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, 2013
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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, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
The registrant's semi-annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
FIRST TRUST
First Trust Exchange-Traded Fund II
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First Trust 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
First Trust BICK Index Fund
First Trust NASDAQ CEA Smartphone Index Fund
First Trust NASDAQ Global Auto Index Fund
First Trust ISE Cloud Computing Index Fund
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Semi-Annual Report
March 31, 2013
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TABLE OF CONTENTS
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First Trust Exchange-Traded Fund II
March 31, 2013
Shareholder Letter ........................................................... 2
Market Overview .............................................................. 3
Fund Performance Overview
First Trust 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
First Trust BICK Index Fund ...............................................20
First Trust NASDAQ CEA Smartphone Index Fund ..............................22
First Trust NASDAQ Global Auto Index Fund .................................24
First Trust ISE Cloud Computing Index Fund ................................26
Notes to Fund Performance Overview ...........................................28
Understanding Your Fund Expenses .............................................29
Portfolio of Investments
First Trust STOXX(R) European Select Dividend Index Fund ..................31
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund .....33
First Trust Dow Jones Global Select Dividend Index Fund ...................38
First Trust ISE Global Wind Energy Index Fund .............................41
First Trust ISE Global Engineering and Construction Index Fund ............43
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund ..45
First Trust ISE Global Copper Index Fund ..................................47
First Trust ISE Global Platinum Index Fund ................................49
First Trust BICK Index Fund ...............................................51
First Trust NASDAQ CEA Smartphone Index Fund ..............................54
First Trust NASDAQ Global Auto Index Fund .................................57
First Trust ISE Cloud Computing Index Fund ................................59
Statements of Assets and Liabilities .........................................60
Statements of Operations .....................................................64
Statements of Changes in Net Assets ..........................................68
Financial Highlights .........................................................74
Notes to Financial Statements ................................................80
Additional Information .......................................................89
Risk Considerations ..........................................................93
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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") described in
this report (each such series is referred to as a "Fund" and collectively, as
the "Funds") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any Fund described in this report will achieve its
investment objective. Each Fund is subject to market risk, which is the
possibility that the market values of securities owned by the Fund will decline
and that the value of the Fund shares may therefore be less than what you paid
for them. Accordingly, you can lose money 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 Market Strategist,
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 LETTER FROM THE CHAIRMAN AND CEO
MARCH 31, 2013
Dear Shareholders:
I am pleased to present you with the semi-annual report for your investment in
First Trust Exchange-Traded Fund II (the "Trust"). This report gives detailed
information for the past six months about the Funds that comprise the Trust. It
contains each Fund's performance review and financial statements for the period.
I encourage you to read this document and discuss it with your financial
advisor.
The last six months were certainly more positive for the U.S. markets. In fact,
the S&P 500 Index, as measured on a total return basis, rose 16% during the year
ended December 31, 2012. While past performance can never be an indicator of
future performance, many economists and investors have felt positive about the
current market environment. As I have written many times, however, First Trust
Advisors L.P. ("First Trust") believes that staying invested in quality products
through up and down markets and having a long-term horizon can help investors
reach their financial goals.
First Trust has always been a long-term investor and investment manager. After
22 years of delivering quality products to investors, we believe we have the
perspective to weather different markets with our knowledgeable and seasoned
research staff, our management and operations teams, along with the various
products we offer. You may want to talk to your advisor about the other
investments First Trust offers that could fit your financial goals.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals. I look forward to
the next edition of your Fund's report.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees of First Trust Exchange-Traded Fund II and
Chief Executive Officer of First Trust Advisors L.P.
Page 2
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MARKET OVERVIEW
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FIRST TRUST EXCHANGE-TRADED FUND II
SEMI-ANNUAL REPORT
MARCH 31, 2013
ROBERT F. CAREY, CFA
SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST
FIRST TRUST ADVISORS L.P.
Mr. Carey is responsible for the overall management of research and analysis of
the First Trust product line. Mr. Carey has 23 years of experience as an Equity
and Fixed-Income Analyst and is a recipient of the Chartered Financial Analyst
("CFA") designation. He is a graduate of the University of Illinois at
Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment
Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a
guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been
quoted by several publications, including The Wall Street Journal, The Wall
Street Reporter, Bloomberg News Service, and Registered Rep.
STATE OF THE GLOBAL ECONOMY
The International Monetary Fund (IMF) is forecasting a global GDP growth rate of
3.3% for 2013 and 4.0% for 2014, according to its own release. The IMF sees much
faster growth in "Emerging Market and Developing Economies." It has a GDP growth
rate estimate of 5.3% (2013) and 5.7% (2014) for this category. Its estimates
for "Advanced Economies" are 1.2% (2013) and 2.2% (2014). The U.S. is expected
to grow at a better clip than other advanced nations. For the U.S., IMF is
looking for a growth rate of 1.9% in 2013 and 3.0% in 2014. Investors should
take some comfort in these GDP growth estimates looking out through 2014, in our
opinion.
In the U.S., the Obama Administration made a downward adjustment to its
long-term GDP growth rate forecast, lowering its estimate from 2.5% in the 2013
budget proposal to 2.4% in its 2014 proposal, according to Reuters. This is
somewhat of a target growth rate where the Administration believes growth can
persist without generating a level of inflation capable of putting economic
stability at risk. The Blue Chip Economic Indicators survey of private
economists revealed a consensus average growth rate of 2.5% over the long term,
slightly more optimistic. For comparative purposes, the average annual GDP
growth rate in the U.S. over the past 15 years (1997-2012) was 2.5%. It seems
like the more things change, the more they stay the same.
A study released the first week of March by the National Bureau of Economic
Research suggests that the Federal Reserve's policy of keeping interest rates
artificially low to encourage lending might be doing just the opposite,
according to CNNMoney.com. At the end of 2012, banks had lent out just less than
70% of their deposits, well below the 93% level reached prior to the financial
crisis. It appears that many of the biggest banks in the U.S. have been
borrowing more of their capital via long-term debt, which locks in a big chunk
of their funding costs. The study found that for 12 of the 16 largest banks in
the U.S., lower interest rates actually make it more expensive to lend. The four
largest banks in the U.S. account for nearly 40% of all loans. The study
suggests that higher short-term interest rates could be the way to boost lending
at the larger banking institutions. Chairman Bernanke has stated that the Fed
would likely continue buying bonds ($85 billion of Treasuries and
mortgage-backed securities per month) until the unemployment rate falls to 6.5%.
A recent survey by the National Association for Business Economics revealed that
44% of its members now believe the Fed's monetary policy is "too stimulative,"
up from 26% in September 2012, according to the Los Angeles Times. Two-thirds of
those polled said the Fed should terminate its bond-buying program this year.
GLOBAL MARKETS
Investors poured a net $77.1 billion (open-end mutual and closed-end funds and
exchange traded products) into International/Global Equity funds in Q1'13, up
significantly from $28 billion in Q1'12, according to Strategic Insight, LLC.
Net inflows into International/Global Bond funds totaled approximately $27.6
billion in Q1'13, less than half the amount that went into equities. With
interest rates still hovering near their historical lows, investors appear to be
willing to accept more risk in 2013 for the potential of achieving higher
returns.
For the 6-month period ended March 31, 2013, the MSCI World (ex U.S.) Index and
MSCI Emerging Markets Indices were up 10.92% (USD) and 3.64% (USD),
respectively. The S&P 500 Index posted a 10.19% gain. With respect to the
foreign debt markets, the Barclays Capital Global Aggregate Bond Index and
Barclays Capital Global Emerging Markets Index returned -2.6% (USD) and 1.8%
(USD), respectively. The U.S. dollar was up 3.8% against a basket of major
currencies, as measured by the U.S. Dollar Index (DXY). Investors were able to
capture higher returns in foreign equities than in foreign bonds over the past
six months.
Page 3
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
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FDD - FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND
First Trust 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 "STOXX Index"). The shares of the Fund are listed and
trade on the NYSE Arca, Inc. under the ticker symbol "FDD." The Fund will
normally invest at least 90% of its net assets in non-U.S. common stocks that
comprise the STOXX Index or in depositary receipts that may include American
Depositary Receipts, Global Depositary Receipts, European Depositary Receipts or
other depositary receipts (collectively, the "Depositary Receipts") representing
securities in the STOXX Index.
The STOXX Index consists of 30 high dividend-yielding securities selected from
the STOXX(R) Europe 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 STOXX Index is compiled and maintained by STOXX Limited. 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
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AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
6 Months 1 Year 5 Years Inception 5 Years Inception
Ended Ended Ended (8/27/07) Ended (8/27/07)
3/31/13 3/31/13 3/31/13 to 3/31/13 3/31/13 to 3/31/13
FUND PERFORMANCE
NAV -0.09% 0.07% -10.22% -11.17% -41.69% -48.45%
Market Price -0.47% -0.27% -10.30% -11.09% -41.93% -48.21%
INDEX PERFORMANCE
STOXX(R) Europe Select Dividend 30 Index 0.06% 0.32% -10.05% -10.67% -41.13% -46.79%
STOXX(R) Europe 600 Index 10.27% 11.11% -1.85% -2.25% -8.93% -11.93%
MSCI Europe Index 9.91% 10.56% -2.08% -2.44% -9.98% -12.91%
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(See Notes to Fund Performance Overview on page 28.)
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The STOXX(R) Europe Select Dividend 30 Index and the trademark used in the index
name are the intellectual property of STOXX Limited, Zurich, Switzerland. The
index is used under license from STOXX. The Fund is in no way sponsored,
endorsed, sold or promoted by STOXX and/or its licensors and neither STOXX nor
its licensors shall have any liability with respect thereto.
Page 4
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FDD - FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND (CONTINUED)
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PORTFOLIO SECTOR ALLOCATION AS OF MARCH 31, 2013
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% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Financials 33.88%
Utilities 20.49
Industrials 13.72
Telecommunication Services 12.52
Health Care 7.84
Consumer Discretionary 5.81
Energy 5.74
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Total 100.00%
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TOP TEN PORTFOLIO HOLDINGS AS OF MARCH 31, 2013
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% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Belgacom S.A. 5.54%
Banco Santander S.A. 4.76
France Telecom S.A. 4.75
AstraZeneca PLC 4.40
Zurich Insurance Group AG 4.23
E. ON SE 4.13
BAE Systems PLC 3.94
RSA Insurance Group PLC 3.87
Catlin Group Ltd. 3.80
SSE PLC 3.80
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Total 43.22%
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PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - MARCH 31, 2013
First Trust STOXX(R) STOXX(R) Europe STOXX(R)
European Select Select Dividend 30 Europe 600 MSCI Europe
Dividend Index Fund Index Index Index
-------------------- ------------------ ------------- -----------
8/27/07 $10000 $10000 $10000 $10000
9/30/07 10323 10304 10622 10636
3/31/08 8841 9039 9670 9675
9/30/08 5562 5539 7333 7347
3/31/09 3201 3263 4836 4846
9/30/09 5182 5275 7484 7462
3/31/10 5053 5178 7600 7565
9/30/10 5133 5271 7697 7658
3/31/11 5682 5844 8574 8520
9/30/11 4789 4959 6786 6754
3/31/12 5151 5305 7927 7877
9/30/12 5159 5319 7987 7923
3/31/13 5154 5322 8807 8707
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, 2013
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 1, 2007 through March
31, 2013. 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 NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
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0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
10/1/07 - 9/30/08 38 55 74 30 25 12 10 9
10/1/08 - 9/30/09 34 27 43 84 19 18 15 12
10/1/09 - 9/30/10 49 28 14 11 57 46 36 11
10/1/10 - 9/30/11 79 70 5 0 67 28 3 1
10/1/11 - 9/30/12 85 80 24 2 44 16 0 0
10/1/12 - 3/31/13 42 69 5 0 6 0 0 0
Page 5
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (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 net assets in common stocks that
comprise the FTSE Index or in Depositary Receipts 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
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AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
6 Months 1 Year 5 Years Inception 5 Years Inception
Ended Ended Ended (8/27/07) Ended (8/27/07)
3/31/13 3/31/13 3/31/13 to 3/31/13 3/31/13 to 3/31/13
FUND PERFORMANCE
NAV 12.27% 20.38% 2.61% 0.45% 13.77% 2.52%
Market Price 12.18% 20.61% 2.43% 0.44% 12.74% 2.47%
INDEX PERFORMANCE
FTSE EPRA/NAREIT Developed Index 12.54% 21.25% 3.52% 1.33% 18.89% 7.68%
S&P Global REIT Index 11.78% 19.00% 3.40% 1.33% 18.19% 7.70%
MSCI World REIT Index 9.45% 17.67% 2.24% 0.22% 11.70% 1.21%
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(See Notes to Fund Performance Overview on page 28.)
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The FTSE EPRA/NAREIT Developed Index is calculated by FTSE International Limited
("FTSE"). FTSE does not sponsor, endorse or promote the First Trust FTSE
EPRA/NAREIT Developed Markets Real Estate Index Fund. All copyright in the index
values and constituent list vests in FTSE and/or its licensors. First Trust and
the Fund have 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 (UNAUDITED) (CONTINUED)
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FFR - FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
(CONTINUED)
----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Financials 99.94%
Health Care 0.06
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Total 100.00%
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TOP TEN PORTFOLIO HOLDINGS AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Simon Property Group, Inc. 4.60%
Mitsubishi Estate Co., Ltd. 3.39
Mitsui Fudosan Co., Ltd. 2.30
Westfield Group 2.22
HCP, Inc. 2.14
Unibail-Rodamco SE 2.09
Public Storage 2.06
Ventas, Inc. 2.04
Sun Hung Kai Properties Ltd. 1.97
Sumitomo Realty & Development Co., Ltd. 1.75
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Total 24.56%
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PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - MARCH 31, 2013
First Trust FTSE
EPRA/NAREIT
Developed Markets FTSE EPRA/NAREIT S&P Global MSCI World
Real Estate Index Fund Developed Index REIT Index REIT Index
---------------------- ---------------- ---------- ----------
8/27/07 $10000 $10000 $10000 $10000
9/30/07 10686 10693 10581 10656
3/31/08 9012 9057 9112 9061
9/30/08 7443 7420 7905 7901
3/31/09 3849 3909 3762 3678
9/30/09 6500 6645 6368 6086
3/31/10 7022 7212 6985 6578
9/30/10 7636 7868 7608 7124
3/31/11 8314 8606 8557 8108
9/30/11 7012 7327 7481 7136
3/31/12 8517 8881 9051 8602
9/30/12 9131 9568 9636 9248
3/31/13 10251 10768 10771 10122
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, 2013
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 1, 2007 through March
31, 2013. 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 NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
------------------------------------------ ------------------------------------------
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
10/1/07 - 9/30/08 58 63 48 11 35 21 12 5
10/1/08 - 9/30/09 44 48 40 49 16 17 12 26
10/1/09 - 9/30/10 109 64 14 9 32 22 2 0
10/1/10 - 9/30/11 154 31 1 0 57 10 0 0
10/1/11 - 9/30/12 123 21 0 0 104 3 0 0
10/1/12 - 3/31/13 91 25 0 0 6 0 0 0
Page 7
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FGD - FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
First Trust Dow Jones Global Select Dividend Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the Dow Jones Global Select
Dividend Index(SM) (the "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 net assets in common stocks that
comprise the Select Dividend Index or in Depositary Receipts 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. The Select Dividend Index is compiled and maintained by Dow Jones &
Company, Inc. The Select Dividend Index universe consists of all dividend-paying
companies in the Dow Jones World Developed Index which are subject to
eligibility screens for dividend quality and liquidity before being selected for
inclusion in the Select Dividend Index.
---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
6 Months 1 Year 5 Years Inception 5 Years Inception
Ended Ended Ended (11/21/07) Ended (11/21/07)
3/31/13 3/31/13 3/31/13 to 3/31/13 3/31/13 to 3/31/13
FUND PERFORMANCE
NAV 5.18% 9.33% 2.46% 1.01% 12.92% 5.52%
Market Price 5.23% 9.05% 2.41% 1.01% 12.63% 5.55%
INDEX PERFORMANCE
Dow Jones Global Select Dividend Index(SM) 5.13% 9.48% 2.52% 1.10% 13.24% 6.01%
Dow Jones World Developed Markets Index(SM) 11.20% 12.57% 2.97% 1.54% 15.73% 8.54%
MSCI World Index 10.42% 11.86% 2.23% 0.86% 11.64% 4.70%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
-----------------------------
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 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FGD - FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (CONTINUED)
----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Telecommunication Services 23.76%
Financials 18.72
Industrials 17.29
Utilities 14.39
Energy 5.87
Consumer Discretionary 4.69
Health Care 4.31
Consumer Staples 4.10
Information Technology 3.79
Materials 3.08
--------
Total 100.00%
========
----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
France Telecom S.A. 2.33%
Cable & Wireless Communications PLC 2.32
R.R. Donnelley & Sons Co. 2.28
Telecom Corp. of New Zealand Ltd. 1.95
Neopost S.A. 1.91
Mobistar S.A. 1.88
Metcash Ltd. 1.65
ACS Actividades de Construccion y
Servicios S.A. 1.57
EDP-Energias de Portugal S.A. 1.48
NCC AB, Class B 1.47
--------
Total 18.84%
========
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
NOVEMBER 21, 2007 - MARCH 31, 2013
First Trust Dow Jones Dow Jones Dow Jones
Global Select Dividend Global Select World Developed MSCI World
Index Fund Dividend Index(SM) Markets Index(SM) Index
---------------------- ------------------ ----------------- ----------
11/21/07 $10000 $10000 $10000 $10000
3/31/08 9345 9362 9379 9378
9/30/08 7028 6925 7816 7815
3/31/09 4375 4380 5416 5385
9/30/09 7857 7873 7765 7636
3/31/10 8160 8200 8381 8204
9/30/10 8669 8709 8372 8152
3/31/11 9654 9711 9611 9308
9/30/11 8533 8637 8023 7798
3/31/12 9652 9683 9642 9360
9/30/12 10033 10084 9761 9482
3/31/13 10553 10601 10854 10470
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, 2013
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, 2013. 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 NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
------------------------------------------ ------------------------------------------
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
11/27/07 - 9/30/08 21 22 54 69 17 6 12 12
10/1/08 - 9/30/09 22 33 59 71 17 12 22 16
10/1/09 - 9/30/10 129 53 8 3 47 11 1 0
10/1/10 - 9/30/11 109 82 1 0 52 7 2 0
10/1/11 - 9/30/12 160 51 0 0 35 5 0 0
10/1/12 - 3/31/13 101 15 0 0 6 0 0 0
Page 9
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (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(TM) 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 net assets (plus any borrowings for investment purposes) in common stocks
that comprise the ISE Index or in Depositary Receipts representing securities in
the ISE Index.
The ISE Index was developed and is owned by the International Securities
Exchange, LLC. 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
---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
6 Months Ended 1 Year Ended Inception (6/16/08) Inception (6/16/08)
3/31/13 3/31/13 to 3/31/13 to 3/31/13
FUND PERFORMANCE
NAV 14.76% -0.84% -23.85% -72.87%
Market Price 14.84% -0.59% -23.93% -73.01%
INDEX PERFORMANCE
ISE Global Wind Energy(TM) Index 14.75% -0.25% -23.22% -71.79%
Russell 3000(R) Index 11.35% 14.56% 5.62% 29.93%
MSCI World Index 10.42% 11.86% 1.72% 8.53%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
-----------------------------
"International Securities Exchange(R)", "ISE(R)" and "ISE Global Wind Energy(TM)
Index" are trademarks of the International Securities Exchange(R) and have been
licensed for use for certain purposes by First Trust. The Fund, based on the ISE
Global Wind Energy(TM) Index, is not sponsored, endorsed, sold or promoted by
the International Securities Exchange(R) and the International Securities
Exchange(R) makes no representation regarding the advisability of trading in
such product.
Page 10
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FAN - FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND (CONTINUED)
----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Utilities 59.72%
Industrials 35.42
Energy 3.08
Materials 1.32
Consumer Discretionary 0.46
--------
Total 100.00%
========
----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
China Longyuan Power Group Corp.,
Class H 8.76%
Nordex SE 8.47
Gamesa Corp. Tecnologica S.A. 7.48
Vestas Wind Systems A/S 7.42
Iberdrola S.A. 6.02
EDP Renovaveis S.A. 5.85
Greentech Energy Systems A/S 4.58
China WindPower Group Ltd. 4.42
Infigen Energy 3.85
Japan Wind Development Co., Ltd. 3.06
--------
Total 59.91%
========
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JUNE 16, 2008 - MARCH 31, 2013
First Trust ISE ISE Global
Global Wind Energy Wind Energy(TM) Russell 3000(R) MSCI World
Index Fund Index Index Index
------------------ --------------- --------------- ----------
6/16/08 $10000 $10000 $10000 $10000
9/30/08 6370 6314 8583 8101
3/31/09 3502 3515 5912 5582
9/30/09 5461 5512 8032 7916
3/31/10 4574 4646 9011 8505
9/30/10 3544 3626 8912 8451
3/31/11 4061 4162 10579 9649
9/30/11 2819 2917 8961 8083
3/31/12 2736 2827 11340 9702
9/30/12 2364 2458 11667 9828
3/31/13 2713 2821 12991 10852
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, 2013
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, 2013. 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 NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
------------------------------------------ ------------------------------------------
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
6/18/08 - 9/30/08 24 17 13 2 6 1 8 2
10/1/08 - 9/30/09 57 52 40 11 41 30 17 4
10/1/09 - 9/30/10 77 18 1 0 108 41 7 0
10/1/10 - 9/30/11 69 20 0 0 106 48 10 0
10/1/11 - 9/30/12 12 1 0 0 78 135 25 0
10/1/12 - 3/31/13 4 1 0 0 75 40 2 0
Page 11
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (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(TM) Index (the "Index"). The shares of the Fund are listed and
trade on the NYSE Arca, Inc. under the ticker symbol "FLM." The Fund will
normally invest at least 90% of its net assets in common stocks that comprise
the Index or in Depositary Receipts representing securities in the Index.
The Index is developed and owned by the International Securities Exchange, LLC.
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
---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
6 Months Ended 1 Year Ended Inception (10/13/08) Inception (10/13/08)
3/31/13 3/31/13 to 3/31/13 to 3/31/13
FUND PERFORMANCE
NAV 10.29% 6.59% 9.91% 52.47%
Market Price 10.51% 6.09% 9.85% 52.09%
INDEX PERFORMANCE
ISE Global Engineering and Construction(TM) Index 10.47% 7.52% 12.02% 65.96%
Russell 3000(R) Index 11.35% 14.56% 13.63% 76.89%
MSCI World Industrials Index 14.89% 12.43% 12.54% 69.43%
---------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
-----------------------------
"International Securities Exchange(R)", "ISE(R)" and "ISE Global Engineering and
Construction(TM) Index" are trademarks of the International Securities
Exchange(R) and have been licensed for use for certain purposes by First Trust.
The Fund, based on the ISE Global Engineering and Construction(TM) Index, is not
sponsored, endorsed, sold or promoted by the International Securities
Exchange(R) and the International Securities Exchange(R) makes no representation
regarding the advisability of trading in such product.
Page 12
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FLM - FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND (CONTINUED)
----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Industrials 91.28%
Energy 8.72
--------
Total 100.00%
========
----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Chicago Bridge & Iron Co. N.V., ADR 7.39%
Jacobs Engineering Group, Inc. 3.77
Fluor Corp. 3.58
Quanta Services, Inc. 3.14
Vinci S.A. 3.05
Skanska AB, Class B 2.91
KBR, Inc. 2.89
URS Corp. 2.86
Bouygues S.A. 2.85
AECOM Technology Corp. 2.74
--------
Total 35.18%
========
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
OCTOBER 13, 2008 - MARCH 31, 2013
First Trust ISE Global ISE Global Engineering
Engineering and and Construction(TM) Russell 3000(R) MSCI World
Construction Index Fund Index Index Industrials Index
----------------------- ---------------------- --------------- -----------------
10/13/08 $10000 $10000 $10000 $10000
3/31/09 8987 9388 8048 7741
9/30/09 13384 14103 10935 11514
3/31/10 13471 14263 12268 12962
9/30/10 13522 14368 12133 13181
3/31/11 16744 17882 14403 15709
9/30/11 11724 12719 12200 12195
3/31/12 14306 15435 15439 15069
9/30/12 13826 15022 15884 14746
3/31/13 15249 16595 17687 16942
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, 2013
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, 2013. 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 NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
------------------------------------------ ------------------------------------------
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
10/15/08 - 9/30/09 79 44 32 26 36 12 8 5
10/1/09 - 9/30/10 112 28 2 0 88 18 4 0
10/1/10 - 9/30/11 131 12 1 0 89 20 0 0
10/1/11 - 9/30/12 90 2 0 0 145 14 0 0
10/1/12 - 3/31/13 25 0 0 0 94 3 0 0
Page 13
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
GRID - FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund (the
"Fund") seeks investment results that correspond generally to the price and
yield (before the Fund's fees and expenses) of an equity index called the NASDAQ
OMX(R) 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, LLC 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
representing securities in the Index.
The Index is designed to act as a transparent and liquid benchmark for the grid
and electric energy infrastructure sector. Clean Edge, Inc. provides a list of
companies to be included in the Index to The NASDAQ OMX Group, Inc., which then
compiles the Index. To be eligible for inclusion in the Index, the issuer of the
security must be classified by Clean Edge as a smart grid, electric
infrastructure and/or other grid-related activities company. 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
---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
6 Months Ended 1 Year Ended Inception (11/16/09) Inception (11/16/09)
3/31/13 3/31/13 to 3/31/13 to 3/31/13
FUND PERFORMANCE
NAV 11.52% 15.10% 2.86% 9.96%
Market Price 11.63% 15.02% 2.78% 9.69%
INDEX PERFORMANCE
NASDAQ OMX(R) Clean Edge(R) Smart Grid
Infrastructure Index(SM) 11.99% 16.15% 3.74% 13.15%
Russell 3000(R) Index 11.35% 14.56% 13.83% 54.72%
S&P 1500 Industrials Index 16.92% 16.28% 15.75% 63.72%
MSCI World Industrials Index 14.89% 12.43% 10.82% 41.35%
---------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
-----------------------------
NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The
Nasdaq OMX Group, 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 Index and 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 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
GRID - FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND
(CONTINUED)
----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Industrials 70.09%
Information Technology 16.09
Utilities 13.82
--------
Total 100.00%
========
----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
ABB Ltd. 8.06%
Quanta Services, Inc. 7.93
Schneider Electric S.A. 7.71
Prysmian S.p.A. 7.62
Red Electrica Corp. S.A. 7.45
General Cable Corp. 4.45
Itron, Inc. 4.40
ITC Holdings Corp. 4.23
ESCO Technologies, Inc. 4.02
MYR Group, Inc. 3.88
--------
Total 59.75%
========
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
NOVEMBER 16, 2009 - MARCH 31, 2013
First Trust NASDAQ
NASDAQ(R) OMX(R)
Clean Edge(R) Clean Edge(R)
Smart Grid Smart Grid Russell S&P 1500 MSCI World
Infrastructure Infrastructure 3000(R) Industrials Industrials
Index Fund Index(SM) Index Index Index
-------------- -------------- ------- ----------- -----------
11/16/09 $10000 $10000 $10000 $10000 $10000
3/31/10 10257 10297 10731 11205 10814
9/30/10 10154 10236 10614 11249 10997
3/31/11 11775 11912 12600 13832 13106
9/30/11 8161 8341 10672 10743 10174
3/31/12 9553 9741 13505 14081 12572
9/30/12 9860 10103 13895 14004 12302
3/31/13 10996 11314 15472 16373 14134
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, 2013
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, 2013. 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 NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
------------------------------------------ ------------------------------------------
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
11/17/09 - 9/30/10 146 5 4 1 57 4 1 1
10/1/10 - 9/30/11 54 3 0 0 182 14 0 0
10/1/11 - 9/30/12 22 7 0 1 187 34 0 0
10/1/12 - 3/31/13 7 6 0 0 86 23 0 0
Page 15
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
CU - FIRST TRUST ISE GLOBAL COPPER INDEX FUND
First Trust ISE Global Copper 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 Copper(TM) Index (the
"Index"). The shares of the Fund are listed and trade on The NASDAQ(R) Stock
Market, LLC 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 securities in the Index.
The Index is developed and owned by International Securities Exchange, LLC. 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
---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
6 Months Ended 1 Year Ended Inception (3/11/10) Inception (3/11/10)
3/31/13 3/31/13 to 3/31/13 to 3/31/13
FUND PERFORMANCE
NAV -8.73% -15.73% -2.50% -7.43%
Market Price -8.06% -15.52% -2.41% -7.17%
INDEX PERFORMANCE
ISE Global Copper(TM) Index -8.47% -14.71% -1.23% -3.70%
MSCI All Country World Materials Index 0.15% -4.26% 0.27% 0.82%
MSCI All Country World Index 9.55% 10.53% 8.23% 27.32%
---------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
-----------------------------
"International Securities Exchange(R)", "ISE(R)" and "ISE Global Copper(TM)
Index" are trademarks of the International Securities Exchange(R) 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(R) and the International Securities
Exchange(R) makes no representation regarding the advisability of trading in
such product.
Page 16
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
CU - FIRST TRUST ISE GLOBAL COPPER INDEX FUND (CONTINUED)
----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Materials 100.00%
--------
Total 100.00%
========
----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Freeport-McMoRan Copper & Gold, Inc. 6.17%
Southern Copper Corp. 6.14
Antofagasta PLC 5.83
Xstrata PLC 5.83
Rio Tinto PLC, ADR 5.71
KGHM Polska Miedz S.A. 5.49
Inmet Mining Corp. 4.69
First Quantum Minerals Ltd. 4.49
Jiangxi Copper Co., Ltd., Class H 4.46
MMC Norilsk Nickel OJSC, ADR 4.44
--------
Total 53.25%
========
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MARCH 11, 2010 - MARCH 31, 2013
First Trust ISE Global ISE Global MSCI All Country MSCI All Country
Copper Index Fund Copper(TM) Index World Materials Index World Index
3/11/10 $10000 $10000 $10000 $10000
3/31/10 10297 10337 10291 10172
9/30/10 11208 11329 10440 10220
3/31/11 14567 14768 12429 11604
9/30/11 8910 9156 9096 9606
3/31/12 10984 11290 10529 11519
9/30/12 10141 10521 10066 11621
3/31/13 9256 9630 10081 12731
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, 2013
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, 2013. 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 NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
------------------------------------------ ------------------------------------------
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
3/12/10 - 9/30/10 71 43 7 0 18 1 1 0
10/1/10 - 9/30/11 101 62 1 1 55 29 4 0
10/1/11 - 9/30/12 57 23 4 1 126 40 0 0
10/1/12 - 3/31/13 25 8 0 0 70 19 0 0
Page 17
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
PLTM - FIRST TRUST ISE GLOBAL PLATINUM INDEX FUND
First Trust ISE Global Platinum 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 Platinum(TM) Index (the
"Index"). The shares of the Fund are listed and trade on The NASDAQ(R) Stock
Market, LLC 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 securities in the Index.
The Index is developed and owned by International Securities Exchange, LLC. 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
advantage of both event-driven news and long-term trends as the need for PGMs
continues to evolve.
---------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
6 Months Ended 1 Year Ended Inception (3/11/10) Inception (3/11/10)
3/31/13 3/31/13 to 3/31/13 to 3/31/13
FUND PERFORMANCE
NAV -4.19% -29.03% -22.08% -53.33%
Market Price -4.72% -29.56% -22.06% -53.30%
INDEX PERFORMANCE
ISE Global Platinum(TM) Index -4.02% -28.20% -21.38% -52.04%
MSCI All Country World Index 9.55% 10.53% 8.23% 27.32%
MSCI All Country World Materials Index 0.15% -4.26% 0.27% 0.82%
---------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
-----------------------------
"International Securities Exchange(R)", "ISE(R)" and "ISE Global Platinum(TM)
Index" are trademarks of the International Securities Exchange(R) 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(R) and the International Securities
Exchange(R) makes no representation regarding the advisability of trading in
such product.
Page 18
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
PLTM - FIRST TRUST ISE GLOBAL PLATINUM INDEX FUND (CONTINUED)
----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Materials 96.46%
Information Technology 3.54
--------
Total 100.00%
========
----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Johnson Matthey PLC 9.33%
Impala Platinum Holdings Ltd. 9.15
MMC Norilsk Nickel OJSC, ADR 8.73
African Rainbow Minerals Ltd. 8.71
Lonmin PLC 8.16
Royal Bafokeng Platinum Ltd. 4.85
North American Palladium Ltd. 4.79
Platinum Group Metals Ltd. 4.72
Northam Platinum Ltd. 4.70
Aquarius Platinum Ltd. 4.64
--------
Total 67.78%
========
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MARCH 11, 2010 - MARCH 31, 2013
First Trust ISE Global ISE Global MSCI All Country MSCI All Country
Platinum Index Fund Platinum(TM) Index World Index World Materials Index
---------------------- ------------------ ---------------- ---------------------
3/11/10 $10000 $10000 $10000 $10000
3/31/10 10337 10383 10172 10291
9/30/10 9794 9934 10220 10440
3/31/11 10930 11082 11604 12429
9/30/11 6416 6555 9606 9096
3/31/12 6576 6680 11519 10529
9/30/12 4871 4997 11621 10066
3/31/13 4667 4796 12731 10081
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, 2013
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, 2013. 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 NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
------------------------------------------ ------------------------------------------
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
3/12/10 - 9/30/10 80 43 3 1 14 0 0 0
10/1/10 - 9/30/11 77 66 17 0 52 37 4 0
10/1/11 - 9/30/12 67 41 20 1 71 45 5 1
10/1/12 - 3/31/13 32 26 6 0 41 16 1 0
Page 19
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
BICK - FIRST TRUST BICK INDEX FUND
The First Trust BICK 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 BICK(TM) (Brazil, India, China,
South Korea) Index (the "Index"). The shares of the Fund are listed and trade on
The NASDAQ(R) Stock Market, LLC. under the ticker symbol "BICK." The Fund will
normally invest at least 90% of its net assets in securities that comprise the
Index or in Depositary Receipts representing securities in the Index.
The Index is developed and owned by International Securities Exchange, LLC. The
Index is designed to provide a benchmark for investors interested in tracking
some of the largest and most liquid public companies that are domiciled in
Brazil, India, China (including Hong Kong) and South Korea that are accessible
for investment by U.S. investors. The Index has been created to provide
investors an opportunity to take advantage of both event-driven news and
long-term economic trends as the economies of these countries continue to
evolve.
---------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
6 Months Ended 1 Year Ended Inception (4/12/10) Inception (4/12/10)
3/31/13 3/31/13 to 3/31/13 to 3/31/13
FUND PERFORMANCE
NAV 1.82% -5.74% -5.41% -15.20%
Market Price 2.51% -6.67% -5.42% -15.24%
INDEX PERFORMANCE
ISE BICK(TM) Index 1.76% -5.19% -4.72% -13.35%
MSCI All Country World Index 9.55% 10.53% 6.95% 22.07%
MSCI Emerging Markets Index 3.64% 1.73% 2.17% 6.57%
---------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
-----------------------------
"International Securities Exchange(R)", "ISE(R)" and "ISE BICK(TM) Index" are
trademarks of the International Securities Exchange(R) and have been licensed
for use for certain purposes by First Trust. The Fund, based on the ISE BICK(TM)
Index, is not sponsored, endorsed, sold or promoted by the International
Securities Exchange(R) and the International Securities Exchange(R) makes no
representation regarding the advisability of trading in such product.
Page 20
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
BICK - FIRST TRUST BICK INDEX FUND (CONTINUED)
----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Financials 31.49%
Information Technology 16.07
Energy 11.79
Materials 10.73
Consumer Discretionary 8.83
Industrials 8.08
Consumer Staples 4.96
Telecommunication Services 4.06
Utilities 2.04
Health Care 1.95
--------
Total 100.00%
========
----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Wipro Ltd., ADR 2.06%
Sterlite Industries (India) Ltd., ADR 2.05
State Bank of India, GDR 2.01
WNS Holdings Ltd., ADR 2.01
ICICI Bank Ltd., ADR 2.00
Infosys Ltd., ADR 1.97
Larsen & Toubro Ltd., GDR 1.96
Dr. Reddy's Laboratories Ltd., ADR 1.95
HDFC Bank Ltd., 1.94
Mahindra & Mahindra Ltd., GDR 1.94
--------
Total 19.89%
========
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
APRIL 12, 2010 - MARCH 31, 2013
First Trust BICK ISE BICK(TM) MSCI All Country MSCI Emerging
Index Fund Index World Index Markets Index
4/12/10 $10000 $10000 $10000 $10000
9/30/10 10417 10488 9800 10487
3/31/11 11231 11311 11127 11486
9/30/11 7586 7795 9211 8793
3/31/12 8996 9139 11045 10475
9/30/12 8328 8515 11143 10282
3/31/13 8480 8665 12207 10656
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, 2013
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 April 13, 2010 (commencement
of trading) through March 31, 2013. 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 NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
------------------------------------------ ------------------------------------------
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
4/13/10 - 9/30/10 20 46 47 1 3 2 0 0
10/1/10 - 9/30/11 73 58 16 0 85 19 2 0
10/1/11 - 9/30/12 87 30 2 1 85 45 1 0
10/1/12 - 3/31/13 15 3 0 0 76 28 0 0
Page 21
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FONE - FIRST TRUST NASDAQ CEA SMARTPHONE INDEX FUND
The First Trust NASDAQ CEA Smartphone Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield, before the Fund's fees
and expenses, of an equity index called the NASDAQ OMX CEA Smartphone Index(SM)
(the "Index"). The shares of the Fund are listed and trade on The NASDAQ(R)
Stock Market, LLC under the ticker symbol "FONE." The Fund will normally invest
at least 90% of its net assets in common stocks and Depositary Receipts included
in the Index.
The Index is owned by The NASDAQ OMX Group, Inc. (the "Index Provider"). The
Index is designed to track the performance of companies engaged in the
Smartphone segment of the telecommunications and technology sectors. To be
eligible for the Index, issuers of the securities must be identified as being
engaged in the smartphone industry by the Consumer Electronics Association.
Component securities must be listed on an index-eligible global stock exchange,
as determined by the Index Provider, have a minimum float-adjusted market
capitalization of $250 million and a minimum three-month average daily dollar
trading volume of $1 million.
---------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
6 Months Ended 1 Year Ended Inception (2/17/11) Inception (2/17/11)
3/31/13 3/31/13 to 3/31/13 to 3/31/13
FUND PERFORMANCE
NAV 15.58% -2.35% -4.75% -9.78%
Market Price 15.29% -2.55% -4.86% -10.00%
INDEX PERFORMANCE
NASDAQ OMX CEA Smartphone Index(SM) 15.84% -1.59% -3.97% -8.21%
MSCI World Index 10.42% 11.86% 4.96% 10.78%
MSCI All Country World Information Technology Index 1.97% 0.01% 3.59% 7.74%
---------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
-----------------------------
NASDAQ(R), OMX(R), NASDAQ OMX(R), and NASDAQ OMX CEA Smartphone Index(SM) are
registered trademarks of The NASDAQ OMX Group, Inc. (which with its affiliates
is referred to as the "Corporations") and are licensed for use by First Trust
Advisors L.P. The Fund has not been passed on by the Corporations as to its
legality or suitability. The Fund is not issued, endorsed, sold, or promoted by
the Corporations. The Corporations make no warranties and bear no liability with
respect to the FUND.
Page 22
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FONE - FIRST TRUST NASDAQ CEA SMARTPHONE INDEX FUND (CONTINUED)
----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 78.69%
Telecommunication Services 12.79
Consumer Discretionary 7.17
Health Care 1.35
--------
Total 100.00%
========
----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
SONY Corp. 3.10%
Research In Motion Ltd. 3.01
KYOCERA Corp. 3.01
Sanmina Corp. 2.91
Apple, Inc. 2.90
LG Electronics, Inc. 2.88
Benchmark Electronics, Inc. 2.84
Compal Communications, Inc. 2.82
Flextronics International Ltd. 2.81
Wistron Corp. 2.74
--------
Total 29.02%
========
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
FEBRUARY 17, 2011 - MARCH 31, 2013
First Trust NASDAQ NASDAQ OMX MSCI All Country
CEA Smartphone CEA Smartphone MSCI World World Information
Index Fund Index(SM) Index Technology Index
------------------ -------------- ---------- -----------------
2/17/11 $10000 $10000 $10000 $10000
3/31/11 9433 9403 9849 9547
9/30/11 7503 7595 8251 8390
3/31/12 9238 9328 9904 10774
9/30/12 7805 7925 10032 10566
3/31/13 9021 9180 11077 10774
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, 2013
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 February 18, 2011
(commencement of trading) through March 31, 2013. 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 NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
------------------------------------------ ------------------------------------------
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
2/18/11 - 9/30/11 85 10 0 0 58 3 0 0
10/1/11 - 9/30/12 54 12 0 0 141 44 0 0
10/1/12 - 3/31/13 21 4 0 0 69 28 0 0
Page 23
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
CARZ - FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND
The First Trust NASDAQ Global Auto Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield, before the Fund's fees
and expenses, of an equity index called the NASDAQ OMX Global Auto Index(SM)
(the "Index"). The shares of the Fund are listed and trade on The NASDAQ(R)
Stock Market, LLC under the ticker symbol "CARZ." The Fund will normally invest
at least 90% of its net assets in common stocks included in the Index.
The Index is owned and was developed by The NASDAQ OMX Group, Inc. (the "Index
Provider"). The Index Provider has contracted with Standard & Poor's to
calculate and maintain the Index. The Index is designed to track the performance
of the largest and most liquid companies engaged in manufacturing of
automobiles. To be eligible for the index, component securities must be listed
on an index-eligible global stock exchange, as determined by the Index Provider,
have a minimum worldwide market capitalization of at least $500 million and a
minimum three-month average daily dollar trading volume of $1 million.
---------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
6 Months Ended 1 Year Ended Inception (5/09/11) Inception (5/09/11)
3/31/13 3/31/13 to 3/31/13 to 3/31/13
FUND PERFORMANCE
NAV 23.28% 9.50% 1.10% 2.10%
Market Price 2.17% 9.02% 1.14% 2.17%
INDEX PERFORMANCE
NASDAQ OMX Global Auto Index(SM) 23.26% 9.95% 2.10% 4.01%
MSCI World Index 10.42% 11.86% 5.43% 10.53%
---------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
-----------------------------
NASDAQ(R), OMX(R), NASDAQ OMX(R), and NASDAQ OMX Global Auto Index(SM) are
trademarks of The NASDAQ OMX Group, Inc. (NASDAQ OMX collectively with their
affiliates, are referred to as the "Corporations") and are licensed for use by
First Trust Advisors L.P. The Fund has not been passed on by the Corporations as
to its legality or suitability. The Fund is not issued, endorsed, sold, or
promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO
LIABILITY WITH RESPECT TO THE FUND.
Page 24
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
CARZ - FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND (CONTINUED)
----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Consumer Discretionary 99.79%
Industrials 0.21
--------
Total 100.00%
========
----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Ford Motor Co. 8.47%
Honda Motor Co., Ltd. 8.34
Hyundai Motor Co. 8.16
Toyota Motor Corp. 8.13
Daimler AG 7.42
Fuji Heavy Industries Ltd. 4.21
General Motors Co. 4.16
Harley-Davidson, Inc. 4.11
Renault S.A. 4.01
Kia Motors Corp. 3.99
--------
Total 61.00%
========
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 9, 2011 - MARCH 31, 2013
First Trust NASDAQ Global NASDAQ OMX Global MSCI World
Auto Index Fund Auto Index Index(SM) Index
------------------------- -------------------- ----------
5/9/11 $10000 $10000 $10000
9/30/11 7545 7717 8232
3/31/12 9324 9459 9881
9/30/12 8282 8439 10009
3/31/13 10210 10402 11052
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, 2013
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 May 10, 2011 (commencement of
trading) through March 31, 2013. 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 NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
------------------------------------------ ------------------------------------------
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
5/10/11 - 9/30/11 59 13 0 0 24 4 0 0
10/1/11 - 9/30/12 103 30 0 1 91 24 1 1
10/1/12 - 3/31/13 49 34 6 0 27 6 0 0
Page 25
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
SKYY - FIRST TRUST ISE CLOUD COMPUTING INDEX FUND
The First Trust ISE Cloud Computing 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 Cloud Computing(TM) Index (the
"Index"). The shares of the Fund are listed and trade on The NASDAQ(R) Stock
Market LLC under the ticker symbol "SKYY." The Fund will normally invest at
least 90% of its net assets in common stocks and Depositary Receipts in the
Index.
The Index is owned and was developed by International Securities Exchange, LLC
("ISE"). The Index is designed to provide a benchmark for investors interested
in tracking companies actively involved in the cloud computing industry. To be
eligible for the Index, a security must be engaged in a business activity
supporting or utilizing the cloud computing space. Component securities must be
listed on an Index-eligible global stock exchange, as determined by the ISE, and
have a market capitalization of $100 million.
---------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
6 Months Ended 1 Year Ended Inception (7/05/11) Inception (7/05/11)
3/31/13 3/31/13 to 3/31/13 to 3/31/13
FUND PERFORMANCE
NAV 6.76% -0.69% 3.02% 5.31%
Market Price 6.44% -0.69% 3.02% 5.31%
INDEX PERFORMANCE
ISE Cloud Computing(TM) Index 7.11% 0.00% 3.65% 6.42%
S&P 500 Index 10.19% 13.96% 12.11% 21.96%
S&P Composite 1500 Information Technology Index -0.11% -0.49% 9.36% 16.81%
---------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
-----------------------------
"International Securities Exchange(R)", "ISE(R)" and "ISE Cloud Computing(TM)
Index" are trademarks of the International Securities Exchange(R) and have been
licensed for use for certain purposes by First Trust. The Fund, based on the ISE
Cloud Computing(TM) Index, is not sponsored, endorsed, sold or promoted by the
International Securities Exchange(R), and the International Securities
Exchange(R) makes no representation regarding the advisability of trading in
such product.
Page 26
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
SKYY - FIRST TRUST ISE CLOUD COMPUTING INDEX FUND (CONTINUED)
----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 90.11%
Consumer Discretionary 8.90
Financials 0.99
--------
Total 100.00%
========
----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF MARCH 31, 2013
----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Oracle Corp. 6.58%
Netflix, Inc. 5.83
Zynga, Inc., Class A 3.80
Hewlett-Packard Co. 3.71
NetSuite, Inc. 3.57
Aruba Networks, Inc. 3.50
Informatica Corp. 3.37
Google, Inc., Class A 3.24
Equinix, Inc. 3.13
Salesforce.com, Inc. 3.08
--------
Total 39.81%
========
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JULY 5, 2011 - MARCH 31, 2013
First Trust ISE Cloud ISE Cloud S&P 500 S&P Composite 1500
Computing Index Fund Computing(TM) Index Index Information Technology Index
--------------------- ------------------- ------- ----------------------------
7/5/11 $10000 $10000 $10000 $10000
9/30/11 7902 7909 8501 8886
3/31/12 10604 10641 10702 11739
9/30/12 9864 9934 11068 11695
3/31/13 10531 10640 12196 11681
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, 2013
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 July 6, 2011 (commencement of
trading) through March 31, 2013. 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 NUMBER OF DAYS BID/ASK MIDPOINT
AT/ABOVE NAV BELOW NAV
------------------------------------------ ------------------------------------------
0.00%- 0.50%- 1.00%- 0.00%- 0.50%- 1.00%-
FOR THE PERIOD 0.49% 0.99% 1.99% >=2.00% 0.49% 0.99% 1.99% >=2.00%
7/6/11 - 9/30/11 34 3 0 0 23 2 0 0
10/1/11 - 9/30/12 126 13 2 0 102 8 0 0
10/1/12 - 3/31/13 63 14 0 0 34 10 1 0
Page 27
--------------------------------------------------------------------------------
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. For certain Funds, the total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the Advisor.
Each Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Price") is determined
by using the midpoint between the highest bid and the lowest offer on the stock
exchange on which shares of the Fund are listed for trading as of the time that
the Fund's NAV is calculated. Since shares of each Fund did not trade in the
secondary market until after the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
each Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and market returns assume that all 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 each Fund, the indices do not actually hold a portfolio of
securities and therefore do not incur the expenses incurred by each Fund. These
expenses negatively impact the performance of each Fund. Also, market returns do
not include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of each
Fund will vary with changes in market conditions. Shares of each Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. Each Fund's past performance is no guarantee of future performance.
Page 28
FIRST TRUST EXCHANGE-TRADED FUND II
UNDERSTANDING YOUR FUND EXPENSES
MARCH 31, 2013 (UNAUDITED)
As a shareholder of First Trust 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, First Trust BICK Index Fund, First Trust NASDAQ CEA Smartphone Index Fund,
First Trust NASDAQ Global Auto Index Fund, or the First Trust ISE Cloud
Computing Index Fund (each a "Fund" and collectively, the "Funds"), you incur
two types of costs: (1) transaction costs; and (2) ongoing costs, including
management fees, distribution and/or service fees and other Fund expenses. This
Example is intended to help you understand your ongoing costs (in U.S. dollars)
of investing in the Funds and to compare these costs with the ongoing costs of
investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended March 31, 2013.
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
BEGINNING ENDING BASED ON THE EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH DURING THE
OCTOBER 1, 2012 MARCH 31, 2013 PERIOD (a) SIX-MONTH PERIOD (b)
------------------------------------------------------------------------------------------------------------------------------
FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND
Actual $1,000.00 $ 999.10 0.60% $2.99
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 $1,122.70 0.60% $3.18
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 $1,051.80 0.60% $3.07
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 $1,147.60 0.60% $3.21
Hypothetical (5% return before expenses) $1,000.00 $1,021.94 0.60% $3.02
Page 29
FIRST TRUST EXCHANGE-TRADED FUND II
UNDERSTANDING YOUR FUND EXPENSES (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO
BEGINNING ENDING BASED ON THE EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH DURING THE
OCTOBER 1, 2012 MARCH 31, 2013 PERIOD (a) SIX-MONTH PERIOD (b)
------------------------------------------------------------------------------------------------------------------------------
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND
Actual $1,000.00 $1,102.90 0.70% $3.67
Hypothetical (5% return before expenses) $1,000.00 $1,021.44 0.70% $3.53
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND
Actual $1,000.00 $1,115.20 0.70% $3.69
Hypothetical (5% return before expenses) $1,000.00 $1,021.44 0.70% $3.53
FIRST TRUST ISE GLOBAL COPPER INDEX FUND
Actual $1,000.00 $ 912.70 0.70% $3.34
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 $ 958.10 0.70% $3.42
Hypothetical (5% return before expenses) $1,000.00 $1,021.44 0.70% $3.53
FIRST TRUST BICK INDEX FUND
Actual $1,000.00 $1,018.20 0.64% $3.22
Hypothetical (5% return before expenses) $1,000.00 $1,021.74 0.64% $3.23
FIRST TRUST NASDAQ CEA SMARTPHONE INDEX FUND
Actual $1,000.00 $1,155.80 0.70% $3.76
Hypothetical (5% return before expenses) $1,000.00 $1,021.44 0.70% $3.53
FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND
Actual $1,000.00 $1,232.80 0.70% $3.90
Hypothetical (5% return before expenses) $1,000.00 $1,021.44 0.70% $3.53
FIRST TRUST ISE CLOUD COMPUTING INDEX FUND
Actual $1,000.00 $1,067.60 0.60% $3.09
Hypothetical (5% return before expenses) $1,000.00 $1,021.94 0.60% $3.02
(a) These expense ratios reflect expense caps for certain Funds. See Note 3 in
Notes to Financial Statements.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (October 1,
2012 through March 31, 2013), multiplied by 182/365 (to reflect the
one-half year period).
Page 30
FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 96.3%
BELGIUM -- 5.5%
77,257 Belgacom S.A. (b) $ 1,923,314
--------------
BERMUDA -- 3.8%
166,261 Catlin Group Ltd. (b) 1,319,528
--------------
FINLAND -- 3.2%
122,082 Sanoma Oyj (b) 1,122,123
--------------
FRANCE -- 14.5%
39,674 Bouygues S.A. (b) 1,077,504
162,646 France Telecom S.A. (b) 1,648,070
26,071 SCOR SE (b) 749,980
18,480 Total S.A. (b) 885,082
2,876 Unibail-Rodamco SE 669,858
--------------
5,030,494
--------------
GERMANY -- 6.4%
82,024 E. ON SE (b) 1,435,239
4,218 Muenchener Rueckversicherungs-
Gesellschaft AG (b) 790,571
--------------
2,225,810
--------------
ITALY -- 3.5%
267,291 Snam S.p.A. (b) 1,221,046
--------------
NETHERLANDS -- 2.6%
41,013 Wolters Kluwer N.V. (b) 896,214
--------------
SPAIN -- 4.7%
243,780 Banco Santander S.A. (b) 1,651,525
--------------
SWEDEN -- 2.2%
71,836 Ratos AB, Class B (b) 760,202
--------------
SWITZERLAND -- 11.9%
8,523 Baloise Holding AG (b) 800,746
13,410 Swiss Prime Site AG 1,085,598
1,671 Swisscom AG (b) 773,887
5,265 Zurich Insurance Group AG (b) 1,469,723
--------------
4,129,954
--------------
UNITED KINGDOM -- 38.0%
30,463 AstraZeneca PLC (b) 1,528,053
227,557 BAE Systems PLC (b) 1,366,294
285,110 Balfour Beatty PLC (b) 1,019,943
313,148 Carillion PLC (b) 1,297,607
96,180 Drax Group PLC (b) 896,074
51,014 GlaxoSmithKline PLC (b) 1,194,602
46,952 Provident Financial PLC (b) 1,118,199
33,310 Royal Dutch Shell PLC,
Class B (b) 1,107,732
756,980 RSA Insurance Group PLC (b) 1,342,239
58,306 SSE PLC (b) 1,318,092
94,419 United Utilities Group PLC (b) 1,017,550
--------------
13,206,385
--------------
TOTAL COMMON STOCKS -- 96.3% 33,486,595
(Cost $34,123,435) --------------
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
PREFERRED STOCK -- 3.5%
GERMANY -- 3.5%
34,045 RWE AG (b) $ 1,223,075
(Cost $1,380,967) --------------
TOTAL INVESTMENTS -- 99.8% 34,709,670
(Cost $35,504,402) (c)
NET OTHER ASSETS AND
LIABILITIES -- 0.2% 74,304
--------------
NET ASSETS -- 100.0% $ 34,783,974
==============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) This security is fair valued in accordance with procedures adopted by the
Trust's Board of Trustees and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(c) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of March 31, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $1,608,268 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $2,403,000.
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2013 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
TOTAL
VALUE AT
INVESTMENTS 3/31/2013 LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------
Common Stocks:
Belgium $ 1,923,314 $ -- $ 1,923,314 $ --
Bermuda 1,319,528 -- 1,319,528 --
Finland 1,122,123 -- 1,122,123 --
France 5,030,494 669,858 4,360,636 --
Germany 2,225,810 -- 2,225,810 --
Italy 1,221,046 -- 1,221,046 --
Netherlands 896,214 -- 896,214 --
Spain 1,651,525 -- 1,651,525 --
Sweden 760,202 -- 760,202 --
Switzerland 4,129,954 1,085,598 3,044,356 --
United Kingdom 13,206,385 -- 13,206,385 --
--------------------------------------------------------
Total Common
Stocks 33,486,595 1,755,456 31,731,139 --
Preferred Stock* 1,223,075 -- 1,223,075 --
--------------------------------------------------------
Total Investments $34,709,670 $ 1,755,456 $32,954,214 $ --
========================================================
* See Portfolio of Investments for country breakout.
See Notes to Financial Statements Page 31
FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of March
31, 2013, the Fund transferred common stocks valued at $13,686,450 from Level 1
to Level 2 of the fair value hierarchy. The common stocks that transferred from
Level 1 to Level 2 did so as a result of foreign equities that were valued based
on quoted prices at September 30, 2012 that are now being fair valued using a
factor provided by a pricing service due to the change in value between foreign
markets' close and the New York Stock Exchange ("NYSE") close on March 28, 2013
exceeding a certain threshold.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Insurance 18.6%
Diversified Telecommunication Services 12.5
Construction & Engineering 9.8
Pharmaceuticals 7.8
Multi-Utilities 7.7
Media 5.8
Oil, Gas & Consumable Fuels 5.7
Commercial Banks 4.8
Aerospace & Defense 3.9
Electric Utilities 3.8
Gas Utilities 3.5
Consumer Finance 3.2
Real Estate Management & Development 3.1
Water Utilities 2.9
Independent Power Producers & Energy Traders 2.6
Capital Markets 2.2
Real Estate Investment Trusts 1.9
-----------------------------------------------------------
TOTAL INVESTMENTS 99.8
NET OTHER ASSETS AND LIABILITIES 0.2
-----------
TOTAL 100.0%
===========
Page 32 See Notes to Financial Statements
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.5%
AUSTRALIA -- 7.6%
60,731 BWP Trust (b) $ 150,686
222,964 CFS Retail Property Trust (b) 467,397
37,112 Charter Hall Retail REIT (b) 151,348
265,059 Commonwealth Property Office
Fund (b) 306,806
502,775 Dexus Property Group (b) 546,352
143,470 Federation Centres Ltd. (b) 353,052
193,484 Goodman Group (b) 967,138
177,583 GPT Group (b) 687,251
196,196 GPT Group, In Specie (b) (c) (d) 0
64,493 Investa Office Fund (b) 205,756
385,765 Mirvac Group (b) 652,733
248,757 Stockland (b) 949,345
234,048 Westfield Group (b) 2,651,772
320,777 Westfield Retail Trust (b) 1,009,899
--------------
9,099,535
--------------
AUSTRIA -- 0.1%
8,235 CA Immobilien Anlagen AG (b) 108,563
6,813 Conwert Immobilien Invest SE (b) 74,345
--------------
182,908
--------------
BELGIUM -- 0.4%
993 Aedifica (b) 63,294
1,771 Befimmo S.C.A (b) 112,689
1,746 Cofinimmo (b) 200,176
738 Intervest Offices &
Warehouses (b) 18,636
181 Leasinvest Real Estate S.C.A (b) 17,019
1,158 Warehouses De Pauw S.C.A 73,477
221 Wereldhave Belgium S.C.A 23,083
--------------
508,374
--------------
BERMUDA -- 1.1%
132,922 Hongkong Land Holdings Ltd. (b) 987,589
72,595 Kerry Properties Ltd. (b) 323,148
--------------
1,310,737
--------------
CANADA -- 4.8%
7,244 Allied Properties Real Estate
Investment Trust 235,536
12,986 Artis Real Estate Investment
Trust 205,812
4,485 Boardwalk Real Estate Investment
Trust 275,895
28,266 Brookfield Office Properties,
Inc. 485,268
11,472 Calloway Real Estate Investment
Trust 330,659
11,459 Canadian Apartment Properties
Real Estate Investment Trust 284,487
7,646 Canadian Real Estate Investment
Trust 338,400
19,221 Chartwell Retirement Residences 209,646
13,937 Cominar Real Estate Investment
Trust 316,647
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
CANADA (CONTINUED)
6,022 Crombie Real Estate Investment
Trust $ 87,735
9,050 Dundee International Real Estate
Investment Trust 94,790
11,025 Dundee Real Estate Investment
Trust, Class A 397,762
9,619 Extendicare, Inc. 76,698
9,326 First Capital Realty, Inc. 173,970
5,297 Granite Real Estate Investment
Trust 202,630
21,898 H&R Real Estate Investment Trust 504,203
9,592 InnVest Real Estate Investment
Trust 46,834
5,767 Killam Properties, Inc. 68,124
3,981 Morguard Real Estate Investment
Trust 69,834
3,608 Northern Property Real Estate
Investment Trust 112,376
3,390 NorthWest Healthcare Properties
Real Estate Investment Trust 42,481
11,046 Primaris Retail Real Estate
Investment Trust 296,090
33,461 RioCan Real Estate Investment
Trust 915,702
--------------
5,771,579
--------------
CAYMAN ISLANDS -- 0.9%
141,926 Agile Property Holdings Ltd. (b) 169,823
412,100 Country Garden Holdings Co.,
Ltd. (b) (e) 206,636
293,110 New World China Land Ltd. (b) 125,742
156,793 Shimao Property Holdings Ltd. (b) 302,309
256,194 Shui On Land Ltd. (b) 110,513
179,561 Soho China Ltd. (b) 150,195
--------------
1,065,218
--------------
FINLAND -- 0.2%
25,912 Citycon Oyj (b) 74,118
27,174 Sponda Oyj (b) 128,466
7,670 Technopolis Oyj 36,771
--------------
239,355
--------------
FRANCE -- 3.3%
651 Affine 11,891
801 ANF Immobilier 22,271
3,530 Fonciere des Regions (b) 276,643
2,072 Gecina S.A. (b) 240,759
2,575 ICADE (b) 225,392
11,018 Klepierre (b) 433,274
4,674 Mercialys (b) 95,751
618 Societe de la Tour Eiffel (b) 35,262
920 Societe Immobiliere de Location
pour l'Industrie et le
Commerce (b) 98,143
10,717 Unibail-Rodamco SE 2,496,127
--------------
3,935,513
--------------
GERMANY -- 1.1%
7,661 Alstria Office REIT-AG 86,320
5,178 Deutsche Euroshop AG (b) 209,741
18,144 Deutsche Wohnen AG (b) 330,074
See Notes to Financial Statements Page 33
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
GERMANY (CONTINUED)
2,582 DIC Asset AG (b) $ 25,831
5,706 GSW Immobilien AG (b) 225,950
5,135 Hamborner REIT AG 47,373
16,435 IVG Immobilien AG (b) (d) 13,834
2,998 LEG Immobilien AG (d) 160,637
3,238 Patrizia Immobilien AG (b) (e) 30,146
4,399 Prime Office REIT-AG 18,050
13,987 TAG Immobilien AG 160,109
--------------
1,308,065
--------------
GREECE -- 0.0%
1,624 Eurobank Properties Real Estate
Investment Co. (d) 12,116
--------------
GUERNSEY -- 0.0%
40,196 Schroder Real Estate Investment
Trust Ltd. (b) 25,963
--------------
HONG KONG -- 7.7%
288,265 Champion Real Estate Investment
Trust (b) 149,840
251,630 Hang Lung Properties Ltd. (b) 942,067
105,563 Henderson Land Development Co.,
Ltd. (b) 724,102
70,396 Hysan Development Co., Ltd. (b) 356,378
257,983 Link (The) REIT (b) 1,407,058
424,156 New World Development Co.,
Ltd. (b) 720,874
333,033 Sino Land Co., Ltd. (b) 566,812
174,532 Sun Hung Kai Properties Ltd. (b) 2,355,219
132,122 Swire Properties Ltd. (b) 469,897
171,118 Wharf (The) Holdings Ltd. (b) 1,530,336
--------------
9,222,583
--------------
ISRAEL -- 0.1%
4,109 Azrieli Group (b) 114,468
--------------
ITALY -- 0.1%
93,032 Beni Stabili S.p.A. (b) 55,569
14,413 Immobiliare Grande
Distribuzione (b) 15,437
--------------
71,006
--------------
JAPAN -- 14.1%
21 Activia Properties, Inc. (b) 201,911
137 Advance Residence Investment
Corp. (b) 367,625
9,216 AEON Mall Co., Ltd. (b) 281,414
32 Daiwahouse Residential
Investment Corp. (b) 152,558
20 Frontier Real Estate Investment
Corp. (b) 228,477
176 GLP J-REIT 189,022
16 Industrial & Infrastructure Fund
Investment Corp. (b) 176,960
23 Japan Excellent, Inc. (b) 172,951
17 Japan Logistics Fund, Inc. (b) 198,418
89 Japan Prime Realty Investment
Corp. (b) 344,732
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
JAPAN (CONTINUED)
67 Japan Real Estate Investment
Corp. (b) $ 928,354
234 Japan Retail Fund Investment
Corp. (b) 580,583
32 Kenedix Realty Investment
Corp. (b) 155,392
142,930 Mitsubishi Estate Co., Ltd. (b) 4,048,835
96,081 Mitsui Fudosan Co., Ltd. (b) 2,743,816
23 Mori Hills REIT Investment
Corp. (b) 170,716
20 MORI TRUST Sogo Reit, Inc. (b) 214,571
25 Nippon Accommodations Fund,
Inc. (b) 211,689
75 Nippon Building Fund, Inc. (b) 1,050,915
10,300 Nomura Real Estate Holdings,
Inc. (b) 231,169
32 Nomura Real Estate Office Fund,
Inc. (b) 235,853
123 NTT Urban Development Corp. (b) 148,273
161 ORIX JREIT, Inc. (b) 227,352
21 Premier Investment Corp. (b) 113,351
53,744 Sumitomo Realty & Development
Co., Ltd. (b) 2,093,711
48,375 Tokyo Tatemono Co., Ltd. (b) 345,820
50,297 Tokyu Land Corp. (b) 474,617
18 TOKYU REIT, Inc. (b) 136,309
17 Top REIT, Inc. (b) 101,382
238 United Urban Investment Corp. (b) 388,525
--------------
16,915,301
--------------
LUXEMBOURG -- 0.1%
8,821 GAGFAH S.A. (b) (d) 108,392
--------------
NETHERLANDS -- 0.7%
7,387 Corio N.V. (b) 345,073
3,914 Eurocommercial Properties
N.V. (b) 143,354
6,175 Nieuwe Steen Investments N.V. (b) 40,474
2,150 Vastned Retail N.V. (b) 89,275
2,448 Wereldhave N.V. (b) 169,348
--------------
787,524
--------------
NEW ZEALAND -- 0.1%
111,654 Kiwi Income Property Trust 109,302
--------------
NORWAY -- 0.1%
58,842 Norwegian Property ASA 92,382
--------------
SINGAPORE -- 4.4%
207,400 Ascendas Real Estate Investment
Trust (b) 435,808
216,890 CapitaCommercial Trust (b) 277,786
286,530 Capitaland Ltd. (b) 819,543
292,883 CapitaMall Trust (b) 494,341
154,000 CapitaMalls Asia Ltd. (b) 255,495
71,000 CDL Hospitality Trusts (b) 117,543
67,000 City Developments Ltd. (b) 614,355
338,000 Global Logistic Properties
Ltd. (b) 717,800
87,521 Keppel Land Ltd. (b) 279,146
144,009 Mapletree Commercial Trust (b) 156,266
Page 34 See Notes to Financial Statements
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
SINGAPORE (CONTINUED)
129,000 Mapletree Industrial Trust $ 146,124
161,453 Mapletree Logistics Trust (b) 158,274
229,197 Suntec Real Estate Investment
Trust (b) 333,022
61,000 UOL Group Ltd. (b) 344,464
50,087 Wing Tai Holdings Ltd. (b) 77,025
75,000 Yanlord Land Group Ltd. (b) (d) 91,122
--------------
5,318,114
--------------
SWEDEN -- 0.9%
18,514 Castellum AB (b) 264,028
14,659 Fabege AB (b) 149,823
10,217 Fastighets AB Balder,
Class B (b) (d) 72,109
12,522 Hufvudstaden AB, Class A (b) 157,396
9,216 Klovern AB (b) 39,890
15,416 Kungsleden AB (b) 99,585
11,535 Wallenstam AB, Class B (b) 150,714
7,465 Wihlborgs Fastigheter AB (b) 123,182
--------------
1,056,727
--------------
SWITZERLAND -- 1.0%
1,080 Allreal Holding AG 157,000
695 Mobimo Holding AG 155,941
4,494 PSP Swiss Property AG (b) 409,681
6,146 Swiss Prime Site AG 497,546
--------------
1,220,168
--------------
UNITED KINGDOM -- 4.4%
5,217 A & J Mucklow Group PLC (b) 29,525
14,513 Big Yellow Group PLC 78,284
101,274 British Land Co. PLC (b) 838,379
73,997 Capital & Counties Properties
PLC (b) 306,647
552 Daejan Holdings PLC 30,614
10,331 Derwent London PLC (b) 338,537
13,818 Development Securities PLC 31,599
46,395 Grainger PLC (b) 95,872
38,841 Great Portland Estates PLC (b) 293,290
79,910 Hammerson PLC (b) 598,983
72,147 Hansteen Holdings PLC (b) 94,648
11,207 Helical Bar PLC 40,315
63,753 Intu Properties PLC (b) 324,740
87,934 Land Securities Group PLC (b) 1,110,042
65,963 Londonmetric Property PLC (b) 106,354
7,814 Primary Health Properties PLC 39,300
51,430 Quintain Estates & Development
PLC (d) 52,358
21,128 Safestore Holdings PLC 38,042
83,760 Segro PLC (b) 324,446
28,230 Shaftesbury PLC (b) 249,845
18,666 St. Modwen Properties PLC (b) 73,083
17,977 Unite Group PLC (b) 87,830
11,784 Workspace Group PLC (b) 61,563
--------------
5,244,296
--------------
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
UNITED STATES -- 46.3%
5,722 Acadia Realty Trust $ 158,900
1,461 Agree Realty Corp. 43,976
230 Alexander's, Inc. 75,829
7,193 Alexandria Real Estate Equities,
Inc. 510,559
3,815 American Assets Trust, Inc. 122,118
11,817 American Campus Communities,
Inc. 535,783
16,437 Apartment Investment &
Management Co., Class A 503,958
6,063 Ashford Hospitality Trust 74,939
5,590 Associated Estates Realty Corp. 104,198
12,918 AvalonBay Communities, Inc. 1,636,323
18,863 BioMed Realty Trust, Inc. 407,441
16,919 Boston Properties, Inc. 1,709,834
16,119 Brandywine Realty Trust 239,367
8,662 BRE Properties, Inc. 421,666
9,440 Camden Property Trust 648,339
6,898 Campus Crest Communities, Inc. 95,882
8,576 CapLease, Inc. 54,629
18,186 CBL & Associates Properties, Inc. 429,190
8,108 Cedar Realty Trust, Inc. 49,540
5,486 Chesapeake Lodging Trust 125,849
9,056 Colonial Properties Trust 204,756
13,361 CommonWealth REIT 299,821
8,577 Corporate Office Properties Trust 228,834
10,300 Cousins Properties, Inc. 110,107
14,603 CubeSmart 230,727
30,111 DCT Industrial Trust, Inc. 222,821
27,637 DDR Corp. 481,437
22,038 DiamondRock Hospitality Co. 205,174
13,931 Digital Realty Trust, Inc. 932,123
14,662 Douglas Emmett, Inc. 365,524
36,327 Duke Realty Corp. 616,832
7,141 DuPont Fabros Technology, Inc. 173,312
3,347 EastGroup Properties, Inc. 194,795
12,764 Education Realty Trust, Inc. 134,405
5,251 EPR Properties 273,315
4,245 Equity Lifestyle Properties, Inc. 326,016
6,684 Equity One, Inc. 160,215
36,650 Equity Residential 2,017,949
4,112 Essex Property Trust, Inc. 619,185
4,792 Excel Trust, Inc. 65,411
11,627 Extra Space Storage, Inc. 456,592
7,298 Federal Realty Investment Trust 788,476
14,058 FelCor Lodging Trust, Inc. (d) 83,645
11,103 First Industrial Realty Trust,
Inc. 190,194
5,756 First Potomac Realty Trust 85,361
15,032 Forest City Enterprises, Inc.,
Class A (d) 267,119
8,243 Franklin Street Properties Corp. 120,513
60,400 General Growth Properties, Inc. 1,200,752
2,829 Getty Realty Corp. 57,174
16,038 Glimcher Realty Trust 186,041
6,171 Government Properties Income
Trust 158,780
51,146 HCP, Inc. 2,550,140
29,253 Health Care REIT, Inc. 1,986,571
See Notes to Financial Statements Page 35
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
UNITED STATES (CONTINUED)
9,849 Healthcare Realty Trust, Inc. $ 279,613
19,040 Hersha Hospitality Trust 111,194
9,097 Highwoods Properties, Inc. 359,968
5,788 Home Properties, Inc. 367,075
15,781 Hospitality Properties Trust 433,031
81,217 Host Hotels & Resorts, Inc. 1,420,485
4,802 Hudson Pacific Properties, Inc. 104,443
8,618 Inland Real Estate Corp. 86,956
10,559 Investors Real Estate Trust 104,217
8,435 Kilroy Realty Corp. 441,994
45,833 Kimco Realty Corp. 1,026,659
7,812 Kite Realty Group Trust 52,653
10,781 LaSalle Hotel Properties 273,622
23,982 Lexington Realty Trust 282,988
13,251 Liberty Property Trust 526,727
3,426 LTC Properties, Inc. 139,541
15,429 Macerich (The) Co. 993,319
9,916 Mack-Cali Realty Corp. 283,697
16,909 Medical Properties Trust, Inc. 271,220
4,773 Mid-America Apartment
Communities, Inc. 329,623
2,759 National Health Investors, Inc. 180,577
12,427 National Retail Properties, Inc. 449,485
12,654 OMEGA Healthcare Investors, Inc. 384,175
4,775 Parkway Properties, Inc. 88,576
6,863 Pebblebrook Hotel Trust 176,997
5,750 Pennsylvania Real Estate
Investment Trust 111,493
19,075 Piedmont Office Realty Trust,
Inc., Class A 373,679
6,121 Post Properties, Inc. 288,299
51,837 Prologis, Inc. 2,072,443
2,044 PS Business Parks, Inc. 161,312
16,144 Public Storage 2,459,054
6,673 Ramco-Gershenson Properties Trust 112,106
20,187 Realty Income Corp. 915,480
10,153 Regency Centers Corp. 537,195
5,977 Retail Opportunity Investments
Corp. 83,738
12,008 RLJ Lodging Trust 273,302
2,539 Rouse Properties, Inc. 45,956
4,164 Sabra Health Care REIT, Inc. 120,798
1,431 Saul Centers, Inc. 62,592
21,238 Senior Housing Properties Trust 569,816
34,681 Simon Property Group, Inc. 5,499,019
10,123 SL Green Realty Corp. 871,692
3,437 Sovran Self Storage, Inc. 221,652
3,833 Spirit Realty Capital, Inc. 72,827
4,676 STAG Industrial, Inc. 99,459
18,917 Strategic Hotels & Resorts,
Inc. (d) 157,957
3,888 Sun Communities, Inc. 191,795
17,932 Sunstone Hotel Investors,
Inc. (d) 220,743
10,603 Tanger Factory Outlet Centers,
Inc. 383,617
6,968 Taubman Centers, Inc. 541,135
28,257 UDR, Inc. 683,537
1,429 Universal Health Realty Income
Trust 82,468
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
UNITED STATES (CONTINUED)
2,649 Urstadt Biddle Properties, Inc.,
Class A $ 57,642
33,229 Ventas, Inc. 2,432,363
18,920 Vornado Realty Trust 1,582,469
7,442 Washington Real Estate
Investment Trust 207,185
12,282 Weingarten Realty Investors 387,497
3,301 Winthrop Realty Trust 41,527
6,611 WP Carey, Inc. 445,581
--------------
55,478,700
--------------
TOTAL COMMON STOCKS -- 99.5% 119,198,326
(Cost $93,471,257) --------------
INVESTMENT COMPANIES -- 0.2%
GUERNSEY -- 0.2%
55,956 F&C Commerical Property Trust
Ltd. (b) 88,047
12,479 IRP Property Investments Ltd. (b) 12,249
29,410 MedicX Fund Ltd. 39,772
38,891 Picton Property Income Ltd. (b) 23,642
16,023 Standard Life Investment Property
Income Trust PLC 14,669
45,976 UK Commercial Property Trust 48,552
--------------
TOTAL INVESTMENT COMPANIES
-- 0.2% 226,931
(Cost $239,132) --------------
WARRANT -- 0.0%
NETHERLANDS -- 0.0%
1,632 Nieuwe Steen Investments,
expiring 05/28/13 @ $0 (b) (d) 0
(Cost $0) --------------
MONEY MARKET FUND -- 0.1%
54,240 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 0.03% (f) 54,240
(Cost $54,240) --------------
TOTAL INVESTMENTS -- 99.8% 119,479,497
(Cost $93,764,629) (g)
NET OTHER ASSETS AND
LIABILITIES -- 0.2% 277,012
--------------
NET ASSETS -- 100.0% $ 119,756,509
==============
Page 36 See Notes to Financial Statements
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) This security is fair valued in accordance with procedures adopted by the
Trust's Board of Trustees and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(c) 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.
(d) Non-income producing security.
(e) Non-income producing security which pays in-kind distributions.
(f) Interest rate shown reflects yield as of March 31, 2013.
(g) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of March 31, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $26,486,218 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $771,350.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Real Estate Investment Trusts 74.8%
Real Estate Management & Development 24.8
Health Care Providers & Services 0.1
Money Market Fund 0.1
Capital Markets 0.0*
-----------------------------------------------------------
TOTAL INVESTMENTS 99.8
NET OTHER ASSETS AND LIABILITIES 0.2
-----------
TOTAL 100.0%
===========
* Amount is less than 0.1%.
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2013 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
TOTAL
VALUE AT
INVESTMENTS 3/31/2013 LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------
Common Stocks:
Australia $ 9,099,535 $ -- $ 9,099,535 $ --
Austria 182,908 -- 182,908 --
Belgium $508,374 96,560 411,814 --
Bermuda 1,310,737 -- 1,310,737 --
Canada 5,771,579 5,771,579 -- --
Cayman Islands 1,065,218 -- 1,065,218 --
Finland 239,355 36,771 202,584 --
France 3,935,513 2,530,289 1,405,224 --
Germany 1,308,065 472,489 835,576 --
Greece 12,116 12,116 -- --
Guernsey 25,963 -- 25,963 --
Hong Kong 9,222,583 -- 9,222,583 --
Israel 114,468 -- 114,468 --
Italy 71,006 -- 71,006 --
Japan 16,915,301 189,022 16,726,279 --
Luxembourg 108,392 -- 108,392 --
Netherlands 787,524 -- 787,524 --
New Zealand 109,302 109,302 -- --
Norway 92,382 92,382 -- --
Singapore 5,318,114 146,124 5,171,990 --
Sweden 1,056,727 -- 1,056,727 --
Switzerland 1,220,168 810,487 409,681 --
United Kingdom 5,244,296 310,512 4,933,784 --
United States 55,478,700 55,478,700 -- --
--------------------------------------------------------
Total Common
Stocks 119,198,326 66,056,333 53,141,993 --
Investment
Companies 226,931 102,993 123,938 --
Money Market Fund 54,240 54,240 -- --
Warrant --** -- --** --
---------------------------------------------------------
Total Investments $119,479,497 $66,213,566 $53,265,931 $ --
=========================================================
** Investment is valued at $0.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of March
31, 2013, the Fund transferred common stocks valued at $44,695,883 from Level 1
to Level 2 of the fair value hierarchy. The common stocks that transferred from
Level 1 to Level 2 did so as a result of foreign equities that were valued based
on quoted prices at September 30, 2012 that are now being fair valued using a
factor provided by a pricing service due to the change in value between foreign
markets' close and the NYSE close on March 28, 2013 exceeding a certain
threshold.
See Notes to Financial Statements Page 37
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 98.9%
AUSTRALIA -- 18.3%
739,673 Adelaide Brighton Ltd. (b) $ 2,736,266
104,323 Australia & New Zealand Banking
Group Ltd. (b) 3,111,353
719,017 Challenger Ltd. (b) 2,894,779
39,632 Commonwealth Bank of
Australia (b) 2,815,040
2,525,428 Commonwealth Property Office
Fund (b) 2,923,184
1,249,072 David Jones Ltd. (b) 3,898,614
1,150,127 Metcash Ltd. (b) 4,970,393
258,781 Mineral Resources Ltd. (b) 2,872,822
132,448 National Australia Bank Ltd. (b) 4,273,571
84,478 Orica Ltd. (b) 2,159,443
922,148 Stockland (b) 3,519,243
172,977 Suncorp Group Ltd. (b) 2,134,808
752,600 Sydney Airport (b) 2,572,194
663,258 Telstra Corp. Ltd. (b) 3,118,699
268,897 UGL Ltd. (b) 2,870,857
56,367 Wesfarmers Ltd. (b) 2,366,879
196,911 Westfield Group (b) 2,231,008
110,121 Westpac Banking Corp. (b) 3,543,860
--------------
55,013,013
--------------
AUSTRIA -- 1.8%
50,161 OMV AG (b) 2,138,805
507,290 Telekom Austria AG (b) 3,331,665
--------------
5,470,470
--------------
BELGIUM -- 3.0%
133,551 Belgacom S.A. (b) 3,324,754
251,023 Mobistar S.A. (b) 5,648,798
--------------
8,973,552
--------------
BERMUDA -- 3.3%
333,385 Catlin Group Ltd. (b) 2,645,905
110,987 Seadrill Ltd. (b) 4,044,741
259,251 VTech Holdings Ltd. (b) 3,167,772
--------------
9,858,418
--------------
CANADA -- 6.8%
116,321 Bell Aliant, Inc. 3,084,794
165,215 Canadian Oil Sands Ltd. 3,405,623
94,016 Crescent Point Energy Corp. 3,549,258
54,674 Emera, Inc. 1,889,115
69,451 Manitoba Telecom Services, Inc. 2,256,123
87,587 Russel Metals, Inc. 2,488,321
27,255 Telus Corp. 1,882,375
38,743 TransCanada Corp. 1,849,718
--------------
20,405,327
--------------
FINLAND -- 1.7%
171,083 Fortum Oyj (b) 3,451,006
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
FINLAND (CONTINUED)
53,455 Konecranes Oyj (b) $ 1,769,297
--------------
5,220,303
--------------
FRANCE -- 8.1%
130,793 Bouygues S.A. (b) 3,552,199
204,998 CNP Assurances (b) 2,817,237
690,107 France Telecom S.A. (b) 6,992,763
77,027 Lagardere S.C.A. (b) 2,839,042
95,445 Neopost S.A. (b) 5,725,760
116,892 Vivendi S.A. (b) 2,418,273
--------------
24,345,274
--------------
GERMANY -- 2.1%
336,701 Deutsche Telekom AG (b) 3,564,430
71,720 RWE AG (b) 2,677,375
--------------
6,241,805
--------------
HONG KONG -- 0.6%
258,473 Television Broadcasts Ltd. (b) 1,960,786
--------------
ITALY -- 2.4%
151,136 Atlantia S.p.A. (b) 2,393,743
118,323 ENI S.p.A. (b) 2,649,070
3,017,731 Telecom Italia S.p.A. (b) 2,128,427
--------------
7,171,240
--------------
JAPAN -- 1.4%
48,000 Eisai Co., Ltd. (b) 2,150,542
33,400 Ono Pharmaceutical Co., Ltd. (b) 2,064,282
--------------
4,214,824
--------------
NETHERLANDS -- 1.8%
1,145,555 Koninklijke (Royal) KPN N.V. (b) 3,858,493
40,357 Koninklijke Boskalis Westminster
N.V. (b) 1,605,549
--------------
5,464,042
--------------
NEW ZEALAND -- 2.6%
282,245 Fletcher Building Ltd. (b) 2,028,945
2,988,134 Telecom Corp. of New Zealand
Ltd. (b) 5,864,715
--------------
7,893,660
--------------
PORTUGAL -- 1.5%
1,440,469 EDP-Energias de Portugal S.A. (b) 4,439,049
--------------
SINGAPORE -- 2.4%
216,500 Keppel Corp. Ltd. (b) 1,961,189
793,000 Keppel Land Ltd. (b) 2,529,256
780,000 StarHub Ltd. (b) 2,742,009
--------------
7,232,454
--------------
Page 38 See Notes to Financial Statements
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
SPAIN -- 5.3%
201,102 ACS Actividades de Construccion
y Servicios S.A. (b) $ 4,711,836
527,189 Banco Santander S.A. (b) 3,571,522
146,411 Gas Natural SDG S.A. (b) 2,598,063
869,817 Mapfre S.A. (b) 2,703,066
182,271 Telefonica S.A. (b) 2,469,517
--------------
16,054,004
--------------
SWEDEN -- 5.5%
175,641 NCC AB, Class B (b) 4,402,849
666,459 Peab AB (b) 3,741,062
159,302 Skanska AB, Class B (b) 2,884,862
53,882 Svenska Handelsbanken AB,
Class A (b) 2,304,596
440,602 TeliaSonera AB (b) 3,146,804
--------------
16,480,173
--------------
SWITZERLAND -- 2.1%
6,043 Swisscom AG (b) 2,798,681
12,771 Zurich Insurance Group AG (b) 3,565,021
--------------
6,363,702
--------------
UNITED KINGDOM -- 10.9%
445,824 Amlin PLC (b) 2,871,681
58,849 AstraZeneca PLC (b) 2,951,922
478,451 BAE Systems PLC (b) 2,872,708
586,453 Balfour Beatty PLC (b) 2,097,958
10,914,223 Cable & Wireless Communications
PLC (b) 6,962,529
552,225 Carillion PLC (b) 2,288,281
545,372 Halfords Group PLC (b) 2,680,015
111,957 Provident Financial PLC (b) 2,666,344
1,747,969 RSA Insurance Group PLC (b) 3,099,411
85,580 Severn Trent PLC (b) 2,230,027
194,459 United Utilities Group PLC (b) 2,095,678
--------------
32,816,554
--------------
UNITED STATES -- 17.3%
73,840 Altria Group, Inc. 2,539,358
46,851 American Electric Power Co., Inc. 2,278,364
72,161 AT&T, Inc. 2,647,587
95,231 CenterPoint Energy, Inc. 2,281,735
88,849 CenturyLink, Inc. 3,121,265
122,803 Cliffs Natural Resources, Inc. 2,334,485
35,679 Consolidated Edison, Inc. 2,177,489
30,791 DTE Energy Co. 2,104,257
38,086 Eli Lilly & Co. 2,162,904
60,192 FirstEnergy Corp. 2,540,103
44,293 Integrys Energy Group, Inc. 2,576,081
60,169 Lorillard, Inc. 2,427,819
67,292 Microchip Technology, Inc. 2,473,654
496,510 PDL BioPharma, Inc. 3,629,488
131,432 Pepco Holdings, Inc. 2,812,645
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
UNITED STATES (CONTINUED)
568,327 R.R. Donnelley & Sons Co. $ 6,848,340
43,667 SCANA Corp. 2,234,004
48,095 Southern (The) Co. 2,256,617
145,485 TECO Energy, Inc. 2,592,543
--------------
52,038,738
--------------
TOTAL COMMON STOCKS -- 98.9% 297,657,388
(Cost $289,845,011)
PREFERRED STOCK -- 0.9%
GERMANY -- 0.9%
75,805 ProSiebenSat.1 Media AG (b) 2,713,407
(Cost $1,976,725) --------------
TOTAL INVESTMENTS -- 99.8% 300,370,795
(Cost $291,821,736) (c)
NET OTHER ASSETS AND
LIABILITIES -- 0.2% 543,762
--------------
NET ASSETS -- 100.0% $ 300,914,557
==============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) This security is fair valued in accordance with procedures adopted by the
Trust's Board of Trustees and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(c) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of March 31, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $26,757,620 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $18,208,561.
See Notes to Financial Statements Page 39
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2013 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
TOTAL
VALUE AT
INVESTMENTS 3/31/2013 LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------
Common Stocks:
Australia $ 55,013,013 $ -- $ 55,013,013 $ --
Austria 5,470,470 -- 5,470,470 --
Belgium 8,973,552 -- 8,973,552 --
Bermuda 9,858,418 -- 9,858,418 --
Canada 20,405,327 20,405,327 -- --
Finland 5,220,303 -- 5,220,303 --
France 24,345,274 -- 24,345,274 --
Germany 6,241,805 -- 6,241,805 --
Hong Kong 1,960,786 -- 1,960,786 --
Italy 7,171,240 -- 7,171,240 --
Japan 4,214,824 -- 4,214,824 --
Netherlands 5,464,042 -- 5,464,042 --
New Zealand 7,893,660 -- 7,893,660 --
Portugal 4,439,049 -- 4,439,049 --
Singapore 7,232,454 -- 7,232,454 --
Spain 16,054,004 -- 16,054,004 --
Sweden 16,480,173 -- 16,480,173 --
Switzerland 6,363,702 -- 6,363,702 --
United Kingdom 32,816,554 -- 32,816,554 --
United States 52,038,738 52,038,738 -- --
--------------------------------------------------------
Total Common
Stocks 297,657,388 72,444,065 225,213,323 --
Preferred Stock* 2,713,407 -- 2,713,407 --
---------------------------------------------------------
Total Investments $300,370,795 $72,444,065 $227,926,730 $ --
=========================================================
* See Portfolio of Investments for country breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of March
31, 2013, the Fund transferred common stocks valued at $130,949,543 from Level 1
to Level 2 of the fair value hierarchy. The common stocks that transferred from
Level 1 to Level 2 did so as a result of foreign equities that were valued based
on quoted prices at September 30, 2012 that are now being fair valued using a
factor provided by a pricing service due to the change in value between foreign
markets' close and the NYSE close on March 28, 2013 exceeding a certain
threshold.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Diversified Telecommunication Services 20.9%
Construction & Engineering 9.4
Insurance 6.6
Commercial Banks 6.5
Electric Utilities 6.5
Multi-Utilities 5.5
Oil, Gas & Consumable Fuels 4.5
Commercial Services & Supplies 3.2
Pharmaceuticals 3.1
Real Estate Investment Trusts 2.9
Wireless Telecommunication Services 2.8
Media 2.5
Food & Staples Retailing 2.4
Office Electronics 1.9
Transportation Infrastructure 1.7
Construction Materials 1.6
Tobacco 1.6
Water Utilities 1.4
Energy Equipment & Services 1.3
Multiline Retail 1.3
Biotechnology 1.2
Communications Equipment 1.1
Aerospace & Defense 1.0
Diversified Financial Services 1.0
Consumer Finance 0.9
Gas Utilities 0.9
Specialty Retail 0.9
Metals & Mining 0.8
Real Estate Management & Development 0.8
Semiconductors & Semiconductor 0.8
Trading Companies & Distributors 0.8
Chemicals 0.7
Industrial Conglomerates 0.7
Machinery 0.6
-----------------------------------------------------------
TOTAL INVESTMENTS 99.8
NET OTHER ASSETS AND LIABILITIES 0.2
-----------
TOTAL 100.0%
===========
Page 40 See Notes to Financial Statements
FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.5%
AUSTRALIA -- 4.7%
11,588 AGL Energy Ltd. (b) $ 191,818
2,930,172 Infigen Energy (c) 823,699
--------------
1,015,517
--------------
BERMUDA -- 4.4%
24,868,227 China WindPower Group Ltd. (b) 946,345
--------------
BRAZIL -- 0.9%
56,026 Centrais Eletricas Brasileiras
S.A., ADR 191,609
--------------
CAYMAN ISLANDS -- 0.3%
142,818 China High Speed Transmission
Equipment Group Co.,
Ltd. (b) (c) 67,515
--------------
CHINA -- 9.6%
2,059,968 China Longyuan Power Group Corp.,
Class H (b) 1,875,043
261,990 China Suntien Green Energy Corp.,
Class H (b) 71,739
133,246 Harbin Electric Co., Ltd.,
Class H (b) 108,713
--------------
2,055,495
--------------
DENMARK -- 11.9%
558,539 Greentech Energy Systems A/S (c) 979,489
198,125 Vestas Wind Systems A/S (b) (c) 1,588,314
--------------
2,567,803
--------------
FRANCE -- 3.2%
6,020 Alstom S.A. (b) 245,545
228,890 Theolia S.A. (b) (c) 432,641
--------------
678,186
--------------
GERMANY -- 15.1%
16,072 E. ON SE (b) 281,224
290,854 Nordex SE (b) (c) 1,813,678
187,289 PNE Wind AG 633,804
5,840 RWE AG (b) 218,013
2,764 Siemens AG, ADR 297,959
--------------
3,244,678
--------------
GREECE -- 0.2%
13,573 Terna Energy S.A. (b) 44,154
--------------
ITALY -- 1.2%
132,029 Enel Green Power S.p.A. (b) 248,123
--------------
JAPAN -- 4.1%
506 Japan Wind Development Co.,
Ltd. (b) (c) 654,118
16,900 Mitsui & Co., Ltd. (b) 238,258
--------------
892,376
--------------
PORTUGAL -- 1.2%
81,018 EDP-Energias de Portugal S.A. (b) 249,671
--------------
SOUTH KOREA -- 0.5%
20,083 Dongkuk Structure & Construction
Co., Ltd. (b) 67,951
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
SOUTH KOREA (CONTINUED)
7,412 Unison Co., Ltd. (b) (c) $ 46,139
--------------
114,090
--------------
SPAIN -- 20.9%
2,361 Acciona S.A. (b) 129,267
258,917 EDP Renovaveis S.A. (b) (c) 1,252,242
10,482 Endesa S.A. (b) 221,629
521,463 Gamesa Corp. Tecnologica S.A. (b) 1,601,765
275,883 Iberdrola S.A. (b) 1,289,722
--------------
4,494,625
--------------
SWEDEN -- 5.7%
144,721 Arise Windpower AB (c) 555,206
110,695 Eolus Vind AB, Class B 428,066
10,031 SKF AB, Class B (b) 245,108
--------------
1,228,380
--------------
SWITZERLAND -- 0.6%
3,572 BKW AG (b) 126,539
--------------
UNITED KINGDOM -- 2.7%
7,192 BP PLC, ADR 304,581
4,342 Royal Dutch Shell PLC, ADR 282,925
--------------
587,506
--------------
UNITED STATES -- 12.3%
16,643 AES (The) Corp. 209,202
6,285 Allegheny Technologies, Inc. 199,297
4,083 Alliant Energy Corp. 204,885
17,613 American Superconductor Corp. (c) 46,851
55,052 Capstone Turbine Corp. (c) 49,547
4,669 Duke Energy Corp. 338,923
16,301 Federal-Mogul Corp. (c) 98,295
13,779 General Electric Co. 318,570
5,190 Kaydon Corp. 132,760
4,288 NextEra Energy, Inc. 333,092
7,772 NRG Energy, Inc. 205,880
4,819 Otter Tail Corp. 150,064
3,431 Trinity Industries, Inc. 155,527
3,279 Woodward, Inc. 130,373
6,942 Zoltek Cos., Inc. (c) 82,957
--------------
2,656,223
--------------
TOTAL COMMON STOCKS -- 99.5% 21,408,835
(Cost $38,475,962)
MONEY MARKET FUND -- 0.1%
35,731 Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio - Institutional
Class - 0.03% (d) 35,731
(Cost $35,731) --------------
TOTAL INVESTMENTS -- 99.6% 21,444,566
(Cost $38,511,693) (e)
NET OTHER ASSETS AND
LIABILITIES -- 0.4% 75,343
--------------
NET ASSETS -- 100.0% $ 21,519,909
==============
See Notes to Financial Statements Page 41
FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) This security is fair valued in accordance with procedures adopted by the
Trust's Board of Trustees and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(c) Non-income producing security.
(d) Interest rate shown reflects yield as of March 31, 2013.
(e) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of March 31, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $1,031,365 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $18,098,492.
ADR - American Depositary Receipt
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2013 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
TOTAL
VALUE AT
INVESTMENTS 3/31/2013 LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------
Common Stocks:
Australia $ 1,015,517 $ 823,699 $ 191,818 $ --
Bermuda 946,345 -- 946,345 --
Brazil 191,609 191,609 -- --
Cayman Islands 67,515 -- 67,515 --
China 2,055,495 -- 2,055,495 --
Denmark 2,567,803 979,489 1,588,314 --
France 678,186 -- 678,186 --
Germany 3,244,678 931,763 2,312,915 --
Greece $44,154 -- $44,154 --
Italy 248,123 -- 248,123 --
Japan 892,376 -- 892,376 --
Portugal 249,671 -- 249,671 --
South Korea 114,090 -- 114,090 --
Spain 4,494,625 -- 4,494,625 --
Sweden 1,228,380 983,272 245,108 --
Switzerland 126,539 -- 126,539 --
United Kingdom 587,506 587,506 -- --
United States 2,656,223 2,656,223 -- --
--------------------------------------------------------
Total Common Stocks 21,408,835 7,153,561 14,255,274 --
Money Market Fund 35,731 35,731 -- --
--------------------------------------------------------
Total Investments $21,444,566 $ 7,189,292 $14,255,274 $ --
========================================================
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of March
31, 2013, the Fund transferred common stocks valued at $14,108,604 from Level 1
to Level 2 of the fair value hierarchy. The common stocks that transferred from
Level 1 to Level 2 did so as a result of foreign equities that were valued based
on quoted prices at September 30, 2012 that are now being fair valued using a
factor provided by a pricing service due to the change in value between foreign
markets' close and the NYSE close on March 28, 2013 exceeding a certain
threshold.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Independent Power Producers & Energy Traders 38.1%
Electrical Equipment 25.9
Electric Utilities 17.1
Multi-Utilities 4.2
Machinery 3.1
Oil, Gas & Consumable Fuels 3.1
Industrial Conglomerates 2.9
Construction & Engineering 2.3
Trading Companies & Distributors 1.1
Metals & Mining 0.9
Auto Components 0.4
Chemicals 0.4
Money Market Fund 0.1
-----------------------------------------------------------
TOTAL INVESTMENTS 99.6
NET OTHER ASSETS AND LIABILITIES 0.4
-----------
TOTAL 100.0%
===========
Page 42 See Notes to Financial Statements
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.6%
AUSTRALIA -- 2.7%
21,726 Leighton Holdings Ltd. (b) $ 467,885
--------------
CANADA -- 4.3%
6,755 Aecon Group, Inc. 86,711
11,015 SNC-Lavalin Group, Inc. 461,050
4,387 Stantec, Inc. 193,514
--------------
741,275
--------------
CAYMAN ISLANDS -- 1.6%
201,861 China State Construction
International Holdings
Ltd. (b) 277,033
--------------
CHINA -- 4.8%
501,006 China Communications Construction
Co., Ltd. (b) 467,851
707,837 China Railway Group Ltd., Class
H (b) 361,402
--------------
829,253
--------------
EGYPT -- 1.4%
7,026 Orascom Construction Industries,
GDR (c) 242,959
--------------
FINLAND -- 1.5%
12,189 YIT Oyj (b) 254,642
--------------
FRANCE -- 7.0%
17,975 Bouygues S.A. (b) 488,182
4,456 Eiffage S.A. (b) 188,854
11,584 Vinci S.A. (b) 522,878
--------------
1,199,914
--------------
GERMANY -- 1.4%
3,756 Hochtief AG (b) (c) 244,909
--------------
ITALY -- 1.1%
35,724 Impregilo S.p.A. (b) 183,497
--------------
JAPAN -- 16.2%
25,000 CHIYODA Corp. (b) 280,182
20,300 COMSYS Holdings Corp. (b) 246,807
16,000 JGC Corp. (b) 410,639
100,000 KAJIMA Corp. (b) 271,776
7,000 KINDEN Corp. (b) 45,953
14,700 KYOWA EXEO Corp. (b) 158,099
7,000 Maeda Corp. (b) 28,372
6,000 Maeda Road Construction Co.,
Ltd. (b) 82,113
73,000 OBAYASHI Corp. (b) 349,232
43,500 Penta-Ocean Construction Co.,
Ltd. (b) 111,978
72,000 SHIMIZU Corp. (b) 236,248
5,600 SHO-BOND Holdings Co., Ltd. (b) 204,112
109,000 TAISEI Corp. (b) 303,293
4,000 TOSHIBA Plant Systems & Services
Corp. (b) 49,157
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
JAPAN (CONTINUED)
2,000 Toyo Engineering Corp. (b) $ 8,750
--------------
2,786,711
--------------
NETHERLANDS -- 11.7%
5,682 Arcadis N.V. (b) 157,590
20,403 Chicago Bridge & Iron Co. N.V.,
ADR 1,267,026
36,479 Koninklijke BAM Groep N.V. (b) 148,030
7,675 Koninklijke Boskalis Westminster
N.V. (b) 305,339
12,513 Royal Imtech N.V. (b) 142,236
--------------
2,020,221
--------------
NORWAY -- 2.0%
18,120 Aker Solutions ASA (b) 340,119
--------------
PANAMA -- 2.5%
38,995 McDermott International, Inc. (c) 428,555
--------------
SPAIN -- 5.6%
17,655 ACS Actividades de Construccion
y Servicios S.A. (b) 413,658
7,468 Obrascon Huarte Lain S.A. (b) 246,130
6,332 Tecnicas Reunidas S.A. (b) 296,841
--------------
956,629
--------------
SWEDEN -- 5.3%
11,082 NCC AB, Class B (b) 277,796
24,561 Peab AB (b) 137,869
27,541 Skanska AB, Class B (b) 498,751
--------------
914,416
--------------
SWITZERLAND -- 2.0%
15,284 Foster Wheeler AG (c) 349,239
--------------
UNITED KINGDOM -- 5.5%
26,729 AMEC PLC (b) 429,541
72,675 Balfour Beatty PLC (b) 259,985
6,820 Galliford Try PLC (b) 95,275
1,741 Keller Group PLC (b) 21,607
10,314 WS Atkins PLC (b) 143,163
--------------
949,571
--------------
UNITED STATES -- 23.0%
14,294 AECOM Technology Corp. (c) 468,843
5,279 Dycom Industries, Inc. (c) 103,943
8,053 EMCOR Group, Inc. 341,367
9,260 Fluor Corp. 614,216
5,484 Granite Construction, Inc. 174,611
6,288 Great Lakes Dredge & Dock Corp. 42,318
11,488 Jacobs Engineering Group,
Inc. (c) 646,085
15,439 KBR, Inc. 495,283
18,853 Quanta Services, Inc. (c) 538,819
1,968 Tutor Perini Corp. (c) 37,982
10,336 URS Corp. 490,030
--------------
3,953,497
--------------
See Notes to Financial Statements Page 43
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
DESCRIPTION VALUE
-----------------------------------------------------------
TOTAL INVESTMENTS -- 99.6% $ 17,140,325
(Cost $19,247,972) (d)
NET OTHER ASSETS AND
LIABILITIES -- 0.4% 75,194
--------------
NET ASSETS -- 100.0% $ 17,215,519
==============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) This security is fair valued in accordance with procedures adopted by the
Trust's Board of Trustees and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(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, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $1,283,282 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $3,390,929.
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2013 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
TOTAL
VALUE AT
INVESTMENTS 3/31/2013 LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------
Common Stocks:
Australia $ 467,885 $ -- $ 467,885 $ --
Canada 741,275 741,275 -- --
Cayman Islands 277,033 -- 277,033 --
China 829,253 -- 829,253 --
Egypt 242,959 242,959 -- --
Finland 254,642 -- 254,642 --
France 1,199,914 -- 1,199,914 --
Germany 244,909 -- 244,909 --
Italy 183,497 -- 183,497 --
Japan 2,786,711 -- 2,786,711 --
Netherlands 2,020,221 1,267,026 753,195 --
Norway 340,119 -- 340,119 --
Panama 428,555 428,555 -- --
Spain 956,629 -- 956,629 --
Sweden 914,416 -- 914,416 --
Switzerland 349,239 349,239 -- --
United Kingdom 949,571 -- 949,571 --
United States 3,953,497 3,953,497 -- --
--------------------------------------------------------
Total Investments $17,140,325 $ 6,982,551 $10,157,774 $ --
========================================================
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of March
31, 2013, the Fund transferred common stocks valued at $9,726,031 from Level 1
to Level 2 of the fair value hierarchy. The common stocks that transferred from
Level 1 to Level 2 did so as a result of foreign equities that were valued based
on quoted prices at September 30, 2012 that are now being fair valued using a
factor provided by a pricing service due to the change in value between foreign
markets' close and the NYSE close on March 28, 2013 exceeding a certain
threshold.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Construction & Engineering 88.9%
Energy Equipment & Services 8.7
Professional Services 2.0
-----------------------------------------------------------
TOTAL INVESTMENTS 99.6
NET OTHER ASSETS AND LIABILITIES 0.4
-----------
TOTAL 100.0%
===========
Page 44 See Notes to Financial Statements
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.9%
CAYMAN ISLANDS -- 2.0%
448,000 Wasion Group Holdings Ltd. (b) $ 257,301
--------------
FRANCE -- 9.5%
5,811 Alstom S.A. (b) 237,020
13,575 Schneider Electric S.A. (b) 992,716
--------------
1,229,736
--------------
GERMANY -- 3.9%
2,452 Siemens AG (b) 264,323
9,901 SMA Solar Technology AG (b) 236,911
--------------
501,234
--------------
ITALY -- 7.6%
47,571 Prysmian S.p.A. (b) 981,473
--------------
JAPAN -- 1.9%
23,000 NGK Insulators Ltd. (b) 245,720
--------------
SPAIN -- 7.4%
19,067 Red Electrica Corp. S.A. (b) 960,242
--------------
SWITZERLAND -- 8.1%
45,719 ABB Ltd. (b) 1,037,896
--------------
UNITED KINGDOM -- 4.2%
65,017 Melrose Industries PLC (b) 263,321
23,724 National Grid PLC (b) 275,669
--------------
538,990
--------------
UNITED STATES -- 55.3%
1,342 Acorn Energy, Inc. (c) 9,864
27,148 Advanced Energy Industries,
Inc. (d) 496,808
43,026 American Superconductor Corp. (d) 114,449
2,027 AZZ, Inc. 97,702
2,111 Digi International, Inc. (d) 18,851
23,898 EnerNOC, Inc. (d) 415,108
14,462 Enphase Energy, Inc. (d) 89,664
12,660 ESCO Technologies, Inc. 517,288
15,660 General Cable Corp. (d) 573,626
11,045 General Electric Co. 255,360
2,794 Hubbell, Inc., Class B 271,325
6,100 ITC Holdings Corp. 544,486
12,228 Itron, Inc. (d) 567,379
4,563 MasTec, Inc. (d) 133,012
20,336 MYR Group, Inc. (d) 499,452
20,383 Pike Electric Corp. (d) 290,050
119,503 Power-One, Inc. (c) (d) 495,938
16,393 PowerSecure International,
Inc. (d) 208,355
35,740 Quanta Services, Inc. (d) 1,021,449
1,633 Valmont Industries, Inc. 256,822
3,477 WESCO International, Inc. (d) 252,465
--------------
7,129,453
--------------
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
TOTAL COMMON STOCKS -- 99.9% $ 12,882,045
--------------
(Cost $11,137,975)
COLLATERAL FOR SECURITIES ON LOAN
-- 2.7%
MONEY MARKET FUND -- 0.5%
69,585 Goldman Sachs Financial Square
Treasury Instruments Fund -
Institutional Class -
0.001% (e) 69,585
(Cost $69,585)
PRINCPAL
VALUE
-----------
REPURCHASE AGREEMENT -- 2.2%
$ 276,700 JPMorgan Chase & Co., 0.05% (e),
dated 03/28/13, due 04/01/13,
with a maturity value of
$276,701. Collateralized by
U.S. Treasury Note, interest
rate of 0.625%, due 08/31/17.
The value of the collateral
including accrued interest is
$282,132. 276,700
(Cost $276,700) --------------
TOTAL COLLATERAL FOR SECURITIES
ON LOAN - 2.7% 346,285
(Cost $346,285) --------------
TOTAL INVESTMENTS -- 102.6% 13,228,330
(Cost $11,484,260) (f)
NET OTHER ASSETS AND
LIABILITIES -- (2.6)% (329,208)
--------------
NET ASSETS -- 100.0% $ 12,899,122
==============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) This security is fair valued in accordance with procedures adopted by the
Trust's Board of Trustees and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(c) All or a portion of this security is on loan. (See Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $337,839 and the total value of the collateral held by the
Fund is $346,285.
(d) Non-income producing security.
(e) Interest rate shown reflects yield as of March 31, 2013.
(f) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of March 31, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $2,179,765 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $435,695.
See Notes to Financial Statements Page 45
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2013 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
TOTAL
VALUE AT
INVESTMENTS 3/31/2013 LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------
Common Stocks:
Cayman Islands $ 257,301 $ -- $ 257,301 $ --
France 1,229,736 -- 1,229,736 --
Germany 501,234 -- 501,234 --
Italy 981,473 -- 981,473 --
Japan 245,720 -- 245,720 --
Spain 960,242 -- 960,242 --
Switzerland 1,037,896 -- 1,037,896 --
United Kingdom 538,990 -- 538,990 --
United States 7,129,453 7,129,453 -- --
--------------------------------------------------------
Total Common
Stocks 12,882,045 7,129,453 5,752,592 --
Money Market Fund 69,585 69,585 -- --
Repurchase
Agreement 276,700 -- 276,700 --
--------------------------------------------------------
Total Investments $13,228,330 $ 7,199,038 $ 6,029,292 $ --
========================================================
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of March
31, 2013, the Fund transferred common stocks valued at $5,189,236 from Level 1
to Level 2 of the fair value hierarchy. The common stocks that transferred from
Level 1 to Level 2 did so as a result of foreign equities that were valued based
on quoted prices at September 30, 2012 that are now being fair valued using a
factor provided by a pricing service due to the change in value between foreign
markets' close and the NYSE close on March 28, 2013 exceeding a certain
threshold.
% OF
INDUSTRY NET ASSETS
Electrical Equipment 35.7%
Construction & Engineering 15.1
Electric Utilities 11.7
Electronic Equipment, Instruments & Components 10.2
Machinery 10.0
Semiconductors & Semiconductor Equipment 5.7
Industrial Conglomerates 4.0
Commercial Services & Supplies 3.3
Repurchase Agreement 2.2
Multi-Utilities 2.1
Trading Companies & Distributors 2.0
Money Market Fund 0.5
Communications Equipment 0.1
TOTAL INVESTMENTS 102.6
NET OTHER ASSETS AND LIABILITIES (2.6)
-----------
TOTAL 100.0%
===========
Page 46 See Notes to Financial Statements
FIRST TRUST ISE GLOBAL COPPER INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 100.1%
AUSTRALIA -- 4.0%
886,265 Aditya Birla Minerals Ltd. (b) $ 404,200
195,033 Oz Minerals Ltd. (b) 1,088,730
--------------
1,492,930
--------------
CANADA -- 35.9%
496,322 Capstone Mining Corp. (c) 1,104,187
288,609 Copper Mountain Mining Corp. (c) 772,768
88,660 First Quantum Minerals Ltd. 1,686,185
122,354 HudBay Minerals, Inc. 1,176,747
87,173 Imperial Metals Corp. (c) 1,282,902
26,422 Inmet Mining Corp. 1,759,559
1,712,340 Katanga Mining Ltd. (c) 1,230,505
256,433 Lundin Mining Corp. (c) 1,120,798
292,534 Northern Dynasty Minerals
Ltd. (c) 927,333
294,538 Taseko Mines Ltd. (c) 815,870
249,716 Turquoise Hill Resources Ltd. (c) 1,590,454
--------------
13,467,308
--------------
CHINA -- 4.5%
755,566 Jiangxi Copper Co., Ltd., Class
H (b) 1,675,580
--------------
PERU -- 2.6%
32,255 Sociedad Minera Cerro Verde
S.A.A. (c) 983,777
--------------
POLAND -- 5.5%
42,551 KGHM Polska Miedz S.A. (b) 2,062,216
--------------
RUSSIA -- 4.5%
98,442 MMC Norilsk Nickel OJSC,
ADR (b) 1,665,673
--------------
SOUTH AFRICA -- 2.4%
80,012 Palabora Mining Co., Ltd. (c) 913,647
--------------
TURKEY -- 3.4%
328,657 Park Elektrik Uretim Madencilik
Sanayi ve Ticaret A.S. (b) 1,282,871
--------------
UNITED KINGDOM -- 25.0%
145,852 Antofagasta PLC (b) 2,189,396
221,797 Kazakhmys PLC (b) 1,327,201
45,512 Rio Tinto PLC, ADR 2,142,705
99,417 Vedanta Resources PLC (b) 1,525,393
134,352 Xstrata PLC (b) 2,187,211
--------------
9,371,906
--------------
UNITED STATES -- 12.3%
69,937 Freeport-McMoRan Copper & Gold,
Inc. 2,314,915
61,363 Southern Copper Corp. 2,305,408
--------------
4,620,323
--------------
DESCRIPTION VALUE
-----------------------------------------------------------
TOTAL INVESTMENTS -- 100.1% $ 37,536,231
(Cost $56,888,061) (d)
NET OTHER ASSETS AND
LIABILITIES -- (0.1)% (37,411)
--------------
NET ASSETS -- 100.0% $ 37,498,820
==============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) This security is fair valued in accordance with procedures adopted by the
Trust's Board of Trustees and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(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, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $595,749 and the aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over value was $19,947,579.
ADR - American Depositary Receipt
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2013 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
TOTAL
VALUE AT
INVESTMENTS 3/31/2013 LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------
Common Stocks:
Australia $ 1,492,930 $ -- $ 1,492,930 $ --
Canada 13,467,308 13,467,308 -- --
China 1,675,580 -- 1,675,580 --
Peru 983,777 983,777 -- --
Poland 2,062,216 -- 2,062,216 --
Russia 1,665,673 -- 1,665,673 --
South Africa 913,647 913,647 -- --
Turkey 1,282,871 -- 1,282,871 --
United Kingdom 9,371,906 2,142,705 7,229,201 --
United States 4,620,323 4,620,323 -- --
--------------------------------------------------------
Total Investments $37,536,231 $22,127,760 $15,408,471 $ --
========================================================
See Notes to Financial Statements Page 47
FIRST TRUST ISE GLOBAL COPPER INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of March
31, 2013, the Fund transferred common stocks valued at $14,319,299 from Level 1
to Level 2 of the fair value hierarchy. The common stocks that transferred from
Level 1 to Level 2 did so as a result of foreign equities that were valued based
on quoted prices at September 30, 2012 that are now being fair valued using a
factor provided by a pricing service due to the change in value between foreign
markets' close and the NYSE close on March 28, 2013 exceeding a certain
threshold.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Metals & Mining 100.1%
-----------------------------------------------------------
TOTAL INVESTMENTS 100.1
NET OTHER ASSETS AND LIABILITIES (0.1)
-----------
TOTAL 100.0%
===========
Page 48 See Notes to Financial Statements
FIRST TRUST ISE GLOBAL PLATINUM INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 101.1%
BERMUDA -- 6.4%
706,508 Aquarius Platinum Ltd. (b) (c) $ 514,089
1,072,621 Sylvania Platinum Ltd. (b) (c) 182,574
--------------
696,663
--------------
CANADA -- 14.7%
2,806,316 Eastern Platinum Ltd. (c) 400,567
371,218 North American Palladium Ltd. (c) 530,842
370,998 Platinum Group Metals Ltd. (c) 522,249
131,643 PolyMet Mining Corp. (c) 156,655
--------------
1,610,313
--------------
CHINA -- 4.7%
2,459,381 Xinjiang Xinxin Mining Industry
Co., Ltd., Class H (b) 511,803
--------------
GUERNSEY -- 0.9%
10,344 Zimplats Holdings Ltd. (c) 102,311
--------------
HONG KONG -- 4.1%
1,229,760 MMG Ltd. (b) (c) 453,412
--------------
JAPAN -- 3.6%
14,400 Furuya Metal Co., Ltd. (b) 392,444
--------------
RUSSIA -- 8.8%
57,147 MMC Norilsk Nickel OJSC,
ADR (b) 966,947
--------------
SOUTH AFRICA -- 35.6%
46,854 African Rainbow Minerals Ltd. (b) 964,582
11,336 Anglo American Platinum
Ltd. (b) (c) 471,171
68,613 Impala Platinum Holdings Ltd. (b) 1,012,803
120,935 Northam Platinum Ltd. (b) (c) 520,060
91,459 Royal Bafokeng Platinum
Ltd. (b) (c) 536,517
7,294,329 Wesizwe Platinum Ltd. (c) 388,701
--------------
3,893,834
--------------
UNITED KINGDOM -- 17.7%
29,439 Johnson Matthey PLC (b) 1,032,751
203,510 Lonmin PLC (b) (c) 903,797
--------------
1,936,548
--------------
UNITED STATES -- 4.6%
39,260 Stillwater Mining Co. (c) 507,632
--------------
TOTAL INVESTMENTS -- 101.1% 11,071,907
(Cost $13,387,588) (d)
NET OTHER ASSETS AND
LIABILITIES -- (1.1)% (117,287)
--------------
NET ASSETS -- 100.0% $ 10,954,620
==============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) This security is fair valued in accordance with procedures adopted by the
Trust's Board of Trustees and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(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, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $169,675 and the aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over value was $2,485,356.
ADR - American Depositary Receipt
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2013 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
TOTAL
VALUE AT
INVESTMENTS 3/31/2013 LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------
Common Stocks:
Bermuda $ 696,663 $ -- $ 696,663 $ --
Canada 1,610,313 1,610,313 -- --
China 511,803 -- 511,803 --
Guernsey 102,311 102,311 -- --
Hong Kong 453,412 -- 453,412 --
Japan 392,444 -- 392,444 --
Russia 966,947 -- 966,947 --
South Africa 3,893,834 388,701 3,505,133 --
United Kingdom 1,936,548 -- 1,936,548 --
United States 507,632 507,632 -- --
--------------------------------------------------------
Total Investments $11,071,907 $ 2,608,957 $ 8,462,950 $ --
========================================================
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of March
31, 2013, the Fund transferred common stocks valued at $5,813,952 from Level 1
to Level 2 of the fair value hierarchy. The common stocks that transferred from
Level 1 to Level 2 did so as a result of foreign equities that were valued based
on quoted prices at September 30, 2012 that are now being fair valued using a
factor provided by a pricing service due to the change in value between foreign
markets' close and the NYSE close on March 28, 2013 exceeding a certain
threshold.
See Notes to Financial Statements Page 49
FIRST TRUST ISE GLOBAL PLATINUM INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Metals & Mining 88.1%
Chemicals 9.4
Semiconductors & Semiconductor Equipment 3.6
-----------------------------------------------------------
TOTAL INVESTMENTS 101.1
NET OTHER ASSETS AND LIABILITIES (1.1)
-----------
TOTAL 100.0%
===========
Page 50 See Notes to Financial Statements
FIRST TRUST BICK INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.7%
BRAZIL -- 25.1%
19,056 Banco Bradesco S.A., ADR $ 324,333
23,853 Banco do Brasil S.A. 323,194
44,002 Banco Santander Brasil S.A., ADR 319,454
47,996 BM&F BOVESPA S.A. 322,784
24,330 BR Malls Participacoes S.A. 304,494
14,606 BRF- Brasil Foods S.A. 323,743
31,788 CCR S.A. 324,684
6,274 Cia Brasileira de Distribuicao
Grupo PAO de Acucar, Class
Preference 330,101
6,689 Cia de Saneamento Basico do
Estado de Sao Paulo, ADR (b) 319,266
10,605 Cielo S.A. 312,102
7,115 Companhia de Bebidas das
Americas, ADR 301,178
27,050 Companhia Energetica de Minas
Gerais, ADR 320,542
64,930 Companhia Siderurgica Nacional
S.A., ADR 290,886
9,479 Embraer S.A., ADR 338,116
39,832 Gerdau S.A., ADR 307,105
17,977 Itau Unibanco Holding S.A., ADR 319,991
61,297 Itausa-Investimentos Itau S.A.,
Class Preference 318,201
12,061 Natura Cosmeticos S.A. 290,252
218,134 OGX Petroleo e Gas Participacoes
S.A. (b) 249,358
22,108 Petroleo Brasileiro S.A., ADR 366,330
12,023 Telefonica Brasil S.A., ADR 320,774
14,721 Tim Participacoes S.A., ADR 322,095
12,499 Ultrapar Participacoes S.A. 316,874
64,222 Usinas Siderurgicas de Minas
Gerais S.A., Class
Preference (b) 342,920
17,728 Vale S.A., ADR 306,517
--------------
7,915,294
--------------
CAYMAN ISLANDS -- 2.8%
3,539 Baidu, Inc., ADR (b) 310,370
698,074 Evergrande Real Estate Group
Ltd. (c) 282,893
9,081 Tencent Holdings Ltd. (c) 290,452
--------------
883,715
--------------
CHINA -- 19.7%
640,155 Agricultural Bank of China Ltd.,
Class H (c) 308,065
89,258 Anhui Conch Cement Co., Ltd.,
Class H (c) 297,594
707,911 Bank of China Ltd., Class H (c) 329,364
423,836 Bank of Communications Co., Ltd.,
Class H (c) 318,234
526,012 China CITIC Bank Corp. Ltd.,
Class H (c) 317,153
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
CHINA (CONTINUED)
399,800 China Construction Bank Corp.,
Class H (c) $ 327,724
109,505 China Life Insurance Co., Ltd.,
Class H (c) 285,699
153,069 China Merchants Bank Co., Ltd.,
Class H (c) 325,264
240,500 China Minsheng Banking Corp.,
Ltd., Class H (c) 307,655
89,364 China Pacific Insurance (Group)
Co., Ltd., Class H (c) 295,150
277,455 China Petroleum & Chemical Corp.,
Class H (c) 325,373
86,964 China Shenhua Energy Co., Ltd.,
Class H (c) 317,301
622,836 China Telecom Corp., Ltd.,
Class H (c) 315,276
132,527 CITIC Securities Co., Ltd.,
Class H (c) 287,427
229,203 Dongfeng Motor Group Co., Ltd.,
Class H (c) 323,090
194,874 Haitong Securities Co. Ltd.,
Class H (b) (c) 268,555
459,164 Industrial & Commercial Bank of
China, Class H (c) 322,929
238,283 PetroChina Co., Ltd., Class H (c) 313,787
39,579 Ping An Insurance (Group) Co. of
China Ltd., Class H (c) 307,871
215,156 Yanzhou Coal Mining Co., Ltd.,
Class H (c) 291,968
--------------
6,185,479
--------------
HONG KONG -- 2.0%
170,249 CNOOC Ltd. (c) 327,373
286,786 Lenovo Group Ltd. (c) 286,040
--------------
613,413
--------------
INDIA -- 23.4%
24,564 Axis Bank Ltd., GDR (c) 596,162
18,926 Dr. Reddy's Laboratories Ltd.,
ADR 612,256
16,278 HDFC Bank Ltd., ADR 609,123
14,603 ICICI Bank Ltd., ADR 626,469
11,466 Infosys Ltd., ADR 618,132
24,427 Larsen & Toubro Ltd., GDR (c) 615,831
38,087 Mahindra & Mahindra Ltd., GDR (c) 607,982
20,790 Reliance Industries Ltd., GDR (c) 593,177
7,547 State Bank of India, GDR (c) 629,785
92,243 Sterlite Industries (India)
Ltd., ADR 643,856
22,966 Tata Motors Ltd., ADR 560,600
63,927 Wipro Ltd., ADR 645,663
--------------
7,359,036
--------------
See Notes to Financial Statements Page 51
FIRST TRUST BICK INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
JERSEY -- 2.0%
42,692 WNS Holdings Ltd., ADR (b) $ 629,280
--------------
SOUTH KOREA -- 24.7%
8,727 Hana Financial Group, Inc. (c) 309,405
5,212 Hyundai Engineering &
Construction Co., Ltd. (c) 312,714
1,659 Hyundai Heavy Industries Co.,
Ltd. (c) 321,627
1,107 Hyundai Mobis (c) 310,763
1,591 Hyundai Motor Co. (c) 321,612
8,909 KB Financial Group, Inc. (c) 297,616
6,225 Kia Motors Corp. (c) 315,844
941 Korea Zinc Co. Ltd. (c) 301,447
4,577 KT&G Corp. 310,591
1,215 LG Chem Ltd. (c) 291,492
11,640 LG Display Co., Ltd. (b) (c) 340,383
4,489 LG Electronics, Inc. (c) 330,398
1,587 Lotte Chemical Corp. (c) 284,149
1,270 NHN Corp. (c) 307,024
1,018 POSCO (c) 299,569
5,323 Samsung C&T Corp. (c) 329,489
3,719 Samsung Electro-Mechanics Co.,
Ltd. (c) 335,238
452 Samsung Electronics Co., Ltd.
GDR (c) 304,435
227 Samsung Electronics Co., Ltd. (c) 309,408
9,210 Samsung Heavy Industries Co.,
Ltd. (c) 292,783
8,189 Shinhan Financial Group Co.,
Ltd. (c) 294,745
13,430 SK Hynix, Inc. (b) (c) 355,571
1,990 SK Innovation Co., Ltd. (c) 293,019
17,659 SK Telecom Co. Ltd. ADR 315,566
3,608 S-Oil Corp. (c) 304,903
--------------
7,789,791
--------------
TOTAL INVESTMENTS -- 99.7% 31,376,008
(Cost $34,656,369) (d)
NET OTHER ASSETS AND
LIABILITIES -- 0.3% 107,976
--------------
NET ASSETS -- 100.0% $ 31,483,984
==============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) Non-income producing security.
(c) This security is fair valued in accordance with procedures adopted by the
Trust's Board of Trustees and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(d) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of March 31, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $2,402,549 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $5,682,910.
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2013 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
TOTAL
VALUE AT
INVESTMENTS 3/31/2013 LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------
Common Stocks:
Brazil $ 7,915,294 $ 7,915,294 $ -- $ --
Cayman Islands 883,715 310,370 573,345 --
China 6,185,479 -- 6,185,479 --
Hong Kong 613,413 -- 613,413 --
India 7,359,036 4,316,099 3,042,937 --
Jersey 629,280 629,280 -- --
South Korea 7,789,791 626,157 7,163,634 --
--------------------------------------------------------
Total Investments $31,376,008 $13,797,200 $17,578,808 $ --
========================================================
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of March
31, 2013, the Fund transferred common stocks valued at $16,085,991 from Level 1
to Level 2 of the fair value hierarchy. The common stocks that transferred from
Level 1 to Level 2 did so as a result of foreign equities that were valued based
on quoted prices at September 30, 2012 that are now being fair valued using a
factor provided by a pricing service due to the change in value between foreign
markets' close and the NYSE close on March 28, 2013 exceeding a certain
threshold.
Page 52 See Notes to Financial Statements
FIRST TRUST BICK INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Commercial Banks 23.9%
Oil, Gas & Consumable Fuels 11.8
Metals & Mining 8.0
IT Services 7.0
Automobiles 6.8
Semiconductors & Semiconductor Equipment 3.1
Construction & Engineering 3.0
Internet Software & Services 2.9
Insurance 2.8
Electronic Equipment, Instruments & Components 2.2
Diversified Telecommunication Services 2.0
Machinery 2.0
Wireless Telecommunication Services 2.0
Pharmaceuticals 1.9
Real Estate Management & Development 1.9
Capital Markets 1.8
Chemicals 1.8
Aerospace & Defense 1.1
Auto Components 1.0
Beverages 1.0
Diversified Financial Services 1.0
Electric Utilities 1.0
Food & Staples Retailing 1.0
Food Products 1.0
Household Durables 1.0
Tobacco 1.0
Trading Companies & Distributors 1.0
Transportation Infrastructure 1.0
Water Utilities 1.0
Computers & Peripherals 0.9
Construction Materials 0.9
Personal Products 0.9
-----------------------------------------------------------
TOTAL INVESTMENTS 99.7
NET OTHER ASSETS AND LIABILITIES 0.3
-----------
TOTAL 100.0%
===========
See Notes to Financial Statements Page 53
FIRST TRUST NASDAQ CEA SMARTPHONE INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.5%
BERMUDA -- 1.4%
15,845 Marvell Technology Group Ltd. $ 167,640
--------------
CANADA -- 5.7%
40,082 Celestica, Inc., Class W (b) 324,263
24,811 Research In Motion Ltd. (b) (c) 358,519
--------------
682,782
--------------
CAYMAN ISLANDS -- 2.4%
772,277 Foxconn International Holdings
Ltd. (b) (d) 289,751
--------------
CHINA -- 2.5%
44,167 BYD Co., Ltd., Class H (b) (d) 141,515
90,866 ZTE Corp., Class H (d) 157,640
--------------
299,155
--------------
FINLAND -- 2.5%
91,569 Nokia Oyj, ADR (c) 300,346
--------------
FRANCE -- 2.6%
116,718 Alcatel-Lucent, ADR (b) 155,235
7,918 France Telecom S.A. (d) 80,232
3,869 Vivendi S.A. (d) 80,042
--------------
315,509
--------------
GERMANY -- 0.7%
7,300 Deutsche Telekom AG (d) 77,280
--------------
GUERNSEY -- 1.4%
4,553 Amdocs Ltd. 165,046
--------------
HONG KONG -- 0.7%
7,389 China Mobile Ltd. (d) 78,371
--------------
ITALY -- 0.6%
107,642 Telecom Italia S.p.A. (d) 75,921
--------------
JAPAN -- 9.7%
2,000 KDDI Corp. (d) 83,624
3,900 KYOCERA Corp. (d) 357,835
51 NTT DOCOMO, Inc. (d) 75,815
2,000 SOFTBANK Corp. (d) 92,143
21,200 SONY Corp. (d) 368,898
35,000 TOSHIBA Corp. (d) 178,482
--------------
1,156,797
--------------
NETHERLANDS -- 2.6%
1,723 Gemalto N.V. (d) 150,413
20,730 STMicroelectronics N.V. (d) 160,151
--------------
310,564
--------------
RUSSIA -- 0.7%
3,705 Mobile TeleSystems, ADR 76,842
--------------
SINGAPORE -- 4.2%
4,775 Avago Technologies Ltd. 171,518
49,475 Flextronics International
Ltd. (b) 334,451
--------------
505,969
--------------
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
SOUTH KOREA -- 6.1%
4,733 KT Corp., ADR $ 74,356
4,649 LG Electronics, Inc. (d) 342,174
230 Samsung Electronics Co., Ltd. (d) 313,497
--------------
730,027
--------------
SPAIN -- 0.7%
5,694 Telefonica S.A. (d) 77,146
--------------
SWEDEN -- 1.4%
13,165 Telefonaktiebolaget LM Ericsson,
Class B (d) 164,927
--------------
TAIWAN -- 10.8%
315,130 Compal Communications,
Inc. (b) (d) 335,495
38,420 HTC Corp. (d) 314,542
846,233 Inventec Corp. (d) 319,815
297,464 Wistron Corp. (d) 326,451
--------------
1,296,303
--------------
UNITED KINGDOM -- 2.0%
3,815 ARM Holdings PLC, ADR 161,641
28,996 Vodafone Group PLC (d) 82,282
--------------
243,923
--------------
UNITED STATES -- 40.8%
3,833 Agilent Technologies, Inc. 160,871
4,745 Altera Corp. 168,305
3,594 Analog Devices, Inc. 167,085
779 Apple, Inc. 344,809
2,165 AT&T, Inc. 79,434
18,728 Benchmark Electronics, Inc. (b) 337,479
4,927 Broadcom Corp., Class A 170,819
11,035 CEVA, Inc. (b) 172,146
11,094 Ciena Corp. (b) 177,615
2,298 Crown Castle International
Corp. (b) 160,033
199 Google, Inc., Class A (b) 158,012
5,212 Maxim Integrated Products, Inc. 170,172
19,161 Micron Technology, Inc. (b) 191,227
2,626 Motorola Solutions, Inc. 168,143
12,789 OmniVision Technologies, Inc. (b) 176,232
2,486 QUALCOMM, Inc. 166,438
36,426 RF Micro Devices, Inc. (b) 193,786
30,495 Sanmina Corp. (b) 346,423
2,271 SBA Communications Corp.,
Class A (b) 163,557
7,833 Skyworks Solutions, Inc. (b) 172,561
13,386 Sprint Nextel Corp. (b) 83,127
4,670 Synaptics, Inc. (b) 190,022
78,179 Tellabs, Inc. 163,394
4,717 Texas Instruments, Inc. 167,359
35,875 TriQuint Semiconductor, Inc. (b) 181,169
1,662 Verizon Communications, Inc. 81,687
4,424 Xilinx, Inc. 168,864
--------------
4,880,769
--------------
TOTAL COMMON STOCKS -- 99.5% 11,895,068
(Cost $12,106,042) --------------
Page 54 See Notes to Financial Statements
FIRST TRUST NASDAQ CEA SMARTPHONE INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COLLATERAL FOR SECURITIES ON LOAN
-- 3.9%
MONEY MARKET FUND -- 0.8%
94,560 Goldman Sachs Financial Square
Treasury Instruments Fund -
Institutional Class -
0.001% (e) $ 94,560
(Cost $94,560)
PRINCPAL
VALUE
-----------
REPURCHASE AGREEMENT -- 3.1%
$ 376,010 JPMorgan Chase & Co., 0.05% (e),
dated 03/28/13, due 04/01/13,
with a maturity value of
$376,012. Collateralized by
U.S. Treasury Note, interest
rate of 0.625%, due 08/31/17.
The value of the collateral
including accrued interest is
$383,391. 376,010
(Cost $376,010) --------------
TOTAL COLLATERAL FOR SECURITIES
ON LOAN - 3.9% 470,570
(Cost $470,570) --------------
TOTAL INVESTMENTS -- 103.4% 12,365,638
(Cost $12,576,612) (f)
NET OTHER ASSETS AND
LIABILITIES -- (3.4)% (408,126)
--------------
NET ASSETS -- 100.0% $ 11,957,512
==============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) Non-income producing security.
(c) All or a portion of this security is on loan. (See Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $454,228 and the total value of the collateral held by the
Fund is $470,570.
(d) This security is fair valued in accordance with procedures adopted by the
Trust's Board of Trustees and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(e) Interest rate shown reflects yield as of March 31, 2013.
(f) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of March 31, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $1,116,368 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $1,327,342.
ADR - American Depositary Receipt
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2013 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
TOTAL
VALUE AT
INVESTMENTS 3/31/2013 LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------
Common Stocks:
Bermuda $ 167,640 $ 167,640 $ -- $ --
Canada 682,782 682,782 -- --
Cayman Islands 289,751 -- 289,751 --
China 299,155 -- 299,155 --
Finland 300,346 300,346 -- --
France 315,509 155,235 160,274 --
Germany 77,280 -- 77,280 --
Guernsey 165,046 165,046 -- --
Hong Kong 78,371 -- 78,371 --
Italy 75,921 -- 75,921 --
Japan 1,156,797 -- 1,156,797 --
Netherlands 310,564 -- 310,564 --
Russia 76,842 76,842 -- --
Singapore 505,969 505,969 -- --
South Korea 730,027 74,356 655,671 --
Spain 77,146 -- 77,146 --
Sweden 164,927 -- 164,927 --
Taiwan 1,296,303 -- 1,296,303 --
United Kingdom 243,923 161,641 82,282 --
United States 4,880,769 4,880,769 -- --
--------------------------------------------------------
Total Common
Stocks 11,895,068 7,170,626 4,724,442 --
Money Market Fund 94,560 94,560 -- --
Repurchase
Agreement 376,010 -- 376,010 --
--------------------------------------------------------
Total Investments $12,365,638 $ 7,265,186 $ 5,100,452 $ --
========================================================
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of March
31, 2013, the Fund transferred common stocks valued at $4,619,623 from Level 1
to Level 2 of the fair value hierarchy. The common stocks that transferred from
Level 1 to Level 2 did so as a result of foreign equities that were valued based
on quoted prices at September 30, 2012 that are now being fair valued using a
factor provided by a pricing service due to the change in value between foreign
markets' close and the NYSE close on March 28, 2013 exceeding a certain
threshold.
See Notes to Financial Statements Page 55
FIRST TRUST NASDAQ CEA SMARTPHONE INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Semiconductors & Semiconductor Equipment 25.7%
Communications Equipment 20.6
Electronic Equipment, Instruments & Components 16.6
Computers & Peripherals 12.6
Wireless Telecommunication Services 7.5
Household Durables 6.0
Diversified Telecommunication Services 5.2
Repurchase Agreement 3.1
IT Services 1.4
Life Sciences Tools & Services 1.4
Internet Software & Services 1.3
Automobiles 1.2
Money Market Fund 0.8
-----------------------------------------------------------
TOTAL INVESTMENTS 103.4
NET OTHER ASSETS AND LIABILITIES (3.4)
-----------
TOTAL 100.0%
===========
Page 56 See Notes to Financial Statements
FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.9%
BERMUDA -- 1.4%
138,208 Brilliance China Automotive
Holdings Ltd. (b) (c) $ 163,224
--------------
CAYMAN ISLANDS -- 0.9%
225,000 Geely Automobile Holdings
Ltd. (b) 109,746
--------------
CHINA -- 4.1%
52,000 AviChina Industry & Technology
Co., Ltd., Class H (b) 25,622
32,700 BYD Co., Ltd., Class H (b) (c) 104,774
47,744 Dongfeng Motor Group Co., Ltd.,
Class H (b) 67,301
56,624 Great Wall Motor Co., Ltd.,
Class H (b) 192,712
122,065 Guangzhou Automobile Group Co.,
Ltd., Class H (b) 103,665
--------------
494,074
--------------
FRANCE -- 4.9%
14,635 Peugeot S.A. (b) (c) 106,143
7,704 Renault S.A. (b) 483,332
--------------
589,475
--------------
GERMANY -- 15.0%
5,297 Bayerische Motoren Werke AG (b) 458,394
16,403 Daimler AG (b) 894,578
6,167 Porsche Automobil Holding SE,
Class Preference (b) 451,836
--------------
1,804,808
--------------
ITALY -- 2.3%
48,131 Fiat S.p.A. (b) (c) 257,109
9,405 Piaggio & C. S.p.A. (b) 24,156
--------------
281,265
--------------
JAPAN -- 37.9%
9,000 Daihatsu Motor Co., Ltd. (b) 187,282
32,000 Fuji Heavy Industries Ltd. (b) 507,582
26,100 Honda Motor Co., Ltd. (b) 1,005,124
162,000 Mazda Motor Corp. (b) (c) 476,516
248,000 Mitsubishi Motors Corp. (b) (c) 259,302
48,200 Nissan Motor Co., Ltd. (b) 467,561
3,000 Nissan Shatai Co., Ltd. (b) 36,772
20,400 Suzuki Motor Corp. (b) 457,190
19,000 Toyota Motor Corp. (b) 979,750
14,400 Yamaha Motor Co., Ltd. (b) 194,995
--------------
4,572,074
--------------
MALAYSIA -- 1.7%
48,200 UMW Holdings Berhad 208,584
--------------
SOUTH KOREA -- 12.4%
4,864 Hyundai Motor Co. (b) 983,233
9,484 Kia Motors Corp. (b) 481,199
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
SOUTH KOREA (CONTINUED)
6,750 Ssangyong Motor Co. (b) (c) $ 36,075
--------------
1,500,507
--------------
TAIWAN -- 1.6%
38,054 China Motor Corp. (b) 35,361
49,291 Sanyang Industrial Co.,
Ltd. (b) (c) 41,642
64,870 Yulon Motor Co., Ltd. (b) 115,999
--------------
193,002
--------------
UNITED STATES -- 17.7%
77,656 Ford Motor Co. 1,021,176
18,034 General Motors Co. (c) 501,706
9,303 Harley-Davidson, Inc. 495,850
3,128 Tesla Motors, Inc. (c) 118,520
--------------
2,137,252
--------------
TOTAL INVESTMENTS -- 99.9% 12,054,011
(Cost $11,513,193) (d)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 11,204
--------------
NET ASSETS -- 100.0% $ 12,065,215
==============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) This security is fair valued in accordance with procedures adopted by the
Trust's Board of Trustees and in accordance with the provisions of the
Investment Company Act of 1940, as amended.
(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, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $932,439 and the aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over value was $391,621.
See Notes to Financial Statements Page 57
FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2013 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
TOTAL
VALUE AT
INVESTMENTS 3/31/2013 LEVEL 1 LEVEL 2 LEVEL 3
--------------------------------------------------------------------------------
Common Stocks:
Bermuda $ 163,224 $ -- $ 163,224 $ --
Cayman Islands 109,746 -- 109,746 --
China 494,074 -- 494,074 --
France 589,475 -- 589,475 --
Germany 1,804,808 -- 1,804,808 --
Italy 281,265 -- 281,265 --
Japan 4,572,074 -- 4,572,074 --
Malaysia 208,584 208,584 -- --
South Korea 1,500,507 -- 1,500,507 --
Taiwan 193,002 -- 193,002 --
United States 2,137,252 2,137,252 -- --
--------------------------------------------------------
Total Investments $12,054,011 $ 2,345,836 $ 9,708,175 $ --
========================================================
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. As of March
31, 2013, the Fund transferred common stocks valued at $4,792,093 from Level 1
to Level 2 of the fair value hierarchy. The common stocks that transferred from
Level 1 to Level 2 did so as a result of foreign equities that were valued based
on quoted prices at September 30, 2012 that are now being fair valued using a
factor provided by a pricing service due to the change in value between foreign
markets' close and the NYSE close on March 28, 2013 exceeding a certain
threshold.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Automobiles 99.4%
Auto Components 0.3
Aerospace & Defense 0.2
-----------------------------------------------------------
TOTAL INVESTMENTS 99.9
NET OTHER ASSETS AND LIABILITIES 0.1
-----------
TOTAL 100.0%
===========
Page 58 See Notes to Financial Statements
FIRST TRUST ISE CLOUD COMPUTING INDEX FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2013 (UNAUDITED)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 100.1%
CANADA -- 3.0%
49,230 Open Text Corp. (b) $ 2,906,047
--------------
GERMANY -- 2.9%
34,126 SAP AG, ADR 2,748,508
--------------
INDIA -- 0.9%
80,557 Wipro Ltd., ADR 813,625
--------------
ISRAEL -- 0.7%
15,000 Check Point Software
Technologies Ltd. (b) 704,850
--------------
UNITED STATES -- 92.6%
61,419 Activision Blizzard, Inc. 894,875
18,647 Adobe Systems, Inc. (b) 811,331
70,415 Akamai Technologies, Inc. (b) 2,484,945
11,006 Amazon.com, Inc. (b) 2,932,989
4,315 Apple, Inc. 1,909,948
135,085 Aruba Networks, Inc. (b) 3,342,003
17,445 BMC Software, Inc. (b) 808,227
325,834 Brightcove, Inc. (b) 2,023,429
32,058 CA, Inc. 806,900
138,146 Cisco Systems, Inc. 2,888,633
110,983 EMC Corp. (b) 2,651,384
13,822 Equinix, Inc. (b) 2,989,837
30,344 F5 Networks, Inc. (b) 2,703,044
102,333 Facebook, Inc., Class A (b) 2,617,678
26,023 Financial Engines, Inc. 942,553
3,904 Google, Inc., Class A (b) 3,099,893
148,856 Hewlett-Packard Co. 3,548,727
93,509 Informatica Corp. (b) 3,223,255
11,447 International Business Machines
Corp. 2,441,645
11,641 Intuit, Inc. 764,232
22,846 j2 Global, Inc. 895,792
140,048 Juniper Networks, Inc. (b) 2,596,490
81,896 Microsoft Corp. 2,343,045
83,163 NetApp, Inc. (b) 2,840,848
29,412 Netflix, Inc. (b) 5,570,927
28,712 NetScout Systems, Inc. (b) 705,454
42,586 NetSuite, Inc. (b) 3,409,435
194,531 Oracle Corp. 6,291,133
67,065 Polycom, Inc. (b) 743,080
39,924 Rackspace Hosting, Inc. (b) 2,015,364
54,631 Red Hat, Inc. (b) 2,762,143
16,450 Salesforce.com, Inc. (b) 2,941,753
46,165 Teradata Corp. (b) 2,701,114
133,309 TIBCO Software, Inc. (b) 2,695,508
29,663 VMware, Inc., Class A (b) 2,339,817
1,080,148 Zynga, Inc., Class A (b) 3,629,297
--------------
88,366,728
--------------
DESCRIPTION VALUE
-----------------------------------------------------------
TOTAL INVESTMENTS -- 100.1% $ 95,539,758
(Cost $90,499,135) (c)
NET OTHER ASSETS AND
LIABILITIES -- (0.1)% (75,387)
--------------
NET ASSETS -- 100.0% $ 95,464,371
==============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) Non-income producing security.
(c) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of March 31, 2013, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $12,388,363 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $7,347,740.
ADR - American Depositary Receipt
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of March 31,
2013 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* $95,539,758 $ -- $ --
====================================
* See Portfolio of Investments for country breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at March 31, 2013.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Software 39.8%
Internet Software & Services 19.8
Communications Equipment 12.8
Computers & Peripherals 11.5
Internet & Catalog Retail 8.9
IT Services 6.3
Capital Markets 1.0
-----------------------------------------------------------
TOTAL INVESTMENTS 100.1
NET OTHER ASSETS AND LIABILITIES (0.1)
-----------
TOTAL 100.0%
===========
See Notes to Financial Statements Page 59
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2013 (UNAUDITED)
FIRST TRUST
FIRST TRUST FTSE EPRA/NAREIT
STOXX(R) EUROPEAN DEVELOPED MARKETS
SELECT DIVIDEND REAL ESTATE
INDEX FUND INDEX FUND
---------------------- ----------------------
ASSETS:
Investments at value................................................... $ 34,709,670 $ 119,479,497
Cash................................................................... -- 42,672
Foreign currency, at value ............................................ 630 5,181
Receivables:
Investment securities sold ......................................... 78,286 266,716
Capital shares sold ................................................ 50,125 --
Reclaims ........................................................... 35,536 16,589
Dividends .......................................................... 14,459 365,547
From investment advisor ............................................ 1,769 --
Interest ........................................................... 1 5
Securities lending income .......................................... -- --
Prepaid expenses ...................................................... 60,730 5,244
-------------- --------------
TOTAL ASSETS ....................................................... 34,951,206 120,181,451
-------------- --------------
LIABILITIES:
Due to custodian USD .................................................. 80,911 --
Due to custodian foreign currency ..................................... -- --
Payables:
Investment securities purchased .................................... 50,049 171,455
Audit and tax fees ................................................. 14,610 16,740
Printing fees ...................................................... 5,158 11,201
Collateral for securities on loan .................................. -- --
Investment advisory fees ........................................... -- 42,624
Licensing fees ..................................................... -- 63,070
Trustees' fees ..................................................... -- 620
Other liabilities ..................................................... 16,504 119,232
-------------- --------------
TOTAL LIABILITIES .................................................. 167,232 424,942
-------------- --------------
NET ASSETS ............................................................ $ 34,783,974 $ 119,756,509
============== ==============
NET ASSETS CONSIST OF:
Paid-in capital ....................................................... $ 47,991,610 $ 100,763,648
Par value ............................................................. 29,533 29,000
Accumulated net investment income (loss) .............................. 3,921 (2,644,526)
Accumulated net realized gain (loss) on investments and
foreign currency transactions ...................................... (12,443,691) (4,105,786)
Net unrealized appreciation (depreciation) on investments and
foreign currency translation ....................................... (797,399) 25,714,173
-------------- --------------
NET ASSETS ............................................................ $ 34,783,974 $ 119,756,509
============== ==============
NET ASSET VALUE, per share............................................. $ 11.78 $ 41.30
============== ==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share) ......................................... 2,953,334 2,900,002
============== ==============
Investments, at cost .................................................. $ 35,504,402 $ 93,764,629
============== ==============
Foreign currency, at cost (proceeds) .................................. $ 701 $ 5,477
============== ==============
Securities on loan, at value .......................................... $ -- $ --
============== ==============
Page 60 See Notes to Financial Statements
FIRST TRUST FIRST TRUST
FIRST TRUST FIRST TRUST ISE GLOBAL NASDAQ(R) CLEAN
DOW JONES GLOBAL ISE GLOBAL ENGINEERING EDGE(R) SMART GRID
SELECT DIVIDEND WIND ENERGY AND CONSTRUCTION INFRASTRUCTURE
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------------------- ---------------------- ---------------------- ----------------------
$ 300,370,795 $ 21,444,566 $ 17,140,325 $ 13,228,330
-- 2,979 25,966 26,457
311,332 -- 22,949 --
-- -- -- --
2,527,079 -- -- --
328,773 46,197 33,070 21,923
705,757 74,669 39,232 4,651
-- 1,228 -- 4,130
10 1 -- --
-- -- -- 281
6,540 4,342 3,947 753
-------------- -------------- -------------- --------------
304,250,286 21,573,982 17,265,489 13,286,525
-------------- -------------- -------------- --------------
419,068 -- -- --
-- 6,780 -- 990
2,517,319 -- -- --
16,740 15,617 15,617 15,618
12,323 8,448 4,859 4,832
-- -- -- 346,285
149,511 -- 1,008 --
56,713 5,209 4,284 2,936
1,194 212 545 --
162,861 17,807 23,657 16,742
-------------- -------------- -------------- --------------
3,335,729 54,073 49,970 387,403
-------------- -------------- -------------- --------------
$ 300,914,557 $ 21,519,909 $ 17,215,519 $ 12,899,122
============== ============== ============== ==============
$ 295,611,109 $ 92,983,703 $ 23,673,980 $ 15,000,513
123,500 28,000 4,000 4,000
(891,057) (40,976) 37,171 573
(2,477,080) (54,381,413) (4,388,731) (3,849,361)
8,548,085 (17,069,405) (2,110,901) 1,743,397
-------------- -------------- -------------- --------------
$ 300,914,557 $ 21,519,909 $ 17,215,519 $ 12,899,122
============== ============== ============== ==============
$ 24.37 $ 7.69 $ 43.04 $ 32.25
============== ============== ============== ==============
12,350,002 2,800,002 400,002 400,002
============== ============== ============== ==============
$ 291,821,736 $ 38,511,693 $ 19,247,972 $ 11,484,260
============== ============== ============== ==============
$ 311,692 $ (7,107) $ 22,911 $ (997)
============== ============== ============== ==============
$ -- $ -- $ -- $ 337,839
============== ============== ============== ==============
See Notes to Financial Statements Page 61
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
MARCH 31, 2013 (UNAUDITED)
FIRST TRUST FIRST TRUST
ISE GLOBAL ISE GLOBAL
COPPER PLATINUM
INDEX FUND INDEX FUND
---------------------- ----------------------
ASSETS:
Investments, at value ................................................. $ 37,536,231 $ 11,071,907
Cash................................................................... -- --
Foreign currency, at value ............................................ -- 31,902
Receivables:
Investment securities sold ......................................... 339,983 171,971
Capital shares sold ................................................ -- --
Reclaims ........................................................... 57,336 3,239
Dividends .......................................................... 42,796 --
From investment advisor ............................................ -- --
Interest ........................................................... -- --
Securities lending income .......................................... -- --
Prepaid expenses ...................................................... -- --
-------------- --------------
TOTAL ASSETS ....................................................... 37,976,346 11,279,019
-------------- --------------
LIABILITIES:
Due to custodian USD .................................................. 453,954 283,655
Due to custodian foreign currency ..................................... 78 --
Payables:
Investment securities purchased .................................... -- 33,997
Audit and tax fees ................................................. -- --
Printing fees ...................................................... -- --
Collateral for securities on loan .................................. -- --
Investment advisory fees ........................................... 23,494 6,747
Licensing fees ..................................................... -- --
Trustees' fees ..................................................... -- --
Other liabilities ..................................................... -- --
-------------- --------------
TOTAL LIABILITIES .................................................. 477,526 324,399
-------------- --------------
NET ASSETS ............................................................ $ 37,498,820 $ 10,954,620
============== ==============
NET ASSETS CONSIST OF: ................................................
Paid-in capital ....................................................... $ 82,170,102 $ 21,461,835
Par value ............................................................. 14,500 8,000
Accumulated net investment income (loss) .............................. (165,720) (36,542)
Accumulated net realized gain (loss) on investments and ...............
foreign currency transactions ...................................... (25,168,232) (8,163,129)
Net unrealized appreciation (depreciation) on investments and .........
foreign currency translation ....................................... (19,351,830) (2,315,544)
-------------- --------------
NET ASSETS ............................................................ $ 37,498,820 $ 10,954,620
============== ==============
NET ASSET VALUE, per share............................................. $ 25.86 $ 13.69
============== ==============
Number of shares outstanding
(unlimited number of shares authorized, par value $0.01 per share).. 1,450,002 800,002
-------------- --------------
Investments, at cost .................................................. $ 56,888,061 $ 13,387,588
============== ==============
Foreign currency, at cost (proceeds) .................................. $ (77) $ 32,437
============== ==============
Securities on loan, at value .......................................... $ -- $ --
============== ==============
Page 62 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST
FIRST TRUST NASDAQ CEA NASDAQ GLOBAL ISE CLOUD
BICK SMARTPHONE AUTO COMPUTING
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------------------- ---------------------- ---------------------- ----------------------
$ 31,376,008 $ 12,365,638 $ 12,054,011 $ 95,539,758
-- 22,631 -- --
-- 28,508 1,035 --
84,731 -- -- 3,505,764
-- -- -- --
-- 2,143 3,931 6,758
136,449 14,837 27,782 32,620
-- -- -- --
-- -- -- --
-- 1,409 -- --
-- -- -- --
-------------- -------------- -------------- --------------
31,597,188 12,435,166 12,086,759 99,084,900
-------------- -------------- -------------- --------------
94,986 -- 14,228 55,847
215 -- -- --
-- -- -- 3,515,960
-- -- -- --
-- -- -- --
-- 470,570 -- --
18,003 7,084 7,316 48,722
-- -- -- --
-- -- -- --
-- -- -- --
-------------- -------------- -------------- --------------
113,204 477,654 21,544 3,620,529
-------------- -------------- -------------- --------------
$ 31,483,984 $ 11,957,512 $ 12,065,215 $ 95,464,371
============== ============== ============== ==============
$ 41,732,277 $ 14,385,757 $ 11,825,501 $ 92,402,141
13,000 4,500 4,000 45,000
(1,318) 8,591 13,511 (49,768)
(6,977,365) (2,230,079) (318,398) (1,973,625)
(3,282,610) (211,257) 540,601 5,040,623
-------------- -------------- -------------- --------------
$ 31,483,984 $ 11,957,512 $ 12,065,215 $ 95,464,371
============== ============== ============== ==============
$ 24.22 $ 26.57 $ 30.16 $ 21.21
============== ============== ============== ==============
1,300,002 450,002 400,002 4,500,002
-------------- -------------- -------------- --------------
$ 34,656,369 $ 12,576,612 $ 11,513,193 $ 90,499,135
============== ============== ============== ==============
$ (245) $ 28,552 $ 1,033 $ --
============== ============== ============== ==============
$ -- $ 454,228 $ -- $ --
============== ============== ============== ==============
See Notes to Financial Statements Page 63
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2013 (UNAUDITED)
FIRST TRUST
FIRST TRUST FTSE EPRA/NAREIT
STOXX(R) EUROPEAN DEVELOPED MARKETS
SELECT DIVIDEND REAL ESTATE
INDEX FUND INDEX FUND
---------------------- ----------------------
INVESTMENT INCOME:
Dividends ............................................................. $ 232,670 $ 1,633,525
Foreign tax withholding ............................................... (8,019) (78,862)
Securities lending income (net of fees) ............................... -- --
Interest .............................................................. 2 14
-------------- --------------
Total investment income ............................................ 224,653 1,554,677
-------------- --------------
EXPENSES:
Investment advisory fees .............................................. 43,240 210,246
Licensing fees ........................................................ 37,425 63,070
Audit and tax fees .................................................... 11,805 13,185
Accounting and administration fees .................................... 9,599 42,790
Printing fees ......................................................... 9,505 7,414
Listing fees .......................................................... 3,159 3,159
Trustees' fees and expenses ........................................... 2,285 4,917
Legal fees ............................................................ 1,835 10,028
Custodian fees ........................................................ 857 9,018
Transfer agent fees ................................................... 541 2,628
Registration and filing fees .......................................... 249 426
Other expenses ........................................................ 1,844 8,280
-------------- --------------
Total expenses ..................................................... 122,344 375,161
Less fees waived and expenses reimbursed by the investment advisor.. (57,484) (59,792)
-------------- --------------
Net expenses ....................................................... 64,860 315,369
-------------- --------------
NET INVESTMENT INCOME (LOSS) .......................................... 159,793 1,239,308
-------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ........................................................ (1,038,899) (272,146)
In-kind redemptions ................................................ -- --
Foreign currency transactions ...................................... (3,834) (4,317)
-------------- --------------
Net realized gain (loss) .............................................. (1,042,733) (276,463)
-------------- --------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................................ 405,850 11,332,430
Foreign currency translation ....................................... (463) (936)
-------------- --------------
Net change in unrealized appreciation (depreciation) .................. 405,387 11,331,494
-------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ............................... (637,346) 11,055,031
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS .................................................... $ (477,553) $ 12,294,339
============== ==============
Page 64 See Notes to Financial Statements
FIRST TRUST FIRST TRUST
FIRST TRUST FIRST TRUST ISE GLOBAL NASDAQ(R) CLEAN
DOW JONES GLOBAL ISE GLOBAL ENGINEERING EDGE(R) SMART GRID
SELECT DIVIDEND WIND ENERGY AND CONSTRUCTION INFRASTRUCTURE
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------------------- ---------------------- ---------------------- ----------------------
$ 4,315,750 $ 87,558 $ 115,357 $ 54,962
(237,901) (6,431) (7,501) (4,531)
-- -- -- 2,148
74 5 -- --
-------------- -------------- -------------- --------------
4,077,923 81,132 107,856 52,579
-------------- -------------- -------------- --------------
493,340 40,643 35,145 25,994
101,242 10,160 8,786 5,846
13,186 12,813 12,813 12,813
71,598 8,153 10,396 4,226
(600) 10,780 5,258 8,599
3,729 3,163 3,156 10,341
8,508 2,582 2,721 2,261
21,558 1,431 1,870 1,117
19,724 3,876 3,884 1,280
6,167 508 439 325
1,392 173 173 173
6,676 2,471 2,913 1,545
-------------- -------------- -------------- --------------
746,520 96,753 87,554 74,520
(6,510) (35,788) (26,050) (29,031)
-------------- -------------- -------------- --------------
740,010 60,965 61,504 45,489
-------------- -------------- -------------- --------------
3,337,913 20,167 46,352 7,090
-------------- -------------- -------------- --------------
(729,978) (1,715,456) (729,699) (1,118,621)
6,645,330 10,555 114,434 384,354
(55,042) (1,498) (1,713) (8,372)
-------------- -------------- -------------- --------------
5,860,310 (1,706,399) (616,978) (742,639)
-------------- -------------- -------------- --------------
1,753,364 4,445,458 2,369,657 2,199,329
3,627 331 401 (1,831)
-------------- -------------- -------------- --------------
1,756,991 4,445,789 2,370,058 2,197,498
-------------- -------------- -------------- --------------
7,617,301 2,739,390 1,753,080 1,454,859
-------------- -------------- -------------- --------------
$ 10,955,214 $ 2,759,557 $ 1,799,432 $ 1,461,949
============== ============== ============== ==============
See Notes to Financial Statements Page 65
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED MARCH 31, 2013 (UNAUDITED)
FIRST TRUST FIRST TRUST
ISE GLOBAL ISE GLOBAL
COPPER PLATINUM
INDEX FUND INDEX FUND
---------------------- ----------------------
INVESTMENT INCOME:
Dividends ............................................................. $ 384,544 $ 4,976
Foreign tax withholding ............................................... (1,832) 2,128
Securities lending income (net of fees) ............................... -- --
Interest .............................................................. -- --
-------------- --------------
Total investment income ............................................ 382,712 7,104
-------------- --------------
EXPENSES:
Investment advisory fees .............................................. 156,629 (a) 33,641 (a)
Licensing fees ........................................................ -- --
Audit and tax fees .................................................... -- --
Accounting and administration fees .................................... -- --
Printing fees ......................................................... -- --
Listing fees .......................................................... -- --
Trustees' fees and expenses ........................................... -- --
Legal fees ............................................................ -- --
Custodian fees ........................................................ -- --
Transfer agent fees ................................................... -- --
Registration and filing fees .......................................... -- --
Other expenses ........................................................ -- --
-------------- --------------
Total expenses ..................................................... 156,629 33,641
Less fees waived and expenses reimbursed by
the investment advisor ........................................ -- --
-------------- --------------
Net expenses ....................................................... 156,629 33,641
-------------- --------------
NET INVESTMENT INCOME (LOSS) .......................................... 226,083 (26,537)
-------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ........................................................ (3,830,819) (2,690,400)
In-kind redemptions ................................................ (70,922) --
Foreign currency transactions ...................................... 1,383 (6,805)
-------------- --------------
Net realized gain (loss) .............................................. (3,900,358) (2,697,205)
-------------- --------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................................ (3,757) 1,845,081
Foreign currency translation ....................................... (8,868) 1,035
-------------- --------------
Net change in unrealized appreciation (depreciation) .................. (12,625) 1,846,116
-------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ............................... (3,912,983) (851,089)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS .................................................... $ (3,686,900) $ (877,626)
============== ==============
(a) Fund is subject to a unitary fee (See Note 3 in the Notes to Financial
Statements).
Page 66 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST
FIRST TRUST NASDAQ CEA NASDAQ GLOBAL ISE CLOUD
BICK SMARTPHONE AUTO COMPUTING
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
---------------------- ---------------------- ---------------------- ----------------------
$ 356,060 $ 92,298 $ 50,748 $ 281,255
(23,876) (990) (3,500) --
-- 5,934 -- --
-- -- -- --
-------------- -------------- -------------- --------------
332,184 97,242 47,248 281,255
-------------- -------------- -------------- --------------
135,452 (a) 40,895 (a) 28,214 (a) 244,845 (a)
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-------------- -------------- -------------- --------------
135,452 40,895 28,214 244,845
-- -- -- --
-------------- -------------- -------------- --------------
135,452 40,895 28,214 244,845
-------------- -------------- -------------- --------------
196,732 56,347 19,034 36,410
-------------- -------------- -------------- --------------
(1,790,104) (1,224,967) (161,883) (1,695,784)
1,544,944 159,696 -- 551,377
(6,799) (3,955) (1,490) --
-------------- -------------- -------------- --------------
(251,959) (1,069,226) (163,373) (1,144,407)
-------------- -------------- -------------- --------------
1,631,789 2,603,303 1,383,344 6,608,333
(2,158) (268) (83) --
-------------- -------------- -------------- --------------
1,629,631 2,603,035 1,383,261 6,608,333
-------------- -------------- -------------- --------------
1,377,672 1,533,809 1,219,888 5,463,926
-------------- -------------- -------------- --------------
$ 1,574,404 $ 1,590,156 $ 1,238,922 $ 5,500,336
============== ============== ============== ==============
See Notes to Financial Statements Page 67
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST
STOXX(R) EUROPEAN
SELECT DIVIDEND
INDEX FUND
--------------------------------------------------
For the
Six Months Ended For the
3/31/2013 Year Ended
(Unaudited) 9/30/2012
---------------------- ----------------------
OPERATIONS:
Net investment income (loss) ......................................... $ 159,793 $ 634,822
Net realized gain (loss) ............................................. (1,042,733) (350,038)
Net change in unrealized appreciation (depreciation) ................. 405,387 324,329
-------------- --------------
Net increase (decrease) in net assets resulting from operations ...... (477,553) 609,113
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................................ (194,046) (598,892)
Net realized gain .................................................... -- --
Return of capital .................................................... -- --
-------------- --------------
Total distributions to shareholders .................................. (194,046) (598,892)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold ............................................ 19,367,539 10,191,171
Cost of shares redeemed............................................... -- (2,875,668)
-------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions ..................................... 19,367,539 7,315,503
-------------- --------------
Total increase (decrease) in net assets .............................. 18,695,940 7,325,724
NET ASSETS:
Beginning of period .................................................. 16,088,034 8,762,310
-------------- --------------
End of period ........................................................ $ 34,783,974 $ 16,088,034
============== ==============
Accumulated net investment income (loss) at end of period ............ $ 3,921 $ 38,174
============== ==============
CHANGES IN SHARES OUSTANDING:
Shares outstanding, beginning of period .............................. 1,353,334 753,334
Shares sold .......................................................... 1,600,000 850,000
Shares redeemed ...................................................... -- (250,000)
-------------- --------------
Shares outstanding, end of period .................................... 2,953,334 1,353,334
============== ==============
Page 68 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
3/31/2013 Year Ended 3/31/2013 Year Ended 3/31/2013 Year Ended
(Unaudited) 9/30/2012 (Unaudited) 9/30/2012 (Unaudited) 9/30/2012
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
$ 1,239,308 $ 2,106,753 $ 3,337,913 $ 8,573,221 $ 20,167 $ 298,694
(276,463) (210,122) 5,860,310 (3,842,603) (1,706,399) (12,968,680)
11,331,494 17,689,119 1,756,991 17,658,770 4,445,789 7,904,273
--- ------------- ---------------- ---------------- ---------------- ---------------- ----------------
12,294,339 19,585,750 10,955,214 22,389,388 2,759,557 (4,765,713)
--- ------------- ---------------- ---------------- ---------------- ---------------- ----------------
(3,039,392) (2,500,307) (4,467,781) (8,490,662) (84,840) (272,180)
-- -- -- -- -- --
-- -- -- -- -- --
--- ------------- ---------------- ---------------- ---------------- ---------------- ----------------
(3,039,392) (2,500,307) (4,467,781) (8,490,662) (84,840) (272,180)
--- ------------- ---------------- ---------------- ---------------- ---------------- ----------------
13,936,730 19,554,712 107,328,770 100,557,884 -- --
-- (1,582,877) (19,131,021) (4,167,114) (2,017,111) (9,447,041)
--- ------------- ---------------- ---------------- ---------------- ---------------- ----------------
13,936,730 17,971,835 88,197,749 96,390,770 (2,017,111) (9,447,041)
--- ------------- ---------------- ---------------- ---------------- ---------------- ----------------
23,191,677 35,057,278 94,685,182 110,289,496 657,606 (14,484,934)
96,564,832 61,507,554 206,229,375 95,939,879 20,862,303 35,347,237
--- ------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 119,756,509 $ 96,564,832 $ 300,914,557 $ 206,229,375 $ 21,519,909 $ 20,862,303
=== ============= ================ ================ ================ ================ ================
$ (2,644,526) $ (844,442) $ (891,057) $ 238,811 $ (40,976) $ 23,697
================ ================ ================ ================ ================ ================
2,550,002 2,050,002 8,750,002 4,550,002 3,100,002 4,350,002
350,000 550,000 4,400,000 4,400,000 -- --
-- (50,000) (800,000) (200,000) (300,000) (1,250,000)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
2,900,002 2,550,002 12,350,002 8,750,002 2,800,002 3,100,002
================ ================ ================ ================ ================ ================
See Notes to Financial Statements Page 69
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST
ISE GLOBAL
ENGINEERING AND CONSTRUCTION
INDEX FUND
--------------------------------------------------
For the
Six Months Ended For the
3/31/2013 Year Ended
(Unaudited) 9/30/2012
---------------------- ----------------------
OPERATIONS:
Net investment income (loss) ......................................... $ 46,352 $ 502,546
Net realized gain (loss) ............................................. (616,978) (3,067,302)
Net change in unrealized appreciation (depreciation) ................. 2,370,058 5,927,065
-------------- --------------
Net increase (decrease) in net assets resulting from operations ...... 1,799,432 3,362,309
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................................ (31,635) (606,131)
Net realized gain .................................................... -- --
Return of capital .................................................... -- --
-------------- --------------
Total distributions to shareholders .................................. (31,635) (606,131)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold ............................................ -- 8,080,210
Cost of shares redeemed .............................................. (2,142,869) (23,665,055)
-------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions ..................................... (2,142,869) (15,584,845)
-------------- --------------
Total increase (decrease) in net assets .............................. (375,072) (12,828,667)
NET ASSETS:
Beginning of period .................................................. 17,590,591 30,419,258
-------------- --------------
End of period......................................................... $ 17,215,519 $ 17,590,591
============== ==============
Accumulated net investment income (loss) at end of period ............ $ 37,171 $ 22,454
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period .............................. 450,002 900,002
Shares sold .......................................................... -- 200,000
Shares redeemed ...................................................... (50,000) (650,000)
-------------- --------------
Shares outstanding, end of period .................................... 400,002 450,002
============== ==============
Page 70 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 For the For the
Six Months Ended For the Six Months Ended For the Six Months Ended For the
3/31/2013 Year Ended 3/31/2013 Year Ended 3/31/2013 Year Ended
(Unaudited) 9/30/2012 (Unaudited) 9/30/2012 (Unaudited) 9/30/2012
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
$ 7,090 $ 111,855 $ 226,083 $ 916,651 $ (26,537) $ 45,014
(742,639) (1,423,531) (3,900,358) (15,197,786) (2,697,205) (3,789,493)
2,197,498 4,083,781 (12,625) 21,572,028 1,846,116 1,065,698
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
1,461,949 2,772,105 (3,686,900) 7,290,893 (877,626) (2,678,781)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(14,080) (163,970) (376,836) (2,372,408) (14,200) (128,480)
-- -- -- -- -- --
-- -- -- -- -- --
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(14,080) (163,970) (376,836) (2,372,408) (14,200) (128,480)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
-- -- -- 1,743,091 3,257,402 4,636,937
(1,574,429) (7,769,318) (2,718,519) (17,638,680) -- (900,758)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(1,574,429) (7,769,318) (2,718,519) (15,895,589) 3,257,402 3,736,179
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(126,560) (5,161,183) (6,782,255) (10,977,104) 2,365,576 928,918
13,025,682 18,186,865 44,281,075 55,258,179 8,589,044 7,660,126
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 12,899,122 $ 13,025,682 $ 37,498,820 $ 44,281,075 $ 10,954,620 $ 8,589,044
================ ================ ================ ================ ================ ================
$ 573 $ 7,563 $ (165,720) $ (14,967) $ (36,542) $ 4,195
================ ================ ================ ================ ================ ================
450,002 750,002 1,550,002 2,100,002 600,002 400,002
-- -- -- 50,000 200,000 250,000
(50,000) (300,000) (100,000) (600,000) -- (50,000)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
400,002 450,002 1,450,002 1,550,002 800,002 600,002
================ ================ ================ ================ ================ ================
See Notes to Financial Statements Page 71
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST
BICK
INDEX FUND
--------------------------------------------------
For the
Six Months Ended For the
3/31/2013 Year Ended
(Unaudited) 9/30/2012
---------------------- ----------------------
OPERATIONS:
Net investment income (loss) ......................................... $ 196,732 $ 669,545
Net realized gain (loss) ............................................. (251,959) (5,614,235)
Net change in unrealized appreciation (depreciation) ................. 1,629,631 8,889,618
-------------- --------------
Net increase (decrease) in net assets resulting from operations ...... 1,574,404 3,944,928
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................................ (197,880) (815,765)
Net realized gain .................................................... -- --
Return of capital .................................................... -- (39,236)
-------------- --------------
Total distributions to shareholders .................................. (197,880) (855,001)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold ............................................ -- 5,087,941
Cost of shares redeemed .............................................. (15,330,896) (3,828,256)
-------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions ..................................... (15,330,896) 1,259,685
-------------- --------------
Total increase (decrease) in net assets .............................. (13,954,372) 4,349,612
NET ASSETS:
Beginning of period .................................................. 45,438,356 41,088,744
-------------- --------------
End of period ........................................................ $ 31,483,984 $ 45,438,356
============== ==============
Accumulated net investment income (loss) at end of period ............ $ (1,318) $ (170)
============== ==============
CHANGES IN SHARES OUSTANDING:
Shares outstanding, beginning of period .............................. 1,900,002 1,850,002
Shares sold .......................................................... -- 200,000
Shares redeemed ...................................................... (600,000) (150,000)
-------------- --------------
Shares outstanding, end of period .................................... 1,300,002 1,900,002
============== ==============
Page 72 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST
NASDAQ NASDAQ ISE
CEA SMARTPHONE GLOBAL AUTO CLOUD COMPUTING
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
3/31/2013 Year Ended 3/31/2013 Year Ended 3/31/2013 Year Ended
(Unaudited) 9/30/2012 (Unaudited) 9/30/2012 (Unaudited) 9/30/2012
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
$ 56,347 $ 120,742 $ 19,034 $ 44,888 $ 36,410 $ (100,420)
(1,069,226) (545,512) (163,373) (97,705) (1,144,407) 2,753,259
2,603,035 1,022,319 1,383,261 258,782 6,608,333 10,069,814
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
1,590,156 597,549 1,238,922 205,965 5,500,336 12,722,653
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(60,075) (168,741) (16,625) (35,750) (12,480) --
-- -- -- -- -- (47,600)
-- -- -- -- -- --
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(60,075) (168,741) (16,625) (35,750) (12,480) (47,600)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
-- 1,289,279 5,939,237 1,357,325 16,439,261 38,860,414
(2,284,594) (2,511,425) -- -- (2,950,893) (26,805,503)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(2,284,594) (1,222,146) 5,939,237 1,357,325 13,488,368 12,054,911
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(754,513) (793,338) 7,161,534 1,527,540 18,976,224 24,729,964
12,712,025 13,505,363 4,903,681 3,376,141 76,488,147 51,758,183
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 11,957,512 $ 12,712,025 $ 12,065,215 $ 4,903,681 $ 95,464,371 $ 76,488,147
================ ================ ================ ================ ================ ================
$ 8,591 $ 12,319 $ 13,511 $ 11,102 $ (49,768) $ (73,698)
================ ================ ================ ================ ================ ================
550,002 600,002 200,002 150,002 3,850,002 3,250,002
-- 50,000 200,000 50,000 800,000 2,050,000
(100,000) (100,000) -- -- (150,000) (1,450,000)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
450,002 550,002 400,002 200,002 4,500,002 3,850,002
================ ================ ================ ================ ================ ================
See Notes to Financial Statements Page 73
FIRST TRUST EXCHANGE-TRADED FUND II
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND
FOR THE
SIX MONTHS
ENDED FOR THE FOR THE FOR THE FOR THE FOR THE
3/31/2013 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
(UNAUDITED) 9/30/2012 9/30/2011 9/30/2010 9/30/2009 9/30/2008
------------- ------------- ------------- ------------- ------------- -------------
Net asset value, beginning of period $ 11.89 $ 11.63 $ 13.09 $ 13.81 $ 15.62 $ 30.97
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.07 0.64 0.67 0.56 0.61 1.26
Net realized and unrealized gain (loss) (0.08) 0.23 (1.46) (0.73) (1.83) (15.32)
--------- --------- --------- --------- --------- ---------
Total from investment operations (0.01) 0.87 (0.79) (0.17) (1.22) (14.06)
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.10) (0.61) (0.67) (0.55) (0.59) (1.29)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 11.78 $ 11.89 $ 11.63 $ 13.09 $ 13.81 $ 15.62
========= ========= ========= ========= ========= =========
TOTAL RETURN (a) (0.09)% 7.73% (6.70)% (0.95)% (6.83)% (46.12)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 34,784 $ 16,088 $ 8,762 $ 6,589 $ 8,330 $ 12,545
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 1.13% (b) 1.67% 1.93% 2.35% 3.48% 1.95%
Ratio of net expenses to average net
assets 0.60% (b) 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss)
to average net assets 1.48% (b) 5.98% 5.09% 3.98% 5.30% 6.43%
Portfolio turnover rate (c) 35% 31% 27% 54% 82% 80%
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND
FOR THE
SIX MONTHS
ENDED FOR THE FOR THE FOR THE FOR THE FOR THE
3/31/2013 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
(UNAUDITED) 9/30/2012 9/30/2011 9/30/2010 9/30/2009 9/30/2008
------------- ------------- ------------- ------------- ------------- -------------
Net asset value, beginning of period $ 37.87 $ 30.00 $ 33.85 $ 30.48 $ 36.24 $ 53.43
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.58 0.99 1.05 1.24 0.90 1.25
Net realized and unrealized gain (loss) 4.01 7.96 (3.64) 3.84 (5.74) (17.25)
--------- --------- --------- --------- --------- ---------
Total from investment operations 4.59 8.95 (2.59) 5.08 (4.84) (16.00)
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (1.16) (1.08) (1.26) (1.71) (0.91) (1.19)
Net realized gain -- -- -- -- (0.01) --
--------- --------- --------- --------- --------- ---------
Total distributions (1.16) (1.08) (1.26) (1.71) (0.92) (1.19)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 41.30 $ 37.87 $ 30.00 $ 33.85 $ 30.48 $ 36.24
========= ========= ========= ========= ========= =========
TOTAL RETURN (a) 12.27% 30.22% (8.17)% 17.48% (12.66)% (30.35)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 119,757 $ 96,565 $ 61,508 $ 45,693 $ 15,238 $ 7,249
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.71% (b) 0.74% 0.86% 1.10% 2.09% 2.68%
Ratio of net expenses to average net
assets 0.60% (b) 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 2.36% (b) 2.67% 2.29% 2.81% 4.08% 3.07%
Portfolio turnover rate (c) 7% 8% 11% 11% 19% 7%
(a) 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 is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Annualized.
(c) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 74 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND II
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED FOR THE FOR THE FOR THE FOR THE 11/27/2007 (a)
3/31/2013 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
(UNAUDITED) 9/30/2012 9/30/2011 9/30/2010 9/30/2009 9/30/2008
------------- ------------- ------------- ------------- ------------- -------------
Net asset value, beginning of period $ 23.57 $ 21.09 $ 22.43 $ 21.33 $ 19.95 $ 30.00
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.31 1.16 1.05 0.94 0.70 (b) 1.38
Net realized and unrealized gain (loss) 0.90 2.47 (1.31) 1.17 1.37 (10.10)
--------- --------- --------- --------- --------- ---------
Total from investment operations 1.21 3.63 (0.26) 2.11 2.07 (8.72)
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.41) (1.15) (1.08) (1.01) (0.69) (1.33)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 24.37 $ 23.57 $ 21.09 $ 22.43 $ 21.33 $ 19.95
========= ========= ========= ========= ========= =========
TOTAL RETURN (c) 5.18% 17.58% (1.57)% 10.33% 11.80% (29.72)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 300,915 $ 206,229 $ 95,940 $ 37,008 $ 28,790 $ 3,990
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.61% (d) 0.63% 0.74% 0.97% 2.39% 4.79% (d)
Ratio of net expenses to average net
assets 0.60% (d) 0.60% 0.60% 0.60% 0.60% 0.60% (d)
Ratio of net investment income (loss) to
average net assets 2.71% (d) 5.41% 5.21% 4.37% 4.61% 6.33% (d)
Portfolio turnover rate (e) 20% 21% 22% 51% 65% 42%
FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND
FOR THE FOR THE
SIX MONTHS PERIOD
ENDED FOR THE FOR THE FOR THE FOR THE 6/16/2008 (a)
3/31/2013 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
(UNAUDITED) 9/30/2012 9/30/2011 9/30/2010 9/30/2009 9/30/2008
------------- ------------- ------------- ------------- ------------- -------------
Net asset value, beginning of period $ 6.73 $ 8.13 $ 10.28 $ 16.27 $ 19.11 $ 30.00
--------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.01 0.09 0.06 0.08 0.14 0.01
Net realized and unrealized gain (loss) 0.98 (1.40) (2.15) (5.71) (2.88) (10.90)
--------- --------- --------- --------- --------- ---------
Total from investment operations 0.99 (1.31) (2.09) (5.63) (2.74) (10.89)
--------- --------- --------- --------- --------- ---------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.03) (0.09) -- (0.35) (0.10) --
Return of capital -- -- (0.06) (0.01) -- --
--------- --------- --------- --------- --------- ---------
Total distributions (0.03) (0.09) (0.06) (0.36) (0.10) --
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 7.69 $ 6.73 $ 8.13 $ 10.28 $ 16.27 $ 19.11
========= ========= ========= ========= ========= =========
TOTAL RETURN (c) 14.76% (16.14)% (20.47)% (35.10)% (14.26)% (36.30)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 21,520 $ 20,862 $ 35,347 $ 54,505 $ 100,850 $ 63,067
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.95% (d) 0.67% 0.76% 0.81% 0.95% 0.98% (d)
Ratio of net expenses to average net
assets 0.60% (d) 0.60% 0.60% 0.60% 0.60% 0.60% (d)
Ratio of net investment income (loss) to
average net assets 0.20% (d) 1.12% 0.84% 0.80% 1.16% 0.24% (d)
Portfolio turnover rate (e) 7% 57% 35% 24% 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 is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(d) Annualized.
(e) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 75
FIRST TRUST EXCHANGE-TRADED FUND II
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND
FOR THE FOR THE PERIOD
SIX MONTHS ENDED FOR THE FOR THE FOR THE 10/13/2008 (a)
3/31/2013 YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
(UNAUDITED) 9/30/2012 9/30/2011 9/30/2010 9/30/2009
--------------- --------------- --------------- --------------- ---------------
Net asset value, beginning of period $ 39.09 $ 33.80 $ 39.56 $ 39.76 $ 30.00
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.11 0.62 0.67 0.57 0.42
Net realized and unrealized gain (loss) 3.91 5.38 (5.77) (0.25) 9.68
--------- --------- --------- --------- ---------
Total from investment operations 4.02 6.00 (5.10) 0.32 10.10
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.07) (0.71) (0.66) (0.52) (0.34)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 43.04 $ 39.09 $ 33.80 $ 39.56 $ 39.76
========= ========= ========= ========= =========
TOTAL RETURN (b) 10.29% 17.93% (13.30)% 1.03% 33.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 17,216 $ 17,591 $ 30,419 $ 31,644 $ 35,784
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 1.00% (c) 0.71% 0.80% 0.92% 1.16% (c)
Ratio of net expenses to average net assets 0.70% (c) 0.70% 0.70% 0.70% 0.70% (c)
Ratio of net investment income (loss) to
average net assets 0.53% (c) 1.66% 1.83% 1.33% 1.84% (c)
Portfolio turnover rate (d) 12% 22% 22% 26% 19%
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND
FOR THE FOR THE PERIOD
SIX MONTHS ENDED FOR THE FOR THE 11/16/2009 (a)
3/31/2013 YEAR ENDED YEAR ENDED THROUGH
(UNAUDITED) 9/30/2012 9/30/2011 9/30/2010
--------------- --------------- --------------- ---------------
Net asset value, beginning of period $ 28.95 $ 24.25 $ 30.33 $ 30.00
--------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.02 0.26 0.25 0.11
Net realized and unrealized gain (loss) 3.31 4.76 (6.16) 0.34
--------- --------- --------- ---------
Total from investment operations 3.33 5.02 (5.91) 0.45
--------- --------- --------- ---------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.03) (0.32) (0.17) (0.11)
Return of capital -- -- -- (0.01)
--------- --------- --------- ---------
Total distributions (0.03) (0.32) (0.17) (0.12)
--------- --------- --------- ---------
Net asset value, end of period $ 32.25 $ 28.95 $ 24.25 $ 30.33
========= ========= ========= =========
TOTAL RETURN (B) 11.52% 20.82% (19.63)% 1.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 12,899 $ 13,026 $ 18,187 $ 31,848
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 1.15% (c) 0.79% 0.85% 0.99% (c)
Ratio of net expenses to average net assets 0.70% (c) 0.70% 0.70% 0.70% (c)
Ratio of net investment income (loss) to
average net assets 0.11% (c) 0.78% 0.71% 0.47% (c)
Portfolio turnover rate (d) 24% 46% 28% 50%
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(c) Annualized.
(d) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 76 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND II
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
FIRST TRUST ISE GLOBAL COPPER INDEX FUND
FOR THE FOR THE PERIOD
SIX MONTHS ENDED FOR THE FOR THE 3/11/2010 (a)
3/31/2013 YEAR ENDED YEAR ENDED THROUGH
(UNAUDITED) 9/30/2012 9/30/2011 9/30/2010
--------------- --------------- --------------- ---------------
Net asset value, beginning of period $ 28.57 $ 26.31 $ 33.54 $ 30.00
--------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.14 0.70 1.23 0.07
Net realized and unrealized gain (loss) (2.60) 2.95 (7.88) 3.53
--------- --------- --------- ---------
Total from investment operations (2.46) 3.65 (6.65) 3.60
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.25) (1.39) (0.58) (0.06)
--------- --------- --------- ---------
Net asset value, end of period $ 25.86 $ 28.57 $ 26.31 $ 33.54
========= ========= ========= =========
TOTAL RETURN (b) (8.73)% 13.82% (20.50)% 12.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 37,499 $ 44,281 $ 55,258 $ 25,156
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.70% (c) 0.70% 0.70% 0.70% (c)
Ratio of net expenses to average net assets 0.70% (c) 0.70% 0.70% 0.70% (c)
Ratio of net investment income (loss) to
average net assets 1.01% (c) 1.79% 1.85% 0.58% (c)
Portfolio turnover rate (d) 15% 46% 41% 22%
FIRST TRUST ISE GLOBAL PLATINUM INDEX FUND
FOR THE FOR THE PERIOD
SIX MONTHS ENDED FOR THE FOR THE 3/11/2010 (a)
3/31/2013 YEAR ENDED YEAR ENDED THROUGH
(UNAUDITED) 9/30/2012 9/30/2011 9/30/2010
--------------- --------------- --------------- ---------------
Net asset value, beginning of period $ 14.32 $ 19.15 $ 29.29 $ 30.00
--------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.03) 0.07 0.19 0.09
Net realized and unrealized gain (loss) (0.58) (4.62) (10.27) (0.72)
--------- --------- --------- ---------
Total from investment operations (0.61) (4.55) (10.08) (0.63)
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.02) (0.28) (0.06) (0.08)
--------- --------- --------- ---------
Net asset value, end of period $ 13.69 $ 14.32 $ 19.15 $ 29.29
========= ========= ========= =========
TOTAL RETURN (b) (4.19)% (24.08)% (34.49)% (2.06)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 00's) $ 10,955 $ 8,589 $ 7,660 $ 7,322
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.70% (c) 0.70% 0.70% 0.70% (c)
Ratio of net expenses to average net assets 0.70% (c) 0.70% 0.70% 0.70% (c)
Ratio of net investment income (loss) to
average net assets (0.55)% (c) 0.50% 0.44% 0.66% (c)
Portfolio turnover rate (d) 26% 64% 41% 29%
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(c) Annualized.
(d) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 77
FIRST TRUST EXCHANGE-TRADED FUND II
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
FIRST TRUST BICK INDEX FUND
FOR THE FOR THE PERIOD
SIX MONTHS ENDED FOR THE FOR THE 4/12/2010 (a)
3/31/2013 YEAR ENDED YEAR ENDED THROUGH
(UNAUDITED) 9/30/2012 9/30/2011 9/30/2010
--------------- --------------- --------------- ---------------
Net asset value, beginning of period $ 23.91 $ 22.21 $ 31.16 $ 30.00
--------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.13 0.35 0.72 0.15
Net realized and unrealized gain (loss) 0.31 1.80 (8.98) 1.09
--------- --------- --------- ---------
Total from investment operations 0.44 2.15 (8.26) 1.24
--------- --------- --------- ---------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.13) (0.43) (0.69) (0.08)
Return of capital -- (0.02) -- --
--------- --------- --------- ---------
Total distributions (0.13) (0.45) (0.69) (0.08)
--------- --------- --------- ---------
Net asset value, end of period $ 24.22 $ 23.91 $ 22.21 $ 31.16
========= ========= ========= =========
TOTAL RETURN (b) 1.82% 9.78% (27.18)% 4.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 31,484 $ 45,438 $ 41,089 $ 28,043
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.64% (c) 0.64% 0.64% 0.70% (c)
Ratio of net expenses to average net assets 0.64% (c) 0.64% 0.64% 0.70% (c)
Ratio of net investment income (loss) to
average net assets 0.93% (c) 1.46% 1.11% 1.71% (c)
Portfolio turnover rate (d) 28% 55% 96% 32%
FIRST TRUST NASDAQ CEA SMARTPHONE INDEX FUND
FOR THE FOR THE PERIOD
SIX MONTHS ENDED FOR THE 2/17/2011 (a)
3/31/2013 YEAR ENDED THROUGH
(UNAUDITED) 9/30/2012 9/30/2011
--------------- --------------- ---------------
Net asset value, beginning of period $ 23.11 $ 22.51 $ 30.11
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.13 0.23 0.20
Net realized and unrealized gain (loss) 3.46 0.68 (7.70)
--------- --------- ---------
Total from investment operations 3.59 0.91 (7.50)
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.13) (0.31) (0.10)
--------- --------- ---------
Net asset value, end of period $ 26.57 $ 23.11 $ 22.51
========= ========= =========
TOTAL RETURN (b) 15.58% 4.03% (24.97)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 11,958 $ 12,712 $ 13,505
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.70% (c) 0.70% 0.70% (c)
Ratio of net expenses to average net assets 0.70% (c) 0.70% 0.70% (c)
Ratio of net investment income (loss) to
average net assets 0.96% (c) 0.89% 1.30% (c)
Portfolio turnover rate (d) 12% 35% 29%
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(c) Annualized.
(d) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 78 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND II
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND
FOR THE FOR THE PERIOD
SIX MONTHS ENDED FOR THE 5/9/2011 (a)
3/31/2013 YEAR ENDED THROUGH
(UNAUDITED) 9/30/2012 9/30/2011
--------------- --------------- ---------------
Net asset value, beginning of period $ 24.52 $ 22.51 $ 29.88
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.04 0.22 0.08
Net realized and unrealized gain (loss) 5.67 1.97 (7.40)
--------- --------- ---------
Total from investment operations 5.71 2.19 (7.32)
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.07) (0.18) (0.05)
--------- --------- ---------
Net asset value, end of period $ 30.16 $ 24.52 $ 22.51
========= ========= =========
TOTAL RETURN (b) 23.28% 9.77% (24.55)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 12,065 $ 4,904 $ 3,376
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.70% (c) 0.70% 0.70% (c)
Ratio of net expenses to average net assets 0.70% (c) 0.70% 0.70% (c)
Ratio of net investment income (loss) to
average net assets 0.47% (c) 1.04% 0.70% (c)
Portfolio turnover rate (d) 10% 17% 16%
FIRST TRUST ISE CLOUD COMPUTING INDEX FUND
FOR THE FOR THE PERIOD
SIX MONTHS ENDED FOR THE 7/5/2011 (a)
3/31/2013 YEAR ENDED THROUGH
(UNAUDITED) 9/30/2012 9/30/2011
--------------- --------------- ---------------
Net asset value, beginning of period $ 19.87 $ 15.93 $ 20.16
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.01 (0.01) (0.01)
Net realized and unrealized gain (loss) 1.33 3.96 (4.22)
--------- --------- ---------
Total from investment operations 1.34 3.95 (4.23)
--------- --------- ---------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income 0.00 (e) -- --
Net realized gain -- (0.01) --
--------- --------- ---------
Total distributions 0.00 (0.01) --
--------- --------- ---------
Net asset value, end of period $ 21.21 $ 19.87 $ 15.93
========= ========= =========
TOTAL RETURN (b) 6.76% 24.83% (20.98)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 95,464 $ 76,488 $ 51,758
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.60% (c) 0.60% 0.60% (c)
Ratio of net expenses to average net assets 0.60% (c) 0.60% 0.60% (c)
Ratio of net investment income (loss) to
average net assets 0.09% (c) (0.14)% (0.31)% (c)
Portfolio turnover rate (d) 16% 28% 1%
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year.
(c) Annualized.
(d) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(e) Amount represents less than $0.01 per share.
See Notes to Financial Statements Page 79
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (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 6, 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 twelve funds as follows, including the exchange
on which they are listed and traded:
First Trust STOXX(R) European Select Dividend Index Fund - (NYSE Arca, Inc. ("NYSE Arca") ticker "FDD")
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund - (NYSE Arca ticker "FFR")
First Trust Dow Jones Global Select Dividend Index Fund - (NYSE Arca ticker "FGD")
First Trust ISE Global Wind Energy Index Fund - (NYSE Arca ticker "FAN")
First Trust ISE Global Engineering and Construction Index Fund - (NYSE Arca ticker "FLM")
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund - (The NASDAQ(R) Stock Market,
LLC. ("NASDAQ") ticker "GRID")
First Trust ISE Global Copper Index Fund - (NASDAQ ticker "CU")
First Trust ISE Global Platinum Index Fund - (NASDAQ ticker "PLTM")
First Trust BICK Index Fund - (NASDAQ ticker "BICK")
First Trust NASDAQ CEA Smartphone Index Fund - (NASDAQ ticker "FONE")
First Trust NASDAQ Global Auto Index Fund - (NASDAQ ticker "CARZ")
First Trust ISE Cloud Computing Index Fund - (NASDAQ ticker "SKYY")
Each fund represents a separate series of shares of beneficial interest in the
Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual
funds, each Fund issues and redeems shares on a continuous basis, at net asset
value ("NAV"), only in large specified blocks consisting of 50,000 shares called
a "Creation Unit". Creation Units are 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 STOXX(R) European Select Dividend Index Fund STOXX(R) Europe Select Dividend 30 Index
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(TM) Index
First Trust ISE Global Engineering and Construction Index Fund ISE Global Engineering and Construction(TM) 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
First Trust BICK Index Fund ISE BICK(TM) Index
First Trust NASDAQ CEA Smartphone Index Fund NASDAQ OMX CEA Smartphone Index(SM)
First Trust NASDAQ Global Auto Index Fund NASDAQ OMX Global Auto Index(SM)
First Trust ISE Cloud Computing Index Fund ISE Cloud Computing(TM) Index
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of the financial statements. The
preparation of the financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. Portfolio Valuation
Each Fund's NAV is determined daily as of the close of regular trading on the
New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day
the NYSE is open for trading. 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.
Page 80
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
Each Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value in
accordance with valuation procedures adopted by the Trust's Board of Trustees
and in accordance with the 1940 Act. All securities and other assets of each
Fund initially expressed in foreign currencies will be converted to U.S. dollars
using exchange rates in effect at time of valuation. Each Fund's securities will
be valued as follows:
Common stocks and other equity securities listed on any national or
foreign exchange (excluding NASDAQ and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for NASDAQ and
AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the principal market for such securities.
Securities traded in an over-the-counter market 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. 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,
including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
In addition, differences between the prices used to calculate a Fund's NAV and
the prices used by such Fund's corresponding index could result in a difference
between the Fund's performance and the performance of its underlying index.
Because foreign markets may be open on different days than the days during which
investors may purchase the shares of a Fund, the value of the 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 investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
Page 81
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value each Fund's investments as of March 31, 2013, is
included with each Fund's Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis.
Distributions received from a Fund's investments in real estate investment
trusts ("REITs") may be comprised of return of capital, capital gains and
income. The actual character of the amounts received during the year is not
known until after the REITs' fiscal year end. A Fund records the character of
distributions received from the REITs during the year based on estimates
available. The characterization of distributions received by a Fund may be
subsequently revised based on information received from the REITs after their
tax reporting periods conclude.
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 investments" on the Statements of Operations.
D. Securities Lending
The Funds may lend securities representing up to 331/3% of the value of their
total assets to broker-dealers, banks and other institutions to generate
additional income. When a Fund loans its portfolio securities, it will receive,
at the inception of each loan, collateral equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
loaned securities. The collateral amount is valued at the beginning of each
business day and is compared to the market value of the loaned securities from
the prior business day to determine if additional collateral is required. If
additional collateral is required, a request is sent to the borrower. Securities
lending involves the risk that the Fund may lose money because the borrower of
the Fund's loaned securities fails to return the securities in a timely manner
or at all. The Fund could also lose money in the event of (i) a decline in the
value of the collateral provided for the loaned securities, (ii) a decline in
the value of any investments made with cash collateral or (iii) an increase in
the value of the loaned securities if the borrower does not increase the
collateral accordingly and the borrower fails to return the securities. These
events could also trigger adverse tax consequences for the Funds.
Under the Funds' securities lending agreement, the securities lending agent will
generally bear the risk that a borrower may default on its obligation to return
loaned securities. Brown Brothers Harriman & Co. acts as the Funds' securities
lending agent and is responsible for executing the lending of the portfolio
securities to creditworthy borrowers. The Funds, however, will be responsible
for the risks associated with the investment of cash collateral. A Fund may lose
money on its investment of cash collateral, which may affect its ability to
repay the collateral to the borrower without the use of other Fund assets. Each
Fund that engages in securities lending receives compensation (net of any rebate
and securities lending agent fees) for lending its securities in the form of
fees or interest on the investment of any cash received as collateral. The
dividends and interest earned on the securities loaned is accounted for in the
same manner as other dividend and interest income. At March 31, 2013, only GRID
and FONE have securities in the securities lending program.
Page 82
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
E. Dividends and Distributions to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid
quarterly, or as the Board of Trustees may determine from time to time.
Distributions of net realized 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 U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Funds and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the year ended
September 30, 2012 was as follows:
Distributions Distributions Distributions
paid from paid from paid from
Ordinary Capital Return of
Income Gains Capital
-------------- ------------- --------------
First Trust STOXX(R) European Select Dividend Index Fund $ 598,892 $ -- $ --
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 2,500,307 -- --
First Trust Dow Jones Global Select Dividend Index Fund 8,490,662 -- --
First Trust ISE Global Wind Energy Index Fund 272,180 -- --
First Trust ISE Global Engineering and Construction Index Fund 606,131 -- --
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 163,970 -- --
First Trust ISE Global Copper Index Fund 2,372,408 -- --
First Trust ISE Global Platinum Index Fund 128,480 -- --
First Trust BICK Index Fund 815,765 -- 39,236
First Trust NASDAQ CEA Smartphone Index Fund 168,741 -- --
First Trust NASDAQ Global Auto Index Fund 35,750 -- --
First Trust ISE Cloud Computing Index Fund 47,600 -- --
As of September 30, 2012, 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 STOXX(R) European Select Dividend Index Fund $ 38,174 $(11,108,856) $ (1,494,888)
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 1,610,937 (1,151,987) 9,249,964
First Trust Dow Jones Global Select Dividend Index Fund 1,213,015 (5,691,909) 3,171,409
First Trust ISE Global Wind Energy Index Fund 70,869 (47,770,611) (26,466,769)
First Trust ISE Global Engineering and Construction Index Fund 23,443 (3,668,572) (4,585,129)
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 7,563 (2,921,028) (639,795)
First Trust ISE Global Copper Index Fund 276,479 (19,517,739) (21,380,786)
First Trust ISE Global Platinum Index Fund 10,184 (4,298,948) (5,334,624)
First Trust BICK Index Fund -- (5,448,763) (6,189,055)
First Trust NASDAQ CEA Smartphone Index Fund 12,319 (778,776) (3,196,369)
First Trust NASDAQ Global Auto Index Fund 11,102 (132,995) (864,690)
First Trust ISE Cloud Computing Index Fund -- (180,102) (2,290,524)
F. Income Taxes
Each Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, each Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
Page 83
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ended 2009, 2010,
2011 and 2012 remain open to federal and state audit. As of March 31, 2013,
management has evaluated the application of these standards to the Funds and has
determined that no provision for income tax is required in the Funds' financial
statements for uncertain tax positions.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses arising in taxable years after December 22, 2010, may be
carried forward indefinitely, and their character is retained as short-term
and/or long-term losses. Previously, net capital losses were carried forward for
up to eight years and treated as short-term losses. As a transition rule, the
Act requires that post-enactment net capital losses be used before pre-enactment
net capital losses. At September 30, 2012, the Funds had pre-enactment and
post-enactment net capital losses for Federal income tax purposes as shown in
the table. To the extent that these loss carryforwards are used to offset future
capital gains, it is probable that the capital gains so offset will not be
distributed to Fund shareholders. The Funds are subject to certain limitations,
under U.S. tax rules, on the use of capital loss carryforwards and net
unrealized built-in losses. These limitations apply when there has been a 50%
change in ownership.
Capital Loss Capital Loss Capital Loss Capital Loss Post Total
Available Available Available Available Effective Capital
through through through through - No Loss
9/30/2016 9/30/2017 9/30/2018 9/30/2019 Expiration Available
------------- ------------- ------------- ------------- ------------ -----------
First Trust STOXX(R) European Select
Dividend Index Fund $ -- $ 5,960,236 $ 4,853,444 $ 161,155 $ 134,021 $11,108,856
First Trust FTSE EPRA/NAREIT Developed
Markets Real Estate Index Fund -- 68,465 744,825 1,838 336,859 1,151,987
First Trust Dow Jones Global Select
Dividend Index Fund 131,352 208,741 1,274,694 323,583 3,753,539 5,691,909
First Trust ISE Global Wind Energy
Index Fund 174,186 30,175 8,357,650 9,549,964 29,658,636 47,770,611
First Trust ISE Global Engineering and
Construction Index Fund -- 1,914 -- 615,538 3,051,120 3,668,572
First Trust NASDAQ(R) Clean Edge(R)
Smart Grid Infrastructure Index Fund -- -- 928,889 -- 1,992,139 2,921,028
First Trust ISE Global Copper Index Fund -- -- 74,393 -- 19,443,346 19,517,739
First Trust ISE Global Platinum Index Fund -- -- 344,523 -- 3,954,425 4,298,948
First Trust BICK Index Fund -- -- -- -- 5,448,763 5,448,763
First Trust NASDAQ CEA Smartphone
Index Fund -- -- -- -- 778,776 778,776
First Trust NASDAQ Global Auto Index Fund -- -- -- -- 132,995 132,995
First Trust ISE Cloud Computing Index Fund -- -- -- -- -- --
Certain losses realized during the current fiscal year may be deferred and
treated as occurring on the first day of the following fiscal year for Federal
income tax purposes. For the fiscal year ended September 30, 2012, the following
Fund incurred and elected to defer net ordinary and capital losses as follows:
Qualified Late Year Losses
--------------------------
Ordinary Losses Capital Losses
--------------- --------------
First Trust ISE Cloud Computing Index Fund $ 73,698 $ 106,404
G. Expenses
Expenses that are directly related to one of the Funds are charged directly to
the respective Fund, except for First Trust ISE Global Copper Index Fund, First
Trust ISE Global Platinum Index Fund, First Trust BICK Index Fund, First Trust
NASDAQ CEA Smartphone Index Fund, First Trust NASDAQ Global Auto Index Fund and
First Trust ISE Cloud Computing Index Fund (the "Unitary Fee Funds"), for which
expenses other than excluded expenses (discussed in Note 3) 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.
Page 84
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
The Advisor has entered into licensing agreements with each of the following
"Licensors" for the respective Funds:
FUND LICENSOR
First Trust 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 OMX Group, Inc.
First Trust ISE Global Copper Index Fund International Securities Exchange, LLC
First Trust ISE Global Platinum Index Fund International Securities Exchange, LLC
First Trust BICK Index Fund International Securities Exchange, LLC
First Trust NASDAQ CEA Smartphone Index Fund The NASDAQ OMX Group, Inc.
First Trust NASDAQ Global Auto Index Fund The NASDAQ OMX Group, Inc.
First Trust ISE Cloud Computing Index Fund International Securities Exchange, LLC
The respective license agreements allow for the use of each Fund's respective
index and of certain trademarks and trade names of the respective Licensors. The
Funds are sub-licensees to the applicable license agreements. The licensing fees
paid by those Funds which are required to pay licensing fees are shown on the
Statements of Operations.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Funds, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in each Fund's portfolio, managing the Funds' business affairs and providing
certain administrative services necessary for the management of the Funds.
For the following Unitary Fee Funds, First Trust is paid an annual unitary
management fee at the specified rate 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 distribution and service fees pursuant to a Rule 12b-1 plan, if any,
brokerage expense, taxes, interest, and extraordinary expenses.
% of Daily
Net Assets
------------
First Trust ISE Global Copper Index Fund 0.70%
First Trust ISE Global Platinum Index Fund 0.70%
First Trust BICK Index Fund 0.64%
First Trust NASDAQ CEA Smartphone Index Fund 0.70%
First Trust NASDAQ Global Auto Index Fund 0.70%
First Trust ISE Cloud Computing Index Fund 0.60%
For the First Trust 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 (such Funds,
the "Expense Cap Funds"), First Trust is paid an annual management fee of 0.40%
of such Fund's average daily net assets. For the Expense Cap Funds, the Trust
and the Advisor 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
following amount as a percentage of average daily net assets per year (the
"Expense Cap") at least through January 31, 2015.
Page 85
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
Expense Cap
-------------
First Trust STOXX(R) European Select Dividend Index Fund 0.60%
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 0.60%
First Trust Dow Jones Global Select Dividend Index Fund 0.60%
First Trust ISE Global Wind Energy Index Fund 0.60%
First Trust ISE Global Engineering and Construction Index Fund 0.70%
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 0.70%
Expenses reimbursed and fees waived by First Trust under the Recovery Agreement
are subject to recovery by First Trust for up to three years from the date the
fee was waived or expense was reimbursed, but no reimbursement payment will be
made by the Fund if it results in the Fund exceeding an expense ratio equal to
the Expense Cap in place at the time the expenses were reimbursed or fees were
waived by First Trust. 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 six months ended
March 31, 2013 and the expenses borne by the Advisor subject to recovery from
each applicable Fund for the periods indicated were as follows:
Expenses Borne by Advisor Subject to Recovery
----------------------------------------------------------------------
Advisory Expense
Fee Reim- Period Ended Period Ended Period Ended Period Ended
Waivers bursements 9/30/2010 9/30/2011 9/30/2012 3/31/2013 Total
-------- ---------- ------------- ------------- ------------- ------------- ----------
First Trust STOXX(R) European
Select Dividend Index Fund $ 43,240 $ 14,244 $ 70,143 $ 136,052 $ 113,312 $ 57,484 $ 376,991
First Trust FTSE EPRA/NAREIT
Developed Markets Real
Estate Index Fund 59,792 -- 91,479 176,670 109,938 59,792 437,879
First Trust Dow Jones Global Select
Dividend Index Fund 6,510 -- 61,137 115,247 54,497 6,510 237,391
First Trust ISE Global Wind Energy
Index Fund 35,788 -- 66,835 90,788 17,370 35,788 210,781
First Trust ISE Global Engineering
and Construction Index Fund 26,050 -- 38,254 48,342 4,508 26,050 117,154
First Trust NASDAQ(R) Clean Edge(R)
Smart Grid Infrastructure
Index Fund 25,994 3,037 38,841 42,493 12,659 29,031 123,024
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the service agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Trust. As custodian, BNYM is responsible for custody of the Trust's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of the Trust's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Trust. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer of $125,000 per year and an annual per fund fee of $4,000 for each
closed-end fund or other actively managed fund and $1,000 for each index fund in
the First Trust Fund Complex. The fixed annual retainer is allocated pro rata
among each fund in the First Trust Fund Complex based on net assets.
Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Trustees are reimbursed 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 until December 31, 2013, before rotating to
serve as Chairman of another Committee or as Lead Independent Trustee. After
December 31, 2013, the Lead Independent Trustee and Committee Chairmen will
rotate every three years. The officers and "Interested" Trustee receive no
compensation from the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the six months ended March 31, 2013, 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:
Page 86
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
Purchases Sales
--------------------- ---------------------
First Trust STOXX(R) European Select Dividend Index Fund $ 7,900,090 $ 7,838,848
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 7,359,548 8,926,647
First Trust Dow Jones Global Select Dividend Index Fund 52,335,958 49,647,551
First Trust ISE Global Wind Energy Index Fund 1,476,565 1,660,074
First Trust ISE Global Engineering and Construction Index Fund 2,133,434 2,153,478
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 3,094,512 3,117,220
First Trust ISE Global Copper Index Fund 6,506,022 6,544,104
First Trust ISE Global Platinum Index Fund 2,843,454 2,449,165
First Trust BICK Index Fund 11,364,007 16,888,034
First Trust NASDAQ CEA Smartphone Index Fund 1,412,315 1,800,648
First Trust NASDAQ Global Auto Index Fund 1,705,607 809,028
First Trust ISE Cloud Computing Index Fund 12,956,319 12,926,035
For the six months ended March 31, 2013, the cost of in-kind purchases and
proceeds from in-kind sales for each Fund were as follows:
Purchases Sales
--------------------- ---------------------
First Trust STOXX(R) European Select Dividend Index Fund $ 19,302,167 $ --
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 13,761,183 --
First Trust Dow Jones Global Select Dividend Index Fund 103,793,275 19,104,620
First Trust ISE Global Wind Energy Index Fund -- 1,998,559
First Trust ISE Global Engineering and Construction Index Fund -- 2,150,750
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund -- 1,572,722
First Trust ISE Global Copper Index Fund -- 2,566,279
First Trust ISE Global Platinum Index Fund 3,236,447 --
First Trust BICK Index Fund -- 9,875,668
First Trust NASDAQ CEA Smartphone Index Fund -- 1,907,040
First Trust NASDAQ Global Auto Index Fund 5,060,287 --
First Trust ISE Cloud Computing Index Fund 16,445,540 2,940,044
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) a designated portfolio of equity securities determined
by First Trust (the "Deposit Securities") and generally make or receive a cash
payment referred to as the "Cash Component," which is an amount equal to the
difference between the NAV of the Fund Shares (per Creation Unit Aggregation)
and the market value of the Deposited Securities, and/or (ii) cash in lieu of
all or a portion of the Deposited Securities. If the Cash Component is a
positive number (i.e., the NAV per Creation Unit Aggregation exceeds the Deposit
Amount), the creator will deliver the Cash Component. If the Cash Component is a
negative number (i.e., the NAV per Creation Unit Aggregation is less than the
Deposit Amount), the creator will receive the Cash Component. 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
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. An Authorized
Participant may request a cash redemption in lieu of securities; however, each
Fund may, in its discretion, reject any such request.
Page 87
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
The standard Creation Transaction Fees and the Redemption Transaction Fees are
as follows:
Creation Redemption
Transaction Transaction
Fees Fees
--------------- ---------------
First Trust 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 500 500
First Trust ISE Global Copper Index Fund 500 500
First Trust ISE Global Platinum Index Fund 500 500
First Trust BICK Index Fund 2,500 2,500
First Trust NASDAQ CEA Smartphone Index Fund 1,000 1,000
First Trust NASDAQ Global Auto Index Fund 1,000 1,000
First Trust ISE Cloud Computing 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, no 12b-1 fees will be paid any time before January 31, 2015.
7. INDEMNIFICATION
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined there
were no subsequent events requiring recognition or disclosure in the financial
statements that have not already been disclosed.
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FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the 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.
BOARD CONSIDERATIONS REGARDING CONTINUATION OF INVESTMENT MANAGEMENT AGREEMENT
(NON-UNITARY FEE FUNDS)
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 six series of the Trust (each a
"Fund" and collectively, the "Funds"):
First Trust Stoxx(R) European Select Dividend Index Fund (FDD)
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (FFR)
First Trust Dow Jones Global Select Dividend Index Fund (FGD)
First Trust ISE Global Engineering and Construction Index Fund (FLM)
First Trust ISE Global Wind Energy Index Fund (FAN)
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index
Fund (GRID)
The Board approved the continuation of the Agreement for a one-year period
ending March 31, 2014, for each Fund at a meeting held on March 10-11, 2013. The
Board of Trustees determined for each Fund that the continuation of the
Agreement is in the best interests of the Fund in light of the extent and
quality of services provided 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 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 to a peer group of funds (all of which were exchange-traded funds
or "ETFs") compiled by Lipper Inc. ("Lipper"), an independent source (the
"Lipper Expense Group"), and as compared to fees charged to other clients of the
Advisor with similar investment objectives and to other ETFs managed by the
Advisor; expenses of each Fund compared to expense ratios of the funds in the
Fund's Lipper Expense Group; 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; fall-out benefits to the Advisor and its
affiliate, First Trust Portfolios L.P.; and a summary of the Advisor's
compliance program. Following receipt of this information, counsel to the
Independent Trustees posed follow-up questions to the Advisor, and the
Independent Trustees and their counsel then met separately to discuss the
information provided by the Advisor, including the supplemental responses. The
Board applied its business judgment to determine whether the arrangement between
the Trust and the Advisor is a reasonable business arrangement from each Fund's
perspective as well as from the perspective of shareholders. The Board
considered that shareholders chose to invest or remain invested in a Fund
knowing that the Advisor manages the Fund and knowing the Fund's investment
advisory fee.
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 and reviewed all the services provided
by the Advisor to the Funds. The Board also considered the background and
experience of the persons responsible for the day-to-day management of the
Funds. The Board considered the compliance program that had been developed by
the Advisor and the procedures in place to monitor each Fund's investment
program. In light of the information presented and the considerations made, the
Board concluded that the nature, extent and quality of services provided to the
Trust and each Fund by the Advisor under the Agreement have been and are
expected to remain satisfactory and that the Advisor has managed each Fund
consistent with its investment objective and policies.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
The Board considered the advisory fees payable by each Fund under the Agreement.
The Board considered that the Advisor agreed to extend the current expense cap
for each Fund through January 31, 2015. For each Fund, the Board noted that
expenses borne or fees waived by the Advisor are to be subject to reimbursement
by the Fund for up to three years from the date the fee was waived or expense
was incurred, but no reimbursement payment would be made by the Fund if it would
result in the Fund exceeding an expense ratio equal to the expense cap in place
at the time the expenses were borne or fees waived by the Advisor. The Board
considered the advisory fees charged by the Advisor to other First Trust ETFs
not paying a unitary fee and other advisory clients with investment objectives
and policies similar to the Funds', noting that those fees generally were
similar to the advisory fees charged to the Funds. The Board also reviewed data
prepared by Lipper showing the advisory fees and expense ratios of each Fund as
compared to each Fund's Lipper Expense Group. Because each Fund's Lipper Expense
Group included peer funds that pay a unitary fee, the Board determined that
expense ratios were the more relevant data point. Based on the information
provided, the Board noted that the total (net) expense ratios of FAN and GRID
were below the median total expense ratio of the peer funds in each Fund's
respective Lipper Expense Group and that the total (net) expense ratios of FGD,
FLM, FFR and FDD were above the median total expense ratio of the peer funds in
each Fund's respective Lipper Expense Group. The Independent Trustees discussed
with representatives of the Advisor the Advisor's philosophy regarding expense
ratios of ETFs it manages, and the limitations in creating a relevant peer group
for each Fund, including that (i) some of the Funds are unique in their
composition, which makes assembling peers with similar strategies and asset mix
difficult and (ii) differences in the net assets of the peer funds as compared
to the Funds caused the Funds' fixed expenses to differ on a percentage basis as
compared to the peer funds and in some instances caused otherwise relevant peer
funds to be omitted from a Fund's peer group. The Board took these limitations
into account in considering the Lipper data.
The Board 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 information regarding the performance of each Fund's underlying
index, the correlation between each Fund's performance and that of its
underlying index, the Fund's tracking error and the Fund's excess return as
compared to a benchmark index. The Board considered the Advisor's
representations regarding the impact of foreign security fair valuations and
currency exchange rates on the correlation between FDD's, FFR's, FGD's, FLM's
and FAN's performance and that of each of their underlying indices. Based on the
information provided and its ongoing review of performance, the Board concluded
that each Fund was correlated to its underlying index and that the tracking
error for each Fund was consistent with the target set forth in the Fund's
prospectus. In addition, the Board reviewed data prepared by Lipper comparing
each Fund's performance to a peer group selected by Lipper (the "Lipper
Performance Group") and to a broad-based benchmark. In reviewing each Fund's
performance as compared to the performance of the Fund's Lipper Performance
Group, the Board took into account the limitations described above with respect
to creating relevant peer groups for the Funds.
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, extent and quality
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 considered the Advisor's statement
that no material economies of scale exist at current Fund 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, 2012, as set forth in the materials provided to the
Board. Based on the information provided, the Board concluded that the pre-tax
profits (if any) estimated to have been realized by the Advisor in connection
with the management of each Fund for calendar year 2012 were not unreasonable.
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, unanimously 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 the Trust and each Fund. No single
factor was determinative in the Board's analysis.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
BOARD CONSIDERATIONS REGARDING CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT (UNITARY FEE FUNDS)
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 six series of the Trust (each a
"Fund" and collectively, the "Funds"):
First Trust NASDAQ CEA Smartphone Index Fund (FONE)
First Trust BICK Index Fund (BICK)
First Trust ISE Global Copper Index Fund (CU)
First Trust ISE Global Platinum Index Fund (PLTM)
First Trust NASDAQ Global Auto Index Fund (CARZ)
First Trust ISE Cloud Computing Index Fund (SKYY)
The Board approved the continuation of the Agreement for a one-year period
ending March 31, 2014, for each Fund at a meeting held on March 10-11, 2013. The
Board of Trustees determined for each Fund that the continuation of the
Agreement is in the best interests of the Fund in light of the extent and
quality of services provided 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 provided by the
Advisor to each Fund (including the relevant personnel responsible for these
services and their experience); the unitary fee for each Fund as compared to
fees charged to a peer group of funds (all of which were exchange-traded funds
or "ETFs") compiled by Lipper Inc. ("Lipper"), an independent source (the
"Lipper Expense Group"), and as compared to fees charged to other clients of the
Advisor with similar investment objectives and to other ETFs managed by the
Advisor; expenses of each Fund compared to expense ratios of the funds in the
Fund's Lipper Expense Group; 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; fall-out benefits to the Advisor and its
affiliate, First Trust Portfolios L.P.; and a summary of the Advisor's
compliance program. Following receipt of this information, counsel to the
Independent Trustees posed follow-up questions to the Advisor, and the
Independent Trustees and their counsel then met separately to discuss the
information provided by the Advisor, including the supplemental responses. The
Board applied its business judgment to determine whether the arrangement between
the Trust and the Advisor is a reasonable business arrangement from each Fund's
perspective as well as from the perspective of shareholders. The Board
considered that shareholders chose to invest or remain invested in a Fund
knowing that the Advisor manages the Fund and knowing the Fund's unitary fee.
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 and reviewed all the services provided
by the Advisor to the Funds. The Board also considered the background and
experience of the persons responsible for the day-to-day management of the
Funds. The Board considered the compliance program that had been developed by
the Advisor and the procedures in place to monitor each Fund's investment
program. In light of the information presented and the considerations made, the
Board concluded that the nature, extent and quality 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 unitary fee payable by each Fund under the Agreement,
noting that four of the Funds pay the Advisor a fee equal to an annual rate of
0.70% of their average daily net assets (with a fee of 0.64% for BICK and 0.60%
for SKYY) and that the Advisor is 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 compared each Fund's unitary fee
to the total expense ratios (after fee waivers and/or expense reimbursements, if
any) of other First Trust ETFs, including First Trust ETFs that pay a unitary
fee, and to the advisory fees charged by the Advisor to other advisory clients
with investment objectives and policies similar to the Funds'. The Board also
reviewed data prepared by Lipper showing the unitary fee for each Fund as
compared to each Fund's Lipper Expense Group. Because not all of the peer funds
in the Funds' Lipper Expense Groups pay a unitary fee, the Board determined that
expense ratios were the most relevant data point. Based on the information
provided, the Board noted that the unitary fees for BICK and SKYY were at or
below the median total expense ratio of the peer funds in each Fund's respective
Lipper Expense Group and that the unitary fees for FONE, CU, PLTM and CARZ were
above the median total expense ratio of the peer funds in each Fund's respective
Lipper Expense Group. The Independent Trustees discussed with representatives of
the Advisor the Advisor's philosophy regarding expense ratios/unitary fees of
ETFs it manages, and the limitations
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
in creating a relevant peer group for each Fund, including that (i) some of the
Funds are unique in their composition, which makes assembling peers with similar
strategies and asset mix difficult and (ii) differences in the net assets of the
peer funds as compared to the Funds caused the Funds' fixed expenses to differ
on a percentage basis as compared to the peer funds and in some instances caused
otherwise relevant peer funds to be omitted from a Fund's peer group. The Board
took these limitations into account in considering the Lipper data.
The Board 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 information regarding the performance of each Fund's underlying
index, the correlation between each Fund's performance and that of its
underlying index, the Fund's tracking error and the Fund's excess return as
compared to a benchmark index. The Board considered the Advisor's
representations regarding the impact of foreign security fair valuations and
currency exchange rates on the correlation between BICK's, PLTM's and CARZ's
performance and that of each of their underlying indices. Based on the
information provided and its ongoing review of performance, the Board concluded
that each Fund was correlated to its underlying index and that the tracking
error for each Fund was consistent with the target set forth in the Fund's
prospectus. In addition, the Board reviewed data prepared by Lipper comparing
each Fund's performance to a peer group selected by Lipper (the "Lipper
Performance Group") and to a broad-based benchmark. In reviewing each Fund's
performance as compared to the performance of the Fund's Lipper Performance
Group, the Board took into account the limitations described above with respect
to creating relevant peer groups for the Funds.
On the basis of all the information provided on the unitary fee and performance
of each Fund, the Board concluded that the unitary fee for each Fund was
reasonable and appropriate in light of the nature, extent and quality 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 considered the Advisor's statement
that no material economies of scale exist at current Fund asset levels. The
Board noted that any reduction in fixed costs associated with the management of
the Funds would benefit the Advisor, but that the unitary fee structure provides
certainty in expenses for the Funds. 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, 2012, as set forth
in the materials provided to the Board. Based on the information provided, the
Board concluded that the pre-tax profits (if any) estimated to have been
realized by the Advisor in connection with the management of each Fund for
calendar year 2012 were not unreasonable. 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, unanimously 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 the 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, 2013 (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 an exchange 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. 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.
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 impact on the operation of the affected Fund.
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 affecting one or more of
these and to the issuers, experience increased volatility and be highly
concentrated in certain issues.
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FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
Each Fund invests in securities of non-U.S. issuers. Investing in securities of
non-U.S. issuers, including non-U.S. dollar-denominated securities traded
outside of the United States and U.S. dollar-denominated securities of non-U.S.
issuers traded in the United States. Such securities are subject to higher
volatility than securities of domestic issuers due to possible adverse
political, social or economic developments; restrictions on foreign investment
or exchange of securities; lack of liquidity; excessive taxation; government
seizure of assets; different legal or accounting standards; and less government
supervision and regulation of exchanges in foreign countries. These risks may be
heightened for securities of companies located in, or with significant
operations in, emerging market countries.
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.
Certain Funds may hold securities of certain non-U.S. companies in the form of
depositary receipts. Depositary receipts may be less liquid than the underlying
shares in their primary trading market. Any distributions paid to the holders of
depositary receipts are usually subject to a fee charged by the depositary.
Holders of depositary receipts may have limited voting rights, and investment
restrictions in certain countries may adversely impact the value of depositary
receipts because such restrictions may limit the ability to convert equity
shares into depositary receipts and vice versa. Such restrictions may cause
equity shares of the underlying issuer to trade at a discount or premium to the
market price of the depositary receipts.
Certain Funds may invest 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 may invest 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.
Certain Funds may lend securities representing up to 20% of the value of their
total assets to broker-dealers, banks, and other institutions to generate
additional income. Under these Funds' securities lending agreement, the
securities lending agent will generally bear the risk that a borrower may
default on its obligation to return loaned securities. The Funds, however, will
be responsible for the risks associated with the investment of cash collateral.
A Fund may lose money on its investment of cash collateral or may fail to earn
sufficient income on its investment to meet its obligations to the borrower.
When a dividend is paid on a security that is out on loan, the borrower receives
the dividend and in turn makes a payment of the same amount to the fund.
Dividends, if they constitute "qualified dividends," are taxable at the same
rate as long-term capital gains. These payments made by borrowers, however, are
not qualified dividends, and are taxable at higher ordinary income rates. As a
result, some of the distributions received by shareholders who hold Fund shares
in taxable accounts may be subject to taxation at a higher rate than if the Fund
had not loaned its portfolio securities.
The First Trust STOXX(R) European Select Dividend Index Fund invests in
securities issued by companies operating in Europe. Investments in a single
region, even though representing a number of different countries within the
region, may be affected by common economic forces and other factors. The Fund is
subject to greater risks of adverse events which occur in the European region
and may experience greater volatility than a fund that is more broadly
diversified geographically. Political or economic disruptions in European
countries, even in countries in which the Fund is not invested, may adversely
affect security values and thus the Fund's holdings. A significant number of
countries in Europe are member states in the European Union, 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.
Because the First Trust STOXX(R) European Select Dividend Index Fund invests a
significant portion of its assets in 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.
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FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
The First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund
invests in securities issued by companies operating 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. Furthermore, the natural disasters
that have impacted Japan and the ongoing recovery efforts have had a negative
effect on Japan's economy, and may continue to do so.
The First Trust BICK Index Fund, the First Trust STOXX(R) European Select
Dividend Index Fund and the First Trust FTSE EPRA/NAREIT Developed Markets Real
Estate 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; government regulation;
decreases in the availability of capital; volatile interest rates; portfolio
concentrations in geographic markets and in commercial and residential real
estate loans; and competition from new entrants in their fields of business.
The First Trust ISE Global Engineering and Construction Index Fund, First Trust
NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund, First Trust ISE
Global Wind Energy Index Fund and First Trust STOXX(R) European Select Dividend
Index Fund invest 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 Dow Jones Global Select Dividend Index Fund invests in companies
in the telecommunication sector. Telecommunication companies are subject to
risks, such as: a market characterized by increasing competition and regulation
by the Federal Communications Commission and various state regulatory
authorities; the need to commit substantial capital to meet increasing
competition, particularly in formulating new products and services using new
technology; and technological innovations that may make various products and
services obsolete.
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. The Fund may also be impacted 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. 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 self liquidation 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 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. In addition, the Fund may
include companies affected by industry consolidation, domestic and international
politics, excess capacity and consumer demand and spending trends. They may also
be significantly affected by overall capital spending levels, economic cycles,
delays in modernization, labor relations, government regulations and e-commerce
initiatives.
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FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
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.
Whether or not the equity securities in the First Trust ISE Global Wind Energy
Index Fund are listed on a securities exchange, the principal trading market for
certain of the equity securities in the Fund may be in the over-the-counter
market. As a result, the existence of a liquid trading market for the equity
securities may depend on whether dealers will make a market in the equity
securities. There can be no assurance that a market will be made for any of the
equity securities, that any market for the equity securities will be maintained
or that there will be sufficient liquidity of the equity securities in any
markets made. The price at which the equity securities are held in the Fund will
be adversely affected if trading markets for the equity securities are limited
or absent.
The First Trust ISE Global Engineering and Construction Index Fund invests in
the securities of engineering and construction companies. 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 Engineering and Construction Index Fund and First
Trust NASDAQ Global Auto Index Fund invest in the stock of companies operating
in Japan. Because Japan's economy and equity market share a strong correlation
with the U.S. markets, the Japanese economy may be affected by economic problems
in the U.S. Japan also has a growing economic relationship with China and other
Southeast Asian countries, and thus Japan's economy may also be affected by
economic, political or social instability in those countries. Despite a
strengthening in the economic relationship between Japan and China, the
countries' political relationship has at times been strained in recent years.
Should political tension increase, it could adversely affect the economy and
destabilize the region as a whole. Japan also remains heavily dependent on oil
imports, and higher commodity prices could therefore have a negative impact on
the economy. Japanese securities may also be subject to lack of liquidity;
excessive taxation; government seizure of assets; different legal or accounting
standards and less government supervision and regulation of exchanges than in
the United States. Furthermore, the natural disasters that have impacted Japan
and the ongoing recovery efforts have had a negative effect on Japan's economy,
and may continue to do so.
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,
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 materials
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.
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FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
The First Trust ISE Global Copper Index Fund may be significantly impacted by
the risks associated with the copper mining companies including 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 platinum group metals ("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
the risks associated with the PGM companies including 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.
Because a significant percentage of the world's PGM mining takes place in
Russia, the First Trust ISE Global Platinum Index Fund is particularly sensitive
to political and economic 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 Russia.
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.
The First Trust BICK Index Fund invests in common stock and depositary receipts
of companies that are domiciled in Brazil. If a holder of depositary receipts
exchanges its interest in the depositary receipts for the underlying shares, it
may risk losing the ability to remit foreign currency abroad and certain
Brazilian tax advantages. Brazil has experienced substantial economic
instability resulting from, among other things, periods of very high inflation,
persistent structural public sector deficits and significant devaluations of its
currency leading also to a high degree of price volatility in both the Brazilian
equity and foreign currency markets. Brazilian companies may also be adversely
affected by high interest and unemployment rates, and are particularly sensitive
to fluctuations in commodity prices.
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FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
The First Trust BICK Index Fund invests in depositary receipts of companies that
are domiciled in India. Investment restrictions in India may limit the ability
to convert equity shares into depositary receipts and vice versa. These
restrictions may cause equity shares of the underlying issuer to trade at a
premium or discount to the market price of the depositary receipt. Investing in
securities of Indian companies involves additional risks, including, but not
limited to: greater price volatility; substantially less liquidity and
significantly smaller market capitalization of securities markets; more
substantial governmental involvement in the economy; higher rates of inflation;
and greater political, economic and social uncertainty. Government controls have
been reduced on imports and foreign investment, and privatization of domestic
output has proceeded slowly. The rapid economic growth of the last few years has
put heavy stress on India's infrastructural facilities. Furthermore, although
the Indian government is well aware of the need for reform and is pushing ahead
in this area, businesses still have to deal with an inefficient and sometimes
slow-moving bureaucracy.
The First Trust BICK Index Fund invests in H shares, depositary receipts and
U.S.-listed common stock of companies that are domiciled in China, including
Hong Kong. Some Chinese companies are listed on both the Hong Kong Stock
Exchange with H shares and the Shanghai Stock Exchange with A shares. Price
differentials between H shares and A shares of the same company may be
significant. Also, price fluctuations of A shares are limited to either 5% or
10% per trading day, while no such limitations exist for H shares. Investing in
securities of companies in China involves additional risks, including, but not
limited to: the economy of China differs, often unfavorably, from the U.S.
economy in such respects as structure, general development, government
involvement, wealth distribution, rate of inflation, growth rate, allocation of
resources and capital reinvestment, among others; the central government has
historically exercised substantial control over virtually every sector of the
Chinese economy through administrative regulation and/or state ownership; and
actions of the Chinese central and local government authorities continue to have
a substantial effect on economic conditions in China. Furthermore, China's
economy is dependent on the economies of other Asian countries and can be
significantly affected by currency fluctuations and increasing competition from
Asia's other low-cost emerging economies.
The First Trust BICK Index Fund invests in common stock of companies that are
domiciled in South Korea. The South Korean economy is dependent on the economies
of Asia and the United States as key trading partners. Reduction in spending by
these economies on South Korean products and services or negative changes in any
of these economies, mainly in China or Southeast Asia, may cause an adverse
impact on the South Korean economy. Furthermore, South Korea's economy is also
dependent on the economies of other Asian countries and can be significantly
affected by currency fluctuations and increasing competition from Asia's other
low cost emerging economies. Also, the political tensions with North Korea could
escalate and lead to further uncertainty in the political and economic climate
on the Korean peninsula.
The First Trust NASDAQ CEA Smartphone Index Fund invests in securities of
companies in the smartphone industry. The smartphone industry is characterized
by intense competition and new market entrants, which could negatively impact
profit margins and overall revenues of the companies involved in the industry.
Smartphone companies are generally subject to the risks of rapidly changing
technologies, short product life cycles, fierce competition, aggressive pricing
and reduced profit margins, the loss of patent, copyright and trademark
protections, cyclical market patterns, evolving industry standards, and frequent
new product introductions. Smartphone companies are affected by high and
continuing costs of research and development due to quickly evolving
technologies. Smartphone companies are often reliant upon the relationships with
third-parties, which can be unpredictable. Additionally, the smartphone industry
is in the early stages of development and can be extremely volatile.
The First Trust NASDAQ Global Auto Index Fund invests in consumer discretionary
companies, which manufacture products and provide discretionary services
directly to the consumer, and the success of these companies is tied closely to
the performance of the overall domestic and international economy, interest
rates, competition and consumer confidence. Success depends heavily on
disposable household income and consumer spending. Changes in demographics and
consumer tastes can also affect the demand for, and success of, consumer
discretionary products in the marketplace. Furthermore, the automotive industry
can be highly cyclical, and companies in the industry may suffer periodic
operating losses. The industry can be significantly affected by labor relations
and fluctuating component prices. While most of the major automotive
manufacturers are large, financially strong companies, certain others may be
nondiversified in both product line and customer base and may be more vulnerable
to certain events that may negatively impact the automotive industry.
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RISK CONSIDERATIONS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
MARCH 31, 2013 (UNAUDITED)
The First Trust ISE Cloud Computing Index Fund invests in securities of
companies engaged in the cloud computing industry, including companies that
provide remote computation, software, data access and storage services. The
risks related to investing in such companies include disruption in service
caused by hardware or software failure, interruptions or delays in service by
third-party data center hosting facilities and maintenance providers, security
breaches involving certain private, sensitive, proprietary and confidential
information managed and transmitted by cloud computing companies, and privacy
concerns and laws, evolving Internet regulation and other foreign or domestic
regulations that may limit or otherwise affect the operations of such companies.
Also, the business models employed by the companies in the cloud computing
industry may not prove to be successful.
The First Trust ISE Cloud Computing Index Fund and First Trust NASDAQ CEA
Smartphone Index Fund invest in the securities of technology companies.
Technology companies are generally subject to the risks of rapidly changing
technologies, short product life cycles, fierce competition, aggressive pricing
and reduced profit margins, loss of patent, copyright and trademark protections,
cyclical market patterns, evolving industry standards and frequent new product
introductions. Technology companies may be smaller and less experienced
companies, with limited product lines, markets or financial resources and fewer
experienced management or marketing personnel. Technology company stocks,
particularly those involved with the Internet, have experienced extreme price
and volume fluctuations that often have been unrelated to their operating
performance. Furthermore, the First Trust ISE Cloud Computing Index Fund invests
in the securities of Internet companies. Internet companies are subject to rapid
changes in technology, worldwide competition, rapid obsolescence of products and
services, loss of patent protections, cyclical market patterns, evolving
industry standards, frequent new product introductions and the considerable risk
of owning small capitalization companies that have recently begun operations.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
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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
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
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 (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date May 21, 2013
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date May 21, 2013
---------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date May 21, 2013
---------------------
* Print the name and title of each signing officer under his or her signature.