48.23%
STOXX(R) Europe 600 Index(2) 1.55% 57.14% -10.05% -24.00%
MSCI Europe Index 1.38% 56.10% -10.21% -24.35%
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<FN>
1 Formerly known as the Dow Jones STOXX(R) Select Dividend 30 Index.
2 Formerly known as the Dow Jones STOXX(R) 600 Index.
</FN>
(See Notes to Fund Performance Overview on page 20.)
Performance Review
For the six months ended March 31, 2010, the Fund's net asset value ("NAV")
return of -2.48% underperformed the benchmark MSCI Europe Index return of +1.38%
by -3.86%. The currency effect related to holding assets denominated in foreign
securities negatively impacted the performance of the Fund, as the exposure to
foreign currencies detracted -5.8% from the Fund's total return during the
six-month period covered by this report. The U.S. dollar strengthened during the
period, as economic prospects in the U.S. became brighter; conversely, foreign
currencies (such as the Euro) weakened on Greek credit concerns. The Euro and
the Danish Krone both dropped -7.7% against the U.S. dollar, while the British
Pound Sterling lost -5.0% against the U.S. dollar. Industrials such as
French-based steel tubing producer Vallourec (+24.3% local) and Finnish
industrial supplier Metso (+22.1% local), were bright spots in the Fund's
portfolio, as they rose steadily during the period on optimism of a global
economic recovery. On the other hand, financial companies such as Banco
Santander (-9.7% local), the largest commercial Spanish bank, were hurt during
the period, as concerns mounted around sovereign debt, including that of
Portugal and Spain, in addition to Greece. On a relative basis, the Fund's
larger exposure to the Financials sector (average weight of 31.0% vs. 24.3%)
also contributed to the Fund's underperformance, as the sector underperformed
amidst the European sovereign debt woes during the period.
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Top Five and Bottom Five Performing Stocks
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(by contribution to return over the six months ended March 31, 2010)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Ratos AB Koninklijke BAM Groep N.V.
Vallourec S.A. Man Group PLC
Metso Corp. Banco Santander S.A.
BASF SE BRIT Insurance Holdings N.V.
United Utilities Group PLC H. Lundbeck A/S
____________________
"STOXX," "STOXX(R) Eurorpe 600 Index" and "STOXX(R) Europe Select Dividend 30
Index" are trademarks of STOXX(R) Limited ("STOXX") and have been licensed for
use for certain purposes by First Trust and the Fund. The Fund, based on the
STOXX(R) Europe Select Dividend 30 Index, is not sponsored, endorsed, sold or
promoted by STOXX and STOXX does not make 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 March 31, 2010
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% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Financials 43.24%
Telecommunication Services 17.35
Utilities 14.48
Health Care 6.89
Industrials 6.49
Consumer Discretionary 5.26
Materials 4.07
Energy 2.22
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Total 100.00%
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Top Ten Portfolio Holdings as of March 31, 2010
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% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Man Group PLC 7.90%
Enel S.p.A 4.64
Provident Financial PLC 4.49
Catlin Group Ltd. 4.38
RSA Insurance Group PLC 4.34
United Utilities PLC 4.06
Deutsche Telekom AG 4.02
France Telecom S.A. 3.97
Belgacom S.A. 3.80
Banco de Sabadell S.A. 3.79
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Total 45.39%
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PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - MARCH 31, 2010
[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 3/31/10
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First Trust Dow Jones STOXX(R) European Select Dividend
Index Fund $10,000 $10,323 $ 8,841 $ 5,562 $ 3,201 $ 5,182 $ 5,054
Dow Jones STOXX(R) Select Dividend 30 Index 10,000 10,304 9,039 5,539 3,263 5,275 5,177
Dow Jones STOXX(R) 600 Index 10,000 10,622 9,670 7,333 4,836 7,484 7,600
MSCI Europe Index 10,000 10,636 9,675 7,347 4,846 7,462 7,565
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 March 31, 2010
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 March 31, 2010. Shareholders may pay more than NAV when they
buy Fund shares and receive less than NAV when they sell those shares because
shares are bought and sold at current market price. Data presented represents
past performance and cannot be used to predict future results.
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Number of Days Bid/Ask Midpoint At/Above NAV
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For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
10/1/09 - 3/31/10 23 13 8 3
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Number of Days Bid/Ask Midpoint Below NAV
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For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
10/1/09 - 3/31/10 27 29 21 1
Page 5
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Fund Performance Overview (Continued)
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FFR - First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (the
"Fund") seeks investment results that correspond generally to the price and
yield (before the Fund's fees and expenses) of an equity index called the FTSE
EPRA/NAREIT Developed Index (the "FTSE Index"). The shares of the Fund are
listed and trade on the NYSE Arca, 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 March 31, 2010
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Average Annual Cumulative
Total Returns Total Returns
6 Months Ended 1 Year Ended Inception (08/27/07) Inception (08/27/07)
03/31/10 03/31/10 to 03/31/10 to 03/31/10
FUND PERFORMANCE
NAV 8.03% 82.44% -12.74% -29.78%
Market Price 7.53% 84.74% -12.60% -29.49%
INDEX PERFORMANCE
FTSE EPRA/NAREIT Developed Index 8.54% 84.50% -11.85% -27.88%
S&P Global REIT Index 10.33% 88.28% -11.83% -27.83%
MSCI World REIT Index 8.09% 78.85% -14.92% -34.22%
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(See Notes to Fund Performance Overview on page 20.)
Performance Review
For the six months ended March 31, 2010, the Fund's NAV return of +8.03%
underperformed the benchmark MSCI World REIT Index return of +8.09% by -0.06%.
The currency effect related to holding assets denominated in foreign securities
was somewhat muted, with a drop in the Euro and British Pound offset by a large
exposure to the strengthening U.S. dollar, as well as the stronger Canadian
dollar and Australian dollar. Stronger economic indicators during the six-month
period covered by this report served to boost the performance of REITs, as
economic indicators signaled that the global economy could be expanding. Office
REITs and retail REITs were the best classes of REITs as U.S. REITs, in
particular, benefited from strong employment numbers, increasing GDP figures,
and much stronger than expected retail sales numbers. Simon Property Group
(+22.8%) was the top-performing stock in the Fund, based on contribution to
return. The mall operator benefited from increasing occupancy rates,
particularly in the U.S., where the company is primarily focused. Due to the
company's focus on U.S. assets, it was able to outperform global peers as the
U.S. recovery has outpaced Europe.
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Top Five and Bottom Five Performing Stocks
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(by contribution to return over the six months ended March 31, 2010)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Simon Property Group, Inc. Westfield Group
Equity Residential Segro PLC
Public Storage New World Development Co., Ltd.
Vornado Realty Trust GPT Group
Host Hotels & Resorts, Inc. City Developments Ltd.
____________________
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 March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Financials 99.05%
Industrials 0.71
Consumer Discretionary 0.19
Health Care 0.05
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Total 100.00%
=======
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Top Ten Portfolio Holdings as of March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Sun Hung Kai Properties Ltd. 4.29%
Westfield Group 3.81
Simon Property Group, Inc. 3.63
Unibail-Rodamco S.A. 2.67
Mitsubishi Estate Co., Ltd. 2.57
Mitsui Fudosan Co., Ltd. 2.21
Vornado Realty Trust 2.03
Public Storage 1.75
Equity Residential 1.65
Boston Properties, Inc. 1.56
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Total 26.17%
======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - MARCH 31, 2010
[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 3/31/10
- ---------- ------- ------- ------- ------- ------- ------- -------
First Trust FTSE EPRA/NAREIT Developed Markets
Real Estate Index Fund $10,000 $10,686 $ 9,012 $ 7,443 $ 3,849 $ 6,500 $ 7,022
FTSE EPRA/NAREIT Developed Index 10,000 10,693 9,057 7,420 3,909 6,645 7,212
S&P Global REIT Index 10,000 10,590 9,162 7,992 3,833 6,541 7,217
MSCI World Real Estate Investment Trust Index 10,000 10,656 9,061 7,901 3,678 6,086 6,578
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 March 31, 2010
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 March 31, 2010. Shareholders may pay more than NAV when they
buy Fund shares and receive less than NAV when they sell those shares because
shares are bought and sold at current market price. Data presented represents
past performance and cannot be used to predict future results.
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint At/Above NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
10/1/09 - 3/31/10 39 39 9 1
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint Below NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
10/1/09 - 3/31/10 16 19 2 0
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 March 31, 2010
- ------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
6 Months Ended 1 Year Ended Inception (11/21/07) Inception (11/21/07)
03/31/10 03/31/10 to 03/31/10 to 03/31/10
FUND PERFORMANCE
NAV 3.86% 86.50% -8.26% -18.40%
Market Price 3.85% 86.52% -8.24% -18.35%
INDEX PERFORMANCE
Dow Jones Global Select Dividend Index(SM) 4.15% 87.23% -8.08% -18.00%
Dow Jones World Developed Markets Index(SM) 7.94% 54.76% -7.22% -16.19%
MSCI World Index 7.44% 52.37% -8.06% -17.96%
- ------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.)
Performance Review
For the six months ended March 31, 2010, the Fund's NAV return of +3.86%
underperformed the benchmark MSCI World Index return of +7.44% by -3.58%. The
currency effect related to holding assets denominated in foreign securities
negatively impacted the performance of the Fund, as the exposure to foreign
currencies detracted -1.7% from the Fund's total return during the period
covered by this report. The U.S. dollar strengthened during the six-month
period, as economic prospects in the U.S. became brighter; conversely, foreign
currencies (such as the Euro), weakened on Greek credit concerns. The Euro
dropped -7.7% against the U.S. dollar, while the British Pound Sterling lost
- -5.0% against the U.S. dollar. Industrials such as the Finnish industrial
supplier Metso (+22.1% local) were bright spots in the Fund's portfolio, as they
rose steadily during the period on optimism of a global economic recovery.
Conversely, the Netherlands-based construction company Koninklijke BAM Groep was
the weakest-performing stock in the Fund, returning (-27.0% local). The stock
dropped amidst a lower profit outlook due to weaker European conditions, along
with plans for a dilutive equity offering.
- -------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
- -------------------------------------------------------------------------------
(by contribution to return over the six months ended March 31, 2010)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Russel Metals, Inc. Koninklijke BAM Groep N.V.
VTECH Holdings Ltd. Telecom Corp. of New Zealand Ltd.
Metso Corp. Oyj Telekom Austria AG
YIT Oyj David Jones Ltd.
Orica Ltd. HMV Group PLC
____________________
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 March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Utilities 19.32%
Telecommunication Services 17.35
Industrials 15.71
Financials 14.05
Consumer Discretionary 8.45
Energy 8.36
Materials 6.64
Consumer Staples 5.18
Information Technology 3.32
Health Care 1.62
-------
Total 100.00%
=======
- -------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
MAp Group 2.03%
StarHub Ltd. 1.86
Bell Aliant Regional Communications
Income Fund 1.86
Crescent Point Energy Corp. 1.75
Commonwealth Property Office Fund 1.60
Stockland 1.55
Telecom Corp. of New Zealand Ltd. 1.53
Westfield Group 1.50
Manitoba Telecom Services Inc. 1.44
France Telecom S.A. 1.40
------
Total 16.52%
======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - MARCH 31, 2010
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
FUND/INDEX 11/21/07 3/31/08 9/30/08 3/31/09 9/30/09 3/31/10
- ---------- -------- ------- ------- ------- ------- -------
First Trust Dow Jones Global Select Dividend Index Fund $10,000 $ 9,345 $ 7,028 $ 4,375 $ 7,857 $ 8,160
Dow Jones Global Select Dividend Index(SM) 10,000 9,362 6,925 4,380 7,873 8,200
Dow Jones World Developed Markets Index(SM) 10,000 9,379 7,816 5,416 7,765 8,381
MSCI World Index 10,000 9,378 7,815 5,385 7,636 8,204
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 March 31, 2010
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 March 31, 2010. Shareholders may pay more than
NAV when they buy Fund shares and receive less than NAV when they sell those
shares because shares are bought and sold at current market price. Data
presented represents past performance and cannot be used to predict future
results.
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint At/Above NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
11/27/07 - 9/30/08 21 22 54 69
10/1/08 - 9/30/09 22 33 59 71
10/1/09 - 3/31/10 58 28 7 1
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint Below NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
11/27/07 - 9/30/08 17 6 12 12
10/1/08 - 9/30/09 17 12 22 16
10/1/09 - 3/31/10 25 5 1 0
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 March 31, 2010
- ------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
6 Months Ended 1 Year Ended Inception (06/16/08) Inception (06/16/08)
03/31/10 03/31/10 to 03/31/10 to 03/31/10
FUND PERFORMANCE
NAV -16.25% 30.63% -35.42% -54.26%
Market Price -16.42% 28.73% -35.60% -54.50%
INDEX PERFORMANCE
ISE Global Wind Energy Index -15.71% 32.19% -34.85% -53.54%
Russell 3000(R) Index 12.19% 52.44% -5.65% -9.88%
MSCI World Index 7.44% 52.37% -8.66% -14.95%
- ------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.)
Performance Review
For the six months ended March 31, 2010, the Fund's NAV return of -16.25%
underperformed the benchmark MSCI World Index return of +7.44% by -23.69%. The
effect of holding foreign currency during the six-month period covered by this
report negatively impacted the total return of the Fund. The foreign currency
effect was most noticeable in Euro-denominated assets, where the Euro dropped
- -7.7% against the U.S. dollar. The effect of holding foreign-currency
denominated assets detracted -3.8% from the Fund's total return. In addition to
negative currency effect, the Greek credit crisis, along with mounting concerns
around Spanish and Portuguese debt, hurt the performance of European-based wind
companies and utilities such as Iberdrola (-8.5% local). Additionally, continued
tightening of debt in the European nations has hindered large wind turbine
manufacturers such as Nordex (-29.2% local) and Clipper Windpower (-42.7%
local). The companies are highly dependent on fiscal policy initiatives, low
interest rates, and free-flowing credit. From a policy perspective, Germany
announced a cut to its feed-in tariff, which sent a ripple through clean energy
companies serving the country, while Spain announced that it was going to
require utilities to burn a set amount of locally-mined coal. While interest
rates remained low, concerns of increasing rates and a general freezing of
credit among European countries hindered performance among the Fund's wind
companies.
- -------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
- -------------------------------------------------------------------------------
(by contribution to return over the six months ended March 31, 2010)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Repower Systems AG Gamesa Corporacion Tecnologica S.A.
Deere & Co. EDP Renovaveis S.A.
Allegheny Technologies, Inc. Hansen Transmissions International
Centrais Eletricas Brasileiras S.A., ADR Broadwind Energy Inc.
Mitsui & Co., Ltd. Vestas Wind Systems A/S
____________________
"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 product.
Page 10
- --------------------------------------------------------------------------------
Fund Performance Overview (Continued)
- --------------------------------------------------------------------------------
FAN - First Trust ISE Global Wind Energy Index Fund (Continued)
- -------------------------------------------------------------------------------
Portfolio Sector Allocation as of March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Utilities 46.56%
Industrials 44.73
Energy 5.98
Materials 1.92
Consumer Discretionary 0.81
-------
Total 100.00%
=======
- -------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Iberdrola Renovables S.A. 7.29%
EDP Renovaveis S.A. 7.16
Vestas Wind Systems A/S 7.12
Repower Systems AG 6.63
Hansen Transmissions International 5.29
Gamesa Corporacion Tecnologica S.A. 5.24
Infigen Energy 4.90
Nordex AG 3.80
Japan Wind Development Co., Ltd. 3.63
Fersa Energias Renovables S.A. 2.85
------
Total 53.91%
======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - MARCH 31, 2010
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
FUND/INDEX 6/16/08 9/30/08 3/31/09 9/30/09 3/31/10
- ---------- ------- ------- ------- ------- -------
First Trust ISE Global Wind Energy Index Fund $10,000 $ 6,370 $ 3,502 $ 5,461 $ 4,574
ISE Global Wind Energy Index 10,000 6,314 3,515 5,512 4,646
Russell 3000(R) Index 10,000 8,583 5,912 8,032 9,011
MSCI World Index 10,000 8,101 5,582 7,916 8,505
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 March 31, 2010
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 March 31, 2010. Shareholders may pay more than NAV when they
buy Fund shares and receive less than NAV when they sell those shares because
shares are bought and sold at current market price. Data presented represents
past performance and cannot be used to predict future results.
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint At/Above NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
6/18/08 - 9/30/08 24 17 13 2
10/1/08 - 9/30/09 57 52 40 11
10/1/09 - 3/31/10 33 3 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint Below NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
6/18/08 - 9/30/08 6 1 8 2
10/1/08 - 9/30/09 41 30 17 4
10/1/09 - 3/31/10 56 28 5 0
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 (the "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
in all of the securities (including applicable depositary receipts) comprising
the Index in proportion to their weightings 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 March 31, 2010
- ------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
6 Months Ended 1 Year Ended Inception (10/13/08) Inception (10/13/08)
03/31/10 03/31/10 to 03/31/10 to 03/31/10
FUND PERFORMANCE
NAV 0.65% 49.90% 22.59% 34.71%
Market Price 1.05% 49.27% 23.01% 35.38%
INDEX PERFORMANCE
ISE Global Engineering and Construction Index 1.13% 51.93% 27.47% 42.63%
Russell 3000(R) Index 12.19% 52.44% 15.00% 22.69%
MSCI World Industrials Index 12.58% 67.45% 19.40% 29.62%
- ------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.)
Performance Review
For the six months ended March 31, 2010, the Fund's NAV return of +0.65%
underperformed the benchmark MSCI World Industrials Index return of +12.58% by
- -11.93%. The effect of holding foreign currency during the period was
detrimental to the total return of the U.S. dollar-based Fund. The foreign
currency effect was most noticeable in Euro-denominated assets, where the Euro
dropped -7.7% against the U.S. dollar. The effect of holding foreign
currency-denominated assets detracted -3.0% from the Fund's total return. As
government stimulus funds began to flow into the private sector in the first
quarter of 2010, contracting giants such as Chicago Bridge & Iron (+24.5%) led
the construction sector higher during the quarter, making up for the fourth
quarter of 2009, when the industry lagged. Conversely, the Netherlands-based
construction company Koninklijke BAM Groep was one of the weakest-performing
stocks in the Fund, returning (-27.0% local). The stock dropped amid a lower
profit outlook due to weaker European conditions, along with plans for a
dilutive equity offering. Underperformance in the Fund is primarily related to
the Fund's concentration in the Construction & Engineering industry, one that
lagged other industries in the Industrials sector, such as Aerospace & Defense
(+20.2% local) and Machinery (+19.8% local).
- -------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
- -------------------------------------------------------------------------------
(by contribution to return over the approximately
six months ended March 31, 2010)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Aker Solutions ASA Sacyr-Vallehermoso S.A.
Skanska AB Koninklijke BAM Groep N.V.
Chicago Bridge & Iron Co. N.V. Foster Wheeler AG
Chiyoda Corp. JGC Corp.
Imtech N.V. Eiffage S.A.
____________________
"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
product.
Page 12
- --------------------------------------------------------------------------------
Fund Performance Overview (Continued)
- --------------------------------------------------------------------------------
FLM - First Trust ISE Global Engineering and Construction Index Fund (Continued)
- -------------------------------------------------------------------------------
Portfolio Sector Allocation as of March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Industrials 93.04%
Energy 6.96
-------
Total 100.00%
=======
- -------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Jacobs Engineering Group, Inc. 3.44%
Fluor Corp. 3.17
McDermott International, Inc. 3.06
Vinci S.A. 2.88
Hochtief AG 2.87
Bouygues S.A. 2.76
KBR, Inc. 2.70
Aker Solutions ASA 2.68
Skanska AB 2.68
URS Corp. 2.66
------
Total 28.90%
======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - MARCH 31, 2010
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
FUND/INDEX 10/13/08 3/31/09 9/30/09 3/31/10
- ---------- ------- ------- ------- -------
First Trust ISE Global Engineering and Construction Index Fund $10,000 $ 8,987 $13,384 $13,471
ISE Global Engineering and Construction Index 10,000 9,388 14,103 14,263
Russell 3000(R) Index 10,000 8,048 10,935 12,269
MSCI World Industrials Index 10,000 7,741 11,514 12,962
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 March 31, 2010
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 March 31, 2010. Shareholders may pay more than
NAV when they buy Fund shares and receive less than NAV when they sell those
shares because shares are bought and sold at current market price. Data
presented represents past performance and cannot be used to predict future
results.
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint At/Above NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
10/15/08 - 9/30/09 79 44 32 26
10/1/09 - 3/31/10 65 19 1 0
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint Below NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
10/15/08 - 9/30/09 36 12 8 5
10/1/09 - 3/31/10 31 7 2 0
Page 13
- --------------------------------------------------------------------------------
Fund Performance Overview (Continued)
- --------------------------------------------------------------------------------
GRID - First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund
The First Trust ISE Global Engineering and Construction Index Fund (the "Fund")
(inception 11/16/2009) seeks investment results that correspond generally to the
price and yield (before the Fund's fees and expenses) of an equity index called
the NASDAQ OMX(R) Clean Edge(R) Smart Grid Infrastructure Index(SM) (the
"Index"). The shares of the Fund are listed and trade on The NASDAQ(R) Stock
Market under the ticker symbol "GRID." The Fund will normally invest at least
90% of its net assets in common stocks that comprise the Index or in depositary
receipts that may include American Depositary Receipts, Global Depositary
Receipts, European Depositary Receipts or other depositary receipts representing
securities in the Index. The Fund, using an "indexing" investment approach,
attempts to replicate, before fees and expenses, the performance of the Index.
The Index is designed to act as a transparent and liquid benchmark for the grid
and electric energy infrastructure sector. The Index includes companies that are
primarily engaged and involved in electric grid, electric meters and devices,
networks, energy storage and management, and enabling software used by the smart
grid infrastructure sector.
- --------------------------------------------------------------------------------
Performance as of March 31, 2010
- --------------------------------------------------------------------------------
Cumulative
Total Returns
Inception (11/16/09)
to 03/31/10
FUND PERFORMANCE
NAV 2.57%
Market Price 2.67%
INDEX PERFORMANCE
NASDAQ OMX(R) Clean Edge(R) Smart Grid Infrastructure Index(SM) 2.97%
S&P 1500 Industrials Index 12.05%
Russell 3000(R) Index 7.31%
MSCI World Industrials Index(1) 8.14%
- --------------------------------------------------------------------------------
1 The broad-based securities market index is changing from S&P 500 Industrials
Index to MSCI World Industrials Index because the MSCI World Industrials
Index better reflects the composition of the fund.
(See Notes to Fund Performance Overview on page 20.)
Performance Review
For the period November 16, 2009 (Fund inception) through March 31, 2010, the
Fund's NAV return of +2.57% underperformed the benchmark MSCI World Industrials
Index return of +8.14% by -5.57%. The effect of holding foreign currency during
the period negatively impacted the total return of the U.S. dollar-based Fund.
The foreign currency effect was most noticeable in Euro-denominated assets,
where the Euro dropped -9.8% against the U.S. dollar. The effect of holding
foreign currency-denominated assets detracted -2.4% from the Fund's total
return, over the period covered. Holdings of smart grid companies, General Cable
(-18.8%), American Superconductor (-10.2%) and Echelon (-28.4%) were the main
drag on the Fund's portfolio performance, as all companies suffered from analyst
downgrades during the period. Additionally, American Superconductor traded lower
on concerns about the lack of diversification of its sales, and subsequent
reliance on Chinese-based customers. Smaller producers such as Wesco
International (+21.7%), Cooper Industries (+11.1%) and Digi International
(+35.4%), however, boosted returns in the Fund during the period.
- -------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
- -------------------------------------------------------------------------------
(by contribution to return over the period November 16, 2009 (Fund inception)
through March 31, 2010)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
SMA Solar Technology AG Echelon Corp.
ITC Holdings Corp. General Cable Corp.
Jinpan International Ltd. NGK Insulators Ltd.
Itron, Inc. Quanta Services, Inc.
Power-One Inc. American Superconductor Corp.
____________________
NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The
NASDAQ Stock Market, Inc. ("NASDAQ(R)") and Clean Edge, Inc. ("Clean Edge(R)")
respectively. NASDAQ(R) and Clean Edge(R) are, collectively with their
affiliates, the "Corporations." The Marks are licensed for use by First Trust.
The Fund has not been passed on by the Corporations as to its legality or
suitability. The Fund is not issued, endorsed, sold, or promoted by the
Corporations. The Fund should not be construed in any way as investment advice
by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY
WITH RESPECT TO THE FUND.
Page 14
- --------------------------------------------------------------------------------
Fund Performance Overview (Continued)
- --------------------------------------------------------------------------------
GRID - First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index
Fund (Continued)
- -------------------------------------------------------------------------------
Portfolio Sector Allocation as of March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Industrials 79.49%
Information Technology 14.82
Utilities 5.69
-------
Total 100.00%
=======
- -------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
SMA Solar Technology AG 8.80%
Prysmian S.p.A. 8.52
Schneider Electric S.A. 8.21
Quanta Services, Inc. 7.55
NGK Insulators Ltd. 7.06
General Cable Corp. 4.14
Itron, Inc. 4.06
EnerNOC, Inc. 3.90
American Superconductor Corp. 3.86
ITC Holdings Corp. 3.86
------
Total 59.96%
======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
NOVEMBER 16, 2009 - MARCH 31, 2010
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
FUND/INDEX 11/16/09 3/31/10
- ---------- -------- -------
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund $10,000 $10,257
NASDAQ(R) OMX(R) Clean Edge(R) Smart Grid Infrastructure Index(SM) 10,000 10,297
Russell 3000(R) Index 10,000 10,731
S&P 1500 Industrials Index 10,000 11,205
MSCI World Industrials Index 10,000 10,814
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 March 31, 2010
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 17, 2009
(commencement of trading) through March 31, 2010. Shareholders may pay more than
NAV when they buy Fund shares and receive less than NAV when they sell those
shares because shares are bought and sold at current market price. Data
presented represents past performance and cannot be used to predict future
results.
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint At/Above NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
11/17/09 - 3/31/10 76 3 4 1
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint Below NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
11/17/09 - 3/31/10 6 0 1 1
Page 15
- --------------------------------------------------------------------------------
Fund Performance Overview (Continued)
- --------------------------------------------------------------------------------
CU - First Trust ISE Global Copper Index Fund
First Trust ISE Global Copper Index Fund (the "Fund") (inception 3/11/2010)
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
Copper(TM) Index (the "Index"). The shares of the Fund are listed and trade on
The NASDAQ(R) Stock Market under the ticker symbol "CU." The Fund will normally
invest at least 90% of its net assets in securities that comprise the Index or
in depositary receipts representing foreign securities in the Index.
The Index is designed to provide a benchmark for investors interested in
tracking public companies that are active in the copper mining business based on
analysis of revenue derived from the sale of copper. Issuers of component
securities must be actively engaged in some aspect of the copper mining business
such as copper mining, refining or exploration. The Index has been created to
provide investors with a product allowing them to quickly take advantage of both
event-driven news and long-term trends as the need for copper continues to
evolve.
- --------------------------------------------------------------------------------
Performance as of March 31, 2010
- --------------------------------------------------------------------------------
Cumulative
Total Returns
Inception (03/11/10)
to 03/31/10
FUND PERFORMANCE
NAV 2.97%
Market Price 3.37%
INDEX PERFORMANCE
ISE Global Copper(TM) Index 3.37%
MSCI All Country World Materials Index 2.91%
MSCI All Country World Index 1.72%
- --------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.)
Performance Review
Though CU had only been in the market since 3/11/2010, its since inception
return of +2.97% narrowly outperformed the benchmark MSCI All Country World
Materials Index return of +2.91% by +0.06%. Copper prices, which increased +5.3%
during this time, rose the most on 3/29/2010, as announced inventories were
lower than expected. Falling inventories, combined with a relatively optimistic
global economic outlook, benefited the shares of copper miners over the short
three-week period covered by this report.
- -------------------------------------------------------------------------------
Portfolio Sector Allocation as of March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Materials 100.00%
-------
Total 100.00%
=======
- -------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Xstrata PLC 7.18%
Freeport-McMoRan Copper & Gold, Inc. 7.12
BHP Billiton Ltd. 6.99
Antofagasta PLC 6.91
Southern Copper Corp. 6.78
Ivanhoe Mines Ltd. 4.85
MMC Norilsk Nickel, ADR 4.80
Rio Tinto PLC, ADR 4.65
Vedanta Resources PLC 4.46
Kazakhmys PLC 4.44
------
Total 58.18%
======
___________________
"International Securities Exchange(TM)", "ISE(TM)" and "ISE Global Copper(TM)
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 Copper(TM) 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 product.
Page 16
- --------------------------------------------------------------------------------
Fund Performance Overview (Continued)
- --------------------------------------------------------------------------------
CU - First Trust ISE Global Copper Index Fund (Continued)
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
NOVEMBER 16, 2009 - MARCH 31, 2010
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
FUND/INDEX 11/16/09 3/31/10
- ---------- -------- -------
First Trust ISE Global Copper Index Fund $10,000 $10,297
ISE Global Copper(TM) Index 10,000 10,337
MSCI All Country World Index 10,000 10,172
MSCI All Country World Materials Index 10,000 10,291
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 March 31, 2010
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 March 12, 2010 (commencement
of trading) through March 31, 2010. Shareholders may pay more than NAV when they
buy Fund shares and receive less than NAV when they sell those shares because
shares are bought and sold at current market price. Data presented represents
past performance and cannot be used to predict future results.
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint At/Above NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
3/12/10 - 3/31/10 7 5 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint Below NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
3/12/10 - 3/31/10 0 1 1 0
Page 17
- --------------------------------------------------------------------------------
Fund Performance Overview (Continued)
- --------------------------------------------------------------------------------
PLTM - First Trust ISE Global Platinum Index Fund First Trust ISE Global
Platinum Index Fund (the "Fund") (inception 3/11/2010) 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 Platinum(TM) Index (the
"Index"). The shares of the Fund are listed and trade on The NASDAQ(R) Stock
Market under the ticker symbol "PLTM." The Fund will normally invest at least
90% of its net assets in securities that comprise the Index or in depositary
receipts representing foreign securities in the Index.
The Index is designed to provide a benchmark for investors interested in
tracking public companies that are active in platinum group metals ("PGM")
mining based on revenue analysis of those companies. PGMs collectively refer to
six elements, platinum, palladium, osmium, iridium, ruthenium and rhodium, which
have similar physical and chemical properties and tend to occur together in the
same mineral deposits. Issuers of component securities must be actively engaged
in some aspect of PGM mining such as mining, refining or exploration. The Index
has been created to provide investors with a product allowing them to quickly
take advanage of both event-driven news and long-term trends as the need for
PGMs continues to evolve.
- --------------------------------------------------------------------------------
Performance as of March 31, 2010
- --------------------------------------------------------------------------------
Cumulative
Total Returns
Inception (03/11/10)
to 03/31/10
FUND PERFORMANCE
NAV 3.37%
Market Price 4.23%
INDEX PERFORMANCE
ISE Global Platinum(TM) Index 3.83%
MSCI All Country World Materials Index 2.91%
MSCI All Country World Index 1.72%
- --------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20)
Performance Review
Though PLTM had only been in the market since 3/11/2010, its since inception
return of +3.37% narrowly outperformed the benchmark MSCI All Country World
Materials Index return of +2.91% by +0.46%. Impala Platinum was the
top-performing stock by contribution to return, as the stock rallied on
expansion news, along with steadily increasing platinum prices (up +1.9% during
this time period).
- -------------------------------------------------------------------------------
Portfolio Sector Allocation as of March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Materials 96.95%
Information Technology 3.05
-------
Total 100.00%
=======
- -------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of March 31, 2010
- -------------------------------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Impala Platinum Holdings Ltd. 7.56%
Aquarius Platinum Ltd. 7.55
MMC Norilsk Nickel, ADR 7.47
Anglo Platinum Ltd. 7.41
Lonmin PLC 7.03
Johnson Matthey PLC 6.93
Northam Platinum Ltd. 4.58
Eastern Platinum Ltd. 4.49
African Rainbow Minerals Ltd. 4.28
FNX Mining Co., Inc. 4.24
------
Total 61.54%
======
____________________
"International Securities Exchange(TM)", "ISE(TM)" and "ISE Global Platinum(TM)
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 Platinum(TM) 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 product.
Page 18
- --------------------------------------------------------------------------------
Fund Performance Overview (Continued)
- --------------------------------------------------------------------------------
PLTM - First Trust ISE Global Platinum Index Fund (Continued)
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MARCH 11, 2010 - MARCH 31, 2010
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
FUND/INDEX 3/11/10 3/31/10
- ---------- ------- -------
First Trust ISE Global Platinum Index Fund $10,000 $10,337
ISE Global Platinum(TM) Index 10,000 10,383
MSCI All Country World Index 10,000 10,172
MSCI All Country World Materials Index 10,000 10,291
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 March 31, 2010
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 March 12, 2010 (commencement
of trading) through March 31, 2010. Shareholders may pay more than NAV when they
buy Fund shares and receive less than NAV when they sell those shares because
shares are bought and sold at current market price. Data presented represents
past performance and cannot be used to predict future results.
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint At/Above NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
3/12/10 - 3/31/10 7 7 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Days Bid/Ask Midpoint Below NAV
- ------------------------------------------------------------------------------------------------------------------------------------
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
3/12/10 - 3/31/10 0 0 0 0~~~
Page 19
- --------------------------------------------------------------------------------
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, an index does not actually hold a portfolio of
securities and therefore does not incur the expenses incurred by each Fund.
These expenses negatively impact the performance of each Fund. Also, market
returns do not include brokerage commissions that may be payable on secondary
market transactions. If brokerage commissions were included, market returns
would be lower. The total returns presented reflect the reinvestment of
dividends on securities in the indices. The returns presented do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund shares. The investment return and principal value of
shares of 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. Each Fund's past performance is no guarantee of future
results.
Page 20
First Trust Exchange-Traded Fund II
Understanding Your Fund Expenses
March 31, 2010 (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, First Trust ISE Global Engineering and
Construction Index Fund, First Trust NASDAQ(R) Clean Edge(R) Smart Grid
Infrastructure Index Fund, First Trust ISE Global Copper Index Fund or First
Trust ISE Global Platinum 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 (or since inception) and held through the six-month period (or shorter)
ended March 31, 2010.
Actual Expenses
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- ------------------------------------------------------------------------------------------------------------------------------------
Annualized
Expense Ratio Expenses Paid
Beginning Ending Based on the During the
Account Value Account Value Six-Month Six-Month
October 1, 2009 March 31, 2010 Period (a) Period (b)
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST TRUST DOW JONES STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND
Actual $1,000.00 $975.20 0.60% $2.95
Hypothetical (5% return before expenses) $1,000.00 $1,021.94 0.60% $3.02
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
Actual $1,000.00 $1,080.30 0.60% $3.11
Hypothetical (5% return before expenses) $1,000.00 $1,021.94 0.60% $3.02
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
Actual $1,000.00 $1,038.60 0.60% $3.05
Hypothetical (5% return before expenses) $1,000.00 $1,021.94 0.60% $3.02
FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND
Actual $1,000.00 $837.50 0.60% $2.75
Hypothetical (5% return before expenses) $1,000.00 $1,021.94 0.60% $3.02
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND
Actual $1,000.00 $1,006.50 0.70% $3.50
Hypothetical (5% return before expenses) $1,000.00 $1,021.44 0.70% $3.53
Page 21
First Trust Exchange-Traded Fund II
Understanding Your Fund Expenses (Continued)
March 31, 2010 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Annualized Expenses Paid
Expense Ratio During the Period
Beginning Ending Based on the November 16, 2009
Account Value Account Value Number of Days To
November 16, 2009 (c) March 31, 2010 in the Period (a) March 31, 2010 (d)
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND
Actual $1,000.00 $1,025.70 0.70% $2.64
Hypothetical (5% return before expenses) $1,000.00 $1,021.44 0.70% $3.53
- ------------------------------------------------------------------------------------------------------------------------------------
Annualized Expenses Paid
Expense Ratio During the Period
Beginning Ending Based on the March 11, 2010
Account Value Account Value Number of Days To
March 11, 2010 (c) March 31, 2010 in the Period (a) March 31, 2010 (e)
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST TRUST ISE GLOBAL COPPER INDEX FUND
Actual $1,000.00 $1,029.70 0.70% $0.41
Hypothetical (5% return before expenses) $1,000.00 $1,021.44 0.70% $3.53
FIRST TRUST ISE GLOBAL PLATINUM INDEX FUND
Actual $1,000.00 $1,033.70 0.70% $0.41
Hypothetical (5% return before expenses) $1,000.00 $1,021.44 0.70% $3.53
<FN>
(a) These expense ratios reflect expense caps.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table, multiplied by the average account value over the period (October 1,
2009 through March 31, 2010), multiplied by 182/365 (to reflect the one-half
year period).
(c) Inception date.
(d) Actual expenses are equal to the annualized expense ratio as indicated in
the table, multiplied by the average account value over the period (November
16, 2009 through March 31, 2010), multiplied by 136/365. Hypothetical
expenses are assumed for the most recent half-year period.
(e) Actual expenses are equal to the annualized expense ratio as indicated in
the table, multiplied by the average account value over the period (March
11, 2010 through March 31, 2010), multiplied by 21/365. Hypothetical
expenses are assumed for the most recent half-year period.
</FN>
Page 22
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund
Portfolio of Investments (a)
March 31, 2010 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (b) -- 100.1%
BELGIUM -- 3.8%
7,217 Belgacom S.A. $ 281,903
-------------
BERMUDA -- 4.4%
59,456 Catlin Group Ltd. 324,988
-------------
FRANCE -- 9.3%
12,326 France Telecom S.A. 294,923
4,944 Lagardere S.C.A. 200,063
7,847 SCOR SE 198,194
-------------
693,180
-------------
GERMANY -- 11.5%
2,462 BASF SE 152,699
22,014 Deutsche Telekom AG 298,374
1,143 Muenchener Rueckversicherungs-
Gesellschaft AG 185,488
2,635 RWE AG 216,706
-------------
853,267
-------------
IRELAND -- 2.0%
5,974 CRH PLC 149,193
-------------
ITALY -- 7.5%
61,550 Enel S.p.A 344,170
41,905 Snam Rete Gas S.p.A. 212,389
-------------
556,559
-------------
NETHERLANDS -- 8.7%
14,877 Koninklijke (Royal) KPN N.V. 235,699
5,644 Koninklijke Boskalis
Westminster N.V. 216,306
8,786 Wolters Kluwer N.V. 190,523
-------------
642,528
-------------
NORWAY -- 2.2%
7,120 StatoilHydro ASA 164,846
-------------
SPAIN -- 7.0%
50,932 Banco de Sabadell S.A. 281,221
17,679 Banco Santander S.A. 234,962
-------------
516,183
-------------
SWEDEN -- 2.1%
4,651 Ratos AB 154,269
-------------
SWITZERLAND -- 7.2%
1,755 Baloise Holding AG 155,626
485 Swisscom AG 176,999
795 Zurich Financial Services AG 203,802
-------------
536,427
-------------
UNITED KINGDOM -- 34.4%
39,106 Amlin PLC 230,311
5,826 AstraZeneca PLC 259,835
53,545 Carillion PLC 265,539
13,110 GlaxoSmithKline PLC 251,763
160,066 Man Group PLC 586,603
25,307 Provident Financial PLC 333,149
Shares Description Value
- -------------------------------------------------------------
UNITED KINGDOM (Continued)
166,360 RSA Insurance Group PLC $ 321,875
35,577 United Utilities PLC 301,793
-------------
2,550,868
-------------
TOTAL INVESTMENTS -- 100.1% 7,424,211
(Cost $7,318,968) (c)
NET OTHER ASSETS AND
LIABILITIES -- (0.1)% (6,622)
-------------
NET ASSETS -- 100.0% $ 7,417,589
=============
(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 financial reporting purposes, which
approximates the aggregate cost for federal income tax
purposes. As of March 31, 2010, the aggregate gross
unrealized appreciation for all securities in which there
was an excess of value over tax cost was $319,519 and the
aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value was
$214,276.
___________________________________
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments
as of March 31, 2010 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* $ 7,424,211 $ -- $ --
=========================================
* See Portfolio of Investments for country breakout.
See Notes to Financial Statements Page 23
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund
Portfolio of Investments (a) (Continued)
March 31, 2010 (Unaudited)
% of
Industry Net Assets
- ---------------------------------------------------------------
Insurance 21.8%
Diversified Telecommunication Services 17.4
Capital Markets 10.0
Multi-Utilities 7.0
Commercial Banks 7.0
Pharmaceuticals 6.9
Construction & Engineering 6.5
Media 5.3
Electric Utilities 4.6
Consumer Finance 4.5
Gas Utilities 2.8
Oil, Gas & Consumable Fuels 2.2
Chemicals 2.1
Construction Materials 2.0
- ---------------------------------------------------------------
Total Investments 100.1
Net Other Assets and Liabilities (0.1)
-----------
Total 100.0%
===========
Page 24 See Notes to Financial Statements
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
Portfolio of Investments (a)
March 31, 2010 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (b) -- 99.6%
AUSTRALIA -- 9.1%
20,472 Bunnings Warehouse Property
Trust $ 36,445
93,064 CFS Retail Property Trust 160,125
98,692 Commonwealth Property Office
Fund 81,961
235,544 Dexus Property Group 175,079
43,034 FKP Property Group 28,236
306,690 Goodman Group 184,339
458,194 GPT Group 241,766
196,196 GPT Group, In Specie (c) (d) (e) 0
128,114 ING Industrial Fund 52,316
134,876 ING Office Fund 72,405
74,388 Macquarie CountryWide Trust 38,227
240,799 Macquarie Office Trust 62,976
148,057 Mirvac Group 200,400
117,691 Stockland 430,917
113,974 Westfield Group 1,261,334
-------------
3,026,526
-------------
AUSTRIA -- 0.3%
4,225 CA Immobilien Anlagen AG (c) 51,188
4,008 Conwert Immobilien Invest AG (c) 49,749
-------------
100,937
-------------
BELGIUM -- 0.6%
829 Befimmo S.C.A 69,656
615 Cofinimmo S.A. 86,679
342 Intervest Offices N.V. 10,985
80 Leasinvest Real Estate S.C.A 6,821
424 Warehouses de Pauw S.C.A 20,015
105 Wereldhave Belgium S.C.A 9,030
-------------
203,186
-------------
BERMUDA -- 2.1%
82,922 Hongkong Land Holdings Ltd. 420,415
31,503 Hopson Development Holdings Ltd. 50,880
28,154 Kerry Properties Ltd. 151,027
4,478 Orient-Express Hotels Ltd.,
Class A (c) 63,498
-------------
685,820
-------------
CANADA -- 4.1%
1,927 Allied Properties Real Estate
Investment Trust 38,515
2,401 Artis Real Estate Investment Trust 27,612
2,396 Boardwalk Real Estate Investment
Trust 94,953
18,542 Brookfield Properties Corp. 285,711
4,204 Calloway Real Estate Investment
Trust 87,793
3,353 Canadian Apartment Properties
Real Estate Investment Trust 47,374
3,270 Canadian Real Estate Investment
Trust 89,022
6,334 Chartwell Seniors Housing Real
Estate Investment Trust 45,214
Shares Description Value
- -------------------------------------------------------------
CANADA (Continued)
2,692 Cominar Real Estate Investment
Trust $ 50,943
1,518 Dundee Real Estate Investment Trust 38,695
3,910 Extendicare Real Estate Investment
Trust 40,307
1,889 First Capital Realty, Inc. 41,215
7,106 H&R Real Estate Investment Trust 116,352
4,319 InnVest Real Estate Investment
Trust 25,260
1,904 Killam Properties, Inc. 15,335
2,105 Morguard Real Estate Investment
Trust 28,270
1,138 Northern Property Real Estate
Investment Trust 27,115
3,084 Primaris Retail Real Estate
Investment Trust 51,013
11,859 RioCan Real Estate Investment
Trust 215,777
-------------
1,366,476
-------------
CAYMAN ISLANDS -- 2.0%
70,586 Agile Property Holdings Ltd. 96,366
92,624 China Resources Land Ltd. 201,371
161,629 Country Garden Holdings Co., Ltd. 58,080
57,348 KWG Property Holding Ltd. 41,658
84,695 New World China Land Ltd. 30,216
69,716 Shimao Property Holdings Ltd. 128,222
74,528 Shui On Land Ltd. 38,107
102,268 Soho China Ltd. 57,955
-------------
651,975
-------------
FINLAND -- 0.3%
8,146 Citycon Oyj 32,457
10,267 Sponda Oyj 42,850
2,834 Technopolis PLC 14,086
-------------
89,393
-------------
FRANCE -- 5.0%
175 Affine Group 4,264
1,726 Fonciere des Regions Group 190,112
922 Gecina S.A. 102,041
1,012 Icade 112,643
4,363 Klepierre LLC 171,366
2,234 Mercialys 80,262
269 Societe de la Tour Eiffel 22,530
642 Societe Immobiliere de Location
pour l'Industrie et le Commerce 81,067
4,361 Unibail-Rodamco S.A. 883,533
-------------
1,647,818
-------------
GERMANY -- 0.5%
1,384 Alstria Office AG 15,702
1,407 Colonia Real Estate AG (c) 9,084
2,181 Deutsche Euroshop AG 71,627
4,046 Deutsche Wohnen AG (c) 41,029
1,398 DIC Asset AG 13,690
1,287 Patrizia Immobilien AG (c) 5,649
See Notes to Financial Statements Page 25
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
Portfolio of Investments (a) (Continued)
March 31, 2010 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (b) (Continued)
GERMANY (Continued)
1,611 TAG Immobilien AG (c) $ 9,248
-------------
166,029
-------------
GREECE -- 0.1%
1,258 Babis Vovos International
Construction S.A. (c) 6,525
904 Eurobank Properties Real Estate
Investment Co. 8,632
650 Lamda Development S.A. (c) 4,539
-------------
19,696
-------------
GUERNSEY -- 0.2%
13,455 FCPT Ltd. 18,805
16,383 ING UK Real Estate Income
Trust Ltd. 11,933
15,994 Invista Foundation Property
Trust Ltd. 10,194
4,096 IRP Property Investments Ltd. 5,128
2,806 ISIS Property Trust Ltd. 3,832
5,653 Standard Life Investment Property
Income Trust PLC 5,125
17,572 UK Commercial Property Trust Ltd. 22,426
-------------
77,443
-------------
HONG KONG -- 12.3%
119,050 Champion Real Estate Investment
Trust 56,886
201,829 China Overseas Land &
Investment Ltd. 455,946
102,559 Hang Lung Properties Ltd. 413,446
52,853 Henderson Land Development
Co., Ltd. 372,355
38,705 Hysan Development Co., Ltd. 111,914
28,397 Kowloon Development Co., Ltd. 35,989
107,542 Link (The) REIT 265,107
144,852 New World Development Co., Ltd. 283,575
86,520 Shenzhen Investment Ltd. 32,093
120,997 Sino Land Co., Ltd. 237,186
94,529 Sun Hung Kai Properties Ltd. 1,422,029
67,848 Wharf (The) Holdings Ltd. 382,310
-------------
4,068,836
-------------
ITALY -- 0.1%
17,599 Beni Stabili S.p.A 17,043
5,897 Immobiliare Grande Distribuzione 11,940
-------------
28,983
-------------
JAPAN -- 10.2%
4,516 AEON Mall Co., Ltd. 95,208
2,837 DAIBIRU Corp. 23,912
7,340 HEIWA Real Estate Co., Ltd. 22,062
35 Japan Prime Realty Investment Corp. 77,907
24 Japan Real Estate Investment Corp. 204,599
76 Japan Retail Fund Investment Corp. 89,421
12 Kenedix Realty Investment Corp.,
Class A 32,230
51,930 Mitsubishi Estate Co., Ltd. 849,855
Shares Description Value
- -------------------------------------------------------------
JAPAN (Continued)
43,081 Mitsui Fudosan Co., Ltd. $ 731,303
4 MORI TRUST Sogo Reit, Inc. 35,084
27 Nippon Building Fund, Inc. 232,485
3,800 Nomura Real Estate Holdings, Inc. 58,612
15 Nomura Real Estate Office
Fund, Inc. 84,234
65 NTT Urban Development Corp. 54,926
12 ORIX JREIT, Inc., Class A 54,359
6 Premier Investment Co. 19,735
23,744 Sumitomo Realty & Development
Co., Ltd. 451,819
16,375 Tokyo Tatemono Co., Ltd. 58,851
19,297 Tokyu Land Corp. 73,687
6 TOKYU REIT, Inc. 31,544
8 Top REIT, Inc., Class A 36,196
10 United Urban Investment Corp.,
Class A 57,546
-------------
3,375,575
-------------
LUXEMBOURG -- 0.3%
4,449 Gagfah S.A. 39,810
6,994 ProLogis European Properties (c) 49,245
-------------
89,055
-------------
NETHERLANDS -- 1.7%
3,771 Corio N.V. 251,789
1,992 Eurocommercial Properties N.V. 80,043
1,946 Nieuwe Steen Investments
Funds N.V. 41,331
926 VastNed Offices/Industrial N.V. 16,822
917 Vastned Retail N.V. 61,246
1,051 Wereldhave N.V. 100,731
-------------
551,962
-------------
NEW ZEALAND -- 0.1%
39,897 Kiwi Income Property Trust 28,341
-------------
NORWAY -- 0.1%
24,624 Norwegian Property ASA (c) 51,376
-------------
SINGAPORE -- 4.7%
39,000 Allgreen Properties Ltd. 33,175
92,400 Ascendas Real Estate Investment
Trust 126,815
102,890 CapitaCommercial Trust 79,432
156,530 Capitaland Ltd. 444,207
116,883 CapitaMall Trust 147,884
77,000 CapitaMalls Asia Ltd. (c) 124,393
34,000 City Developments Ltd. 257,622
35,521 Keppel Land Ltd. 93,186
75,790 Mapletree Logistics Trust 46,050
8,000 Singapore Land Ltd. 38,886
89,197 Suntec Real Estate Investment Trust 85,438
29,087 Wing Tai Holdings Ltd. 37,634
29,000 Yanlord Land Group Ltd. 38,765
-------------
1,553,487
-------------
SWEDEN -- 0.9%
8,105 Castellum AB 81,661
Page 26 See Notes to Financial Statements
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
Portfolio of Investments (a) (Continued)
March 31, 2010 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (b) (Continued)
SWEDEN (Continued)
8,125 Fabege AB $ 54,912
7,337 Hufvudstaden AB 62,745
5,961 Klovern AB 21,630
6,745 Kungsleden AB 53,012
1,897 Wihlborgs Fastigheter AB 40,065
-------------
314,025
-------------
SWITZERLAND -- 0.9%
281 Allreal Holding AG 34,619
2,316 PSP Swiss Property AG (c) 148,704
1,974 Swiss Prime Site AG (c) 123,468
2,177 Zueblin Immobilien Holding AG (c) 9,848
-------------
316,639
-------------
UNITED KINGDOM -- 5.5%
1,184 A.J. Mucklow Group PLC 5,143
6,453 Big Yellow Group PLC (c) 33,294
42,656 British Land Co., PLC 311,418
1,189 CLS Holdings PLC (c) 9,292
244 Daejan Holdings PLC 8,705
4,972 Derwent London PLC 103,065
4,067 Development Securities PLC 16,849
15,379 Grainger PLC 31,506
15,453 Great Portland Estates PLC 73,726
34,425 Hammerson PLC 205,511
5,292 Helical Bar PLC 27,135
37,334 Land Securities Group PLC 384,116
30,710 Liberty International PLC 234,643
7,964 Minerva PLC (c) 11,511
3,031 Primary Health Properties PLC 13,879
25,576 Quintain Estates & Development
PLC (c) 22,026
6,934 Safestore Holdings PLC 15,152
36,288 Segro PLC 175,994
11,135 Shaftesbury PLC 64,987
7,428 St. Modwen Properties PLC (c) 21,811
7,868 Unite Group PLC (c) 30,816
56,716 Workspace Group PLC 20,656
-------------
1,821,235
-------------
UNITED STATES -- 38.5%
1,981 Acadia Realty Trust 35,381
404 Agree Realty Corp. 9,235
100 Alexander's, Inc. (c) 29,913
2,174 Alexandria Real Estate Equities, Inc. 146,962
7,373 AMB Property Corp. 200,841
2,580 American Campus Communities, Inc. 71,363
5,775 Apartment Investment &
Management Co., Class A 106,318
2,652 Ashford Hospitality Trust (c) 19,015
1,108 Associated Estates Realty Corp. 15,279
4,022 AvalonBay Communities, Inc. 347,300
4,910 BioMed Realty Trust, Inc. 81,211
6,842 Boston Properties, Inc. 516,160
6,356 Brandywine Realty Trust 77,607
2,723 BRE Properties, Inc. 97,347
3,169 Camden Property Trust 131,925
Shares Description Value
- -------------------------------------------------------------
UNITED STATES (Continued)
6,810 CBL & Associates Properties, Inc. $ 93,297
2,947 Cedar Shopping Centers, Inc. 23,311
2,100 Cogdell Spencer, Inc. 15,540
3,276 Colonial Properties Trust 42,195
2,865 Corporate Office Properties Trust 114,972
5,691 Corrections Corp. of America (c) 113,023
4,934 Cousins Properties, Inc. 41,002
10,246 DCT Industrial Trust, Inc. 53,587
12,329 Developers Diversified Realty Corp. 150,044
6,137 DiamondRock Hospitality Co. (c) 62,045
3,748 Digital Realty Trust, Inc. 203,142
4,495 Douglas Emmett, Inc. 69,088
11,063 Duke Realty Corp. 137,181
2,097 DuPont Fabros Technology, Inc. 45,274
1,325 EastGroup Properties, Inc. 50,005
2,621 Education Realty Trust, Inc. 15,045
2,113 Entertainment Properties Trust 86,908
1,497 Equity Lifestyle Properties, Inc. 80,658
2,126 Equity One, Inc. 40,160
13,922 Equity Residential 545,046
1,438 Essex Property Trust, Inc. 129,348
4,268 Extra Space Storage, Inc. 54,118
3,009 Federal Realty Investment Trust 219,085
3,196 FelCor Lodging Trust, Inc. (c) 18,217
3,045 First Industrial Realty Trust, Inc. (c) 23,629
1,831 First Potomac Realty Trust 27,520
6,610 Forest City Enterprises, Inc.,
Class A (c) 95,250
3,940 Franklin Street Properties Corp. 56,854
916 Getty Realty Corp. 21,434
3,397 Glimcher Realty Trust 17,223
1,158 Government Properties Income Trust 30,120
14,475 HCP, Inc. 477,675
6,077 Health Care REIT, Inc. 274,863
3,032 Healthcare Realty Trust, Inc. 70,615
6,767 Hersha Hospitality Trust 35,053
3,502 Highwoods Properties, Inc. 111,118
2,087 Hilltop Holdings, Inc. (c) 24,522
1,727 Home Properties, Inc. 80,824
6,096 Hospitality Properties Trust 145,999
32,259 Host Hotels & Resorts, Inc. 472,594
12,750 HRPT Properties Trust 99,195
4,222 Inland Real Estate Corp. 38,631
3,631 Investors Real Estate Trust 32,752
2,134 Kilroy Realty Corp. 65,813
19,841 Kimco Realty Corp. 310,313
3,111 Kite Realty Group Trust 14,715
3,409 LaSalle Hotel Properties 79,430
6,022 Lexington Realty Trust 39,203
5,572 Liberty Property Trust 189,114
1,147 LTC Properties, Inc. 31,038
4,848 Macerich (The) Co. 185,727
3,912 Mack-Cali Realty Corp. 137,898
3,962 Medical Properties Trust, Inc. 41,522
1,425 Mid-America Apartment
Communities, Inc. 73,801
1,371 National Health Investors, Inc. 53,140
See Notes to Financial Statements Page 27
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
Portfolio of Investments (a) (Continued)
March 31, 2010 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (b) (Continued)
UNITED STATES (Continued)
505 National Healthcare Corp. $ 17,867
4,073 National Retail Properties, Inc. 92,987
5,546 Nationwide Health Properties, Inc. 194,942
4,386 OMEGA Healthcare Investors, Inc. 85,483
1,069 Parkway Properties, Inc. 20,076
2,203 Pennsylvania Real Estate
Investment Trust 27,471
769 Piedmont Office Realty Trust,
Inc., Class A 15,265
2,401 Post Properties, Inc. 52,870
23,370 ProLogis 308,484
904 PS Business Parks, Inc. 48,274
6,303 Public Storage 579,813
1,520 Ramco-Gershenson Properties Trust 17,115
5,152 Realty Income Corp. 158,115
4,031 Regency Centers Corp. 151,042
659 Saul Centers, Inc. 27,283
6,270 Senior Housing Properties Trust 138,880
14,321 Simon Property Group, Inc. 1,201,532
3,844 SL Green Realty Corp. 220,146
1,360 Sovran Self Storage, Inc. 47,410
921 Sun Communities, Inc. 23,209
4,851 Sunstone Hotel Investors, Inc. (c) 54,186
1,991 Tanger Factory Outlet Centers, Inc. 85,932
1,960 Taubman Centers, Inc. 78,243
7,684 UDR, Inc. 135,546
586 Universal Health Realty Income
Trust 20,709
905 Urstadt Biddle Properties, Inc.,
Class A 14,308
4,591 U-Store-It Trust 33,055
7,730 Ventas, Inc. 367,020
8,877 Vornado Realty Trust 671,989
2,950 Washington Real Estate Investment
Trust 90,122
5,909 Weingarten Realty Investors 127,398
755 Winthrop Realty Trust, Inc. 9,090
-------------
12,761,595
-------------
TOTAL COMMON STOCKS -- 99.6% 32,996,408
(Cost $30,400,125)
Money Market Fund -- 0.4%
120,490 Morgan Stanley Institutional Treasury
Money Market Fund - 0.01% (f) 120,490
-------------
(Cost $120,490)
TOTAL INVESTMENTS -- 100.0% 33,116,898
(Cost $30,520,615) (g)
NET OTHER ASSETS AND
LIABILITIES -- 0.0% (1,674)
-------------
NET ASSETS -- 100.0% $ 33,115,224
=============
(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 is a restricted security which cannot be traded as a
result of the in-specie distribution. It was acquired on
August 6, 2009 at a cost of $0 and has a carrying value
per share of $0.
(e) This security is fair valued in accordance with valuation
procedures adopted by the Trust's Board of Trustees.
(f) Represents annualized 7-day yield at March 31, 2010.
(g) Aggregate cost for financial reporting purposes, which
approximates the aggregate cost for federal income tax
purposes. As of March 31, 2010, the aggregate gross
unrealized appreciation for all securities in which there
was an excess of value over tax cost was $2,877,066 and
the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over
value was $280,783.
REIT - Real Estate Investment Trust
___________________________________
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments
as of March 31, 2010 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* $32,996,408 $ -- $ --
Money Market Fund 120,490 -- --
------------------------------------------
Total Investments $33,116,898 $ -- $ --
==========================================
* See Portfolio of Investments for country breakout.
% of
Industry Net Assets
- ---------------------------------------------------------------
Real Estate Investment Trusts 67.8%
Real Estate Management & Development 31.1
Money Market Fund 0.4
Commercial Services & Supplies 0.3
Hotels, Restaurants & Leisure 0.2
Insurance 0.1
Health Care Providers & Services 0.1
- ---------------------------------------------------------------
Total Investments 100.0
Net Other Assets and Liabilities 0.0
-----------
Total 100.0%
===========
Page 28 See Notes to Financial Statements
First Trust Dow Jones Global Select Dividend Index Fund
Portfolio of Investments (a)
March 31, 2010 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (b) -- 99.8%
AUSTRALIA -- 19.3%
109,966 Adelaide Brighton Ltd. $ 260,349
11,542 Australia & New Zealand Banking
Group Ltd. 268,601
26,211 Billabong International Ltd. 271,794
4,381 Commonwealth Bank of Australia 226,298
520,210 Commonwealth Property Office
Fund 432,020
47,444 David Jones Ltd. 206,801
25,796 Felix Resources Ltd., In
Specie (c) (d) (e) 0
193,960 MAp Group 549,981
62,800 Metcash Ltd. 238,582
9,711 National Australia Bank Ltd. 245,239
9,441 Orica Ltd. 232,096
114,686 Stockland 419,914
28,854 Suncorp-Metway Ltd. 226,121
129,103 Telstra Corp. Ltd. 354,229
19,064 United Group Ltd. 263,286
6,833 Wesfarmers Ltd. 199,333
36,794 Westfield Group 407,194
10,766 Westpac Banking Corp. 275,043
6,499 WorleyParsons Ltd. 151,779
-------------
5,228,660
-------------
AUSTRIA -- 2.4%
3,855 OMV AG 144,645
20,546 Telekom Austria AG 287,219
5,465 Voestalpine AG 221,071
-------------
652,935
-------------
BELGIUM -- 0.7%
3,146 Mobistar S.A. 193,614
-------------
BERMUDA -- 2.1%
31,187 VTech Holdings Ltd. 337,407
64,938 Yue Yuen Industrial Holdings Ltd. 225,820
-------------
563,227
-------------
CANADA -- 10.2%
20,100 Bell Aliant Regional
Communications Income Fund 502,871
8,324 Canadian Oil Sands Trust 249,560
12,316 Crescent Point Energy Corp. 472,559
9,667 Emera, Inc. 233,478
12,399 Manitoba Telecom Services, Inc. 389,433
18,387 Russel Metals, Inc. 366,237
8,328 Telus Corp. 309,948
6,679 TransCanada Corp. 244,762
-------------
2,768,848
-------------
FINLAND -- 3.1%
11,122 Fortum Oyj 272,049
7,620 KCI Konecranes Oyj 225,086
4,407 Metso Oyj 142,321
8,284 YIT Oyj 191,329
-------------
830,785
-------------
Shares Description Value
- -------------------------------------------------------------
FRANCE -- 6.2%
4,416 Bouygues S.A. $ 221,999
15,850 France Telecom S.A. 379,242
3,823 Neopost S.A. 305,528
1,647 PPR 219,272
1,994 Schneider Electric S.A. 233,879
12,030 Vivendi S.A. 321,962
-------------
1,681,882
-------------
GERMANY -- 3.1%
3,691 BASF SE 228,924
4,610 K+S AG 279,758
3,717 RWE AG 329,338
-------------
838,020
-------------
HONG KONG -- 3.4%
34,106 CLP Holdings Ltd. 243,795
101,064 CNOOC Ltd. 166,352
44,678 Hongkong Electric Holdings 264,986
49,887 Television Broadcasts Ltd. 241,588
-------------
916,721
-------------
ITALY -- 4.1%
152,073 Edison S.p.A 231,690
13,211 ENI S.p.A 309,942
126,311 Milano Assicurazioni S.p.A 358,266
139,808 Telecom Italia S.p.A 201,296
-------------
1,101,194
-------------
JAPAN -- 1.6%
6,200 Eisai Co., Ltd. 221,168
4,900 Ono Pharmaceutical Co., Ltd. 218,034
-------------
439,202
-------------
JERSEY -- 1.1%
36,276 United Business Media Ltd. 301,942
-------------
NETHERLANDS -- 3.3%
3,299 Fugro N.V. 215,617
29,346 Koninklijke BAM Groep N.V. 228,306
5,779 Koninklijke Boskalis
Westminster N.V. 221,480
2,741 Smit Internationale N.V. 222,129
-------------
887,532
-------------
NEW ZEALAND -- 2.4%
42,545 Fletcher Building Ltd. 252,352
268,636 Telecom Corp. of New Zealand Ltd. 414,090
-------------
666,442
-------------
PORTUGAL -- 0.6%
22,623 CIMPOR Cimentos de Portugal
SGPS S.A. 170,961
-------------
SINGAPORE -- 3.7%
12,504 Jardine Cycle & Carriage Ltd. 262,603
36,000 Keppel Corp. Ltd. 234,690
308,000 StarHub Ltd. 504,178
-------------
1,001,471
-------------
See Notes to Financial Statements Page 29
First Trust Dow Jones Global Select Dividend Index Fund
Portfolio of Investments (a) (Continued)
March 31, 2010 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (b) (Continued)
SPAIN -- 0.8%
12,113 Gas Natural SDG S.A. $ 223,648
-------------
SWEDEN -- 2.7%
10,230 NCC AB, Class B 178,514
34,558 Peab AB 212,500
5,846 Svenska Handelsbanken AB 171,317
24,041 TeliaSonera AB 170,637
-------------
732,968
-------------
SWITZERLAND -- 0.8%
614 Swisscom AG 224,077
-------------
UNITED KINGDOM -- 11.2%
36,946 Amlin PLC 217,590
32,400 BP PLC 306,506
133,940 Cable & Wireless Communications
PLC 112,501
174,221 Hays PLC 286,852
183,763 HMV Group PLC 235,776
23,842 IMI PLC 238,789
30,540 Jardine Lloyd Thompson Group
PLC 257,211
22,603 Provident Financial PLC 297,552
19,799 Severn Trent PLC 359,037
53,300 Tate & Lyle PLC 367,369
41,603 United Utilities PLC 352,910
-------------
3,032,093
-------------
UNITED STATES -- 17.0%
17,848 Altria Group, Inc. 366,241
7,198 American Electric Power Co.,
Inc. 246,028
10,772 AT&T, Inc. 278,348
20,422 CenterPoint Energy, Inc. 293,260
10,615 CenturyTel, Inc. 376,408
6,078 Consolidated Edison, Inc. 270,714
5,968 DTE Energy Co. 266,173
5,568 FirstEnergy Corp. 217,653
3,066 Lorillard, Inc. 230,686
5,930 MeadWestvaco Corp. 151,512
9,071 Microchip Technology, Inc. 255,439
19,492 Pepco Holdings, Inc. 334,288
7,497 Progress Energy, Inc. 295,082
11,090 R.R. Donnelley & Sons Co. 236,771
7,105 SCANA Corp. 267,077
7,942 Southern Co. 263,357
16,788 TECO Energy, Inc. 266,761
-------------
4,615,798
-------------
TOTAL COMMON STOCKS -- 99.8% 27,072,020
(Cost $26,259,857)
MONEY MARKET FUND -- 1.0%
268,891 Morgan Stanley Institutional Treasury
Money Market Fund - 0.01% (f) 268,891
-------------
(Cost $268,891)
Description Value
- -------------------------------------------------------------
TOTAL INVESTMENTS -- 100.8% $ 27,340,911
(COST $26,528,748) (G)
NET OTHER ASSETS AND
LIABILITIES -- (0.8)% (207,852)
-------------
NET ASSETS -- 100.0% $ 27,133,059
=============
(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 is a restricted security which cannot be traded as a
result of the in-specie distribution. It was acquired on
October 15, 2009, at a cost of $1,887 and has a carrying
value per share of $0.
(e) This security is fair valued in accordance with valuation
procedures adopted by the Trust's Board of Trustees.
(f) Represents annualized 7-day yield at March 31, 2010.
(g) Aggregate cost for financial reporting purposes, which
approximates the aggregate cost for federal income tax
purposes. As of March 31, 2010, the aggregate gross
unrealized appreciation for all securities in which there
was an excess of value over tax cost was $1,614,474 and
the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over
value was $802,311.
___________________________________
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments
as of March 31, 2010 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* $27,072,020 $ -- $ --
Money Market Fund 268,891 -- --
------------------------------------------
Total Investments $27,340,911 $ -- $ --
==========================================
* See Portfolio of Investments for country breakout.
Page 30 See Notes to Financial Statements
First Trust Dow Jones Global Select Dividend Index Fund
Portfolio of Investments (a) (Continued)
March 31, 2010 (Unaudited)
% of
Industry Net Assets
- ---------------------------------------------------------------
Diversified Telecommunication Services 14.7%
Electric Utilities 8.7
Multi-Utilities 7.6
Oil, Gas & Consumable Fuels 7.0
Construction & Engineering 5.6
Real Estate Investment Trusts 4.6
Commercial Banks 4.4
Insurance 3.9
Media 3.2
Transportation Infrastructure 2.8
Chemicals 2.7
Wireless Telecommunication Services 2.6
Construction Materials 2.5
Machinery 2.2
Tobacco 2.2
Textiles, Apparel & Luxury Goods 1.8
Pharmaceuticals 1.6
Food & Staples Retailing 1.6
Multiline Retail 1.6
Energy Equipment & Services 1.4
Food Products 1.4
Trading Companies & Distributors 1.3
Water Utilities 1.3
Communications Equipment 1.2
Office Electronics 1.1
Consumer Finance 1.1
Professional Services 1.1
Money Market Fund 1.0
Distributors 1.0
Semiconductors & Semiconductor Equipment 0.9
Commercial Services & Supplies 0.9
Specialty Retail 0.9
Industrial Conglomerates 0.9
Electrical Equipment 0.9
Independent Power Producers & Energy Traders 0.9
Gas Utilities 0.8
Metals & Mining 0.8
Paper & Forest Products 0.6
- ---------------------------------------------------------------
Total Investments 100.8
Net Other Assets and Liabilities (0.8)
-----------
Total 100.0%
===========
See Notes to Financial Statements Page 31
First Trust ISE Global Wind Energy Index Fund
Portfolio of Investments (a)
March 31, 2010 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (b) -- 99.8%
AUSTRALIA -- 5.9%
53,806 AGL Energy Ltd. $ 742,108
2,952,174 Infigen Energy 3,467,600
-------------
4,209,708
-------------
BELGIUM -- 5.3%
2,724,477 Hansen Transmissions
International (c) 3,743,686
-------------
BERMUDA -- 0.6%
3,971,253 China WindPower Group Ltd. (c) 460,331
-------------
BRAZIL -- 0.9%
41,028 Centrais Eletricas Brasileiras
S.A., ADR 615,420
-------------
CANADA -- 1.0%
22,608 Boralex, Inc. (c) 236,175
24,221 Brookfield Renewable Power Fund 500,803
-------------
736,978
-------------
CAYMAN ISLANDS -- 0.9%
278,941 China High Speed Transmission
Equipment Group Co., Ltd. 616,496
-------------
CHINA -- 0.2%
192,983 Harbin Power Equipment Co., Ltd. 159,323
-------------
DENMARK -- 8.4%
259,636 Greentech Energy Systems A/S (c) 899,715
92,786 Vestas Wind Systems A/S (c) 5,041,802
-------------
5,941,517
-------------
FRANCE -- 3.3%
12,584 Alstom S.A. 784,737
12,699 EDF Energies Nouvelles S.A. 607,438
236,297 Theolia S.A. (c) 976,618
-------------
2,368,793
-------------
GERMANY -- 15.8%
176,707 Conergy AG (c) 186,402
27,638 E. ON AG 1,020,401
235,606 Nordex AG (c) 2,688,985
508,028 PNE Wind AG (c) 1,392,929
26,655 Repower Systems AG (c) 4,698,233
12,322 Siemens AG, ADR 1,231,830
-------------
11,218,780
-------------
GREECE -- 0.5%
44,959 Terna Energy S.A. 327,304
-------------
JAPAN -- 5.5%
860 Japan Wind Development Co., Ltd. 2,569,237
79,300 Mitsui & Co., Ltd. 1,332,552
-------------
3,901,789
-------------
JERSEY -- 1.2%
1,032,245 Renewable Energy Generation Ltd. 838,039
-------------
PORTUGAL -- 1.1%
196,790 EDP-Energias de Portugal S.A. 782,237
-------------
Shares Description Value
- -------------------------------------------------------------
SOUTH KOREA -- 0.3%
21,604 Dongkuk Structures &
Construction Co., Ltd. $ 195,714
-------------
SPAIN -- 25.0%
7,206 Acciona S.A. 799,163
648,931 EDP Renovaveis S.A. (c) 5,070,458
34,730 Endesa S.A. 992,581
796,913 Fersa Energias Renovables S.A. 2,018,169
270,724 Gamesa Corp. Tecnologica S.A. 3,711,403
1,242,894 Iberdrola Renovables S.A. 5,162,078
-------------
17,753,852
-------------
SWEDEN -- 1.0%
39,742 SKF AB 706,160
-------------
SWITZERLAND -- 1.1%
8,745 BKW FMB Energie AG 649,821
314 Gurit Holding AG 166,321
-------------
816,142
-------------
UNITED KINGDOM -- 4.9%
19,742 BP PLC, ADR 1,126,676
830,029 Clipper Windpower PLC (c) 1,253,269
18,798 Royal Dutch Shell PLC, ADR 1,087,652
-------------
3,467,597
-------------
UNITED STATES -- 16.9%
68,149 AES (The) Corp. (c) 749,639
18,380 Allegheny Technologies, Inc. 992,336
21,942 Alliant Energy Corp. 729,791
11,516 American Superconductor Corp. (c) 332,813
3,164 Ameron International Corp. 198,984
423,481 Broadwind Energy, Inc. (c) 1,892,960
141,493 Capstone Turbine Corp. (c) 179,696
17,002 Deere & Co. 1,010,939
50,053 Duke Energy Corp. 816,865
31,279 Federal Mogul Corp. (c) 574,283
15,849 FPL Group, Inc. 765,982
69,995 General Electric Co. 1,273,909
12,402 Kaydon Corp. 466,315
26,699 NRG Energy, Inc. (c) 558,009
7,551 Otter Tail Corp. 165,820
24,067 Trinity Industries, Inc. 480,377
18,286 Woodward Governor Co. 584,786
21,001 Zoltek Cos., Inc. (c) 202,450
-------------
11,975,954
-------------
TOTAL COMMON STOCKS -- 99.8% 70,835,820
(Cost $96,709,184)
WARRANT 0.0%
United States 0.0%
959 GreenHunter Energy, Inc.,
expiring 09/15/11 @ $0 (c) (d) 0
-------------
(Cost $0)
Page 32 See Notes to Financial Statements
First Trust ISE Global Wind Energy Index Fund
Portfolio of Investments (a) (Continued)
March 31, 2010 (Unaudited)
Description Value
- -------------------------------------------------------------
TOTAL INVESTMENTs -- 99.8% $ 70,835,820
(Cost $96,709,184) (e)
NET OTHER ASSETS AND
LIABILITIES -- 0.2% 137,821
-------------
NET ASSETS -- 100.0% $ 70,973,641
=============
(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 Trust's Board of Trustees.
(e) Aggregate cost for financial reporting purposes, which
approximates the aggregate cost for federal income tax
purposes. As of March 31, 2010, the aggregate gross
unrealized appreciation for all securities in which there
was an excess of value over tax cost was $2,917,833 and
the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over
value was $28,791,197.
ADR - American Depositary Receipt
___________________________________
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments
as of March 31, 2010 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* $ 70,835,820 $ -- $ --
==========================================
* See Portfolio of Investments for country breakout.
% of
Industry Net Assets
- ---------------------------------------------------------------
Independent Power Producers & Energy Traders 31.7%
Electrical Equipment 29.4
Electric Utilities 12.7
Machinery 9.0
Oil, Gas & Consumable Fuels 5.9
Industrial Conglomerates 3.8
Multi-Utilities 2.1
Trading Companies & Distributors 1.9
Metals & Mining 1.4
Auto Components 0.8
Chemicals 0.5
Building Products 0.3
Construction & Engineering 0.3
- ---------------------------------------------------------------
Total Investments 99.8
Net Other Assets and Liabilities 0.2
-----------
Total 100.0%
===========
See Notes to Financial Statements Page 33
First Trust ISE Global Engineering and Construction Index Fund
Portfolio of Investments (a)
March 31, 2010 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (b) -- 99.7%
AUSTRALIA -- 2.5%
26,967 Leighton Holdings Ltd. $ 965,105
-------------
BERMUDA -- 0.2%
778,040 HKC (Holdings) Ltd. (c) 68,141
-------------
CANADA -- 3.4%
10,182 Aecon Group, Inc. 136,040
17,880 SNC-Lavalin Group, Inc. 873,359
11,455 Stantec, Inc. (c) 297,865
-------------
1,307,264
-------------
CAYMAN ISLANDS -- 0.6%
586,000 China State Construction
International Holdings Ltd. 228,687
-------------
CHINA -- 3.8%
881,794 China Communications
Construction Co., Ltd. 832,476
851,707 China Railway Group Ltd. (c) 614,297
-------------
1,446,773
-------------
EGYPT -- 1.9%
15,132 Orascom Construction Industries,
GDR 720,435
-------------
FINLAND -- 1.6%
27,043 YIT Oyj 624,592
-------------
FRANCE -- 7.2%
20,812 Bouygues S.A. 1,046,250
11,294 Eiffage S.A. 584,164
18,460 Vinci S.A. 1,087,958
-------------
2,718,372
-------------
GERMANY -- 2.9%
12,932 Hochtief AG 1,086,779
-------------
ITALY -- 3.6%
14,836 Astaldi S.p.A 112,916
164,209 Impregilo S.p.A 567,228
105,211 Marie Tecnimont S.p.A 400,734
16,828 Trevi Finanziaria S.p.A 288,657
-------------
1,369,535
-------------
JAPAN -- 16.0%
74,000 Chiyoda Corp. 734,538
38,500 COMSYS Holdings Corp. 372,687
46,000 JGC Corp. 820,708
253,000 Kajima Corp. 619,713
37,000 Kandenko Co., Ltd. 235,084
46,000 Kinden Corp. 402,974
22,600 Kyowa Exeo Corp. 186,621
11,000 Maeda Road Construction Co., Ltd. 89,657
155,000 Obayashi Corp. 688,042
14,000 Okumura Corp. 48,968
173,000 Shimizu Corp. 721,681
1,000 SHO-BOND Holdings Co., Ltd. 19,596
271,000 Taisei Corp. 597,133
37,000 Toda Corp. 133,373
Shares Description Value
- -------------------------------------------------------------
JAPAN (Continued)
24,000 Toshiba Plant Systems &
Services Corp. $ 270,061
32,000 Toyo Engineering Corp. 122,879
-------------
6,063,715
-------------
NETHERLANDS -- 7.3%
14,828 Arcadis N.V. 313,631
33,832 Chicago Bridge & Iron Co. N.V. (c) 786,932
18,613 Imtech N.V. 596,065
44,138 Koninklijke BAM Groep N.V. 343,384
19,413 Koninklijke Boskalis Westminster
N.V. 744,002
-------------
2,784,014
-------------
NORWAY -- 3.2%
64,826 Aker Solutions ASA 1,014,406
25,700 Veidekke ASA 209,727
-------------
1,224,133
-------------
PANAMA -- 3.0%
42,964 McDermott International, Inc. (c) 1,156,591
-------------
PORTUGAL -- 0.4%
31,655 Mota-Engil SGPS S.A. 138,655
-------------
SPAIN -- 7.9%
21,091 ACS Actividades de Construccion
y Servicios S.A. 973,106
23,886 Obrascon Huarte Lain S.A. 690,403
51,705 Sacyr Vallehermoso S.A. (c) 456,167
13,677 Tecnicas Reunidas S.A. 859,916
-------------
2,979,592
-------------
SWEDEN -- 4.7%
22,067 NCC AB, Class B 385,071
61,430 Peab AB 377,737
55,788 Skanska AB 1,013,681
-------------
1,776,489
-------------
SWITZERLAND -- 2.4%
33,410 Foster Wheeler AG (c) 906,747
-------------
UNITED KINGDOM -- 4.8%
62,739 AMEC PLC 760,698
169,152 Balfour Beatty PLC 750,041
3,216 Keller Group PLC 32,990
28,992 WS Atkins PLC 272,771
-------------
1,816,500
-------------
UNITED STATES -- 22.3%
30,012 Aecom Technology Corp. (c) 851,440
17,240 EMCOR Group, Inc. (c) 424,621
25,796 Fluor Corp. 1,199,772
14,123 Granite Construction, Inc. 426,797
28,813 Jacobs Engineering Group, Inc. (c) 1,302,059
46,156 KBR, Inc. 1,022,817
8,823 Orion Marine Group, Inc. (c) 159,255
48,299 Quanta Services, Inc. (c) 925,409
25,528 Shaw Group (The), Inc. (c) 878,674
Page 34 See Notes to Financial Statements
First Trust ISE Global Engineering and Construction Index Fund
Portfolio of Investments (a) (Continued)
March 31, 2010 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (b) (Continued)
UNITED STATES (Continued)
12,038 Tutor Perini Corp. (c) $ 261,827
20,298 URS Corp. (c) 1,006,984
-------------
8,459,655
-------------
TOTAL INVESTMENTS -- 99.7% 37,841,774
(Cost $32,280,634) (d)
NET OTHER ASSETS AND
LIABILITIES -- 0.3% 105,946
-------------
NET ASSETS -- 100.0% $ 37,947,720
=============
(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 financial reporting purposes, which
approximates the aggregate cost for federal income tax
purposes. As of March 31, 2010, the aggregate gross
unrealized appreciation for all securities in which there
was an excess of value over tax cost was $6,481,641 and
the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over
value was $920,501.
GDR - Global Depositary Receipt
___________________________________
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments
as of March 31, 2010 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* $37,841,774 $ -- $ --
==========================================
* See Portfolio of Investments for country breakout.
% of
Industry Net Assets
- ---------------------------------------------------------------
Construction & Engineering 88.2%
Energy Equipment & Services 6.9
Industrial Conglomerates 3.1
Professional Services 1.5
- ---------------------------------------------------------------
Total Investments 99.7
Net Other Assets and Liabilities 0.3
-----------
Total 100.0%
===========
See Notes to Financial Statements Page 35
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund
Portfolio of Investments (a)
March 31, 2010 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (b) -- 100.2%
CANADA -- 1.2%
21,468 RuggedCom, Inc. (c) $ 383,006
-------------
FRANCE -- 8.2%
22,648 Schneider Electric S.A. 2,656,409
-------------
GERMANY -- 11.0%
7,050 Siemens AG 706,067
23,229 SMA Solar Technology AG 2,847,229
-------------
3,553,296
-------------
IRELAND -- 2.0%
13,361 Cooper Industries PLC, Class A 640,527
-------------
ITALY -- 8.5%
140,422 Prysmian S.p.A 2,759,583
-------------
JAPAN -- 7.1%
112,000 NGK Insulators Ltd. 2,284,565
-------------
SPAIN -- 1.9%
21,453 Telvent GIT S.A. 616,988
-------------
SWITZERLAND -- 2.0%
29,920 ABB Ltd. (c) 653,507
-------------
UNITED KINGDOM -- 1.8%
61,055 National Grid PLC 594,355
-------------
UNITED STATES -- 54.6%
29,585 Advanced Energy Industries, Inc. (c) 489,928
43,288 American Superconductor Corp. (c) 1,251,023
21,803 AZZ, Inc. 738,032
43,812 Comverge, Inc. (c) 495,514
17,387 Digi International, Inc. (c) 184,998
72,647 Echelon Corp. (c) 651,644
42,505 EnerNOC, Inc. (c) 1,261,548
37,056 ESCO Technologies, Inc. 1,178,751
49,615 General Cable Corp. (c) 1,339,605
37,736 General Electric Co. 686,795
22,706 ITC Holdings Corp. 1,248,830
18,104 Itron, Inc. (c) 1,313,807
45,774 MasTec, Inc. (c) 577,210
35,103 MYR Group, Inc. (c) 572,530
59,319 Pike Electric Corp. (c) 552,853
156,332 Power-One, Inc. (c) 659,721
30,535 PowerSecure International, Inc. (c) 240,616
127,588 Quanta Services, Inc. (c) 2,444,586
124,589 Satcon Technology Corp. (c) 302,751
8,512 Valmont Industries, Inc. 705,049
20,978 WESCO International, Inc. (c) 728,146
-------------
17,623,937
-------------
VIRGIN ISLANDS (US) -- 1.9%
29,105 Jinpan International Ltd. 605,384
-------------
TOTAL INVESTMENTS -- 100.2% 32,371,557
(Cost $32,111,102) (d)
NET OTHER ASSETS AND
LIABILITIES -- (0.2)% (71,487)
-------------
NET ASSETS -- 100.0% $ 32,300,070
=============
(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 financial reporting purposes, which
approximates the aggregate cost for federal income tax
purposes. As of March 31, 2010, the aggregate gross
unrealized appreciation for all securities in which there
was an excess of value over tax cost was $1,431,005 and
the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over
value was $1,170,550.
GDR - Global Depositary Receipt
___________________________________
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments
as of March 31, 2010 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* $32,371,557 $ -- $ --
==========================================
* See Portfolio of Investments for country breakout.
% of
Industry Net Assets
- ---------------------------------------------------------------
Electrical Equipment 43.4%
Machinery 12.9
Construction & Engineering 12.8
Electronic Equipment & Instruments 9.7
Industrial Conglomerates 4.3
Commercial Services & Supplies 3.9
Electric Utilities 3.9
Trading Companies & Distributors 2.3
IT Services 1.9
Multi-Utilities 1.8
Communications Equipment 1.8
Semiconductors & Semiconductor Equipment 1.5
- ---------------------------------------------------------------
Total Investments 100.2
Net Other Assets and Liabilities (0.2)
-----------
Total 100.0%
===========
Page 36 See Notes to Financial Statements
First Trust ISE Global Copper Index Fund
Portfolio of Investments (a)
March 31, 2010 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (b) -- 100.0%
AUSTRALIA -- 7.0%
5,395 BHP Billiton Ltd. $ 215,802
-------------
BERMUDA -- 3.5%
141,090 Katanga Mining Ltd. (c) 106,965
-------------
CANADA -- 36.7%
10,951 Anvil Mining Ltd. (c) 41,835
14,307 Capstone Mining Corp. (c) 42,541
30,062 Equinox Minerals Ltd. (c) 113,363
1,573 First Quantum Minerals Ltd. 129,430
3,170 FNX Mining Co., Inc. (c) 42,354
3,370 HudBay Minerals, Inc. (c) 42,173
1,907 Inmet Mining Corp. 110,798
8,574 Ivanhoe Mines Ltd. (c) 149,844
21,721 Lundin Mining Corp. (c) 115,272
16,128 Mercator Minerals Ltd. (c) 40,493
9,705 New Gold, Inc. (c) 41,757
4,642 Northern Dynasty Minerals Ltd. (c) 44,517
6,655 Quadra Mining Ltd. (c) 101,891
22,360 Taseko Mines Ltd. (c) 115,825
-------------
1,132,093
-------------
PERU -- 3.3%
4,269 Sociedad Minera Cerro
Verde S.A.A. 103,224
-------------
RUSSIA -- 4.8%
8,050 MMC Norilsk Nickel, ADR (c) 148,200
-------------
SOUTH AFRICA -- 1.6%
2,969 Palabora Mining Co., Ltd. 49,730
-------------
TURKEY -- 1.6%
24,881 Park Elektrik Madencilik Tekstil
Sanayi ve Ticaret A.S. (c) 49,180
-------------
UNITED KINGDOM -- 27.6%
13,510 Antofagasta PLC 213,214
5,917 Kazakhmys PLC 137,110
606 Rio Tinto PLC, ADR 143,458
3,267 Vedanta Resources PLC 137,625
11,698 Xstrata PLC 221,630
-------------
853,037
-------------
UNITED STATES -- 13.9%
2,630 Freeport-McMoRan Copper &
Gold, Inc. 219,710
6,611 Southern Copper Corp. 209,371
-------------
429,081
-------------
TOTAL INVESTMENTS -- 100.0% 3,087,312
(Cost $2,996,651) (d)
NET OTHER ASSETS AND
LIABILITIES -- 0.0% 1,477
-------------
NET ASSETS -- 100.0% $ 3,088,789
=============
(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 financial reporting purposes, which
approximates the aggregate cost for federal income tax
purposes. As of March 31, 2010, the aggregate gross
unrealized appreciation for all securities in which there
was an excess of value over tax cost was $113,976 and the
aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over
value was $23,315.
ADR - American Depositary Receipt
___________________________________
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments
as of March 31, 2010 is as follows (see Note 2A - Portfolio
Valuation in the Notes to Financial Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
- ---------------------------------------------------------------
Common Stocks* $ 3,087,312 $ -- $ --
==========================================
* See Portfolio of Investments for country breakout.
% of
Industry Net Assets
- ---------------------------------------------------------------
Metals & Mining 100.0%
- ---------------------------------------------------------------
Total Investments 100.0
Net Other Assets and Liabilities 0.0
-----------
Total 100.0%
===========
See Notes to Financial Statements Page 37
First Trust ISE Global Platinum Index Fund
Portfolio of Investments (a)
March 31, 2010 (Unaudited)
Shares Description Value
- -------------------------------------------------------------
COMMON STOCKS (b) -- 100.1%
AUSTRALIA -- 5.1%
130,390 Platinum Australia Ltd. (c) $ 113,071
61,115 Sylvania Resources Ltd. (c) 46,371
-------------
159,442
-------------
BERMUDA -- 11.5%
35,882 Aquarius Platinum Ltd. 234,520
242,883 Nkwe Platinum Ltd. (c) 121,470
-------------
355,990
-------------
CANADA -- 22.9%
82,703 Anooraq Resources Corp. (c) 123,228
95,720 Eastern Platinum Ltd. (c) 139,483
9,853 FNX Mining Co., Inc. (c) 131,645
37,775 Noront Resources Ltd. (c) 61,368
27,087 North American Palladium Ltd. (c) 110,515
25,810 Platinum Group Metals Ltd. (c) 49,808
34,887 Platmin Ltd. (c) 47,059
21,583 PolyMet Mining Corp. (c) 48,130
-------------
711,236
-------------
CHINA -- 1.8%
100,078 Xinjiang Xinxin Mining Industry
Co., Ltd., Class H 55,683
-------------
HONG KONG -- 1.9%
145,444 Minmetals Resources Ltd. (c) 57,884
-------------
JAPAN -- 3.0%
1,400 Furuya Metal Co., Ltd. 94,791
-------------
RUSSIA -- 7.5%
12,600 MMC Norilsk Nickel, ADR (c) 231,966
-------------
SOUTH AFRICA -- 24.6%
5,050 African Rainbow Minerals Ltd. 132,903
2,264 Anglo Platinum Ltd. (c) 230,013
7,993 Impala Platinum Holdings Ltd. 234,838
21,587 Northam Platinum Ltd. 142,259
65,212 Wesizwe Platinum Ltd. (c) 21,308
-------------
761,321
-------------
UNITED KINGDOM -- 17.8%
8,119 Johnson Matthey PLC 215,117
7,054 Lonmin PLC (c) 218,156
6,268 Xstrata PLC 118,753
-------------
552,026
-------------
UNITED STATES -- 4.0%
9,550 Stillwater Mining Co. (c) 123,959
-------------
TOTAL INVESTMENTS -- 100.1% 3,104,298
(Cost $2,996,412) (d)
NET OTHER ASSETS AND
LIABILITIES -- (0.1)% (3,665)
-------------
NET ASSETS -- 100.0% $ 3,100,633
=============
(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 financial reporting purposes, which
approximates the aggregate cost for federal income tax
purposes. As of March 31, 2010, the aggregate gross
unrealized appreciation for all securities in which there
was an excess of value over tax cost was $157,007 and the
aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over
value was $49,121.
ADR - American Depositary Receipt
___________________________________
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments
as of March 31, 2010 is as follows (see Note 2A - Portfolio
Valuation in the Notes to Financial Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
- ---------------------------------------------------------------
Common Stocks* $ 3,104,298 $ -- $ --
==========================================
* See Portfolio of Investments for country breakout.
% of
Industry Net Assets
- ---------------------------------------------------------------
Metals & Mining 90.1%
Chemicals 6.9
Semiconductors & Semiconductor Equipment 3.1
- ---------------------------------------------------------------
Total Investments 100.1
Net Other Assets and Liabilities (0.1)
-----------
Total 100.0%
===========
Page 38 See Notes to Financial Statements
This page is intentionally left blank.
Page 39
First Trust Exchange-Traded Fund II
Statements of Assets and Liabilities
March 31, 2010 (Unaudited)
First Trust
First Trust FTSE EPRA/NAREIT
Dow Jones STOXX(R) Developed Markets
European Select Real Estate
Dividend Index Fund Index Fund
--------------------------- ---------------------------
ASSETS:
Investments at value...................................................... $ 7,424,211 $ 33,116,898
Cash...................................................................... -- 1,907
Foreign currency at value................................................. 962 4,860
Receivables:
Investment securities sold............................................. -- 71,631
Foreign tax reclaims................................................... 55,212 3,117
From investment advisor................................................ 20,669 12,576
Dividends.............................................................. 6,154 113,502
Prepaid expenses.......................................................... 4,486 4,034
----------------- ----------------
Total Assets........................................................... 7,511,694 33,328,525
----------------- ----------------
LIABILITIES:
Due to Custodian.......................................................... 46,839 --
Payables:
Capital shares purchased............................................... -- --
Investment securities purchased........................................ -- 159,533
Audit and tax fees..................................................... 18,561 20,869
Licensing fees......................................................... 18,493 7,306
Investment advisory fees............................................... -- --
Printing fees.......................................................... -- 8,490
Other liabilities......................................................... 10,212 17,103
----------------- ----------------
Total Liabilities...................................................... 94,105 213,301
----------------- ----------------
NET ASSETS................................................................ $ 7,417,589 $ 33,115,224
================= ================
NET ASSETS consist of:
Paid-in capital........................................................... $ 17,210,042 $ 33,907,199
Par value................................................................. 5,533 10,500
Accumulated net investment income (loss).................................. 296 (469,148)
Accumulated net realized gain (loss) on investments and
foreign currency transactions.......................................... (9,899,642) (2,929,372)
Net unrealized appreciation (depreciation) on investments and
foreign currency translation........................................... 101,360 2,596,045
----------------- ----------------
NET ASSETS................................................................ $ 7,417,589 $ 33,115,224
================= ================
NET ASSET VALUE, per share................................................ $ 13.41 $ 31.54
================= ================
Number of shares outstanding
(unlimited number of shares authorized, par value $0.01 per share)........ 553,334 1,050,002
----------------- ----------------
Investments at cost....................................................... $ 7,318,968 $ 30,520,615
================= ================
Foreign currency at cost.................................................. $ 959 $ 4,700
================= ================
Page 40 See Notes to Financial Statements
First Trust First Trust
First Trust First Trust ISE Global NASDAQ(R) Clean First Trust First Trust
Dow Jones Global ISE Global Engineering Edge(R) Smart Grid ISE Global ISE Global
Select Dividend Wind Energy and Construction Infrastructure Copper Platinum
Index Fund Index Fund Index Fund Index Fund Index Fund Index Fund
--------------------- ----------------- --------------------- --------------------- ----------------- -----------------
$ 27,340,911 $ 70,835,820 $ 37,841,774 $ 32,371,557 $ 3,087,312 $ 3,104,298
-- -- 20,314 -- 2,632 --
18,313 -- 17,029 -- -- 540
180,756 2,007,875 -- -- -- --
3,292 40,992 12,947 1,114 -- --
11,210 -- 673 2,371 -- --
107,728 255,573 103,789 19,791
38,892 5,504 4,448 -- -- --
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
27,701,102 73,145,764 38,000,974 32,394,833 3,089,944 3,104,838
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
302,629 64,025 -- 58,133 -- 3,045
-- 2,008,687 -- -- -- --
205,774 -- -- -- -- --
20,981 18,561 18,561 12,067 -- --
16,104 20,726 8,827 5,918 -- --
-- 6,162 -- -- 1,155 1,160
6,548 26,307 9,633 4,884 -- --
16,007 27,655 16,233 13,761 -- --
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
568,043 2,172,123 53,254 94,763 1,155 4,205
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
$ 27,133,059 $ 70,973,641 $ 37,947,720 $ 32,300,070 $ 3,088,789 $ 3,100,633
================= ================= ================= ================= ================= =================
$ 25,466,606 $ 120,724,171 $ 31,225,121 $ 32,201,856 $ 2,999,060 $ 2,999,060
12,500 53,000 9,500 10,500 1,000 1,000
(68,301) (1,002,038) 68,992 (8,160) (1,155) (623)
909,568 (22,928,577) 1,083,846 (164,441) (777) (6,700)
812,686 (25,872,915) 5,560,261 260,315 90,661 107,896
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
$ 27,133,059 $ 70,973,641 $ 37,947,720 $ 32,300,070 $ 3,088,789 $ 3,100,633
================= ================= ================= ================= ================= =================
$ 21.71 $ 13.39 $ 39.94 $ 30.76 $ 30.89 $ 31.01
================= ================= ================= ================= ================= =================
1,250,002 5,300,002 950,002 1,050,002 100,002 100,002
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
$ 26,528,748 $ 96,709,184 $ 32,280,634 $ 32,111,102 $ 2,996,651 $ 2,996,412
================= ================= ================= ================= ================= =================
$ 18,269 $ -- $ 16,822 $ -- $ -- $ 531
================= ================= ================= ================= ================= =================
See Notes to Financial Statements Page 41
First Trust Exchange-Traded Fund II
Statements of Operations
First Trust
First Trust FTSE EPRA/NAREIT
Dow Jones STOXX(R) Developed Markets
European Select Real Estate
Dividend Index Fund Index Fund
--------------------------- ---------------------------
For the For the
Six Months Six Months
Ended Ended
March 31, 2010 March 31, 2010
(Unaudited) (Unaudited)
--------------------------- ---------------------------
INVESTMENT INCOME:
Dividends.................................................................. $ 65,732 $ 399,033
Foreign tax withholding.................................................... (2,639) (17,220)
Interest................................................................... -- 3
----------------- ----------------
Total investment income................................................. 63,093 381,816
----------------- ----------------
EXPENSES:
Licensing fees............................................................. 37,397 12,720
Investment advisory fees................................................... 16,591 42,401
Audit and tax fees......................................................... 14,884 16,418
Listing fees............................................................... 13,908 13,908
Accounting and administration fees......................................... 3,969 13,573
Legal fees................................................................. 1,528 3,634
Trustees' fees and expenses................................................ 690 1,469
Registration and filing fees............................................... 368 76
Custodian fees............................................................. 260 5,286
Transfer agent fees........................................................ 207 530
Printing fees.............................................................. (4,157) 4,148
Other expenses............................................................. 1,651 8,743
----------------- ----------------
Total expenses.......................................................... 87,296 122,906
Less fees waived and expenses reimbursed by the investment advisor...... (62,408) (59,304)
----------------- ----------------
Net expenses............................................................ 24,888 63,602
----------------- ----------------
NET INVESTMENT INCOME (LOSS)............................................... 38,205 318,214
----------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................................. (273,925) (1,044,285)
In-kind redemptions..................................................... 1,246,510 --
Foreign currency transactions........................................... (1,022) 1,482
----------------- ----------------
Net realized gain (loss)................................................... 971,563 (1,042,803)
----------------- ----------------
Net change in unrealized appreciation (depreciation) on:
Investments............................................................. (1,286,732) 2,550,314
Foreign currency translation............................................ (3,902) (677)
----------------- ----------------
Net change in unrealized appreciation (depreciation)....................... (1,290,634) 2,549,637
----------------- ----------------
NET REALIZED AND UNREALIZED GAIN (LOSS).................................... (319,071) 1,506,834
----------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS......................................................... $ (280,866) $ 1,825,048
================= ================
(a) Inception date.
Page 42 See Notes to Financial Statements
First Trust First Trust
First Trust First Trust ISE Global NASDAQ(R) Clean First Trust First Trust
Dow Jones Global ISE Global Engineering Edge(R) Smart Grid ISE Global ISE Global
Select Dividend Wind Energy and Construction Infrastructure Copper Platinum
Index Fund Index Fund Index Fund Index Fund Index Fund Index Fund
---------------------- ----------------- ------------------- -------------------- --------------------- -------------------
For the For the For the For the Period For the Period For the Period
Six Months Six Months Six Months November 16, 2009 (a) March 11, 2010 (a) March 11, 2010 (a)
Ended Ended Ended through through through
March 31, 2010 March 31, 2010 March 31, 2010 March 31, 2010 March 31, 2010 March 31, 2010
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------------------- ------------------ ------------------- -------------------- -------------------- -------------------
$ 692,954 $ 642,491 $ 209,332 $ 58,111 $ -- $ 537
(33,181) (20,507) (12,934) (2,203) -- --
2 9 -- -- -- --
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
659,775 621,993 196,398 55,908 -- 537
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
12,148 45,202 17,902 7,466 -- --
72,228 180,809 71,606 33,182 1,155 1,160
16,530 14,884 14,891 12,067 -- --
11,408 11,534 11,534 11,505 -- --
15,483 25,039 11,576 5,971 -- --
6,571 16,898 6,802 3,842 -- --
3,052 7,263 2,870 1,449 -- --
150 1,158 686 330 -- --
6,817 18,322 8,899 5,769 -- --
903 2,260 895 415 -- --
11,211 28,048 10,584 4,955 -- --
8,636 8,539 5,538 325 -- --
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
165,137 359,956 163,783 87,276 1,155 1,160
(56,795) (88,743) (38,471) (29,208) -- --
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
108,342 271,213 125,312 58,068 1,155 1,160
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
551,433 350,780 71,086 (2,160) (1,155) (623)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(409,527) (6,071,917) (135,123) (324,616) (777) (6,694)
3,379,119 1,979,962 1,443,059 160,254 -- --
(531) (2,703) 308 (79) -- (6)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
2,969,061 (4,094,658) 1,308,244 (164,441) (777) (6,700)
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(2,935,328) (12,410,301) (1,186,004) 260,455 90,661 107,887
(619) (1,738) (1,929) (140) -- 9
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(2,935,947) (12,412,039) (1,187,933) 260,315 90,661 107,896
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
33,114 (16,506,697) 120,311 95,874 89,884 101,196
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
$ 584,547 $ (16,155,917) $ 191,397 $ 93,714 $ 88,729 $ 100,573
================= ================= ================= ================= ================= =================
See Notes to Financial Statements Page 43
First Trust Exchange-Traded Fund II
Statements of Changes in Net Assets
First Trust
Dow Jones STOXX(R)
European Select Dividend
Index Fund
-----------------------------------------------------
For the
Six Months Ended For the
March 31, 2010 Year Ended
(Unaudited) September 30, 2009
---------------------- ----------------------
OPERATIONS:
Net investment income (loss)............................................... $ 38,205 $ 269,585
Net realized gain (loss)................................................... 971,563 (10,090,819)
Net change in unrealized appreciation (depreciation)....................... (1,290,634) 7,679,590
----------------- ----------------
Net increase (decrease) in net assets resulting from operations............ (280,866) (2,141,644)
----------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................................... (36,200) (254,857)
Net realized gain.......................................................... -- --
----------------- ----------------
Total distributions to shareholders........................................ (36,200) (254,857)
----------------- ----------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.................................................. 4,114,863 2,617,970
Cost of shares redeemed.................................................... (4,710,182) (4,436,933)
----------------- ----------------
Net increase (decrease) in net assets resulting from shareholder
transactions............................................................ (595,319) (1,818,963)
----------------- ----------------
Total increase (decrease) in net assets.................................... (912,385) (4,215,464)
NET ASSETS:
Beginning of period........................................................ 8,329,974 12,545,438
----------------- ----------------
End of period.............................................................. $ 7,417,589 $ 8,329,974
================= ================
Accumulated net investment income (loss) at end of period.................. $ 296 $ (1,709)
================= ================
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.................................... 603,334 803,334
Shares sold................................................................ 300,000 200,000
Shares redeemed............................................................ (350,000) (400,000)
----------------- ----------------
Shares outstanding, end of period.......................................... 553,334 603,334
================= ================
Page 44 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 For the For the
Six Months Ended For the Six Months Ended For the Six Months Ended For the
March 31, 2010 Year Ended March 31, 2010 Year Ended March 31, 2010 Year Ended
(Unaudited) September 30, 2009 (Unaudited) September 30, 2009 (Unaudited) September 30, 2009
- ------------------- ------------------ ------------------- ------------------ ------------------- ---------------------
$ 318,214 $ 318,839 $ 551,433 $ 293,322 $ 350,780 $ 783,536
(1,042,803) (2,240,337) 2,969,061 (1,735,915) (4,094,658) (17,646,561)
2,549,637 2,460,142 (2,935,947) 4,796,196 (12,412,039) 16,610,154
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
1,825,048 538,644 584,547 3,353,603 (16,155,917) (252,871)
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(867,362) (274,642) (697,950) (285,416) (1,655,401) (515,400)
-- (2,775) -- -- -- --
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(867,362) (277,417) (697,950) (285,416) (1,655,401) (515,400)
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
16,919,392 9,825,531 22,755,148 22,706,498 9,207,542 42,372,151
-- (2,097,271) (24,298,220) (975,036) (21,272,301) (3,821,099)
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
16,919,392 7,728,260 (1,543,072) 21,731,462 (12,064,759) 38,551,052
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
17,877,078 7,989,487 (1,656,475) 24,799,649 (29,876,077) 37,782,781
15,238,146 7,248,659 28,789,534 3,989,885 100,849,718 63,066,937
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
$ 33,115,224 $ 15,238,146 $ 27,133,059 $ 28,789,534 $ 70,973,641 $ 100,849,718
================= ================= ================= ================= ================= =================
$ (469,148) $ 80,000 $ (68,301) $ 78,216 $ (1,002,038) $ 302,583
================= ================= ================= ================= ================= =================
500,002 200,002 1,350,002 200,002 6,200,002 3,300,002
550,000 400,000 1,050,000 1,200,000 600,000 3,150,000
-- (100,000) (1,150,000) (50,000) (1,500,000) (250,000)
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
1,050,002 500,002 1,250,002 1,350,002 5,300,002 6,200,002
================= ================= ================= ================= ================= =================
See Notes to Financial Statements Page 45
First Trust Exchange-Traded Fund II
Statements of Changes in Net Assets (Continued)
First Trust
ISE Global
Engineering and Construction
Index Fund
-----------------------------------------------------
For the For the Period
Six Months Ended October 13, 2008 (a)
March 31, 2010 through
(Unaudited) September 30, 2009
---------------------- ----------------------
OPERATIONS:
Net investment income (loss)............................................... $ 71,086 $ 329,580
Net realized gain (loss)................................................... 1,308,244 1,317,826
Net change in unrealized appreciation (depreciation)....................... (1,187,933) 6,748,194
--------------- ---------------
Net increase (decrease) in net assets resulting from operations............ 191,397 8,395,600
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................................... (72,200) (261,640)
Net realized gain.......................................................... -- --
--------------- ---------------
Total distributions to shareholders........................................ (72,200) (261,640)
--------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.................................................. 5,855,365 33,995,273
Cost of shares redeemed.................................................... (3,811,093) (6,344,982)
--------------- ---------------
Net increase (decrease) in net assets resulting from shareholder
transactions............................................................ 2,044,272 27,650,291
--------------- ---------------
Total increase (decrease) in net assets.................................... 2,163,469 35,784,251
NET ASSETS:
Beginning of period........................................................ 35,784,251 --
--------------- ---------------
End of period.............................................................. $ 37,947,720 $ 35,784,251
=============== ===============
Accumulated net investment income (loss) at end of period.................. $ 68,992 $ 70,106
=============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.................................... 900,002 --
Shares sold................................................................ 150,000 1,100,002
Shares redeemed............................................................ (100,000) (200,000)
--------------- ---------------
Shares outstanding, end of period.......................................... 950,002 900,002
=============== ===============
(a) Inception date.
Page 46 See Notes to Financial Statements
First Trust First Trust First Trust
NASDAQ(R) Clean Edge(R) ISE Global ISE Global
Smart Grid Infrastructure Copper Platinum
Index Fund Index Fund Index Fund
- ----------------------------------------- ----------------------------------------- ------------------------------------------
For the Period For the Period For the Period
November 16, 2009 (a) March 11, 2010 (a) March 11, 2010 (a)
through March 31, 2010 through March 31, 2010 through March 31, 2010
(Unaudited) (Unaudited) (Unaudited)
- ----------------------------------------- ----------------------------------------- ------------------------------------------
$ (2,160) $ (1,155) $ (623)
(164,441) (777) (6,700)
260,315 90,661 107,896
----------------- ----------------- -------------------
93,714 88,729 100,573
----------------- ----------------- -------------------
(6,000) -- --
-- -- --
----------------- ----------------- -------------------
(6,000) -- --
----------------- ----------------- -------------------
33,782,738 3,000,060 3,000,060
(1,570,382) -- --
----------------- ----------------- -------------------
32,212,356 3,000,060 3,000,060
----------------- ----------------- -------------------
32,300,070 3,088,789 3,100,633
-- -- --
----------------- ----------------- -------------------
$ 32,300,070 $ 3,088,789 $ 3,100,633
================= ================= ===================
$ (8,160) $ (1,155) $ (623)
================= ================= ===================
-- -- --
1,100,002 100,002 100,002
(50,000) -- --
----------------- ----------------- -------------------
1,050,002 100,002 100,002
================= ================= ===================
See Notes to Financial Statements Page 47
First Trust Exchanged-Traded Fund II
Financial highlights
For a Share outstanding throughout each period
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund
For the For the Period
Six Months Ended For the For the August 27, 2007 (a)
March 31, 2010 Year Ended Year Ended through
(Unaudited) September 30, 2009 September 30, 2008 September 30, 2007
----------------- ------------------ ------------------- ------------------
Net asset value, beginning of period $ 13.81 $ 15.62 $ 30.97 $ 30.00
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) 0.06 0.61 1.26 0.03 (b)
Net realized and unrealized gain (loss) (0.40) (1.83) (15.32) 0.94
---------- ---------- ---------- ----------
Total from investment operations (0.34) (1.22) (14.06) 0.97
Distributions paid to shareholders from:
Net investment income (0.06) (0.59) (1.29) --
---------- ---------- ---------- ----------
Net asset value, end of period $ 13.41 $ 13.81 $ 15.62 $ 30.97
========== ========== ========== ==========
TOTAL RETURN (c) (2.48)% (6.83)% (46.12)% 3.23%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 7,418 $ 8,330 $ 12,545 $ 3,200
Ratios to average net assets:
Ratio of total expenses to average net assets 2.10% (d) 3.48% 1.95% 19.64% (d)
Ratio of net expenses to average net assets 0.60% (d) 0.60% 0.60% 0.60% (d)
Ratio of net investment income (loss) to
average net assets 0.92%(d) 5.30% 6.43% 1.18% (d)
Portfolio turnover rate (e) 46% 82% 80% 0%
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
For the For the Period
Six Months Ended For the For the August 27, 2007 (a)
March 31, 2010 Year Ended Year Ended through
(Unaudited) September 30, 2009 September 30, 2008 September 30, 2007
----------------- ------------------- ------------------ ------------------
Net asset value, beginning of period $ 30.48 $ 36.24 $ 53.43 $ 50.00
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) 0.72 0.90 1.25 0.14 (b)
Net realized and unrealized gain (loss) 1.67 (5.74) (17.25) 3.29
---------- ---------- ---------- ----------
Total from investment operations 2.39 (4.84) (16.00) 3.43
---------- ---------- ---------- ----------
Distributions paid to shareholders from:
Net investment income (1.33) (0.91) (1.19) --
Net realized gain -- (0.01) -- --
---------- ---------- ---------- ----------
Total distributions (1.33) (0.92) (1.19) --
---------- ---------- ---------- ----------
Net asset value, end of period $ 31.54 $ 30.48 $ 36.24 $ 53.43
========== ========== ========== ==========
TOTAL RETURN (c) 8.03% (12.66)% (30.35)% 6.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 33,115 $ 15,238 $ 7,249 $ 5,343
Ratios to average net assets:
Ratio of total expenses to average net assets 1.16% (d) 2.09% 2.68% 11.51% (d)
Ratio of net expenses to average net assets 0.60% (d) 0.60% 0.60% 0.60% (d)
Ratio of net investment income (loss) to
average net assets 3.00% (d) 4.08% 3.07% 3.22% (d)
Portfolio turnover rate (e) 8% 19% 7% 1%
(a) Inception date.
(b) Per share amounts have been calculated using the average share method.
(c) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return
calculated for a period of less than one year is not annualized. The total
returns would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 48 See Notes to Financial Statements
First Trust Exchanged-Traded Fund II
Financial highlights
For a Share outstanding throughout each period
First Trust Dow Jones Global Select Dividend Index Fund
For the For the Period
Six Months Ended For the November 21, 2007 (a)
March 31, 2010 Year Ended through
(Unaudited) September 30, 2009 September 30, 2008
------------------ ------------------- ---------------------
Net asset value, beginning of period $ 21.33 $ 19.95 $ 30.00
---------- ---------- ----------
Income from investment operations:
Net investment income (loss) 0.33 0.70(b) 1.38
Net realized and unrealized gain (loss) 0.49 1.37 (10.10)
---------- ---------- ----------
Total from investment operations 0.82 2.07 (8.72)
Distributions paid to shareholders from:
Net investment income (0.44) (0.69) (1.33)
---------- ---------- ----------
Net asset value, end of period $ 21.71 $ 21.33 $ 19.95
========== ========== ==========
TOTAL RETURN (c) 3.86% 11.80% (29.72)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 27,133 $ 28,790 $ 3,990
Ratios to average net assets:
Ratio of total expenses to average net assets 0.91% (d) 2.39% 4.79% (d)
Ratio of net expenses to average net assets 0.60% (d) 0.60% 0.60% (d)
Ratio of net investment income (loss) to
average net assets 3.05% (d) 4.61% 6.33% (d)
Portfolio turnover rate (e) 44% 65% 42%
First Trust ISE Global Wind Energy Index Fund
For the For the Period
Six Months Ended For the June 16, 2008 (a)
March 31, 2010 Year Ended through
(Unaudited) September 30, 2009 September 30, 2008
----------------- ------------------- ------------------------
Net asset value, beginning of period $ 16.27 $ 19.11 $ 30.00
---------- ---------- ----------
Income from investment operations:
Net investment income (loss) 0.03 0.14 0.01
Net realized and unrealized gain (loss) (2.64) (2.88) (10.90)
---------- ---------- ----------
Total from investment operations (2.61) (2.74) (10.89)
Distributions paid to shareholders from:
Net investment income (0.27) (0.10) --
---------- ---------- ----------
Net asset value, end of period $ 13.39 $ 16.27 $ 19.11
========== ========== ==========
TOTAL RETURN (c) (16.25)% (14.26)% (36.30)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 70,974 $ 100,850 $ 63,067
Ratios to average net assets:
Ratio of total expenses to average net assets 0.80% (d) 0.95% 0.98% (d)
Ratio of net expenses to average net assets 0.60% (d) 0.60% 0.60% (d)
Ratio of net investment income (loss) to
average net assets 0.78% (d) 1.16% 0.24% (d)
Portfolio turnover rate (e) 10% 30% 13%
(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.
See Notes to Financial Statements Page 49
First Trust Exchanged-Traded Fund II
Financial highlights
For a Share outstanding throughout each period
First Trust ISE Global Engineering and Construction Index Fund
For the For the Period
Six Months Ended October 13, 2008 (a)
March 31, 2010 through
(Unaudited) September 30, 2009
----------------- --------------------
Net asset value, beginning of period $ 39.76 $ 30.00
---------- ----------
Income from investment operations:
Net investment income (loss) 0.07 0.42
Net realized and unrealized gain (loss) 0.19 9.68
---------- ----------
Total from investment operations 0.26 10.10
Distributions paid to shareholders from:
Net investment income (0.08) (0.34)
---------- ----------
Net asset value, end of period $ 39.94 $ 39.76
========== ==========
TOTAL RETURN (b) 0.65% 33.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 37,948 $ 35,784
Ratios to average net assets:
Ratio of total expenses to average net assets 0.91% (c) 1.16% (c)
Ratio of net expenses to average net assets 0.70% (c) 0.70% (c)
Ratio of net investment income (loss) to average net assets 0.40% (c) 1.84% (c)
Portfolio turnover rate (d) 12% 19%
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund
For the Period
November 16, 2009 (a)
through
March 31, 2010
(Unaudited)
--------------------
Net asset value, beginning of period $ 30.00
----------
Income from investment operations:
Net investment income (loss) (0.00) (e)
Net realized and unrealized gain (loss) 0.77
----------
Total from investment operations 0.77
Distributions paid to shareholders from:
Net investment income (0.01)
----------
Net asset value, end of period $ 30.76
==========
TOTAL RETURN (b) 2.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 32,300
Ratios to average net assets:
Ratio of total expenses to average net assets 1.05% (c)
Ratio of net expenses to average net assets 0.70% (c)
Ratio of net investment income (loss) to average net assets (0.03)%(c)
Portfolio turnover rate (d) 27%
(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.
(e) Amount represents less than $0.01 per share.
Page 50 See Notes to Financial Statements
First Trust Exchanged-Traded Fund II
Financial highlights
For a Share outstanding throughout each period
First Trust ISE Global Copper Index Fund
For the Period
March 11, 2010 (a)
through
March 31, 2010
(Unaudited)
--------------------
Net asset value, beginning of period $ 30.00
----------
Income from investment operations:
Net investment income (loss) (0.01)
Net realized and unrealized gain (loss) 0.90
----------
Total from investment operations 0.89
----------
Net asset value, end of period $ 30.89
==========
TOTAL RETURN (b) 2.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 3,089
Ratios to average net assets:
Ratio of total expenses to average net assets 0.70% (c)
Ratio of net expenses to average net assets 0.70% (c)
Ratio of net investment income (loss) to average net assets (0.70)%(c)
Portfolio turnover rate (d) 3%
First Trust ISE Global Platinum Index Fund
For the Period
March 11, 2010 (a)
through
March 31, 2010
(Unaudited)
--------------------
Net asset value, beginning of period $ 30.00
----------
Income from investment operations:
Net investment income (loss) (0.01)
Net realized and unrealized gain (loss) 1.02
----------
Total from investment operations 1.01
----------
Net asset value, end of period $ 31.01
==========
TOTAL RETURN (b) 3.37%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 3,101
Ratios to average net assets:
Ratio of total expenses to average net assets 0.70% (c)
Ratio of net expenses to average net assets 0.70% (c)
Ratio of net investment income (loss) to average net assets (0.38)%(c)
Portfolio turnover rate (d) 8%
(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.
(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 51
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
March 31, 2010 (Unaudited)
1. Organization
First Trust Exchange-Traded Fund II (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on July 20, 2006,
and is registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of eight funds (each a "Fund" and
collectively, the "Funds"):
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund -
(NYSE Arca, Inc. ticker "FDD")
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund -
(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")
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund -
(NASDAQ ticker "GRID")
First Trust ISE Global Copper Index Fund - (NASDAQ ticker "CU")
First Trust ISE Global Platinum Index Fund - (NASDAQ ticker "PLTM")
Subsequent to March 31, 2010, the date of this semi-annual report, First Trust
BICK Index Fund, an additional series of the Trust, began trading under the
ticker symbol BICK on The NASDAQ(R) Stock Market, Inc.
Each Fund represents a separate series of shares of beneficial interest in the
Trust. Each Fund's shares currently are listed and traded on the NYSE Arca, Inc.
("NYSE Arca") except for First Trust NASDAQ(R) Clean Edge(R) Smart Grid
Infrastructure Index Fund, First Trust ISE Global Copper Index Fund, and the
First Trust ISE Global Platinum Index Fund which are listed and traded on The
NASDAQ Stock Market, Inc. ("NASDAQ"). 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 STOXX(R) Europe Select Dividend 30 Index(1)
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund FTSE EPRA/NAREIT Developed Index
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
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund NASDAQ OMX(R) Clean Edge(R) Smart Grid
Infrastructure Index(SM)
First Trust ISE Global Copper Index Fund ISE Global Copper(TM) Index
First Trust ISE Global Platinum Index Fund ISE Global Platinum(TM) Index
(1) The STOXX(R) Europe Select Dividend 30 Index was formerly known as the
Dow Jones STOXX(R) Select Dividend 30 Index. The changes to the underlying
index name had no effect on the investment strategies or risks of the Fund.
The Fund's name, 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 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
Page 52
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Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
March 31, 2010 (Unaudited)
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 or 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.
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:
o Quoted prices for similar securities in active markets.
o 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.
o 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).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs 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 March 31, 2010 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
Page 53
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
March 31, 2010 (Unaudited)
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
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 Statements of Operations. Net realized foreign currency gains and losses
include the effect of changes in exchange rates between trade date and
settlement date on investment security transactions, foreign currency
transactions and interest and dividends received. The portion of foreign
currency gains and losses related to fluctuations in exchange rates between the
initial purchase trade date and subsequent sale trade date is included in "Net
realized gain (loss) on foreign currency transactions" on the 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, the First Trust
ISE Global Engineering and Construction Index Fund, the First Trust NASDAQ(R)
Clean Edge(R) Smart Grid Infrastructure Index Fund, the First Trust ISE Global
Copper Index Fund and the First Trust ISE Global Platinum 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 -- --
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 qualify or continue to qualify as a regulated investment
company by complying with the requirements under Subchapter M of the Internal
Revenue Code of 1986, as amended, which includes distributing substantially all
of its net investment income and net realized gains to shareholders.
Accordingly, no provision has been made for federal and state income taxes.
Page 54
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Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund II
March 31, 2010 (Unaudited)
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 March 31,
2010, 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 had 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 --
F. Expenses
Expenses that are directly related to one of the Funds are charged directly to
the respective Fund, except for the First Trust ISE Global Copper Index Fund and
the First Trust ISE Global Platinum Index Fund which are paid by First Trust
Advisors L.P. ("First Trust" or the "Advisor"). General expenses of the Trust
are allocated to all the Funds based upon the net assets of each Fund. The
Advisor has entered into licensing agreements with each of the following
"Licensors" for the respective Funds:
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
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund The NASDAQ Stock Market, Inc.
First Trust ISE Global Copper Index Fund International Securities Exchange, LLC
First Trust ISE Global Platinum Index Fund International Securities Exchange, LLC
The respective license agreements allow for the use by First Trust of each
Fund's respective index, 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.
Page 55
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Notes to Financial Statements (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2010 (Unaudited)
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 Investment Management
Agreements. 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 First Trust ISE Global Copper Index Fund and the First Trust ISE Global
Platinum Index Fund, First Trust is paid an annual unitary management fee of
0.70% of such Fund's average daily net assets and is responsible for the
expenses of such Fund including the cost of transfer agency, custody, fund
administration, legal, audit and other services, and excluding advisory fees,
distribution fees, if any, brokerage expense, taxes, interest, and other
extraordinary expenses.
For 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 and
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund, First
Trust is paid an annual management fee of 0.40% of such Fund's average daily net
assets. For such Funds, the Trust and First Trust have entered into an Expense
Reimbursement, Fee Waiver and Recovery Agreement ("Recovery Agreement") in which
the Advisor has agreed to waive fees and/or reimburse Fund expenses to the
extent that the operating expenses of each such 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") at least through the date listed.
Expense Cap Term
---------- ----------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund 0.60% May 15, 2011
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 0.60% May 15, 2011
First Trust Dow Jones Global Select Dividend Index Fund 0.60% May 15, 2011
First Trust ISE Global Wind Energy Index Fund 0.60% May 15, 2011
First Trust ISE Global Engineering and Construction Index Fund 0.70% May 15, 2011
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 0.70% November 9, 2011
Pursuant to the Recovery Agreement, First Trust may recover from such Funds any
fees waived or expenses reimbursed during the three year period after the date
of the waiver or reimbursement to the extent that the actual expense ratio of a
particular Fund is less than such Fund's applicable expense cap. First Trust may
recover a portion of the previously waived or reimbursed amount equal to the
amount that the expense cap exceeds the actual expense ratio. These amounts
would be included in "Expenses previously waived or reimbursed" on the
Statements of Operations.
The advisory fee waivers and expense reimbursements for the period ended March
31, 2010 and the expenses borne by the Advisor subject to reimbursement by each
Fund for the periods indicated were as follows:
Expenses Borne by Advisor Subject to Reimbursement
------------------------------------------------------
Advisory Expense Period Ended Period Ended Period Ended Period Ended
Fee Reim- September September September March 31,
Waivers bursement 30, 2007 30, 2008 30, 2009 2010 Total
------------- -------------- ------------ ------------- ------------- ------------ ---------
First Trust Dow Jones STOXX(R)
European Select Dividend Index Fund $ 16,591 $ 45,817 $ 52,139 $ 186,036 $ 146,295 $ 62,408 $ 446,878
First Trust FTSE EPRA/NAREIT
Developed Markets Real Estate
Index Fund 42,401 16,903 48,855 123,776 116,416 59,304 348,351
First Trust Dow Jones Global Select
Dividend Index Fund 56,795 -- -- 115,376 114,202 56,795 286,373
First Trust ISE Global Wind Energy
Index Fund 88,743 -- -- 67,700 237,567 88,743 394,010
First Trust ISE Global Engineering
and Construction Index Fund 38,471 -- -- -- 81,714 38,471 120,185
First Trust NASDAQ(R) Clean Edge(R)
Smart Grid Infrastructure Index Fund 29,208 -- -- -- -- 29,208 29,208
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the servicing agreements, BNYM performs custodial, fund
accounting, certain administrative, 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
Page 56
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Notes to Financial Statements (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2010 (Unaudited)
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 ("BNY Mellon"), a
financial holding company.
PNC Global Investment Servicing (U.S.) Inc., an indirect, wholly-owned
subsidiary of the PNC Financial Services Group, Inc. ("PNC"), provides certain
administrative services to the Trust and the Funds in connection with the
Trust's Board of Trustees meetings and other related matters.
On February 2, 2010, PNC entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") with BNY Mellon. Upon the terms and subject to the
conditions set forth in the Stock Purchase Agreement, which has been approved by
the board of directors of each company, PNC will sell to BNY Mellon (the "Stock
Sale") 100% of the issued and outstanding shares of PNC Global Investment
Services Inc. The Stock Sale includes PNC Global Investment Servicing (U.S.)
Inc., PFPC Trust Company and PFPC Distributors, Inc. and is expected to close in
the third quarter of 2010.
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, 2011, 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 March 31, 2010, the cost of purchases and proceeds from
sales of investment securities for each Fund, excluding short-term investments
and in-kind transactions, were as follows:
Purchases Sales
-------------------- --------------------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund $ 3,788,107 $ 3,756,440
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 1,751,849 2,262,383
First Trust Dow Jones Global Select Dividend Index Fund 15,033,366 15,491,765
First Trust ISE Global Wind Energy Index Fund 8,410,484 9,781,130
First Trust ISE Global Engineering and Construction Index Fund 4,143,544 4,170,656
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 6,241,312 6,330,230
First Trust ISE Global Copper Index Fund 102,182 102,188
First Trust ISE Global Platinum Index Fund 273,931 260,798
For the period ended March 31, 2010, 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 $ 4,101,168 $ 4,701,877
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 16,742,543 --
First Trust Dow Jones Global Select Dividend Index Fund 22,879,331 24,195,793
First Trust ISE Global Wind Energy Index Fund 9,186,900 21,213,788
First Trust ISE Global Engineering and Construction Index Fund 5,848,900 3,792,586
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 33,924,120 1,559,737
First Trust ISE Global Copper Index Fund 2,997,434 --
First Trust ISE Global Platinum Index Fund 2,989,973 --
5. Creations, Redemptions and Transaction Fees
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 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"), 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
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Notes to Financial Statements (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2010 (Unaudited)
countries in which the transactions are settled. The Creation Transaction Fee
may increase or decrease as each Fund's portfolio is adjusted to conform to
changes in the composition of its corresponding Index. The price for each
Creation Unit will equal the daily NAV per share times the number of shares in a
Creation Unit plus the fees described above and, if applicable, any operational
processing and brokerage costs, transfer fees or stamp taxes. When a Fund
permits an Authorized Participant to substitute cash or a different security in
lieu of depositing one or more of the requisite Deposit Securities, the
Authorized Participant may also be assessed an amount to cover the cost of
purchasing the Deposit Securities and/or disposing of the substituted
securities, including operational processing and brokerage costs, transfer fees,
stamp taxes, and part or all of the spread between the expected bid and offer
side of the market related to such Deposit Securities and/or substitute
securities.
Parties redeeming Creation Units must pay to BNYM, as transfer agent, a
redemption transaction fee (the "Redemption Transaction Fee"), 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.
The Creation Transaction Fees and the Redemption Transaction Fees are as
follows:
Redemption Creation
Transaction Transaction
Fees Fees
----------- -----------
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund $ 500 $ 500
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 4,000 4,000
First Trust Dow Jones Global Select Dividend Index Fund 1,000 1,000
First Trust ISE Global Wind Energy Index Fund 1,000 1,000
First Trust ISE Global Engineering and Construction Index Fund 1,000 1,000
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 1,000 1,000
First Trust ISE Global Copper Index Fund 500 500
First Trust ISE Global Platinum Index Fund 500 500
6. Distribution Plan
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
in the sale of Creation Units or the provision of investor services. FTP may
also use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, the Funds will not pay 12b-1 fees any time before March 31, 2011
except for First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index
Fund which will not pay 12b-1 fees at any time before November 9, 2011, and
First Trust ISE Global Copper Index Fund and First Trust ISE Global Platinum
Index Fund, which will not pay 12b-1 fees at any time before March 8, 2012.
7. Indemnification
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined there
were no subsequent events requiring recognition or disclosure in the financial
statements.
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Additional Information
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First Trust Exchange-Traded Fund II
March 31, 2010 (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.
Investment Management Agreement
Board Considerations Regarding Investment Management Agreements
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund
The Board of Trustees of the First Trust Exchange-Traded Fund II (the "Trust"),
including the Independent Trustees, approved the Investment Management Agreement
(the "Agreement") with First Trust Advisors L.P. ("First Trust") for the First
Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund (the "Fund")
for an initial two-year term at a meeting held on August 24, 2009. The Board of
Trustees determined that the Agreement is in the best interests of the Fund in
light of the services, expenses and such other matters as the Board considered
to be relevant in the exercise of its reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreement, the
Independent Trustees received a report in advance of the Board meeting
responding to a request for information from counsel to the Independent
Trustees. The report, among other things, outlined the services to be provided
by First Trust (including the relevant personnel responsible for these services
and their experience); the proposed advisory fee as compared to fees charged by
investment advisors to comparable exchange-traded funds ("ETFs") and as compared
to fees charged by First Trust to other ETFs it manages; estimated expenses of
the Fund as compared to those of comparable ETFs; the nature of expenses to be
incurred in providing services to the Fund and the potential for economies of
scale, if any; financial data on First Trust; fall out benefits to First Trust
and First Trust Portfolios L.P.; and a summary of First Trust's compliance
program. The Independent Trustees also met separately with their independent
legal counsel to discuss the information provided by First Trust. The Board
applied its business judgment to determine whether the arrangement between the
Trust and First Trust is a reasonable business arrangement from the Fund's
perspective as well as from the perspective of shareholders.
In evaluating whether to approve the Agreement, the Board considered the nature,
extent and quality of services to be provided under the Agreement, and noted
that First Trust employees provide management services to other series of the
Trust and to other investment companies in the First Trust complex with
diligence and care. The Board also considered the compliance program that had
been developed by First Trust and the skills of its employees who would be
working with the Fund. It also considered the efforts expended by First Trust in
organizing the Trust and making arrangements for entities to provide services to
the Fund. Since the Fund is newly organized, the Board did not consider
investment performance of the Fund, but the Board did consider the one- and
three-year performance of the applicable index. The Board concluded it was
comfortable that First Trust had the capabilities and resources to oversee the
operations of the Fund, including the services to be provided by other service
providers.
The Trustees also reviewed information showing the advisory fee and estimated
expense ratio of the Fund as compared to those of a peer group. They noted that
the peer group for the Fund consisted solely of two other ETFs, one of which
pays a unitary fee. The Board noted the small number of funds in the peer group
and considered certain other limitations in the comparability of the funds in
the peer group. The Board noted the services to be provided by First Trust for
the annual advisory fee of 0.40% of the Fund's average daily net assets and
compared the proposed advisory fee for the Fund to the advisory fees paid by the
peer funds, noting that it was lower than the advisory fees paid by the peer
funds. The Board also considered that First Trust has agreed to waive fees
and/or pay Fund expenses to the extent necessary to prevent the annual operating
expenses of the Fund (excluding interest expense, brokerage commissions, trading
expenses, taxes and extraordinary expenses) from exceeding 0.70% of average
daily net assets for two years. The Trustees noted that expenses borne by First
Trust are proposed to be subject to reimbursement by the Fund for up to three
years from the date the fee or expense was incurred, but no reimbursement
payment would be made by the Fund if it would result in the Fund exceeding its
expense cap, or if the expense cap is no longer in effect, would result in the
Fund exceeding an expense ratio equal to its most recent expense cap. The Board
considered the fees charged by First Trust to ETFs with investment objectives
and policies similar to the Fund's, noting that those fees generally were the
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Additional Information (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2010 (Unaudited)
same as the fee to be charged to the Fund. In light of nature, extent and
quality of services to be provided under the Agreement, and in light of First
Trust's agreement to waive fees and/or pay Fund expenses as described above for
at least two years, the Board determined that the investment advisory fee for
the Fund was fair and reasonable.
The Board considered First Trust's representation that the proposed advisory fee
was not structured to pass the benefits of any economies of scale on to
shareholders as the Fund's assets grow, but that First Trust did not believe
this was material to the Board's consideration of the proposed advisory fee due
to the expense cap and anticipated asset levels for the Fund. The Board noted
that First Trust has continued to invest in personnel and infrastructure for the
First Trust complex. The Board took the costs to be borne by First Trust in
connection with its services to be performed under the Agreement into
consideration and noted that First Trust was unable to estimate the
profitability of the Agreement to First Trust, but had agreed to cap the Fund's
expenses for two years. The Board considered that First Trust had identified as
a fall out benefit to First Trust and First Trust Portfolios L.P. their exposure
to investors and brokers who, in the absence of the Fund or other funds of the
Trust, may have had no dealings with First Trust. The Board also noted that
First Trust would not utilize soft dollars in connection with its management of
the Fund's portfolio.
After discussion, the Board of Trustees, including the Independent Trustees,
concluded that First Trust had the capabilities, resources and personnel
necessary to manage the Fund. Based upon such information as it considered
necessary to the exercise of its reasonable business judgment, the Trustees
concluded that it was in the best interests of the Fund to approve the
Agreement. No single factor was determinative in the Board's analysis.
First Trust ISE Global Copper Index Fund
First Trust ISE Global Platinum Index Fund
The Board of Trustees of the First Trust Exchange-Traded Fund II (the "Trust"),
including the Independent Trustees, approved the Investment Management Agreement
(the "Agreement") with First Trust Advisors L.P. ("First Trust") for First Trust
ISE Global Copper Index Fund and First Trust ISE Global Platinum Index Fund
(each a "Fund" and collectively, the "Funds") for an initial two year term at a
meeting held on January 21, 2010. The Board of Trustees determined for each Fund
that the Agreement is in the best interests of the Fund in light of the
services, expenses and such other matters as the Board considered to be relevant
in the exercise of its reasonable business judgment.
To reach this determination for each Fund, the Board considered its duties under
the Investment Company Act of 1940, as amended (the "1940 Act"), as well as
under the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreement for
each Fund, the Independent Trustees received a report in advance of the Board
meeting responding to a request for information from counsel to the Independent
Trustees. The report, among other things, outlined the services to be provided
by First Trust to each Fund (including the relevant personnel responsible for
these services and their experience); the proposed unitary fee structure for
each Fund as compared to fees charged by investment advisors to comparable
exchange-traded funds ("ETFs"), and as compared to fees charged to other First
Trust clients with similar investment objectives, and to other ETFs managed by
First Trust; the estimated expenses to be incurred in providing services to each
Fund and the potential for economies of scale, if any; financial data on First
Trust; fall out benefits to First Trust and First Trust Portfolios L.P.; and a
summary of First Trust's compliance program. The Independent Trustees also met
separately with their independent legal counsel to discuss the information
provided by First Trust. The Board applied its business judgment to determine
whether the arrangement between the Trust and First Trust is a reasonable
business arrangement from each Fund's perspective as well as from the
perspective of shareholders.
In evaluating whether to approve the Agreement for each Fund, the Board
considered the nature, extent and quality of services to be provided by First
Trust under the Agreement, and noted that First Trust employees provide
management services to other ETFs and to other investment companies in the First
Trust complex with diligence and care. The Board also considered the compliance
program that had been developed by First Trust and the skills of its employees
who would be working with the Funds. It also considered the efforts expended by
First Trust in organizing the Trust and making arrangements for entities to
provide services to the Funds. Since each Fund is newly organized, the Board did
not consider the investment performance of the Funds but the Board did consider
the hypothetical performance of the applicable index for each Fund. In light of
the information presented and the considerations made, the Board concluded that
the nature, quality and extent of services to be provided to the Funds by First
Trust under the Agreement are expected to be satisfactory.
The Board reviewed information regarding the proposed unitary fee structure for
each Fund. The Board noted that under the unitary fee arrangement, each Fund
would pay First Trust a fee equal to an annual rate of 0.70% of its average
daily net assets and that First Trust would be responsible for each Fund's
expenses, including the cost of transfer agency, custody, fund administration,
legal, audit, licensing and other services, but excluding interest, taxes,
brokerage commissions and other expenses connected with the execution of
portfolio transactions, service fees and distribution fees pursuant to a Rule
12b-1 plan, if any, and extraordinary expenses. The Board also considered
information provided by First Trust and Lipper, Inc. ("Lipper") for each Fund on
the advisory fees and other expenses paid by other comparable ETFs. The Board
noted that the unitary fees for First Trust ISE Global Copper Index Fund and
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Additional Information (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2010 (Unaudited)
First Trust ISE Global Platinum Index Fund were generally higher than the total
expense ratios of the peer funds provided by First Trust and Lipper for the
Funds. The Board considered the limitations on the comparability of the funds in
each of the First Trust and Lipper peer groups, including that not all peer
funds charged a unitary fee and that none of the peer funds invested exclusively
in issuers engaged in copper or platinum-related businesses. The Board
considered the total expense ratios (after fee waivers) of other First Trust
ETFs with investment objectives and policies similar to each Fund's investment
objective and policies (including, in particular, the higher custody costs),
noting that they were generally the same as the unitary fee proposed to be
charged to each Fund. In light of the nature, extent and quality of services to
be provided under the Agreement, the Board determined that the proposed unitary
fee for each Fund was fair and reasonable.
The Board considered First Trust's representation that the proposed unitary fee
for each Fund was not structured to pass the benefits of any economies of scale
on to shareholders as each Fund's assets grow, but that First Trust did not
believe this was material to the Board's consideration of the proposed unitary
fees due to the anticipated asset levels for each Fund. The Trustees noted that
any reduction in fixed costs associated with the management of the Funds would
benefit First Trust, but that a unitary fee structure provides certainty in
expenses for the Funds. The Board noted that First Trust has continued to invest
in personnel and infrastructure for the First Trust complex. The Board took the
costs to be borne by First Trust in connection with its services to be performed
under the Agreement into consideration and noted that First Trust was unable to
estimate the profitability of the Agreement to First Trust. The Board considered
that First Trust had identified as a fall out benefit to First Trust and First
Trust Portfolios L.P. their exposure to investors and brokers who, in the
absence of the Funds, may have had no dealings with First Trust. The Board also
noted that First Trust would not utilize soft dollars in connection with its
management of the Funds' portfolios.
After discussion, the Board of Trustees, including the Independent Trustees,
concluded that First Trust had the capabilities, resources and personnel
necessary to manage each Fund. Based upon such information as it considered
necessary to the exercise of its reasonable business judgment, the Board of
Trustees concluded that it was in the best interests of each Fund to approve the
Agreement. No single factor was determinative in the Board's analysis.
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund
First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund
First Trust Dow Jones Global Select Dividend Index Fund
First Trust ISE Global Engineering and Construction Index Fund
First Trust ISE Global Wind Energy Index Fund
The Board of Trustees of the First Trust Exchange-Traded Fund II (the "Trust"),
including the Independent Trustees, unanimously approved the continuation of the
Investment Management Agreement (the "Agreement") with First Trust Advisors L.P.
(the "Advisor") on behalf of the following five series of the Trust (each a
"Fund" and collectively, the "Funds"):
First Trust Dow Jones STOXX(R) European Select Dividend Index Fund
First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund
First Trust Dow Jones Global Select Dividend Index Fund
First Trust ISE Global Engineering and Construction Index Fund
First Trust ISE Global Wind Energy Index Fund
The Board approved the continuation of the Agreement for a one-year period
ending March 31, 2011 for each Fund at a meeting held on March 21-22, 2010. The
Board of Trustees determined that the terms of the Agreement are fair and
reasonable and that the Agreement continues to be in the best interests of the
Trust and each Fund.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreement for
each Fund, the Independent Trustees received a report in advance of the Board
meeting responding to a request for information from counsel to the Independent
Trustees. The report, among other things, outlined the services provided by the
Advisor to each Fund (including the relevant personnel responsible for these
services and their experience); the advisory fee for each Fund as compared to
fees charged by investment advisors to comparable funds and as compared to fees
charged to other clients of the Advisor; expenses of each Fund compared to
expense ratios of comparable funds; the nature of expenses incurred in providing
services to each Fund and the potential for economies of scale, if any;
financial data on the Advisor; any fall-out benefits to the Advisor and its
affiliate, First Trust Portfolios L.P.; and information on the Advisor's
compliance program. The Independent Trustees also met separately with their
independent legal counsel to discuss the information provided by the Advisor.
The Board applied its business judgment to determine whether the arrangements
between the Trust and the Advisor are reasonable business arrangements from each
Fund's perspective as well as from the perspective of shareholders.
In reviewing the Agreement for each Fund, the Board considered the nature,
extent and quality of services provided under the Agreement. The Board
considered that the Advisor is responsible for the overall management and
administration of the Trust and each Fund. The Board considered the compliance
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Additional Information (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2010 (Unaudited)
program that had been developed by the Advisor and noted the enhancements made
by the Advisor to the compliance program in 2009. In light of the information
presented and the considerations made, the Board concluded that the nature,
quality and extent of services provided to the Trust and each Fund by the
Advisor under the Agreement have been and are expected to remain satisfactory
and that the Advisor has managed each Fund consistent with its investment
objective and policies.
The Board considered the advisory fees payable by each Fund under the Agreement.
The Board considered that the Advisor agreed to extend the current expense cap
for each Fund through May 15, 2011. For each Fund, the Board noted that expenses
borne by the Advisor are proposed to be subject to reimbursement by the Fund for
up to three years from the date the fee or expense was incurred, but no
reimbursement payment would be made by the Fund if it would result in the Fund
exceeding its expense cap, or if the expense cap is no longer in effect, would
result in the Fund exceeding an expense ratio equal to its most recent expense
cap. The Board considered the fees charged by the Advisor to other
exchange-traded funds ("ETFs") and other advisory clients with investment
objectives and policies similar to the Funds', noting that those fees generally
were similar to the fees charged to the Funds. In addition, the Board received
data prepared by Lipper Inc. ("Lipper"), an independent source, showing the
management fees and expense ratios of each Fund as compared to the management
fees and expense ratios of a combined peer group selected by Lipper and the
Advisor. The Board discussed with representatives of the Advisor the limitations
in creating a relevant peer group for each Fund, including that (i) many of the
Funds are unique in their composition which makes assembling peers with similar
strategies and asset mix difficult, and (ii) many of the peer funds are larger
than the Funds. The Board reviewed the Lipper materials, but based on its
discussions with the Advisor, the Board determined that the Lipper data was of
limited value for purposes of its consideration of the renewal of the Agreement.
The Board also considered performance information for each Fund, noting that the
performance information included each Fund's quarterly performance report, which
is part of the process that the Board has established for monitoring each Fund's
performance on an ongoing basis. The Board determined that this process
continues to be effective for reviewing each Fund's performance. The Board also
considered the performance of each Fund's underlying index and reviewed the
correlation between each Fund's underlying index and the Fund's performance and
concluded that the correlation between each Fund's performance, before expenses,
and its underlying index was appropriate. In addition to the Board's ongoing
review of performance, the Board also received data prepared by Lipper comparing
each Fund's performance to the combined peer group selected by Lipper and the
Advisor, as well as to a larger group and to a broad-based benchmark. The Board
reviewed the Lipper materials, but for similar reasons to those described above,
the Board determined that the performance data provided by Lipper was of limited
value.
On the basis of all the information provided on the fees, expenses and
performance of each Fund, the Board concluded that the advisory fees for each
Fund were reasonable and appropriate in light of the nature, quality and extent
of services provided by the Advisor to each Fund under the Agreement.
The Board noted that the Advisor has continued to invest in personnel and
infrastructure and considered whether fee levels reflect any economies of scale
for the benefit of shareholders. The Board concluded that the advisory fee for
each Fund reflects an appropriate level of sharing of any economies of scale at
current asset levels. The Board also considered the costs of the services
provided and profits realized by the Advisor from serving as investment advisor
to each Fund for the twelve months ended December 31, 2009, as set forth in the
materials provided to the Board, noting that the Advisor estimated that it
incurred a loss in providing services to each Fund in 2009. The Board considered
that the Advisor had identified as a fall-out benefit to the Advisor and First
Trust Portfolios L.P. their exposure to investors and brokers who, in the
absence of the Funds, may have had no dealings with the Advisor, and noted that
the Advisor does not utilize soft dollars in connection with its management of
the Funds' portfolios.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, determined that the terms of the
Agreement continue to be fair and reasonable and that the continuation of the
Agreement is in the best interests of Trust and each Fund. No single factor was
determinative in the Board's analysis.
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Risk Considerations
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First Trust Exchange-Traded Fund II
March 31, 2010 (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.
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.
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Risk Considerations (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2010 (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 64
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Risk Considerations (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2010 (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.
The First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund
invests in the securities of smart grid companies. Smart grid companies can be
negatively affected by high costs of research and development, high capital
requirements for implementation, uncertain government regulations and input,
Page 65
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Risk Considerations (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2010 (Unaudited)
limited ability of industrial and utility companies to quickly transform their
businesses in order to implement new technologies and uncertainty of the ability
of new products to penetrate established industries. Smart grid companies are
often reliant upon contracts with government and commercial customers which may
expire from time to time. Such companies are also affected by the general
business conditions within the industrial, utility, information technology and
telecommunications sectors and the overall global economy.
The First Trust ISE Global Copper Index Fund and the First Trust ISE Global
Platinum Index Fund invest in the securities of companies in the material
sector. General risks of the materials sector include the general state of the
economy, consolidation, domestic and international politics and excess capacity.
In addition, basic materials companies may also be significantly affected by
volatility of commodity prices, import controls, worldwide competition,
liability for environmental damage, depletion of resources and mandated
expenditures for safety and pollution control devices.
The First Trust ISE Global Copper Index Fund may be adversely affected by a
decrease in the worldwide demand and price of copper. Various factors may lead
to a decreased demand and price of copper. As an industrial metal, the demand
for and price of copper may be negatively impacted by a decreased level of
industrial activity using copper. Other factors include the availability of
substitutes such as man-made or synthetic substitutes, disruptions in the supply
chain, from mining to storage to smelting or refining, adjustments to inventory,
variations in production costs, including storage, labor and energy costs, costs
associated with regulatory compliance, including environmental regulations and
changes in industrial, government and consumer demand, both in individual
consuming nations and internationally.
The First Trust ISE Global Copper Index Fund may be significantly impacted by
competitive pressures in the copper mining business and the price of copper.
Because more than half of the world's copper production occurs in the United
States, Chile, Canada, Russia and Zambia, the Fund's Share price may be
particularly sensitive to any adverse political or economic developments
affecting these countries. The Fund's Share price may experience volatility
because the price of copper may fluctuate substantially over short periods of
time. Moreover, the Index tracks companies involved in the copper mining
business and not the price of copper. The securities of companies involved in
the copper mining business may under- or over-perform the price of copper over
the short term or the long term.
The First Trust ISE Global Copper Index Fund invests in the securities of
companies that are domiciled in Canada. The Fund is particularly sensitive to
political, economic and social conditions in that country. Canada is a major
producer of metals and energy-related products. The Canadian economy is very
dependent on the demand for, and supply and price of, natural resources, and the
Canadian market is relatively concentrated in issuers involved in the production
and distribution of natural resources. Any adverse events that affect Canada's
major industries may have a negative impact on the overall Canadian economy and
the Shares of the Fund.
The First Trust ISE Global Copper Index Fund invests in the securities of
companies that are domiciled in the United Kingdom. The Fund is particularly
sensitive to political, economic and social conditions in that country. The Fund
may be affected unfavorably by political developments, social instability,
changes in government policies and other political and economic developments in
the United Kingdom.
The First Trust ISE Global Platinum Index Fund may be adversely affected by a
decrease in the worldwide demand and price of PGMs. Various factors may lead to
a decreased demand and price of PGMs. An increase in the level of hedge activity
of PGM-producing companies could cause a decline in world PGM prices. A
significant negative change in the attitude of speculators and investors towards
PGMs could cause a decline in world PGM prices. A widening of interest rate
differentials between the cost of money and the cost of PGMs could also
negatively affect the price of PGMs which, in turn, could negatively affect the
price of the Shares. In addition, automobile components that use PGMs account
for a significant percentage of the global demand for PGMs. Because of the
decline in demand and reduction in sales experienced by the global automotive
industry, the price of PGMs may be negatively affected. PGM companies are also
subject to risks associated with the exploration, development and production of
PGMs, including competition for land, difficulties in obtaining required
governmental approval to mine land, inability to raise adequate capital,
increases in production costs and political unrest in nations where sources of
PGMs are located, particularly Russia and South Africa.
The First Trust ISE Global Platinum Index Fund may be significantly impacted by
competitive pressures in the PGM mining business and the price of PGMs. Because
a vast majority of the world's PGM production occurs in Russia and South Africa,
the Fund's Share price may be particularly sensitive to any adverse political or
economic developments affecting these countries. The Fund's Share price may
experience volatility because the price of PGMs may fluctuate substantially over
short periods of time. Moreover, the Index tracks companies involved in the PGM
mining business and not the price of PGMs. The securities of companies involved
in the PGM mining business may under- or over-perform the price of PGMs over the
short term or the long term.
Page 66
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Risk Considerations (Continued)
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First Trust Exchange-Traded Fund II
March 31, 2010 (Unaudited)
Because a significant percentage of the world's PGM mining takes place in South
Africa, the First Trust ISE Global Platinum Index Fund is particularly sensitive
to political and economic conditions in that country. South Africa has
historically experienced acts of terrorism and strained international relations
related to border disputes, historical animosities, racial tensions and other
domestic concerns. These situations may cause uncertainty in the South African
market and may adversely affect the performance of the South African economy.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
Page 67
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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.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEMS 6. SCHEDULE OF INVESTMENTS.
Schedules of Investments in securities of unaffiliated issuers as of the close
of the reporting period are included as part of the report to shareholders filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the "1940
Act") (17 CFR 270.30a-3 (c))) are effective, as of a date within 90 days of
the filing date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal quarter
that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302
of the Sarbanes-Oxley Act of 2002 are attached hereto.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906
of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) First Trust Exchange-Traded Fund II
-------------------------------------
By: /s/ James A. Bowen
-----------------------------
Name: James A. Bowen
Title: Chairman of the Board, President and Chief Executive Officer
Date: May 27, 2010
----------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ James A. Bowen
-----------------------------
Name: James A. Bowen
Title: Chairman of the Board, President and Chief Executive Officer
Date: May 27, 2010
----------------------------
By: /s/ Mark R. Bradley
-----------------------------
Name: Mark R. Bradley
Title: Treasurer, Controller, Chief Financial Officer and Chief
Accounting Officer
Date: May 27, 2010
----------------------------