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)
Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
registrant's telephone number, including area code: (630) 765-8000
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Date of fiscal year end: September 30
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Date of reporting period: September 30, 2014
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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 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 (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 Wind Energy Index Fund (FAN)
First Trust ISE Global Engineering and Construction
Index Fund (FLM)
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure
Index Fund (GRID)
First Trust ISE Global Copper Index Fund (CU)
First Trust ISE Global Platinum Index Fund (PLTM)
First Trust BICK Index Fund (BICK)
First Trust NASDAQ CEA Smartphone Index Fund (FONE)
First Trust NASDAQ Global Auto Index Fund (CARZ)
First Trust ISE Cloud Computing Index Fund (SKYY)
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Annual Report
September 30, 2014
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TABLE OF CONTENTS
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014
Shareholder Letter ....................................................................... 2
Market Overview .......................................................................... 3
Fund Performance Overview
First Trust STOXX(R) European Select Dividend Index Fund (FDD) ..................... 4
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (FFR) ........ 6
First Trust Dow Jones Global Select Dividend Index Fund (FGD) ...................... 8
First Trust ISE Global Wind Energy Index Fund (FAN) ................................ 10
First Trust ISE Global Engineering and Construction Index Fund (FLM) ............... 12
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund (GRID) .... 14
First Trust ISE Global Copper Index Fund (CU) ...................................... 16
First Trust ISE Global Platinum Index Fund (PLTM) .................................. 18
First Trust BICK Index Fund (BICK) ................................................. 20
First Trust NASDAQ CEA Smartphone Index Fund (FONE) ................................ 22
First Trust NASDAQ Global Auto Index Fund (CARZ) ................................... 24
First Trust ISE Cloud Computing Index Fund (SKYY) .................................. 26
Notes to Fund Performance Overview ....................................................... 28
Understanding Your Fund Expenses ......................................................... 29
Portfolio of Investments
First Trust STOXX(R) European Select Dividend Index Fund (FDD) ..................... 31
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund (FFR) ........ 33
First Trust Dow Jones Global Select Dividend Index Fund (FGD) ...................... 38
First Trust ISE Global Wind Energy Index Fund (FAN) ................................ 41
First Trust ISE Global Engineering and Construction Index Fund (FLM) ............... 43
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund (GRID) .... 45
First Trust ISE Global Copper Index Fund (CU) ...................................... 47
First Trust ISE Global Platinum Index Fund (PLTM) .................................. 48
First Trust BICK Index Fund (BICK) ................................................. 49
First Trust NASDAQ CEA Smartphone Index Fund (FONE)................................. 51
First Trust NASDAQ Global Auto Index Fund (CARZ) ................................... 53
First Trust ISE Cloud Computing Index Fund (SKYY) .................................. 55
Statements of Assets and Liabilities ..................................................... 56
Statements of Operations ................................................................. 60
Statements of Changes in Net Assets ...................................................... 64
Financial Highlights ..................................................................... 70
Notes to Financial Statements ............................................................ 76
Report of Independent Registered Public Accounting Firm .................................. 87
Additional Information ................................................................... 88
Board of Trustees and Officers ........................................................... 96
Privacy Policy ........................................................................... 98
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" in the Additional Information section of this report for a
discussion of other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
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 market overview by Robert F. Carey, Chief Market Strategist of
the Advisor, you may obtain an understanding of how the market environment
affected the performance of each Fund. The statistical information that follows
may help you understand each Fund's performance compared to that of relevant
market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The risks of investing in each Fund are
spelled out in its prospectus, statement of additional information, this report
and other Fund regulatory filings.
Page 1
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SHAREHOLDER LETTER
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FIRST TRUST EXCHANGE-TRADED FUND II
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
SEPTEMBER 30, 2014
Dear Shareholders:
I am pleased to present you with the annual report for your investment in First
Trust Exchange-Traded Fund II. This report provides detailed information about
the Funds that comprise the First Trust Exchange-Traded Fund II, including each
Fund's performance review and financial statements for the past 12 months. I
encourage you to read this document and discuss it with your financial advisor.
The U.S. has shown sustained growth over the 12 months covered by this report.
In fact, the S&P 500(R) Index, as measured on a total return basis, rose 19.73%
during the period. While global markets have been more volatile due to several
geopolitical events, the MSCI World ex U.S. Index returned 4.86% (in U.S.
dollars) over the same period (Bloomberg). First Trust Advisors L.P. ("First
Trust") believes that staying invested in quality products through up and down
markets can benefit investors over the long term.
First Trust offers a variety of products that we believe could fit the financial
plans for many investors seeking long-term investment success. We invite you to
look at our investment products with your financial advisor to determine if any
of them might fit your financial goals. We believe that regularly discussing
your financial objectives and investment options with your financial advisor can
help keep you on track.
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.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 2
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MARKET OVERVIEW
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FIRST TRUST EXCHANGE-TRADED FUND II
ANNUAL REPORT
SEPTEMBER 30, 2014
ROBERT F. CAREY, CFA
SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST
FIRST TRUST ADVISORS L.P.
Mr. Carey is responsible for the overall management of research and analysis of
the First Trust product line. Mr. Carey has over 20 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 real GDP global growth
rate of 3.3% for 2014 and 3.8% for 2015. These projections, while positive, are
below the 5.4% GDP global growth rate posted in 2010. The IMF is forecasting a
3.1% real GDP growth rate for the U.S. in 2015. The U.S. economy has grown at
2.1%, on average, in the current recovery (6/09-6/14), according to data from
the Bureau of Economic Analysis. If the 3.1% growth rate estimate were to play
out, it would represent close to a 50% increase in the rate of growth over the
2.1% average so far in the current recovery.
Geopolitical events over the past year have likely played a role in tempering
the pace of global growth, in our opinion. The Russia/Ukraine conflict has been
particularly sensitive in that Europe chose to side with Ukraine. As the
conflict escalated, Europe and Russia voted to impose economic sanctions on one
another, which potentially threatened the already weak recovery underway in
Europe. The outbreak of the Ebola virus in Western Africa created tension over
fears it could evolve into a global pandemic, which it fortunately has not done
to date. The pro-democracy protests in Hong Kong, which began at the end of
September 2014, are another situation to monitor. While serious, each of these
challenges can be remedied over time, in our opinion.
Global real estate continued its recovery from the 2008 financial crisis. The
FTSE EPRA/NAREIT Global Real Estate Index plunged 72.5% from peak-to-trough
during the crisis, according to Bloomberg. Since then, the index posted the
following total returns (USD): +41.25% (2009); +20.03% (2010); -8.14% (2011);
+29.85% (2012); +2.24% (2013); and +7.18% (YTD thru 9/30/14), according to
REIT.com. As of 9/30/14, the index stood just 6.88% below its 10-year high. As
we noted a year ago, we believe higher real estate valuations may help validate
the global economic recovery. Investors funneled a net $3.8 billion into Global
Real Estate funds and ETFs in the 12-month period ended 9/30/14, according to
Morningstar.
GLOBAL MARKETS
Investors poured a net $191.8 billion into International Equity funds (open-end
funds and ETFs) in the 12-month period ended 9/30/14, compared to net inflows of
$68.3 billion for U.S. Equity funds, according to Morningstar. Sentiment favored
passive funds over actively managed funds. Of the combined $260.1 billion
invested in equity funds and ETFs over the past year, $230.4 billion went into
passive funds, or 88.5% of the total.
The MSCI World ex U.S. Index and MSCI Emerging Markets Index were up 4.86% (USD)
and 4.30% (USD), respectively, for the 12-month period ended 9/30/14. The S&P
500(R) Index posted a total return of 19.73% for the 12-month period ended
9/30/14. The U.S. dollar was up 7.12% against a basket of major currencies over
the past year, as measured by the U.S. Dollar Index (DXY). The U.S. dollar
experienced a 7.73% move to the upside in Q3 2014, accounting for all of the
upside over the past 12 months.
Page 3
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
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FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND (FDD)
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 (plus the amount of any
borrowings for investment purposes) in 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), which covers 18
European countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland and the United Kingdom. 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. The STOXX Index is compiled and maintained by STOXX
Limited.
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PERFORMANCE
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AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (8/27/07) Ended (8/27/07)
9/30/14 9/30/14 to 9/30/14 9/30/14 to 9/30/14
FUND PERFORMANCE
NAV 8.68% 4.16% -6.20% 22.58% -36.47%
Market Price 8.07% 4.10% -6.21% 22.25% -36.54%
INDEX PERFORMANCE
STOXX(R) Europe Select Dividend 30 Index 9.02% 4.58% -5.69% 25.09% -34.02%
STOXX(R) Europe 600 Index 5.94% 7.20% 0.82% 41.57% 5.95%
MSCI Europe Index 5.82% 6.90% 0.58% 39.59% 4.16%
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(See Notes to Fund Performance Overview on page 28.)
PERFORMANCE REVIEW
The Fund generated a net asset value ("NAV") return of 8.68% during the 12-month
period covered by this report. During the same period, the benchmark MSCI Europe
Index generated a return of 5.82%. European stocks performed well during the
reporting period with the Fund and the benchmark having double-digit positive
returns in local currency. USD-denominated returns were tempered because the
dollar strengthened versus most European currencies. The Fund's holdings in the
Telecommunication Services sector had particularly strong performance with a
33.6% USD return during the reporting period. Belgacom S.A., Orange S.A., and
Swisscom AG were the Fund's three holdings from the sector and the companies had
USD returns of 41.2%, 29.0%, and 23.2%, respectively. The Telecommunication
Services sector contributed 3.6% to the Fund's total return while having an
average weight in the Fund of only 12.0%. The Financials sector contributed an
additional 2.5% to the Fund's return. The Fund's holdings in the sector had a
USD return of 8.4% and an average weight in the Fund of 45.6%. Seadrill Ltd. was
the largest detractor from the Fund's return. The company had a USD return of
-21.8% and contributed -1.4% to the Fund's total return.
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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 Limited. The Fund is in no way sponsored,
endorsed, sold or promoted by STOXX and/or its licensors and neither STOXX
Limited 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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FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND (FDD) (CONTINUED)
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PORTFOLIO SECTOR ALLOCATION AS OF SEPTEMBER 30, 2014
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% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Financials 41.02%
Utilities 15.10
Telecommunication Services 11.98
Energy 11.59
Industrials 6.74
Health Care 5.92
Consumer Staples 5.72
Consumer Discretionary 1.93
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Total 100.00%
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TOP TEN PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 2014
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% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Belgacom S.A. 6.08%
Seadrill Ltd. 5.65
Banco Santander S.A. 5.53
SSE PLC 4.56
Zurich Insurance Group AG 4.40
BAE Systems PLC 4.06
E. ON SE 4.05
Orange S.A. 4.02
Catlin Group Ltd. 4.00
Amlin PLC 3.64
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Total 45.99%
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PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - SEPTEMBER 30, 2014
First Trust STOXX(R) European STOXX(R) Europe Select STOXX(R) Europe MSCI Europe
Select Dividend Index Fund Dividend 30 Index 600 Index Index
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8/27/07 $10,000 $10,000 $10,000 $10,000
9/30/07 10,323 10,304 10,622 10,636
3/31/08 8,841 9,039 9,670 9,675
9/30/08 5,562 5,539 7,333 7,347
3/31/09 3,201 3,263 4,836 4,846
9/30/09 5,182 5,275 7,484 7,462
3/31/10 5,053 5,178 7,600 7,565
9/30/10 5,133 5,271 7,697 7,658
3/31/11 5,682 5,844 8,574 8,520
9/30/11 4,789 4,959 6,786 6,754
3/31/12 5,151 5,305 7,927 7,877
9/30/12 5,159 5,319 7,987 7,923
3/31/13 5,154 5,322 8,807 8,707
9/30/13 5,845 6,054 10,001 9,843
3/31/14 6,539 6,783 11,066 10,842
9/30/14 6,353 6,600 10,596 10,416
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2014
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, 2009 through
September 30, 2014. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares 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
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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%
10/1/09 - 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 - 9/30/13 103 130 5 0 12 0 0 0
10/1/13 - 9/30/14 150 81 3 0 16 1 0 1
Page 5
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
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FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR)
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 (plus the amount of any
borrowings for investment purposes) 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 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
1 Year 5 Years Inception 5 Years Inception
Ended Ended (8/27/07) Ended 8/27/07)
9/30/14 9/30/14 to 9/30/14 9/30/14 to 9/30/14
FUND PERFORMANCE
NAV 5.86% 10.35% 0.87% 63.62% 6.36%
Market Price 6.03% 10.19% 0.89% 62.45% 6.52%
INDEX PERFORMANCE
FTSE EPRA/NAREIT Developed Index 6.71% 11.26% 1.77% 70.48% 13.28%
S&P Global REIT Index 9.71% 12.11% 1.71% 77.10% 12.77%
MSCI World REIT Index 10.08% 11.75% 0.83% 74.26% 6.05%
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(See Notes to Fund Performance Overview on page 28.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 5.86% during the 12-month period covered by
this report. During the same period, the benchmark S&P Global REIT Index
generated a return of 9.71%. Most of the Fund's positive performance came from
its 48.3% average weight in U.S. REITs. The Fund's domestic holdings returned
13.2% during the year resulting in a contribution to the Fund's total return of
6.3%. Simon Property Group, Inc., the largest U.S. REIT in the Fund, had a
return of 21.7% and contributed 0.9% to the Fund's total return. The Fund's
exposure to Japanese REITs was the largest drag on performance. The Fund's
Japanese holdings had a tepid -1.8% local return, but the weak Yen relative to
the US dollar caused the USD return to plummet to -12.1%. In total, Japanese
REITs detracted -1.9% from the Fund's return. Japan was also the source of most
of the Fund's underperformance. Relative to the benchmark, the Fund was
overweight the weak-performing country, 13.4% versus 7.6%, and the Fund
underperformed within the country -12.1% versus -1.9%.
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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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FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR)
(CONTINUED)
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PORTFOLIO SECTOR ALLOCATION AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% 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 SEPTEMBER 30, 2014
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% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Simon Property Group, Inc. 4.44%
Mitsui Fudosan Co., Ltd. 2.54
Mitsubishi Estate Co., Ltd. 2.48
Unibail-Rodamco SE 2.18
Public Storage 2.09
Equity Residential 1.91
Sun Hung Kai Properties Ltd. 1.90
Health Care REIT, Inc. 1.67
Prologis, Inc. 1.63
AvalonBay Communities, Inc. 1.61
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Total 22.45%
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PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 27, 2007 - SEPTEMBER 30, 2014
First Trust FTSE EPRA/ NAREIT Developed FTSE EPRA/NAREIT S&P Global MSCI World
Markets Real Estate Index Fund Developed Index REIT Index REIT Index
-------------------------------------- ---------------- ---------- ----------
8/27/07 $10,000 $10,000 $10,000 $10,000
9/30/07 10,686 10,693 10,581 10,656
3/31/08 9,012 9,057 9,112 9,061
9/30/08 7,443 7,420 7,905 7,901
3/31/09 3,849 3,909 3,762 3,678
9/30/09 6,500 6,645 6,368 6,086
3/31/10 7,022 7,212 6,985 6,578
9/30/10 7,636 7,868 7,608 7,124
3/31/11 8,314 8,606 8,557 8,108
9/30/11 7,012 7,327 7,481 7,136
3/31/12 8,517 8,881 9,051 8,602
9/30/12 9,131 9,568 9,636 9,248
3/31/13 10,251 10,768 10,771 10,122
9/30/13 10,046 10,616 10,281 9,634
3/31/14 10,356 10,989 10,892 10,127
9/30/14 10,635 11,329 11,278 10,606
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2014
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, 2009 through
September 30, 2014. 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
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%
10/1/09 - 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 - 9/30/13 162 30 0 0 55 1 2 0
10/1/13 - 9/30/14 158 21 0 0 70 3 0 0
Page 7
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (FGD)
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.
--------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (11/21/07) Ended (11/21/07)
9/30/14 9/30/14 to 9/30/14 9/30/14 to 9/30/14
FUND PERFORMANCE
NAV 8.56% 9.66% 3.26% 58.56% 24.58%
Market Price 7.92% 9.55% 3.19% 57.77% 24.04%
INDEX PERFORMANCE
Dow Jones Global Select Dividend Index(SM) 8.66% 9.77% 3.42% 59.36% 25.94%
Dow Jones World Developed Markets Index(SM) 11.98% 11.32% 4.22% 70.95% 32.77%
MSCI World Index 12.20% 10.86% 3.65% 67.47% 27.88%
--------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 8.56% during the 12-month period covered by
this report. During the same period, the benchmark MSCI World Index generated a
return of 12.20%. The top contributing countries to the Fund's return were the
United States and the United Kingdom. These were also the countries with the
strongest currencies. The Fund's U.S. holdings comprised an average of 17.3% of
the Fund's weight and returned 19.7%, resulting in a contribution of 3.0% to the
Fund's return. The Fund's U.K. holdings had an average weight of 12.6% and
returned 11.4% in USD terms, resulting in a 1.4% contribution to return. An
important component of the U.K. holdings' return was that the pound stayed
relatively flat versus the dollar. Most other world currencies weakened relative
to the dollar which decreased USD returns across most of the Fund's global
holdings. Relative to the benchmark, almost all of the Fund's underperformance
was caused by being underweight the U.S. -17.3% versus 54.5% (average weight).
Not only did the U.S. have strong returns in general, but also the benchmark had
less exposure to global currencies. In total, currency exposure impacted the
Fund's return by -4.4% and the benchmark's return by -2.7%.
------------
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)
--------------------------------------------------------------------------------
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (FGD) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Telecommunication Services 19.26%
Utilities 18.57
Financials 15.64
Industrials 14.22
Energy 10.96
Consumer Discretionary 7.68
Health Care 4.05
Consumer Staples 3.98
Materials 3.54
Information Technology 2.10
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
ProSiebenSat.1 Media AG 2.45%
Belgacom S.A. 2.12
Spark New Zealand Ltd. 1.93
Orange S.A. 1.72
Lancashire Holdings Ltd. 1.66
GDF Suez 1.60
Ladbrokes PLC 1.52
PCCW Ltd. 1.51
CenturyLink, Inc. 1.51
EDP-Energias de Portugal S.A. 1.44
-------
Total 17.46%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
NOVEMBER 21, 2007 - SEPTEMBER 30, 2014
First Trust Dow Jones Global Dow Jones Global Select Dow Jones World Developed MSCI World
Select Dividend Index Fund Dividend Index(SM) Markets Index(SM) Index
---------------------------- ----------------------- ------------------------- ----------
11/21/07 $10,000 $10,000 $10,000 $10,000
3/31/08 9,345 9,397 9,379 9,378
9/30/08 7,028 6,951 7,816 7,815
3/31/09 4,375 4,397 5,416 5,385
9/30/09 7,857 7,903 7,765 7,636
3/31/10 8,160 8,231 8,381 8,204
9/30/10 8,669 8,742 8,372 8,152
3/31/11 9,654 9,748 9,611 9,308
9/30/11 8,533 8,669 8,023 7,798
3/31/12 9,652 9,719 9,642 9,360
9/30/12 10,033 10,121 9,761 9,482
3/31/13 10,553 10,640 10,854 10,470
9/30/13 11,477 11,491 11,854 11,398
3/31/14 12,619 12,761 12,996 12,465
9/30/14 12,459 12,594 13,274 12,788
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2014
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, 2009 through
September 30, 2014. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares 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%
10/1/09 - 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 - 9/30/13 195 23 0 0 32 0 0 0
10/1/13 - 9/30/14 219 16 0 0 17 0 0 0
Page 9
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND (FAN)
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(R), in consultation with Standard & Poor's, a Division of The
McGraw-Hill Companies, Inc., which calculates and maintains the ISE Index. The
ISE Index provides a benchmark for investors interested in tracking public
companies throughout the world that are active in the wind energy industry based
on analysis of the products and services offered by those companies.
--------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (6/16/08) Ended (6/16/08)
9/30/14 9/30/14 to 9/30/14 9/30/14 to 9/30/14
FUND PERFORMANCE
NAV 12.17% -5.33% -13.04% -23.95% -58.47%
Market Price 11.27% -5.36% -13.11% -24.09% -58.67%
INDEX PERFORMANCE
ISE Global Wind Energy(TM) Index 12.85% -4.54% -12.33% -20.72% -56.30%
Russell 3000(R) Index 17.76% 15.78% 8.50% 108.02% 67.08%
MSCI World Index 12.20% 10.86% 4.58% 67.47% 32.56%
--------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 12.17% during the 12-month period covered by
this report. During the same period, the benchmark MSCI World Index generated a
return of 12.20%. The wind energy sector saw increased profitability, partially
driven by cost-cutting measures by turbine producers during the reporting
period. Turbine producers Gamesa Corp and Vestas Wind Systems had strong local
returns of 35.4% and 65.6%, respectively. Some European countries had
particularly strong returns from wind energy companies due to geopolitical
concerns about the reliance on imports of natural gas from Russia. The Fund's
holdings from Portugal, Spain, and Italy had local returns of 42.5%, 42.0%, and
29.8%, respectively. Currency movements were a detractor from the Fund's return
as the dollar strengthened versus the euro. In total, currency movements
decreased the Fund's return by -5.0%.
------------
"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)
--------------------------------------------------------------------------------
FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND (FAN) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Utilities 54.44%
Industrials 40.12
Energy 4.02
Materials 0.75
Consumer Discretionary 0.67
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Iberdrola S.A. 8.35%
China Longyuan Power Group Corp.,
Class H 7.27
EDP Renovaveis S.A. 6.61
Vestas Wind Systems A/S 6.35
Gamesa Corp. Tecnologica S.A. 6.04
Nordex SE 5.71
China WindPower Group Ltd. 4.48
Greentech Energy Systems A/S 4.10
PNE Wind AG 4.02
Infigen Energy 3.15
-------
Total 56.08%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JUNE 16, 2008 - SEPTEMBER 30, 2014
First Trust ISE Global ISE Global Wind Russell 3000(R) MSCI World
Wind Energy Index Fund Energy(TM) Index Index Index
--------------------------- ---------------- --------------- ----------
6/16/08 $10,000 $10,000 $10,000 $10,000
9/30/08 6,370 6,314 8,583 8,101
3/31/09 3,502 3,515 5,912 5,582
9/30/09 5,461 5,512 8,032 7,916
3/31/10 4,574 4,646 9,011 8,505
9/30/10 3,544 3,626 8,912 8,451
3/31/11 4,061 4,162 10,579 9,649
9/30/11 2,819 2,917 8,961 8,083
3/31/12 2,736 2,827 11,340 9,702
9/30/12 2,364 2,458 11,667 9,828
3/31/13 2,713 2,821 12,991 10,852
9/30/13 3,703 3,872 14,187 11,814
3/31/14 4,313 4,528 15,929 12,920
9/30/14 4,154 4,370 16,706 13,255
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2014
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, 2009 through
September 30, 2014. 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%
10/1/09 - 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 - 9/30/13 39 23 2 0 126 57 3 0
10/1/13 - 9/30/14 123 31 0 0 83 15 0 0
Page 11
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND (FLM)
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 in at least 90% of its net assets (plus the amount of any
borrowings for investment purposes) 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(R), in consultation with Standard & Poor's, a Division of The McGraw-Hill
Companies, Inc., which calculates and maintains the Index. The Index provides a
benchmark for investors interested in tracking public companies throughout the
world that are active in the engineering and construction industries, based on
analysis of the products and services offered by those companies.
--------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (10/13/08) Ended (10/13/08)
9/30/14 9/30/14 to 9/30/14 9/30/14 to 9/30/14
FUND PERFORMANCE
NAV 2.06% 5.68% 9.99% 31.82% 76.42%
Market Price 1.80% 5.60% 9.93% 31.32% 75.93%
INDEX PERFORMANCE
ISE Global Engineering and
Construction(TM) Index 2.92% 6.73% 11.88% 38.52% 95.35%
Russell 3000(R) Index 17.76% 5.78% 14.77% 108.02% 127.47%
MSCI World Industrials Index 8.17% 12.17% 12.74% 77.59% 104.47%
--------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 2.06% during the 12-month period covered by
this report. During the same period, the benchmark MSCI World Industrials Index
generated a return of 8.17%. Despite the Japanese yen decreasing almost 11%
versus the dollar, Japan remained a bright spot in the Fund. In fact, Japan led
all countries in the Fund with a 2.8% contribution to the Fund's return. Much of
the contribution was due to the country's large average Fund weight of 24.0%,
but performance was still strong with the Fund receiving performance of 27.4% in
local terms and 13.9% in USD terms. Shimizu Corp. was a leading performer with a
local return of 82.5%. The benchmark's Japanese holdings only returned 17.1%
locally and 4.7% in USD terms. The Fund's domestic holdings caused the Fund to
lag its benchmark. Though the broad domestic Industrials sector had solid
returns during the reporting period, the selection of U.S. holdings in the Fund
returned -2.9% due to the performance of companies such as McDermott
International, Inc. (-23.0%) and KBR, Inc. (-41.6%). The U.S. holdings in the
benchmark returned 15.1%. Moreover, the benchmark was overweight domestic
holdings with a 50.4% average weight in the U.S. In total, U.S. companies caused
-5.4% of Fund underperformance relative to the benchmark.
------------
"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)
--------------------------------------------------------------------------------
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND (FLM) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Industrials 92.83%
Energy 7.17
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
AECOM Technology Corp. 3.47%
China Railway Group Ltd., Class H 3.07
Arcadis N.V. 3.03
WS Atkins PLC 2.99
Koninklijke Boskalis Westminster N.V. 2.95
China Communications Construction Co.,
Ltd., Class H 2.92
ACS Actividades de Construccion y
Servicios S.A. 2.88
AMEC PLC 2.77
Dycom Industries, Inc. 2.61
COMSYS Holdings Corp. 2.56
-------
Total 29.25%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
OCTOBER 13, 2008 - SEPTEMBER 30, 2014
First Trust ISE Global Engineering ISE Global Engineering and Russell 3000(R) MSCI World
and Construction Index Fund Construction(TM) Index Index Industrials Index
---------------------------------- -------------------------- --------------- -----------------
10/13/08 $10,000 $10,000 $10,000 $10,000
3/31/09 8,987 9,388 8,048 7,741
9/30/09 13,384 14,103 10,935 11,514
3/31/10 13,471 14,263 12,268 12,962
9/30/10 13,522 14,368 12,133 13,181
3/31/11 16,744 17,882 14,403 15,709
9/30/11 11,724 12,719 12,200 12,195
3/31/12 14,306 15,435 15,439 15,069
9/30/12 13,826 15,022 15,884 14,746
3/31/13 15,249 16,595 17,687 16,942
9/30/13 17,288 18,979 19,315 18,901
3/31/14 18,939 20,875 21,687 20,608
9/30/14 17,644 19,533 22,745 20,445
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2014
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, 2009 through
September 30, 2014. 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%
10/1/09 - 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 - 9/30/13 54 1 0 0 182 13 0 0
10/1/13 - 9/30/14 109 0 0 0 136 7 0 0
Page 13
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND (GRID)
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. 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. Clean Edge, Inc. provides a list of companies to be
included in the Index to The NASDAQ OMX Group, Inc. ("NASDAQ OMX"), which then
compiles the Index.
--------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (11/16/09) Inception (11/16/09)
9/30/14 to 9/30/14 to 9/30/14
FUND PERFORMANCE
NAV 6.19% 4.52% 24.00%
Market Price 6.39% 4.46% 23.66%
INDEX PERFORMANCE
NASDAQ OMX(R) Clean Edge(R) Smart Grid Infrastructure
Index(SM) 7.02% 5.42% 29.32%
Russell 3000(R) Index 17.76% 15.17% 98.97%
S&P 1500 Industrials Index 15.27% 16.57% 111.00%
MSCI World Industrials Index 8.17% 11.59% 70.58%
--------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 6.19% during the 12-month period covered by
this report. During the same period, the benchmark S&P 1500 Industrials Index
generated a return of 15.27%. It was a very mixed reporting period for the
companies in the Fund. Performances ranged from Enphase Energy, Inc. and NGK
Insulators Ltd.'s returns of 84.2% and 58.7%, respectively in USD terms, to the
returns of American Superconductor Corp. (-39.7% USD) and General Cable Corp.
(-51.2% USD). The Electrical Equipment industry was the primary drag on the
Fund's performance. The Fund's holdings in the industry returned -9.8% and
caused -8.7% of Fund underperformance relative to the benchmark. The leading
causes were the previously mentioned General Cable Corp. which contributed -2.8%
to the Fund's return and Prysmian S.p.A. which returned -22.5% in USD terms and
contributed -1.1% to the Fund's return. Further hampering the Fund was the fact
that the Fund was extremely overweight in the industry relative to the benchmark
(34.0% versus 6.3% average weight).
------------
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)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND (GRID)
(CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Industrials 57.20%
Information Technology 20.23
Utilities 18.64
Consumer Discretionary 3.93
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Red Electrica Corp. S.A. 8.61%
Quanta Services, Inc. 8.38
ABB Ltd. 8.31
ITC Holdings Corp. 8.01
Schneider Electric SE 7.61
ESCO Technologies, Inc. 4.06
Advanced Energy Industries, Inc. 3.97
Badger Meter, Inc. 3.94
Itron, Inc. 3.91
Prysmian S.p.A. 3.83
-------
Total 60.63%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
NOVEMBER 16, 2009 - SEPTEMBER 30, 2014
First Trust NASDAQ(R) NASDAQ OMX(R) Russell S&P 1500 MSCI World
Clean Edge(R) Smart Grid Clean Edge(R) Smart Grid 3000(R) Industrials Industrials
Infrastructure Index Fund Infrastructure Index(SM) Index Index Index
------------------------- --------------------------- ------- ----------- -----------
11/16/09 $10,000 $10,000 $10,000 $10,000 $10,000
3/31/10 10,257 10,297 10,731 11,205 10,814
9/30/10 10,154 10,236 10,614 11,249 10,997
3/31/11 11,775 11,912 12,600 13,832 13,106
9/30/11 8,161 8,341 10,672 10,743 10,174
3/31/12 9,553 9,741 13,505 14,081 12,572
9/30/12 9,860 10,103 13,895 14,004 12,302
3/31/13 10,996 11,314 15,472 16,373 14,134
9/30/13 11,678 12,082 16,896 18,307 15,769
3/31/14 13,450 13,973 18,971 20,766 17,193
9/30/14 12,401 12,931 19,897 21,102 17,057
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2014
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 September 30, 2014. 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 - 9/30/13 26 17 0 0 154 53 0 0
10/1/13 - 9/30/14 186 15 0 0 44 7 0 0
Page 15
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST ISE GLOBAL COPPER INDEX FUND (CU)
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 (plus the amount of any borrowings for investment
purposes) 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(R).
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.
---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (3/11/10) Inception (3/11/10)
9/30/14 to 9/30/14 to 9/30/14
FUND PERFORMANCE
NAV -2.38% -5.06% -21.05%
Market Price -2.34% -5.11% -21.26%
INDEX PERFORMANCE
ISE Global Copper(TM) Index -1.53% -3.94% -16.75%
MSCI All Country World Materials Index 2.01% 0.67% 3.09%
MSCI All Country World Index 11.32% 9.67% 52.31%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
PERFORMANCE REVIEW
The Fund generated a NAV return of -2.38% during the 12-month period covered by
this report. During the same period, the benchmark MSCI All Country World
Materials Index generated a return of 2.01%. Copper prices spent most of the
year in negative territory in terms of percentage return, but decreasing
supplies helped boost the performance of the Fund in the second half of the
reporting period. At the Fund's peak during the period, it appreciated 18.9%.
However, during the last quarter of the reporting period, copper prices and
copper mining stocks took a hit due to increasing copper supplies and fears of
decreasing demand in China, the world's largest copper importer. Relative to the
benchmark, the Fund underperformed due to being heavily concentrated in metals
and mining stocks, where the benchmark has more diverse materials exposure.
"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)
--------------------------------------------------------------------------------
FIRST TRUST ISE GLOBAL COPPER INDEX FUND (CU) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Materials 100.00%
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Freeport-McMoRan, Inc. 7.81%
Antofagasta PLC 7.72
Rio Tinto PLC, ADR 7.70
Southern Copper Corp. 7.60
First Quantum Minerals Ltd. 7.25
Lundin Mining Corp. 5.82
Jiangxi Copper Co., Ltd., Class H 4.99
KGHM Polska Miedz S.A. 4.99
MMC Norilsk Nickel OJSC, ADR 4.89
Turquoise Hill Resources Ltd. 4.87
-------
Total 63.64%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MARCH 11, 2010 - SEPTEMBER 30, 2014
First Trust ISE Global Copper ISE Global MSCI All Country MSCI All Country
Index Fund Copper(TM) Index World Materials Index World Index
----------------------------- ---------------- --------------------- -----------------
3/11/10 $10,000 $10,000 $10,000 $10,000
3/31/10 10,297 10,337 10,291 10,172
9/30/10 11,208 11,329 10,440 10,220
3/31/11 14,567 14,768 12,429 11,604
9/30/11 8,910 9,156 9,096 9,606
3/31/12 10,984 11,290 10,529 11,519
9/30/12 10,141 10,521 10,066 11,621
3/31/13 9,256 9,630 10,081 12,731
9/30/13 8,087 8,454 10,105 13,683
3/31/14 8,027 8,420 10,600 14,841
9/30/14 7,893 8,324 10,309 15,230
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2014
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 September 30, 2014. 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 - 9/30/13 100 25 1 0 100 23 0 1
10/1/13 - 9/30/14 82 7 0 0 135 25 3 0
Page 17
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST ISE GLOBAL PLATINUM INDEX FUND (PLTM)
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 (plus the amount of any borrowings for investment
purposes) 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(R).
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.
--------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (3/11/10) Inception (3/11/10)
9/30/14 to 9/30/14 to 9/30/14
FUND PERFORMANCE
NAV -10.64% -18.56% -60.76%
Market Price -10.56% -18.55% -60.73%
INDEX PERFORMANCE
ISE Global Platinum(TM) Index -8.98% -17.63% -58.68%
MSCI All Country World Index 11.32% 9.67% 52.31%
MSCI All Country World Materials Index 2.01% 0.67% 3.09%
--------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
PERFORMANCE REVIEW
The Fund generated a NAV return of -10.64% during the 12-month period covered by
this report. During the same period, the benchmark MSCI All Country World
Materials Index generated a return of 2.01%. South Africa is the most
represented country in the Fund with stocks from the country comprising 32.4% of
the Fund's average weight. Labor strikes and regulatory uncertainty in South
Africa were a large drag on the performance of mining stocks from the country.
For the reporting period, the Fund's South African holdings had a local return
of -14.8% and a USD return of -24.2%, causing a contribution of -7.3% to the
Fund's total return. An additional headwind came from platinum prices falling.
During the last quarter of the reporting period, the S&P GSCI Platinum Index
fell -12.4%. Relative to the benchmark, the Fund underperformed due to being
heavily concentrated in metals and mining stocks, where the benchmark has more
diverse materials exposure.
------------
"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)
--------------------------------------------------------------------------------
FIRST TRUST ISE GLOBAL PLATINUM INDEX FUND (PLTM) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Materials 95.69%
Information Technology 4.31
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
MMC Norilsk Nickel OJSC, ADR 10.16%
Impala Platinum Holdings Ltd. 9.81
Johnson Matthey PLC 9.80
Stillwater Mining Co. 9.42
Wesizwe Platinum Ltd. 5.66
Lonmin PLC 5.10
Platinum Group Metals Ltd. 4.86
Xinjiang Xinxin Mining Industry Co., Ltd.,
Class H 4.79
MMG Ltd. 4.73
Royal Bafokeng Platinum Ltd. 4.66
-------
Total 68.99%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MARCH 11, 2010 - SEPTEMBER 30, 2014
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 $10,000 $10,000 $10,000 $10,000
3/31/10 10,337 10,383 10,172 10,291
9/30/10 9,794 9,934 10,220 10,440
3/31/11 10,930 11,082 11,604 12,429
9/30/11 6,416 6,555 9,606 9,096
3/31/12 6,576 6,680 11,519 10,529
9/30/12 4,871 4,997 11,621 10,066
3/31/13 4,667 4,796 12,731 10,081
9/30/13 4,392 4,539 13,683 10,105
3/31/14 4,363 4,554 14,841 10,600
9/30/14 3,924 4,131 15,230 10,309
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2014
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 September 30, 2014. 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 - 9/30/13 74 57 14 0 71 32 2 0
10/1/13 - 9/30/14 103 36 9 0 56 35 12 1
Page 19
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST BICK INDEX FUND (BICK)
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 (plus the amount of any
borrowings for investment purposes) 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(R).
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.
--------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (4/12/10) Inception (4/12/10)
9/30/14 to 9/30/14 to 9/30/14
FUND PERFORMANCE
NAV 7.92% -2.21% -9.50%
Market Price 8.24% -2.32% -9.96%
INDEX PERFORMANCE
ISE BICK(TM) Index 9.04% -1.30% -5.68%
MSCI All Country World Index 11.32% 8.84% 46.04%
MSCI Emerging Markets Index 4.30% 1.80% 8.30%
--------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 7.92% during the 12-month period covered by
this report. During the same period, the benchmark MSCI Emerging Markets Index
generated a return of 4.30%. India was by far the best-performing and
top-contributing country in the Fund. The Fund's holdings from the country
returned 55.9% (USD terms) and contributed 11.6% to the Fund's return. Companies
leading the way in performance were Avis Bank Ltd. (94.4% USD), Larsen & Toubro
Ltd. (86.1% USD), and Tata Motors Ltd. (64.8% USD). South Korea was the
worst-performing and worst-contributing country in the Fund. For the period, the
Fund's holdings from the country returned -7.6% in USD terms and contributed
-2.6% to the Fund's return. Hyundai Heavy Industries Co., Ltd. (-46.5% USD) and
SK Innovation Co., Ltd. (-42.1% USD) were the Fund's worst individual performers
from the country. Relative to the benchmark, the Fund outperformed due almost
entirely to its overweight position in Indian stocks. The Fund was overweight
the country 25.8% versus 6.5% relative to the benchmark.
------------
"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)
--------------------------------------------------------------------------------
FIRST TRUST BICK INDEX FUND (BICK) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Financials 28.23%
Information Technology 17.06
Consumer Discretionary 13.13
Materials 10.12
Energy 8.20
Consumer Staples 7.40
Industrials 6.53
Telecommunication Services 5.13
Health Care 3.28
Utilities 0.92
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
WNS Holdings Ltd., ADR 1.72%
Dr. Reddy's Laboratories Ltd., ADR 1.68
Wipro Ltd., ADR 1.61
Ranbaxy Laboratories Ltd., GDR 1.60
Infosys Ltd., ADR 1.59
Mahindra & Mahindra Ltd., GDR 1.52
HDFC Bank Ltd., ADR 1.48
Vedanta Resources PLC 1.47
MakeMyTrip Ltd. 1.46
Tata Motors Ltd., ADR 1.45
-------
Total 15.58%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
APRIL 12, 2010 - SEPTEMBER 30, 2014
First Trust BICK ISE BICK(TM) MSCI All Country MSCI Emerging
Index Fund Index World Index Markets Index
---------------- ------------ ---------------- -------------
4/12/10 $10,000 $10,000 $10,000 $10,000
9/30/10 10,417 10,488 9,800 10,487
3/31/11 11,231 11,311 11,127 11,486
9/30/11 7,586 7,795 9,211 8,793
3/31/12 8,996 9,139 11,045 10,475
9/30/12 8,328 8,515 11,143 10,282
3/31/13 8,480 8,665 12,207 10,656
9/30/13 8,385 8,681 13,119 10,383
3/31/14 8,808 9,127 14,231 10,527
9/30/14 9,050 9,432 14,604 10,829
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2014
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 September 30, 2014. 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 - 9/30/13 26 7 0 0 135 77 5 0
10/1/13 - 9/30/14 28 1 0 0 131 82 10 0
Page 21
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ CEA SMARTPHONE INDEX FUND (FONE)
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
representing securities included in the Index.
The Index is owned by NASDAQ OMX. 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 NASDAQ OMX, 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
1 Year Ended Inception (2/17/11) Inception (2/17/11)
9/30/14 to 9/30/14 to 9/30/14
FUND PERFORMANCE
NAV 16.16% 6.95% 27.50%
Market Price 16.65% 6.98% 27.64%
INDEX PERFORMANCE
NASDAQ OMX CEA Smartphone Index(SM) 17.26% 7.94% 31.84%
MSCI World Index 12.20% 8.72% 35.32%
MSCI All Country World Information Technology Index 23.36% 10.82% 45.01%
--------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 16.16% during the 12-month period covered by
this report. During the same period, the benchmark MSCI All Country World
Information Technology Index generated a return of 23.36%. In general, the
reporting period was a time of solid returns in the Information Technology
sector worldwide. The United States led all countries in the Fund, in terms of
contribution to return, with 13.3%. The Fund's domestic holdings comprised 47.2%
of the Fund's average weight and returned 29.2%. Finland and Singapore were the
second and third best contributors, even though the Fund only had one holding
from each country. Nokia Oyj was the only Finnish company in the Fund. It
comprised 3.3% of the Fund's average weight and returned 35.8% (USD), resulting
in a 1.4% contribution. Avago Technologies Ltd. was the only company from
Singapore in the Fund. The company returned 105.1% (USD) and comprised 1.6% of
the Fund's average weight resulting in a contribution of 1.3%. Relative to the
benchmark, the Fund underperformed due to weaker relative returns in Asian
countries. The Fund's Japanese holdings returned -4.7% (USD) versus the
benchmark's 14.6%. The Fund's heavy weight in Sony Corp. (-14.6%) was a major
cause of the underperformance. Similarly, in Taiwan, the Fund's holdings
returned 0.9% (USD) versus 21.8% in the benchmark. The Fund's concentrated
position in Inventec Corp. (-28.8% USD) caused the performance gap.
------------
NASDAQ(R), OMX(R), NASDAQ OMX(R), and NASDAQ OMX CEA Smartphone Index(SM) are
registered trademarks of NASDAQ OMX (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)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ CEA SMARTPHONE INDEX FUND (FONE) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 76.50%
Telecommunication Services 11.82
Consumer Discretionary 7.02
Industrials 1.60
Financials 1.54
Health Care 1.52
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Nokia Oyj 3.18%
KYOCERA Corp. 3.13
Apple, Inc. 3.09
BlackBerry Ltd. 3.07
SONY Corp. 2.98
HTC Corp. 2.97
Flextronics International Ltd. 2.94
FIH Mobile Ltd. 2.90
Celestica, Inc. 2.90
Samsung Electronics Co., Ltd. 2.89
-------
Total 30.05%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
FEBRUARY 17, 2011 - SEPTEMBER 30, 2014
First Trust NASDAQ CEA NASDAQ OMX CEA MSCI World MSCI All Country World
Smartphone Index Fund Smartphone Index(SM) Index Information Technology Index
---------------------- -------------------- ---------- ----------------------------
2/17/11 $10,000 $10,000 $10,000 $10,000
3/31/11 9,433 9,403 9,849 9,547
9/30/11 7,503 7,595 8,251 8,390
3/31/12 9,238 9,328 9,904 10,774
9/30/12 7,805 7,925 10,032 10,566
3/31/13 9,021 9,180 11,077 10,774
9/30/13 10,975 11,245 12,059 11,756
3/31/14 12,117 12,470 13,188 13,356
9/30/14 12,748 13,187 13,530 14,502
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2014
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 September 30, 2014. 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 - 9/30/13 85 13 0 0 109 43 0 0
10/1/13 - 9/30/14 139 12 0 0 86 14 1 0
Page 23
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND (CARZ)
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 (plus the amount of any borrowings for investment
purposes) in common stocks included in the Index.
The Index is owned and was developed by NASDAQ OMX. 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 NASDAQ OMX, 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
1 Year Ended Inception (5/09/11) Inception (5/09/11)
9/30/14 to 9/30/14 to 9/30/14
FUND PERFORMANCE
NAV -0.92% 8.24% 30.83%
Market Price -1.76% 8.15% 30.46%
INDEX PERFORMANCE
NASDAQ OMX Global Auto Index(SM) -0.18% 9.38% 35.55%
MSCI World Index 12.20% 9.24% 35.01%
--------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
PERFORMANCE REVIEW
The Fund generated a NAV return of -0.92% during the 12-month period covered by
this report. During the same period, the benchmark MSCI World Index generated a
return of 12.20%. A weak yen helped Japanese auto manufacturers outperform their
counterparts from other countries. The Fund's holdings from Japan comprised
33.9% of the Fund's weight and had a local return of 18.0%. Unfortunately for
U.S. investors, the weak yen that helped the Japanese automakers perform well
also had a negative impact on returns, as the USD return from the Japanese
automakers was only 5.5%. In total, the country contributed 2.0% to the Fund's
total return. The U.S. automakers held in the Fund returned -2.5% and
contributed -0.5% to the Fund's return. Stalwarts Ford Motor Co., General Motors
Co., and Harley Davidson, Inc. returned -9.7%, -8.9%, and -8.0%, respectively,
while Tesla Motors, Inc. returned 25.5%. South Korea was the worst-performing
country in the Fund with a return of -20.0% and a contribution to return of
-1.8%. Large Korean brands Hyundai Motor Co. and Kia Motors Corp. returned
-22.1% and -15.2%, respectively, in USD terms.
------------
NASDAQ(R), OMX(R), NASDAQ OMX(R), and NASDAQ OMX Global Auto Index(SM) are
trademarks of NASDAQ OMX (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 24
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND (CARZ) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Consumer Discretionary 99.82%
Industrials 0.18
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Toyota Motor Corp. 8.68%
Honda Motor Co., Ltd. 8.62
Daimler AG 7.87
General Motors Co. 7.72
Ford Motor Co. 7.14
Fuji Heavy Industries Ltd. 4.88
Nissan Motor Co., Ltd. 4.26
Volkswagen AG (Preference Shares) 3.88
Bayerische Motoren Werke AG 3.87
Tesla Motors, Inc. 3.78
-------
Total 60.70%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 9, 2011 - SEPTEMBER 30, 2014
First Trust NASDAQ NASDAQ OMX Global MSCI World
Global Auto Index Fund Auto Index Index(SM) Index
---------------------- -------------------- ----------
5/9/11 $10,000 $10,000 $10,000
9/30/11 7,545 7,717 8,232
3/31/12 9,324 9,459 9,881
9/30/12 8,282 8,439 10,009
3/31/13 10,210 10,402 11,052
9/30/13 13,205 13,581 12,032
3/31/14 13,593 14,039 13,158
9/30/14 13,085 13,556 13,499
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2014
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 September 30, 2014. 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 - 9/30/13 97 77 16 0 50 10 0 0
10/1/13 - 9/30/14 133 17 0 0 88 14 0 0
Page 25
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST ISE CLOUD COMPUTING INDEX FUND (SKYY)
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 (plus the amount of any borrowings for investment
purposes) in common stocks and Depositary Receipts included in the Index.
The Index is owned and was developed by International Securities Exchange,
LLC(R) (the "Index Provider"). The Index Provider has contracted with Standard &
Poor's to calculate and maintain the Index. 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 have a market capitalization of
$100 million.
--------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (7/05/11) Inception (7/05/11)
9/30/14 to 9/30/14 to 9/30/14
FUND PERFORMANCE
NAV 11.20% 9.92% 35.82%
Market Price 11.29% 9.94% 35.92%
INDEX PERFORMANCE
ISE Cloud Computing(TM) Index 11.92% 10.59% 38.53%
S&P 500(R) Index 19.73% 15.21% 58.16%
S&P Composite 1500 Information Technology Index 27.00% 15.96% 61.52%
--------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 28.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 11.20% during the 12-month period covered by
this report. During the same period, the benchmark S&P 500(R) Index generated a
return of 19.73%. The Software industry led all industries in the Fund with a
3.8% contribution to return. The Fund's holdings from the industry comprised
39.6% of the Fund's weight and returned 9.5%. This was lower than the
benchmark's 30.3% return from the Software industry as the Fund was held back by
allocations to Zynga, Inc., NetSuite, Inc., and Informatica Corp. which returned
-26.6%, -17.1%, and -12.1%, respectively. The Technology Hardware Storage &
Peripherals industry was the best-performing industry in the Fund. The Fund's
holdings in the industry had an average Fund weight of 11.4% and returned 30.5%,
resulting in a 3.2% contribution to the Fund's return. Hewlett-Packard Co. and
Apple, Inc. were the best-performing companies in the industry with returns of
72.3% and 51.3%, respectively.
------------
"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)
--------------------------------------------------------------------------------
FIRST TRUST ISE CLOUD COMPUTING INDEX FUND (SKYY) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 93.49%
Consumer Discretionary 6.51
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF SEPTEMBER 30, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Facebook, Inc., Class A 3.90%
Aruba Networks, Inc. 3.89
NetApp, Inc. 3.84
Open Text Corp. 3.69
TIBCO Software, Inc. 3.62
EMC Corp. 3.50
Red Hat, Inc. 3.45
NetSuite, Inc. 3.44
salesforce.com, Inc. 3.37
F5 Networks, Inc. 3.37
-------
Total 36.07%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JULY 5, 2011 - SEPTEMBER 30, 2014
First Trust ISE Cloud ISE Cloud S&P 500(R) S&P Composite 1500
Computing Index Fund Computing(TM) Index Index Information Technology Index
--------------------- ----------------------- ------- ----------------------------
7/5/11 $10,000 $10,000 $10,000 $10,000
9/30/11 7,902 7,909 8,501 8,886
3/31/12 10,604 10,641 10,702 11,739
9/30/12 9,864 9,934 11,068 11,695
3/31/13 10,531 10,640 12,196 11,682
9/30/13 12,214 12,376 13,209 12,718
3/31/14 13,390 13,612 14,861 14,655
9/30/14 13,581 13,852 15,815 16,153
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV THROUGH SEPTEMBER 30, 2014
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 September 30, 2014. 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 - 9/30/13 134 27 0 0 71 17 1 0
10/1/13 - 9/30/14 191 18 0 0 38 5 0 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
SEPTEMBER 30, 2014 (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 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 September 30, 2014.
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
APRIL 1, 2014 SEPTEMBER 30, 2014 PERIOD (a) SIX-MONTH PERIOD (b)
FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND (FDD)
Actual $1,000.00 $ 971.50 0.60% $2.97
Hypothetical (5% return before expenses) $1,000.00 $1,022.06 0.60% $3.04
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR)
Actual $1,000.00 $1,026.90 0.60% $3.05
Hypothetical (5% return before expenses) $1,000.00 $1,022.06 0.60% $3.04
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (FGD)
Actual $1,000.00 $ 987.30 0.60% $2.99
Hypothetical (5% return before expenses) $1,000.00 $1,022.06 0.60% $3.04
FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND (FAN)
Actual $1,000.00 $ 963.10 0.60% $2.95
Hypothetical (5% return before expenses) $1,000.00 $1,022.06 0.60% $3.04
Page 29
FIRST TRUST EXCHANGE-TRADED FUND II
UNDERSTANDING YOUR FUND EXPENSES (CONTINUED)
SEPTEMBER 30, 2014 (UNAUDITED)
ANNUALIZED
EXPENSE RATIO
BEGINNING ENDING BASED ON THE EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH DURING THE
APRIL 1, 2014 SEPTEMBER 30, 2014 PERIOD (a) SIX-MONTH PERIOD (b)
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND (FLM)
Actual $1,000.00 $ 931.60 0.70% $3.39
Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND (GRID)
Actual $1,000.00 $ 922.00 0.70% $3.37
Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55
FIRST TRUST ISE GLOBAL COPPER INDEX FUND (CU)
Actual $1,000.00 $ 983.30 0.70% $3.48
Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55
FIRST TRUST ISE GLOBAL PLATINUM INDEX FUND (PLTM)
Actual $1,000.00 $ 899.50 0.70% $3.33
Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55
FIRST TRUST BICK INDEX FUND (BICK)
Actual $1,000.00 $1,027.50 0.64% $3.25
Hypothetical (5% return before expenses) $1,000.00 $1,021.86 0.64% $3.24
FIRST TRUST NASDAQ CEA SMARTPHONE INDEX FUND (FONE)
Actual $1,000.00 $1,052.10 0.70% $3.60
Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55
FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND (CARZ)
Actual $1,000.00 $ 962.60 0.70% $3.44
Hypothetical (5% return before expenses) $1,000.00 $1,021.56 0.70% $3.55
FIRST TRUST ISE GLOBAL COMPUTING INDEX FUND (SKYY)
Actual $1,000.00 $1,014.30 0.60% $3.03
Hypothetical (5% return before expenses) $1,000.00 $1,022.06 0.60% $3.04
(a) These expense ratios reflect expense caps for certain Funds. See Note 3 in
the 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 (April 1,
2014 through September 30, 2014), multiplied by 183/365 (to reflect the
one-half year period).
Page 30
FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND (FDD)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.7%
BELGIUM -- 6.1%
291,651 Belgacom S.A. $ 10,152,327
-------------
BERMUDA -- 9.6%
789,356 Catlin Group Ltd. 6,679,806
351,771 Seadrill Ltd. 9,433,852
-------------
16,113,658
-------------
FRANCE -- 11.4%
445,915 Orange S.A. 6,705,087
115,995 SCOR SE 3,623,882
65,871 Total S.A. 4,280,579
17,542 Unibail-Rodamco SE 4,513,288
-------------
19,122,836
-------------
GERMANY -- 6.3%
369,413 E. ON SE 6,763,216
19,144 Muenchener Rueckversicherungs-
Gesellschaft AG 3,785,373
-------------
10,548,589
-------------
ITALY -- 3.4%
1,009,435 Snam S.p.A. 5,584,385
-------------
NETHERLANDS -- 1.9%
120,829 Wolters Kluwer N.V. 3,223,206
-------------
SPAIN -- 5.5%
960,536 Banco Santander S.A. 9,233,753
-------------
SWEDEN -- 1.9%
447,047 Ratos AB, Class B 3,237,002
-------------
SWITZERLAND -- 17.1%
24,030 Baloise Holding AG 3,083,351
50,206 PSP Swiss Property AG 4,217,577
69,278 Swiss Prime Site AG 5,144,873
71,951 Swiss Re AG 5,739,048
5,528 Swisscom AG 3,141,238
24,612 Zurich Insurance Group AG 7,342,094
-------------
28,668,181
-------------
UNITED KINGDOM -- 36.5%
862,618 Amlin PLC 6,069,161
72,993 AstraZeneca PLC 5,255,709
885,913 BAE Systems PLC 6,771,630
908,288 Carillion PLC 4,485,118
202,183 GlaxoSmithKline PLC 4,631,346
1,148,800 J Sainsbury PLC 4,683,849
168,134 Provident Financial PLC 5,822,067
142,466 Royal Dutch Shell PLC, Class B 5,628,429
303,545 SSE PLC 7,612,614
400,161 United Utilities Group PLC 5,241,632
1,786,165 WM Morrison Supermarkets PLC 4,873,334
-------------
61,074,889
-------------
TOTAL COMMON STOCKS -- 99.7% 166,958,826
(Cost $167,357,460)
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
MONEY MARKET FUNDS -- 0.1%
135,395 Morgan Stanley Institutional
Liquidity Fund - Treasury
Portfolio - Institutional
Class - 0.03% (b) $ 135,395
(Cost $135,395) -------------
TOTAL INVESTMENTS -- 99.8% 167,094,221
(Cost $167,492,855) (c)
NET OTHER ASSETS AND
LIABILITIES -- 0.2% 386,155
-------------
NET ASSETS -- 100.0% $ 167,480,376
=============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) Interest rate shown reflects yield as of September 30, 2014.
(c) Aggregate cost for federal income tax purposes is $168,625,288. As of
September 30, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$8,945,268 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$10,476,335.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2014 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* $ 166,958,826 $ -- $ --
Money Market Funds 135,395 -- --
---------------------------------------
Total Investments $ 167,094,221 $ -- $ --
=======================================
* 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 September 30, 2014.
See Notes to Financial Statements Page 31
FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND (FDD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Insurance 21.7%
Diversified Telecommunication Services 12.0
Oil, Gas & Consumable Fuels 5.9
Pharmaceuticals 5.9
Food & Staples Retailing 5.7
Energy Equipment & Services 5.6
Real Estate Management & Development 5.6
Banks 5.5
Electric Utilities 4.6
Aerospace & Defense 4.1
Multi-Utilities 4.0
Consumer Finance 3.5
Gas Utilities 3.3
Water Utilities 3.1
Real Estate Investment Trusts 2.7
Construction & Engineering 2.7
Capital Markets 1.9
Media 1.9
Money Market Funds 0.1
-----------------------------------------------------------
TOTAL INVESTMENTS 99.8
NET OTHER ASSETS AND LIABILITIES 0.2
-------
TOTAL 100.0%
=======
% OF TOTAL
CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS
-----------------------------------------------------------
British Pound Sterling 40.6%
Euro 34.6
Swiss Franc 17.2
Norwegian Krone 5.6
Swedish Krona 1.9
United States Dollar 0.1
-------
TOTAL 100.0%
=======
Page 32 See Notes to Financial Statements
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.5%
AUSTRALIA -- 6.3%
196,196 BGP Holdings PLC (b) (c) (d) $ 0
44,887 BWP Trust 93,929
211,129 CFS Retail Property Trust Group 368,783
29,160 Charter Hall Retail REIT 97,018
136,345 Cromwell Property Group 113,408
544,625 Dexus Property Group 529,299
134,937 Federation Centres Ltd. 304,812
161,959 Goodman Group 733,122
167,022 GPT Group 565,933
56,888 Investa Office Fund 166,858
346,252 Mirvac Group 521,436
489,432 Scentre Group (c) 1,405,552
217,972 Stockland 753,839
182,699 Westfield Corp. 1,191,717
-------------
6,845,706
-------------
AUSTRIA -- 0.3%
4,803 Buwog AG (c) 95,092
7,568 CA Immobilien Anlagen AG 151,125
5,791 Conwert Immobilien Invest SE 66,041
-------------
312,258
-------------
BELGIUM -- 0.4%
862 Aedifica 56,648
1,547 Befimmo S.A. 114,873
1,634 Cofinimmo 185,126
643 Intervest Offices & Warehouses 17,453
187 Leasinvest Real Estate S.C.A 19,108
1,063 Warehouses De Pauw S.C.A 76,691
185 Wereldhave Belgium S.C.A 22,422
-------------
492,321
-------------
BERMUDA -- 0.9%
110,922 Hongkong Land Holdings Ltd. 754,270
60,742 Kerry Properties Ltd. 204,172
-------------
958,442
-------------
CANADA -- 3.6%
7,052 Allied Properties Real Estate
Investment Trust 215,222
12,766 Artis Real Estate Investment
Trust 174,514
3,754 Boardwalk Real Estate Investment
Trust 230,948
9,769 Calloway Real Estate Investment
Trust 224,348
10,439 Canadian Apartment Properties
Real Estate Investment Trust 219,881
6,519 Canadian Real Estate Investment
Trust 282,367
16,307 Chartwell Retirement Residences 159,583
13,604 Cominar Real Estate Investment
Trust 229,578
7,303 Crombie Real Estate Investment
Trust 84,445
8,949 Dream Global Real Estate
Investment Trust 72,554
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
CANADA (CONTINUED)
9,840 Dream Office Real Estate
Investment Trust $ 245,660
8,272 Extendicare, Inc. 60,713
7,902 First Capital Realty, Inc. 123,545
4,434 Granite Real Estate Investment
Trust 152,505
25,583 H&R Real Estate Investment Trust 499,348
7,142 InnVest Real Estate Investment
Trust 33,862
4,913 Killam Properties, Inc. 45,403
3,257 Morguard Real Estate Investment
Trust 53,917
3,020 Northern Property Real Estate
Investment Trust 75,827
17,906 Pure Industrial Real Estate Trust 70,828
28,722 RioCan Real Estate Investment
Trust 658,327
-------------
3,913,375
-------------
FINLAND -- 0.2%
24,680 Citycon Oyj 82,606
22,746 Sponda Oyj 102,852
8,988 Technopolis Oyj 45,636
-------------
231,094
-------------
FRANCE -- 3.6%
545 Affine 10,353
670 ANF Immobilier 19,464
3,184 Fonciere des Regions 286,939
3,237 Gecina S.A. 424,183
3,338 ICADE 281,508
9,223 Klepierre 403,877
3,912 Mercialys 85,308
9,192 Unibail-Rodamco SE 2,364,961
-------------
3,876,593
-------------
GERMANY -- 1.5%
6,412 alstria office REIT-AG 78,558
7,495 Deutsche Annington
Immobilien SE 217,543
4,335 Deutsche Euroshop AG 187,613
27,057 Deutsche Wohnen AG - BR 578,233
3,241 DIC Asset AG 27,345
6,144 DO Deutsche Office AG (c) 23,513
4,298 Hamborner REIT AG 44,059
4,606 LEG Immobilien AG 319,214
11,708 TAG Immobilien AG 132,647
-------------
1,608,725
-------------
GREECE -- 0.0%
3,666 Eurobank Properties Real Estate
Investment Co. 41,673
-------------
HONG KONG -- 6.7%
219,685 Champion Real Estate Investment
Trust 91,667
210,531 Hang Lung Properties Ltd. 599,205
106,961 Henderson Land Development
Co., Ltd. 692,884
See Notes to Financial Statements Page 33
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
HONG KONG (CONTINUED)
59,120 Hysan Development Co., Ltd. $ 273,335
215,865 Link (The) REIT 1,244,062
474,073 New World Development Co., Ltd. 551,926
281,744 Sino Land Co., Ltd. 435,414
145,327 Sun Hung Kai Properties Ltd. 2,060,633
110,516 Swire Properties Ltd. 344,435
143,037 Wharf Holdings (The) Ltd. 1,016,844
-------------
7,310,405
-------------
ISLE OF MAN -- 0.1%
82,092 Redefine International PLC 68,538
-------------
ISRAEL -- 0.1%
3,439 Azrieli Group 118,121
-------------
ITALY -- 0.1%
77,874 Beni Stabili S.p.A. 54,885
13,619 Immobiliare Grande Distribuzione 11,439
-------------
66,324
-------------
JAPAN -- 13.0%
21 Activia Properties, Inc. 168,689
120 Advance Residence Investment
Corp. 279,006
9,327 AEON Mall Co., Ltd. 177,993
24 Daiwa House REIT Investment
Corp. 106,351
31 Daiwa House Residential
Investment Corp. 132,847
23 Daiwa Office Investment Corp. 124,149
45 Frontier Real Estate Investment
Corp. 215,819
58 Fukuoka REIT Corp. 107,089
191 GLP J-REIT 220,649
27,900 Hulic Co. Ltd. 295,090
14 Industrial & Infrastructure Fund
Investment Corp. 116,034
103 Japan Excellent, Inc. 132,325
248 Japan Hotel REIT Investment
Corp. 151,050
78 Japan Logistics Fund, Inc. 172,393
75 Japan Prime Realty Investment
Corp. 270,116
118 Japan Real Estate Investment Corp. 606,811
218 Japan Retail Fund Investment
Corp. 439,280
31 Kenedix Office Investment Corp. 166,483
119,930 Mitsubishi Estate Co., Ltd. 2,699,314
90,081 Mitsui Fudosan Co., Ltd. 2,759,308
122 Mori Hills REIT Investment Corp. 169,526
94 MORI TRUST Sogo Reit, Inc. 173,901
42 Nippon Accommodations Fund,
Inc. 151,648
128 Nippon Building Fund, Inc. 673,408
137 Nippon Prologis REIT, Inc. 318,657
11,300 Nomura Real Estate Holdings, Inc. 194,112
157 Nomura Real Estate Master Fund,
Inc. 197,118
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
JAPAN (CONTINUED)
33 Nomura Real Estate Office Fund,
Inc. $ 151,046
10,290 NTT Urban Development Corp. 108,271
185 ORIX JREIT, Inc. 232,610
20 Premier Investment Corp. 89,355
40,744 Sumitomo Realty & Development
Co., Ltd. 1,449,769
39,375 Tokyo Tatemono Co., Ltd. 318,447
87 TOKYU REIT, Inc. 114,704
16 Top REIT, Inc. 70,098
236 United Urban Investment Corp. 362,150
-------------
14,115,616
-------------
LUXEMBOURG -- 0.3%
20,415 GAGFAH S.A. (c) 380,333
-------------
NETHERLANDS -- 0.7%
6,478 Corio N.V. 317,669
3,922 Eurocommercial Properties N.V. 172,736
12,306 Nieuwe Steen Investments N.V. 64,660
1,800 Vastned Retail N.V. 82,335
2,049 Wereldhave N.V. 168,738
-------------
806,138
-------------
NEW ZEALAND -- 0.1%
95,931 Kiwi Income Property Trust 87,245
-------------
NORWAY -- 0.1%
49,255 Norwegian Property ASA (c) 73,675
-------------
SINGAPORE -- 3.7%
186,400 Ascendas Real Estate Investment
Trust 328,761
184,890 CapitaCommercial Trust 231,167
239,530 CapitaLand Ltd. 600,843
244,883 CapitaMall Trust 366,643
59,000 CDL Hospitality Trusts 77,236
56,000 City Developments Ltd. 422,294
121,770 Fortune REIT 108,991
283,000 Global Logistic Properties Ltd. 601,184
67,521 Keppel Land Ltd. 185,250
139,000 Keppel REIT 129,662
121,310 Mapletree Commercial Trust 134,081
111,000 Mapletree Industrial Trust 123,556
135,453 Mapletree Logistics Trust 122,637
226,197 Suntec Real Estate Investment
Trust 312,069
43,000 UOL Group Ltd. 222,803
36,087 Wing Tai Holdings Ltd. 49,928
-------------
4,017,105
-------------
SPAIN -- 0.2%
158,469 Inmobiliaria Colonial SA (c) 112,087
11,822 Merlin Properties Socimi SA (c) 150,065
-------------
262,152
-------------
SWEDEN -- 1.0%
15,504 Castellum AB 235,912
4,451 Dios Fastigheter AB 32,846
12,508 Fabege AB 159,210
8,717 Fastighets AB Balder, Class B (c) 110,835
Page 34 See Notes to Financial Statements
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
SWEDEN (CONTINUED)
3,728 Hemfosa Fastigheter AB (c) $ 58,379
10,481 Hufvudstaden AB, Class A 130,577
7,085 Klovern AB 34,168
17,206 Kungsleden AB 102,292
9,452 Wallenstam AB, Class B 143,168
6,248 Wihlborgs Fastigheter AB 107,366
-------------
1,114,753
-------------
SWITZERLAND -- 0.9%
904 Allreal Holding AG 117,036
582 Mobimo Holding AG 112,901
3,762 PSP Swiss Property AG 316,028
5,205 Swiss Prime Site AG 386,545
-------------
932,510
-------------
UNITED KINGDOM -- 5.8%
12,148 Big Yellow Group PLC 102,407
95,631 British Land Co. PLC 1,089,094
68,688 Capital & Counties Properties PLC 366,017
462 Daejan Holdings PLC 36,542
8,735 Derwent London PLC 386,727
11,799 Development Securities PLC 37,586
38,835 Grainger PLC 116,785
32,513 Great Portland Estates PLC 337,068
66,890 Hammerson PLC 622,976
64,816 Hansteen Holdings PLC 108,753
9,381 Helical Bar PLC 53,228
86,777 Intu Properties PLC 453,967
74,369 Land Securities Group PLC 1,252,645
55,216 Londonmetric Property PLC 124,423
10,026 Primary Health Properties PLC 53,881
46,255 Quintain Estates & Development
PLC (c) 66,737
19,563 Safestore Holdings PLC 67,869
70,113 SEGRO PLC 412,710
26,266 Shaftesbury PLC 290,189
16,667 St. Modwen Properties PLC 99,162
19,017 UNITE Group (The) PLC 130,870
9,963 Workspace Group PLC 102,158
-------------
6,311,794
-------------
UNITED STATES -- 49.9%
5,608 Acadia Realty Trust 154,669
1,351 Agree Realty Corp. 36,990
192 Alexander's, Inc. 71,791
6,752 Alexandria Real Estate Equities,
Inc. 497,960
3,465 American Assets Trust, Inc. 114,241
9,891 American Campus Communities,
Inc. 360,527
14,218 American Homes 4 Rent, Class A 240,142
16,005 American Realty Capital
Healthcare Trust, Inc. 167,732
85,837 American Realty Capital
Properties, Inc. 1,035,194
13,759 Apartment Investment &
Management Co., Class A 437,811
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
UNITED STATES (CONTINUED)
6,605 Ashford Hospitality Trust $ 67,503
5,436 Associated Estates Realty Corp. 95,184
12,402 AvalonBay Communities, Inc. 1,748,310
2,408 Aviv REIT, Inc. 63,451
18,448 BioMed Realty Trust, Inc. 372,650
14,335 Boston Properties, Inc. 1,659,420
16,916 Brandywine Realty Trust 238,008
8,341 Brixmor Property Group, Inc. 185,671
8,020 Camden Property Trust 549,611
6,102 Campus Crest Communities, Inc. 39,053
16,062 CBL & Associates Properties, Inc. 287,510
7,479 Cedar Realty Trust, Inc. 44,126
22,364 Chambers Street Properties 168,401
5,188 Chesapeake Lodging Trust 151,230
7,763 Corporate Office Properties Trust 199,664
20,386 Cousins Properties, Inc. 243,613
14,047 CubeSmart 252,565
31,522 DCT Industrial Trust, Inc. 236,730
28,865 DDR Corp. 482,911
18,448 DiamondRock Hospitality Co. 233,921
12,795 Digital Realty Trust, Inc. 798,152
12,692 Douglas Emmett, Inc. 325,804
32,251 Duke Realty Corp. 554,072
6,207 DuPont Fabros Technology, Inc. 167,837
2,989 EastGroup Properties, Inc. 181,104
13,189 Education Realty Trust, Inc. 135,583
7,339 Empire State Realty Trust, Inc.,
Class A 110,232
5,055 EPR Properties 256,187
12,183 Equity Commonwealth 313,225
7,218 Equity Lifestyle Properties, Inc. 305,754
5,664 Equity One, Inc. 122,512
33,691 Equity Residential 2,074,692
6,002 Essex Property Trust, Inc. 1,072,857
5,489 Excel Trust, Inc. 64,606
10,290 Extra Space Storage, Inc. 530,655
6,402 Federal Realty Investment Trust 758,381
11,768 FelCor Lodging Trust, Inc. 110,148
10,395 First Industrial Realty Trust,
Inc. 175,779
5,553 First Potomac Realty Trust 65,248
14,259 Forest City Enterprises, Inc.,
Class A (c) 278,906
8,335 Franklin Street Properties Corp. 93,519
47,617 General Growth Properties, Inc. 1,121,380
2,368 Getty Realty Corp. 40,256
13,711 Glimcher Realty Trust 185,647
6,644 Government Properties Income
Trust 145,570
43,301 HCP, Inc. 1,719,483
29,039 Health Care REIT, Inc. 1,811,162
9,213 Healthcare Realty Trust, Inc. 218,164
22,396 Healthcare Trust of America,
Inc., Class A 259,794
16,276 Hersha Hospitality Trust 103,678
8,493 Highwoods Properties, Inc. 330,378
5,374 Home Properties, Inc. 312,982
14,143 Hospitality Properties Trust 379,740
See Notes to Financial Statements Page 35
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
UNITED STATES (CONTINUED)
71,478 Host Hotels & Resorts, Inc. $ 1,524,626
5,195 Hudson Pacific Properties, Inc. 128,109
8,085 Inland Real Estate Corp. 80,122
10,834 Investors Real Estate Trust 83,422
7,863 Kilroy Realty Corp. 467,377
38,859 Kimco Realty Corp. 851,401
7,762 Kite Realty Group Trust 188,151
9,828 LaSalle Hotel Properties 336,511
21,865 Lexington Realty Trust 214,058
13,962 Liberty Property Trust 464,376
3,285 LTC Properties, Inc. 121,184
13,286 Macerich (The) Co. 848,045
8,412 Mack-Cali Realty Corp. 160,753
7,039 Mid-America Apartment
Communities, Inc. 462,110
2,750 National Health Investors, Inc. 157,135
11,824 National Retail Properties, Inc. 408,756
15,450 New York REIT, Inc. 158,826
11,915 OMEGA Healthcare Investors, Inc. 407,374
7,456 Parkway Properties, Inc. 140,024
6,057 Pebblebrook Hotel Trust 226,168
6,184 Pennsylvania Real Estate
Investment Trust 123,309
14,585 Piedmont Office Realty Trust,
Inc., Class A 257,279
5,123 Post Properties, Inc. 263,015
47,099 Prologis, Inc. 1,775,632
1,889 PS Business Parks, Inc. 143,828
13,709 Public Storage 2,273,501
7,228 Ramco-Gershenson Properties
Trust 117,455
20,932 Realty Income Corp. 853,816
8,660 Regency Centers Corp. 466,168
8,611 Retail Opportunity Investments
Corp. 126,582
22,363 Retail Properties of America,
Inc., Class A 327,171
12,488 RLJ Lodging Trust 355,533
3,436 Rouse Properties, Inc. 55,560
4,538 Ryman Hospitality Properties, Inc. 214,647
4,468 Sabra Health Care REIT, Inc. 108,662
1,258 Saul Centers, Inc. 58,799
3,567 Select Income REIT 85,786
19,259 Senior Housing Properties Trust 402,898
3,485 Silver Bay Realty Trust Corp. 56,492
29,368 Simon Property Group, Inc. 4,828,687
8,968 SL Green Realty Corp. 908,638
3,146 Sovran Self Storage, Inc. 233,937
36,188 Spirit Realty Capital, Inc. 396,982
5,225 STAG Industrial, Inc. 108,210
23,386 Strategic Hotels & Resorts,
Inc. (c) 272,447
4,275 Sun Communities, Inc. 215,887
19,420 Sunstone Hotel Investors, Inc. 268,384
9,061 Tanger Factory Outlet Centers, Inc. 296,476
6,020 Taubman Centers, Inc. 439,460
23,653 UDR, Inc. 644,544
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
UNITED STATES (CONTINUED)
1,216 Universal Health Realty Income
Trust $ 50,683
2,218 Urstadt Biddle Properties, Inc.,
Class A 45,025
27,815 Ventas, Inc. 1,723,139
15,837 Vornado Realty Trust 1,583,067
14,668 Washington Prime Group, Inc. 256,397
6,299 Washington Real Estate Investment
Trust 159,869
10,401 Weingarten Realty Investors 327,631
3,062 Winthrop Realty Trust 46,144
7,956 WP Carey, Inc. 507,354
-------------
54,367,698
-------------
TOTAL COMMON STOCKS -- 99.5% 108,312,594
(Cost $92,663,273) -------------
INVESTMENT COMPANIES -- 0.3%
GUERNSEY -- 0.3%
47,338 F&C Commerical Property Trust
Ltd. 96,311
21,824 F&C UK Real Estate Investment,
Ltd. 32,107
33,433 MedicX Fund Ltd. 45,257
41,519 Picton Property Income Ltd. 43,077
44,574 Schroder Real Estate Investment
Trust Ltd. 41,188
19,919 Standard Life Investment Property
Income Trust PLC 25,349
38,485 UK Commercial Property Trust 50,473
-------------
TOTAL INVESTMENT COMPANIES --
0.3% 333,762
(Cost $282,057) -------------
RIGHTS -- 0.0%
ITALY -- 0.0%
77,874 Beni Stabili S.p.A.,
expiring 11/17/14 (c) 1,623
13,619 Immobiliare Grande Distribuzione,
expiring 11/17/14 (c) 2,915
-------------
TOTAL RIGHTS -- 0.0% 4,538
(Cost $5,374) -------------
MONEY MARKET FUNDS -- 0.0%
44,352 Morgan Stanley Institutional
Liquidity Fund - Treasury
Portfolio - Institutional
Class - 0.03% (e) 44,352
(Cost $44,352) -------------
TOTAL INVESTMENTS -- 99.8% 108,695,246
(Cost $92,995,056) (f)
NET OTHER ASSETS AND
LIABILITIES -- 0.2% 191,954
-------------
NET ASSETS -- 100.0% $ 108,887,200
=============
Page 36 See Notes to Financial Statements
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) This security is fair valued by the Advisor's Pricing Committee 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. At September 30, 2014, securities noted as such are valued at $0
or 0.00% of net assets.
(c) Non-income producing security.
(d) This is a restricted security which cannot be traded as a result of the
in-specie distribution. It was acquired on August 6, 2009 at a cost of $0
and has a carrying value per share of $0.
(e) Interest rate shown reflects yield as of September 30, 2014.
(f) Aggregate cost for federal income tax purposes is $96,321,425. As of
September 30, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$14,978,176 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$2,604,355.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2014 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:
Australia $ 6,845,706 $ -- ** $ --
Other Country
Categories* 101,466,888 -- --
---------------------------------------
Total Common
Stocks 108,312,594 -- ** --
Investment
Companies* 333,762 -- --
Money Market Funds 44,352 -- --
Rights* 4,538 -- --
---------------------------------------
Total Investments $ 108,695,246 $ -- ** $ --
=======================================
* See Portfolio of Investments for country breakout.
** 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. There were no
transfers between Levels at September 30, 2014.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Real Estate Investment Trusts 78.2%
Real Estate Management & Development 21.5
Health Care Providers & Services 0.1
Money Market Funds 0.0+
Capital Markets 0.0+
-----------------------------------------------------------
TOTAL INVESTMENTS 99.8
NET OTHER ASSETS AND LIABILITIES 0.2
-------
TOTAL 100.0%
=======
+ Amount is less than 0.1%.
See Notes to Financial Statements Page 37
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (FGD)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.6%
AUSTRALIA -- 13.8%
1,327,921 Adelaide Brighton Ltd. $ 3,732,140
845,728 ALS Ltd. 3,902,312
174,265 Australia and New Zealand
Banking Group Ltd. 4,717,700
70,640 Commonwealth Bank of Australia 4,656,597
2,937,286 Metcash Ltd. 6,763,674
435,517 Mineral Resources Ltd. 3,317,455
180,066 National Australia Bank Ltd. 5,130,148
287,709 Orica Ltd. 4,760,975
1,676,088 Scentre Group (b) 4,813,393
1,788,942 Stockland 6,186,913
365,819 Suncorp Group Ltd. 4,496,908
1,458,448 Sydney Airport 5,452,548
1,189,147 Telstra Corp. Ltd. 5,518,132
111,973 Wesfarmers Ltd. 4,133,278
180,753 Westpac Banking Corp. 5,086,418
142,298 Woodside Petroleum Ltd. 5,058,310
-------------
77,726,901
-------------
AUSTRIA -- 0.4%
70,618 OMV AG 2,376,589
-------------
BELGIUM -- 2.1%
341,291 Belgacom S.A. 11,880,287
-------------
BERMUDA -- 4.3%
654,785 Catlin Group Ltd. 5,541,019
898,201 Lancashire Holdings Ltd. 9,319,099
141,897 Seadrill Ltd. 3,805,417
424,157 VTech Holdings Ltd. 5,233,101
-------------
23,898,636
-------------
CANADA -- 7.7%
124,388 BCE, Inc. 5,318,935
370,872 Canadian Oil Sands Ltd. 6,841,569
179,090 Crescent Point Energy Corp. 6,463,519
167,711 Emera, Inc. 5,245,695
208,250 Manitoba Telecom Services, Inc. 5,416,601
180,353 Russel Metals, Inc. 5,567,037
114,300 TELUS Corp. 3,902,703
89,092 TransCanada Corp. 4,588,443
-------------
43,344,502
-------------
DENMARK -- 1.1%
57,529 Tryg A/S 5,973,946
-------------
FINLAND -- 4.2%
261,734 Fortum Oyj 6,383,595
128,926 Konecranes Oyj 3,468,510
166,113 Metso Oyj 5,916,647
255,616 Nokian Renkaat Oyj 7,709,838
-------------
23,478,590
-------------
FRANCE -- 9.1%
154,626 Bouygues S.A. 5,012,411
325,711 CNP Assurances 6,133,847
358,087 GDF Suez 8,982,365
142,848 Lagardere S.C.A. 3,823,209
88,868 Neopost S.A. 6,531,556
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
FRANCE (CONTINUED)
641,090 Orange S.A. $ 9,639,873
89,860 Total S.A. 5,839,487
214,034 Vivendi S.A. 5,168,846
-------------
51,131,594
-------------
GERMANY -- 5.8%
326,967 Deutsche Telekom AG 4,955,735
263,106 K+S AG 7,462,197
344,697 ProSiebenSat.1 Media AG 13,735,984
166,165 RWE AG 6,475,719
-------------
32,629,635
-------------
HONG KONG -- 2.5%
13,481,156 PCCW Ltd. 8,472,545
920,073 Television Broadcasts Ltd. 5,492,107
-------------
13,964,652
-------------
ITALY -- 2.0%
211,730 Atlantia S.p.A. 5,228,198
255,820 Eni S.p.A. 6,097,184
-------------
11,325,382
-------------
JAPAN -- 0.7%
98,700 Eisai Co., Ltd. 3,991,197
-------------
NETHERLANDS -- 0.7%
67,684 Koninklijke Boskalis Westminster
N.V. 3,811,088
-------------
NEW ZEALAND -- 2.6%
561,018 Fletcher Building Ltd. 3,845,289
4,668,751 Spark New Zealand Ltd. 10,824,673
-------------
14,669,962
-------------
NORWAY -- 0.7%
214,135 Fred Olsen Energy ASA 3,932,905
-------------
PORTUGAL -- 1.4%
1,848,862 EDP-Energias de Portugal S.A. 8,068,177
-------------
SINGAPORE -- 1.4%
391,500 Keppel Corp. Ltd. 3,222,348
1,369,000 StarHub Ltd. 4,421,322
-------------
7,643,670
-------------
SPAIN -- 3.2%
141,066 ACS Actividades de Construccion
y Servicios S.A. 5,420,065
200,662 Gas Natural SDG S.A. 5,907,861
884,933 Mapfre S.A. 3,134,089
231,296 Telefonica S.A. 3,580,176
-------------
18,042,191
-------------
SWEDEN -- 3.4%
160,758 NCC AB, Class B 5,337,807
253,172 Skanska AB, Class B 5,238,162
81,712 Svenska Handelsbanken AB,
Class A 3,844,405
680,851 TeliaSonera AB 4,710,100
-------------
19,130,474
-------------
Page 38 See Notes to Financial Statements
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (FGD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
SWITZERLAND -- 2.2%
9,238 Swisscom AG $ 5,249,413
24,411 Zurich Insurance Group AG 7,282,134
-------------
12,531,547
-------------
UNITED KINGDOM -- 12.4%
668,114 Amlin PLC 4,700,680
94,537 AstraZeneca PLC 6,806,940
619,405 BAE Systems PLC 4,734,530
1,127,859 Balfour Beatty PLC 3,448,394
6,801,591 Cable & Wireless Communications
PLC 5,171,348
1,152,492 Carillion PLC 5,690,996
89,577 Ensco PLC, Class A 3,700,426
485,551 Halfords Group PLC 3,735,008
4,061,180 Ladbrokes PLC 8,519,360
188,460 Provident Financial PLC 6,525,907
158,440 Royal Dutch Shell PLC, Class A 6,068,600
153,521 Severn Trent PLC 4,671,458
460,349 United Utilities Group PLC 6,030,023
-------------
69,803,670
-------------
UNITED STATES -- 17.9%
136,472 Altria Group, Inc. 6,269,524
92,976 American Electric Power Co., Inc. 4,854,277
146,000 AT&T, Inc. 5,145,040
147,192 CenterPoint Energy, Inc. 3,601,788
207,069 CenturyLink, Inc. 8,467,051
77,341 Consolidated Edison, Inc. 4,382,141
57,234 DTE Energy Co. 4,354,363
78,465 Eli Lilly and Co. 5,088,455
180,237 FirstEnergy Corp. 6,050,556
150,816 HollyFrontier Corp. 6,587,643
87,380 Integrys Energy Group, Inc. 5,663,972
85,017 Lorillard, Inc. 5,093,368
909,365 PDL BioPharma, Inc. 6,792,957
299,730 Pepco Holdings, Inc. 8,020,775
293,520 R.R. Donnelley & Sons Co. 4,831,339
93,750 SCANA Corp. 4,650,937
122,801 Southern (The) Co. 5,360,264
303,746 TECO Energy, Inc. 5,279,105
-------------
100,493,555
-------------
TOTAL INVESTMENTS -- 99.6% 559,849,150
(Cost $530,899,520) (c)
NET OTHER ASSETS AND
LIABILITIES -- 0.4% 2,342,568
-------------
NET ASSETS -- 100.0% $ 562,191,718
=============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) Non-income producing security.
(c) Aggregate cost for federal income tax purposes is $538,634,370. As of
September 30, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$50,458,967 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$29,244,187.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2014 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* $ 559,849,150 $ -- $ --
=======================================
* 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 September 30, 2014.
See Notes to Financial Statements Page 39
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (FGD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Diversified Telecommunication Services 18.4%
Oil, Gas & Consumable Fuels 8.9
Insurance 8.3
Electric Utilities 7.8
Multi-Utilities 7.7
Construction & Engineering 6.0
Banks 4.2
Media 4.1
Pharmaceuticals 2.8
Chemicals 2.2
Energy Equipment & Services 2.0
Tobacco 2.0
Real Estate Investment Trusts 2.0
Food & Staples Retailing 1.9
Water Utilities 1.9
Transportation Infrastructure 1.9
Machinery 1.7
Hotels, Restaurants & Leisure 1.5
Commercial Services & Supplies 1.4
Auto Components 1.4
Construction Materials 1.3
Biotechnology 1.2
Technology Hardware, Storage & Peripherals 1.2
Consumer Finance 1.2
Gas Utilities 1.1
Trading Companies & Distributors 1.0
Communications Equipment 0.9
Aerospace & Defense 0.8
Wireless Telecommunication Services 0.8
Professional Services 0.7
Specialty Retail 0.7
Industrial Conglomerates 0.6
-----------------------------------------------------------
TOTAL INVESTMENTS 99.6
NET OTHER ASSETS AND LIABILITIES 0.4
-------
TOTAL 100.0%
=======
% OF TOTAL
CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS
-----------------------------------------------------------
Euro 30.2%
United States Dollar 18.6
Australian Dollar 13.9
British Pound Sterling 13.4
Canadian Dollar 7.7
Hong Kong Dollar 3.4
Swedish Krona 3.4
New Zealand Dollar 2.6
Swiss Franc 2.2
Norwegian Krone 1.4
Singapore Dollar 1.4
Danish Krone 1.1
Japanese Yen 0.7
-------
TOTAL 100.0%
=======
Page 40 See Notes to Financial Statements
FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND (FAN)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 100.0%
AUSTRALIA -- 4.2%
80,292 AGL Energy Ltd. $ 951,857
12,001,643 Infigen Energy (b) 2,732,088
-------------
3,683,945
-------------
BERMUDA -- 4.5%
48,682,789 China WindPower Group Ltd. (b) 3,887,175
-------------
BRAZIL -- 0.7%
234,265 Centrais Eletricas Brasileiras
S.A., ADR 632,515
-------------
CAYMAN ISLANDS -- 0.4%
384,630 China High Speed Transmission
Equipment Group Co., Ltd. (b) 312,564
-------------
CHINA -- 7.8%
6,454,010 China Longyuan Power Group
Corp., Class H 6,308,678
785,712 China Suntien Green Energy
Corp., Class H 196,305
450,002 Harbin Electric Co., Ltd.,
Class H 270,644
-------------
6,775,627
-------------
DENMARK -- 10.5%
2,107,659 Greentech Energy Systems A/S (b) 3,558,332
140,804 Vestas Wind Systems A/S (b) 5,504,533
-------------
9,062,865
-------------
FRANCE -- 3.3%
27,451 Alstom S.A. (b) 938,923
1,692,527 Theolia S.A. (b) 1,902,604
-------------
2,841,527
-------------
GERMANY -- 15.2%
93,899 E. ON SE 1,719,104
268,289 Nordex SE (b) 4,949,113
1,135,951 PNE Wind AG 3,489,362
36,429 RWE AG 1,419,697
13,705 Siemens AG, ADR 1,631,854
-------------
13,209,130
-------------
GREECE -- 0.2%
50,776 Terna Energy S.A. 201,378
-------------
ITALY -- 1.1%
379,987 Enel Green Power S.p.A. 972,369
-------------
JAPAN -- 4.0%
460,326 Japan Wind Development Co.,
Ltd. (b) 2,014,648
94,800 Mitsui & Co., Ltd. 1,494,931
-------------
3,509,579
-------------
PORTUGAL -- 1.5%
295,719 EDP-Energias de Portugal S.A. 1,290,477
-------------
SOUTH KOREA -- 0.3%
55,823 Dongkuk Structure & Construction
Co., Ltd. 235,406
-------------
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
SPAIN -- 23.5%
8,421 Acciona S.A. (b) $ 630,301
827,041 EDP Renovaveis S.A. 5,734,853
37,749 Endesa S.A. 1,491,642
475,408 Gamesa Corp. Tecnologica S.A. (b) 5,240,879
1,011,512 Iberdrola S.A. 7,243,976
-------------
20,341,651
-------------
SWEDEN -- 5.6%
629,793 Arise AB (b) 1,483,714
564,684 Eolus Vind AB, Class B 2,175,473
56,468 SKF AB, Class B 1,179,286
-------------
4,838,473
-------------
SWITZERLAND -- 0.3%
7,553 BKW AG 249,604
-------------
UNITED KINGDOM -- 3.8%
35,445 BP PLC, ADR 1,557,808
22,755 Royal Dutch Shell PLC, Class A,
ADR 1,732,338
-------------
3,290,146
-------------
UNITED STATES -- 13.1%
77,400 AES (The) Corp. 1,097,532
17,622 Allegheny Technologies, Inc. 653,776
19,061 Alliant Energy Corp. 1,056,170
179,587 Capstone Turbine Corp. (b) 192,158
25,862 Duke Energy Corp. 1,933,702
39,099 Federal-Mogul Holdings Corp. (b) 581,402
67,744 General Electric Co. 1,735,601
15,142 NextEra Energy, Inc. 1,421,531
29,939 NRG Energy, Inc. 912,541
9,611 Otter Tail Corp. 256,325
18,009 Trinity Industries, Inc. 841,381
14,923 Woodward, Inc. 710,633
-------------
11,392,752
-------------
TOTAL COMMON STOCKS -- 100.0% 86,727,183
(Cost $85,168,577)
MONEY MARKET FUNDS -- 0.0%
1,125 Morgan Stanley Institutional
Liquidity Fund - Treasury
Portfolio - Institutional
Class - 0.03% (c) 1,125
(Cost $1,125) -------------
TOTAL INVESTMENTS -- 100.0% 86,728,308
(Cost $85,169,702) (d)
NET OTHER ASSETS AND
LIABILITIES -- 0.0% 17,178
-------------
NET ASSETS -- 100.0% $ 86,745,486
=============
See Notes to Financial Statements Page 41
FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND (FAN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) Non-income producing security.
(c) Interest rate shown reflects yield as of September 30, 2014.
(d) Aggregate cost for federal income tax purposes is $88,363,674. As of
September 30, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$10,583,302 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$12,218,668.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2014 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* $ 86,727,183 $ -- $ --
Money Market Funds 1,125 -- --
---------------------------------------
Total Investments $ 86,728,308 $ -- $ --
=======================================
* 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 September 30, 2014.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Independent Power and Renewable Electricity
Producers 28.7%
Electrical Equipment 24.1
Electric Utilities 19.8
Construction & Engineering 7.3
Multi-Utilities 5.9
Oil, Gas & Consumable Fuels 4.0
Industrial Conglomerates 3.9
Machinery 3.1
Trading Companies & Distributors 1.7
Metals & Mining 0.8
Auto Components 0.7
Money Market Funds 0.0**
-----------------------------------------------------------
TOTAL INVESTMENTS 100.0
NET OTHER ASSETS AND LIABILITIES 0.0**
-------
TOTAL 100.0%
=======
**Amount is less than 0.1%.
% OF TOTAL
CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS
-----------------------------------------------------------
Euro 42.9%
United States Dollar 19.5
Hong Kong Dollar 12.7
Danish Krone 10.5
Swedish Krona 5.6
Australian Dollar 4.2
Japanese Yen 4.0
Swiss Franc 0.3
South Korean Won 0.3
-------
TOTAL 100.0%
=======
Page 42 See Notes to Financial Statements
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND (FLM)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 100.0%
AUSTRALIA -- 1.6%
15,449 Leighton Holdings Ltd. $ 261,059
-------------
CANADA -- 2.0%
3,484 Aecon Group, Inc. 47,191
3,099 SNC-Lavalin Group, Inc. 142,699
2,306 Stantec, Inc. 150,885
-------------
340,775
-------------
CAYMAN ISLANDS -- 2.3%
262,335 China State Construction
International Holdings Ltd. 389,878
-------------
CHINA -- 6.0%
681,409 China Communications
Construction Co., Ltd.,
Class H 491,431
973,926 China Railway Group Ltd.,
Class H 516,762
-------------
1,008,193
-------------
FINLAND -- 0.3%
6,451 YIT Oyj 49,784
-------------
FRANCE -- 4.5%
11,126 Bouygues S.A. 360,665
5,880 Eiffage S.A. 327,966
1,064 Vinci S.A. 61,826
-------------
750,457
-------------
GERMANY -- 1.7%
4,252 Hochtief AG 292,747
-------------
JAPAN -- 26.2%
38,000 CHIYODA Corp. 419,585
25,000 COMSYS Holdings Corp. 431,046
11,000 JGC Corp. 300,287
80,000 KAJIMA Corp. 382,950
8,000 KANDENKO Co., Ltd. 40,410
33,000 Kinden Corp. 339,403
7,000 Kumagai Gumi Co. Ltd. (b) 25,849
21,400 KYOWA EXEO Corp. 278,049
38,000 Maeda Corp. 304,554
17,000 Maeda Road Construction Co.,
Ltd. 264,436
16,000 Nishimatsu Construction Co., Ltd. 72,359
35,000 OBAYASHI Corp. 239,663
50,000 OKUMURA Corp. 291,771
65,000 Penta-Ocean Construction Co.,
Ltd. 218,692
26,000 SHIMIZU Corp. 205,060
3,800 SHO-BOND Holdings Co., Ltd. 147,946
24,000 TAISEI Corp. 135,455
33,000 TODA Corp. 165,790
7,400 TOSHIBA Plant Systems &
Services Corp. 124,554
5,000 Toyo Engineering Corp. 21,427
-------------
4,409,286
-------------
NETHERLANDS -- 10.1%
15,425 Arcadis N.V. 510,738
6,597 Chicago Bridge & Iron Co. N.V. 381,636
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
NETHERLANDS (CONTINUED)
58,111 Koninklijke BAM Groep N.V. (c) $ 171,750
8,827 Koninklijke Boskalis Westminster
N.V. 497,023
269,680 Royal Imtech N.V. (b) (c) 132,842
-------------
1,693,989
-------------
NORWAY -- 2.5%
104,390 Akastor ASA 420,013
-------------
PANAMA -- 1.1%
32,701 McDermott International,
Inc. (b) (c) 187,050
-------------
PORTUGAL -- 0.0%
1,126 Mota-Engil, SGPS, S.A. 7,273
-------------
SPAIN -- 5.5%
12,636 ACS Actividades de Construccion
y Servicios S.A. 485,503
5,466 Obrascon Huarte Lain S.A. 182,849
27,549 Sacyr S.A. (b) 148,370
2,062 Tecnicas Reunidas S.A. 109,359
-------------
926,081
-------------
SWEDEN -- 3.3%
7,081 NCC AB, Class B 235,117
26,575 Peab AB 183,071
6,982 Skanska AB, Class B 144,459
-------------
562,647
-------------
SWITZERLAND -- 2.2%
11,740 Foster Wheeler AG 371,219
-------------
UNITED KINGDOM -- 12.3%
26,068 AMEC PLC 466,549
129,626 Balfour Beatty PLC 396,328
20,082 Galliford Try PLC 412,155
20,165 Keller Group PLC 287,674
23,543 WS Atkins PLC 502,653
-------------
2,065,359
-------------
UNITED STATES -- 18.4%
17,305 AECOM Technology Corp. (b) 584,044
14,289 Dycom Industries, Inc. (b) 438,815
9,378 EMCOR Group, Inc. 374,745
5,324 Fluor Corp. 355,590
10,980 Granite Construction, Inc. 349,274
6,568 Jacobs Engineering Group, Inc. (b) 320,650
12,730 KBR, Inc. 239,706
974 Matrix Service Co. (b) 23,493
5,831 Quanta Services, Inc. (b) 211,607
3,258 Tutor Perini Corp. (b) 86,011
1,981 URS Corp. 114,125
-------------
3,098,060
-------------
TOTAL COMMON STOCKS -- 100.0% 16,833,870
(Cost $18,135,706)
See Notes to Financial Statements Page 43
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND (FLM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
MONEY MARKET FUNDS -- 1.5%
253,790 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
0.01% (d) (e) $ 253,790
(Cost $253,790) -------------
TOTAL INVESTMENTS -- 101.5% 17,087,660
(Cost $18,389,496) (f)
NET OTHER ASSETS AND
LIABILITIES -- (1.5)% (246,278)
-------------
NET ASSETS -- 100.0% $ 16,841,382
=============
(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 2F - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $244,658 and the total value of the collateral held by the
Fund is $253,790.
(d) Interest rate shown reflects yield as of September 30, 2014.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $18,407,105. As of
September 30, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$1,210,007 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$2,529,452.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2014 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* $ 16,833,870 $ -- $ --
Money Market Funds 253,790 -- --
---------------------------------------
Total Investments $ 17,087,660 $ -- $ --
=======================================
* 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 September 30, 2014.
-----------------------------------------------------------
OFFSETTING ASSETS AND LIABILITIES
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-----------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 244,658
Non-cash Collateral(2) (244,658)
-------------
Net Amount $ --
=============
(1) The amount presented on the Statements of Assets and Liabilities is not
offset and is shown on a gross basis.
(2) At September 30, 2014, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Construction & Engineering 88.9%
Energy Equipment & Services 7.2
Professional Services 3.9
Money Market Funds 1.5
-----------------------------------------------------------
TOTAL INVESTMENTS 101.5
NET OTHER ASSETS AND LIABILITIES (1.5)
-------
TOTAL 100.0%
=======
% OF TOTAL
CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS
-----------------------------------------------------------
Japanese Yen 25.8%
United States Dollar 25.1
Euro 19.5
British Pound Sterling 12.1
Hong Kong Dollar 8.3
Swedish Krona 3.3
Norwegian Krone 2.4
Canadian Dollar 2.0
Australian Dollar 1.5
-------
TOTAL 100.0%
=======
Page 44 See Notes to Financial Statements
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND (GRID)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.8%
CAYMAN ISLANDS -- 2.5%
390,000 Wasion Group Holdings Ltd. $ 359,118
-------------
FRANCE -- 8.4%
2,871 Alstom S.A. (b) 98,198
350 Saft Groupe S.A. 11,909
14,002 Schneider Electric SE 1,075,268
-------------
1,185,375
-------------
GERMANY -- 3.6%
2,361 Siemens AG 281,419
8,553 SMA Solar Technology AG (b) (c) 225,781
-------------
507,200
-------------
IRELAND -- 1.9%
4,248 Eaton Corp. PLC 269,196
-------------
ITALY -- 3.8%
29,129 Prysmian S.p.A. 541,204
-------------
JAPAN -- 5.9%
34,000 NEC Corp. 117,493
3,000 NGK Insulators Ltd. 71,447
18,000 Osaki Electric Co., Ltd. 105,038
24,200 Panasonic Corp. 287,840
55,000 TOSHIBA Corp. 254,853
-------------
836,671
-------------
SPAIN -- 8.6%
14,053 Red Electrica Corp. S.A. 1,216,922
-------------
SWITZERLAND -- 8.3%
52,161 ABB Ltd. 1,173,582
-------------
UNITED KINGDOM -- 2.4%
14,218 Melrose Industries PLC 57,093
19,865 National Grid PLC 285,971
-------------
343,064
-------------
UNITED STATES -- 54.4%
29,857 Advanced Energy Industries,
Inc. (b) 561,013
56,057 American Superconductor
Corp. (b) (c) 79,040
341 AZZ, Inc. 14,244
11,039 Badger Meter, Inc. 556,918
329 Digi International, Inc. (b) 2,467
22,345 EnerNOC, Inc. (b) 378,971
617 EnerSys 36,181
22,579 Enphase Energy, Inc. (b) 338,459
16,477 ESCO Technologies, Inc. 573,070
27,629 General Cable Corp. 416,645
11,416 General Electric Co. 292,478
3,114 Honeywell International, Inc. 289,976
689 Hubbell, Inc., Class B 83,045
31,763 ITC Holdings Corp. 1,131,716
14,049 Itron, Inc. (b) 552,266
6,077 Johnson Controls, Inc. 267,388
847 MasTec, Inc. (b) 25,935
17,527 MYR Group, Inc. (b) 422,050
20,719 Pike Corp. (b) 246,349
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
UNITED STATES (CONTINUED)
16,894 PowerSecure International,
Inc. (b) $ 161,845
32,646 Quanta Services, Inc. (b) 1,184,723
320 Valmont Industries, Inc. 43,178
519 WESCO International, Inc. (b) 40,617
-------------
7,698,574
-------------
TOTAL COMMON STOCKS -- 99.8% 14,130,906
MONEY MARKET FUNDS -- 1.4%
197,172 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
0.01% (d) (e) 197,172
(Cost $197,172) -------------
TOTAL INVESTMENTS -- 101.2% 14,328,078
(Cost $13,159,919) (f)
NET OTHER ASSETS AND
LIABILITIES -- (1.2)% (176,550)
-------------
NET ASSETS -- 100.0% $ 14,151,528
=============
(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 2F - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $187,195 and the total value of the collateral held by the
Fund is $197,172.
(d) Interest rate shown reflects yield as of September 30, 2014.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $13,464,385. As of
September 30, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$1,926,410 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$1,062,717.
See Notes to Financial Statements Page 45
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND (GRID)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2014 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* $ 14,130,906 $ -- $ --
Money Market Funds 197,172 -- --
--------------------------------------
Total Investments $ 14,328,078 $ -- $ --
======================================
* 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 September 30, 2014.
------------------------------------------------------------
OFFSETTING ASSETS AND LIABILITIES
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
------------------------------------------------------------
SECURITIES LENDING AGENCY AGREEMENT
Total gross amount presented on the Statements
of Assets and Liabilities(1) $ 187,195
Non-cash Collateral(2) (187,195)
----------------
Net Amount $ --
================
(1) The amount presented on the Statements of Assets and Liabilities is not
offset and is shown on a gross basis.
(2) At September 30, 2014, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
% OF
INDUSTRY NET ASSETS
------------------------------------------------------------
Electrical Equipment 30.4%
Electric Utilities 16.6
Construction & Engineering 13.3
Electronic Equipment, Instruments & Components 11.1
Industrial Conglomerates 5.8
Semiconductors & Semiconductor Equipment 5.6
Machinery 5.3
Software 2.7
Aerospace & Defense 2.0
Household Durables 2.0
Multi-Utilities 2.0
Auto Components 1.9
Money Market Funds 1.4
Technology Hardware, Storage & Peripherals 0.8
Trading Companies & Distributors 0.3
Communications Equipment 0.0**
------------------------------------------------------------
TOTAL INVESTMENTS 101.2
NET OTHER ASSETS AND LIABILITIES (1.2)
-------
TOTAL 100.0%
=======
** Amount is less than 0.1%.
% OF TOTAL
CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS
------------------------------------------------------------
United States Dollar 57.0%
Euro 24.1
Swiss Franc 8.2
Japanese Yen 5.8
Hong Kong Dollar 2.5
British Pound Sterling 2.4
-------
TOTAL 100.0%
=======
Page 46 See Notes to Financial Statements
FIRST TRUST ISE GLOBAL COPPER INDEX FUND (CU)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 98.8%
AUSTRALIA -- 4.5%
520,070 Aditya Birla Minerals Ltd. (b) $ 113,837
319,307 OZ Minerals Ltd. 1,084,728
-------------
1,198,565
-------------
CANADA -- 35.5%
515,339 Capstone Mining Corp. (b) 1,035,325
309,243 Copper Mountain Mining Corp. (b) 668,216
98,377 First Quantum Minerals Ltd. 1,899,112
119,901 HudBay Minerals, Inc. 1,024,557
132,739 Imperial Metals Corp. (b) 1,029,958
270,294 Katanga Mining Ltd. (b) 97,745
308,791 Lundin Mining Corp. (b) 1,524,724
320,711 Northern Dynasty Minerals Ltd. (b) 175,333
398,195 Taseko Mines Ltd. (b) 676,931
339,270 Turquoise Hill Resources Ltd. (b) 1,275,349
-------------
9,407,250
-------------
CHINA -- 4.9%
793,739 Jiangxi Copper Co., Ltd., Class H 1,306,398
-------------
PERU -- 1.2%
12,863 Sociedad Minera Cerro Verde
S.A.A. (b) 315,143
-------------
POLAND -- 4.9%
34,162 KGHM Polska Miedz S.A. 1,305,370
-------------
RUSSIA -- 4.8%
68,613 MMC Norilsk Nickel OJSC, ADR 1,279,632
-------------
TURKEY -- 3.0%
452,740 Park Elektrik Uretim Madencilik
Sanayi ve Ticaret A.S. 777,586
-------------
UNITED KINGDOM -- 24.8%
172,838 Antofagasta PLC 2,020,203
294,920 Kazakhmys PLC (b) 1,259,333
40,991 Rio Tinto PLC, ADR 2,015,937
77,721 Vedanta Resources PLC 1,258,076
-------------
6,553,549
-------------
UNITED STATES -- 15.2%
62,588 Freeport-McMoRan, Inc. 2,043,498
67,116 Southern Copper Corp. 1,989,990
-------------
4,033,488
-------------
TOTAL INVESTMENTS -- 98.8% 26,176,981
(Cost $35,368,221) (c)
NET OTHER ASSETS AND
LIABILITIES -- 1.2% 308,646
-------------
NET ASSETS -- 100.0% $ 26,485,627
=============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) Non-income producing security.
(c) Aggregate cost for federal income tax purposes is $38,539,136. As of
September 30, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $0 and
the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $12,362,155.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2014 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* $ 26,176,981 $ -- $ --
=======================================
* 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 September 30, 2014.
% OF
INDUSTRY NET ASSETS
------------------------------------------------------------
Metals & Mining 98.8%
------------------------------------------------------------
TOTAL INVESTMENTS 98.8
NET OTHER ASSETS AND LIABILITIES 1.2
-------
TOTAL 100.0%
=======
See Notes to Financial Statements Page 47
FIRST TRUST ISE GLOBAL PLATINUM INDEX FUND (PLTM)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 97.9%
BERMUDA -- 4.2%
1,492,641 Aquarius Platinum Ltd. (b) $ 447,659
-------------
CANADA -- 12.9%
343,350 Eastern Platinum Ltd. (b) 294,313
1,850,790 North American Palladium Ltd. (b) 359,053
574,866 Platinum Group Metals Ltd. (b) 508,163
198,984 PolyMet Mining Corp. (b) 214,903
-------------
1,376,432
-------------
CHINA -- 4.7%
2,476,837 Xinjiang Xinxin Mining Industry
Co., Ltd., Class H (b) 500,800
-------------
GUERNSEY -- 0.9%
12,214 Zimplats Holdings Ltd. (b) (c) 96,460
-------------
HONG KONG -- 4.6%
1,410,974 MMG Ltd. 494,259
-------------
JAPAN -- 4.2%
18,300 Furuya Metal Co., Ltd. 450,346
-------------
RUSSIA -- 10.0%
56,956 MMC Norilsk Nickel OJSC, ADR 1,062,229
-------------
SOUTH AFRICA -- 32.6%
36,285 African Rainbow Minerals Ltd. 460,785
14,234 Anglo American Platinum Ltd. (b) 461,849
133,019 Impala Platinum Holdings Ltd. (b) 1,025,694
140,457 Northam Platinum Ltd. (b) 458,366
90,981 Royal Bafokeng Platinum Ltd. (b) 487,210
6,738,344 Wesizwe Platinum Ltd. (b) 591,755
-------------
3,485,659
-------------
UNITED KINGDOM -- 14.6%
21,655 Johnson Matthey PLC 1,024,738
176,873 Lonmin PLC (b) 532,755
-------------
1,557,493
-------------
UNITED STATES -- 9.2%
65,533 Stillwater Mining Co. (b) 984,961
-------------
TOTAL INVESTMENTS -- 97.9% 10,456,298
(Cost $12,752,344) (d)
NET OTHER ASSETS AND
LIABILITIES -- 2.1% 220,371
-------------
NET ASSETS -- 100.0% $ 10,676,669
=============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) Non-income producing security.
(c) This security is fair valued by the Advisor's Pricing Committee 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. At September 30, 2014, securities noted as such are valued at
$96,460 or 0.90% of net assets.
(d) Aggregate cost for federal income tax purposes is $14,598,657. As of
September 30, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $0 and
the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $4,142,359.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2014 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:
Bermuda $ 447,659 $ -- $ --
Canada 1,376,432 -- --
China 500,800 -- --
Guernsey -- 96,460 --
Hong Kong 494,259 -- --
Japan 450,346 -- --
Russia 1,062,229 -- --
South Africa 3,485,659 -- --
United Kingdom 1,557,493 -- --
United States 984,961 -- --
----------------------------------------
Total Investments $ 10,359,838 $ 96,460 $ --
========================================
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 September 30, 2014.
% OF
INDUSTRY NET ASSETS
------------------------------------------------------------
Metals & Mining 84.1%
Chemicals 9.6
Semiconductors & Semiconductor Equipment 4.2
------------------------------------------------------------
TOTAL INVESTMENTS 97.9
NET OTHER ASSETS AND LIABILITIES 2.1
-------
TOTAL 100.0%
=======
Page 48 See Notes to Financial Statements
FIRST TRUST BICK INDEX FUND (BICK)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.9%
BRAZIL -- 24.4%
28,221 Ambev S.A., ADR $ 184,848
11,852 Banco Bradesco S.A., ADR 168,891
14,107 Banco do Brasil S.A. 146,732
27,435 Banco Santander Brasil S.A., ADR 179,425
13,352 BB Seguridade Participacoes S.A. 176,136
34,525 BM&F BOVESPA S.A. 158,397
7,642 BRF S.A. 182,328
23,814 CCR S.A. 164,419
3,952 Cia Brasileira de Distribuicao
(Preference Shares) 173,257
10,811 Cielo S.A. 175,917
26,026 Companhia Energetica de Minas
Gerais, ADR 162,142
4,750 Embraer S.A., ADR 186,295
35,223 Gerdau S.A., ADR 169,070
12,390 Grupo BTG Pactual (Unit) 161,623
11,815 Itau Unibanco Holding S.A., ADR 163,992
43,457 Itausa-Investimentos Itau S.A.
(Preference Shares) 165,466
45,589 JBS S.A. 171,721
29,020 Kroton Educacional S.A. 182,342
11,430 Natura Cosmeticos S.A. 173,709
289,236 Oi S.A. (Preference Shares) (b) 200,879
11,440 Petroleo Brasileiro S.A., ADR 162,334
8,789 Telefonica Brasil S.A., ADR 172,967
6,358 Tim Participacoes S.A., ADR 166,580
8,014 Ultrapar Participacoes S.A. 169,955
15,234 Vale S.A., ADR 167,726
-------------
4,287,151
-------------
CAYMAN ISLANDS -- 7.8%
860 Baidu, Inc., ADR (b) 187,678
2,926 Ctrip.com International Ltd.,
ADR (b) 166,080
6,406 JD.com, Inc., ADR (b) 165,403
2,122 NetEase, Inc., ADR 181,770
2,351 Qihoo 360 Technology Co., Ltd.,
ADR (b) 158,622
11,825 Tencent Holdings Ltd. 175,894
904 Vipshop Holdings Ltd., ADR (b) 170,865
2,116 YY, Inc., ADR (b) 158,467
-------------
1,364,779
-------------
CHINA -- 14.9%
404,152 Agricultural Bank of China Ltd.,
Class H 179,048
52,324 Anhui Conch Cement Co., Ltd.,
Class H 167,117
399,111 Bank of China Ltd., Class H 178,871
251,252 China Construction Bank Corp.,
Class H 176,025
62,837 China Life Insurance Co., Ltd.,
Class H 174,393
100,525 China Merchants Bank Co., Ltd.,
Class H 171,925
196,025 China Minsheng Banking Corp.,
Ltd., Class H 179,241
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
CHINA (CONTINUED)
49,400 China Pacific Insurance (Group)
Co., Ltd., Class H $ 173,683
184,619 China Petroleum & Chemical
Corp., Class H 161,679
64,024 China Shenhua Energy Co., Ltd.,
Class H 178,512
292,000 China Telecom Corp., Ltd.,
Class H 179,002
45,638 Great Wall Motor Co., Ltd.,
Class H 177,207
281,394 Industrial & Commercial Bank of
China Ltd., Class H 175,399
138,703 PetroChina Co., Ltd., Class H 177,736
22,665 Ping An Insurance (Group) Co. of
China Ltd., Class H 170,173
-------------
2,620,011
-------------
HONG KONG -- 2.0%
101,597 CNOOC Ltd. 174,282
118,776 Lenovo Group Ltd. 176,829
-------------
351,111
-------------
INDIA -- 20.9%
7,999 Axis Bank Ltd., GDR 243,890
5,626 Dr. Reddy's Laboratories Ltd.,
ADR 295,646
5,590 HDFC Bank Ltd., ADR 260,382
5,169 ICICI Bank Ltd., ADR 253,798
4,621 Infosys Ltd., ADR 279,524
10,599 Larsen & Toubro Ltd., GDR 250,136
12,081 Mahindra & Mahindra Ltd., GDR 267,957
27,419 Ranbaxy Laboratories Ltd.,
GDR (b) 280,771
8,255 Reliance Industries Ltd., GDR (c) 251,777
14,760 Sesa Sterlite Ltd., ADR 254,758
3,208 State Bank of India, GDR 253,432
5,831 Tata Motors Ltd., ADR 254,873
32,805 Tata Steel Ltd., GDR 242,921
23,196 Wipro Ltd., ADR 282,063
-------------
3,671,928
-------------
JERSEY -- 1.7%
13,442 WNS Holdings Ltd., ADR (b) 302,579
-------------
MAURITIUS -- 1.4%
9,192 MakeMyTrip Ltd. (b) 255,813
-------------
SOUTH KOREA -- 25.3%
96 Amorepacific Corp. 217,609
4,608 Hana Financial Group, Inc. 168,119
1,406 Hyundai Heavy Industries Co., Ltd. 183,203
708 Hyundai Mobis Co., Ltd. 172,429
882 Hyundai Motor Co. 159,224
2,471 Hyundai Steel Co. 173,749
10,929 Industrial Bank of Korea 165,191
4,714 KB Financial Group, Inc. 172,210
3,255 Kia Motors Corp. 165,642
729 LG Chem Ltd. 176,507
5,582 LG Display Co., Ltd. (b) 179,851
2,698 LG Electronics, Inc. 167,978
See Notes to Financial Statements Page 49
FIRST TRUST BICK INDEX FUND (BICK)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
SOUTH KOREA (CONTINUED)
406 LG Household & Health Care Ltd. $ 195,065
274 NAVER Corp. 209,541
537 POSCO 167,168
2,629 Samsung C&T Corp. 188,346
162 Samsung Electronics Co., Ltd. 181,765
713 Samsung Fire & Marine Insurance
Co., Ltd. 190,877
7,307 Samsung Heavy Industries Co.,
Ltd. 174,842
1,780 Samsung Life Insurance Co., Ltd. 178,801
1,320 Samsung SDI Co., Ltd. 153,234
3,716 Shinhan Financial Group Co., Ltd. 171,142
4,359 SK Hynix, Inc. (b) 193,114
2,134 SK Innovation Co., Ltd. 164,006
5,996 SK Telecom Co., Ltd., ADR 181,919
-------------
4,451,532
-------------
UNITED KINGDOM -- 1.5%
15,958 Vedanta Resources PLC 258,313
-------------
TOTAL INVESTMENTS -- 99.9% 17,563,217
(Cost $17,112,533) (d)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 17,783
-------------
NET ASSETS -- 100.0% $ 17,581,000
=============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) Non-income producing security.
(c) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under the Securities
Act of 1933, as amended, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Pursuant to
procedures adopted by the Trust's Board of Trustees, this security has
been determined to be liquid by First Trust Advisors L.P., the Fund's
advisor. Although market instability can result in periods of increased
overall market illiquidity, liquidity for each security is determined
based on security specific factors and assumptions, which require
subjective judgment. At September 30, 2014, securities noted as such
amounted to $251,777 or 1.43% of net assets.
(d) Aggregate cost for federal income tax purposes is $18,846,930. As of
September 30, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$1,215,778 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$2,499,491.
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2014 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* $ 17,563,217 $ -- $ --
=======================================
* 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 September 30, 2014.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Banks 20.3%
Oil, Gas & Consumable Fuels 8.2
Metals & Mining 8.2
Internet Software & Services 6.1
Insurance 6.1
IT Services 5.9
Automobiles 5.8
Internet & Catalog Retail 4.3
Pharmaceuticals 3.3
Diversified Telecommunication Services 3.1
Personal Products 2.2
Technology Hardware, Storage & Peripherals 2.0
Machinery 2.0
Food Products 2.0
Wireless Telecommunication Services 2.0
Electronic Equipment, Instruments & Components 1.9
Construction & Engineering 1.4
Household Products 1.1
Semiconductors & Semiconductor Equipment 1.1
Trading Companies & Distributors 1.1
Aerospace & Defense 1.1
Beverages 1.1
Diversified Consumer Services 1.0
Chemicals 1.0
Food & Staples Retailing 1.0
Auto Components 1.0
Household Durables 1.0
Construction Materials 1.0
Transportation Infrastructure 0.9
Electric Utilities 0.9
Capital Markets 0.9
Diversified Financial Services 0.9
-----------------------------------------------------------
TOTAL INVESTMENTS 99.9
NET OTHER ASSETS AND LIABILITIES 0.1
-------
TOTAL 100.0%
=======
Page 50 See Notes to Financial Statements
FIRST TRUST NASDAQ CEA SMARTPHONE INDEX FUND (FONE)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.5%
BERMUDA -- 1.5%
12,040 Marvell Technology Group Ltd. $ 162,299
-------------
CANADA -- 5.9%
34,001 BlackBerry Ltd. (b) 337,970
31,437 Celestica, Inc. (b) 319,085
-------------
657,055
-------------
CAYMAN ISLANDS -- 2.9%
613,853 FIH Mobile Ltd. (b) 319,384
-------------
CHINA -- 2.9%
23,446 BYD Co., Ltd., Class H 155,655
74,378 ZTE Corp., Class H 164,947
-------------
320,602
-------------
FINLAND -- 3.1%
41,353 Nokia Oyj, ADR 349,846
-------------
FRANCE -- 2.7%
49,114 Alcatel-Lucent, ADR (b) 148,815
5,069 Orange S.A. 76,221
2,950 Vivendi S.A. 71,242
-------------
296,278
-------------
GERMANY -- 0.7%
5,131 Deutsche Telekom AG 77,769
-------------
GUERNSEY -- 1.5%
3,556 Amdocs Ltd. 163,149
-------------
HONG KONG -- 0.7%
6,426 China Mobile Ltd. 74,275
-------------
ITALY -- 0.7%
66,698 Telecom Italia S.p.A. (b) 76,451
-------------
JAPAN -- 9.8%
1,334 KDDI Corp. 80,192
7,400 KYOCERA Corp. 344,850
4,400 NTT DOCOMO, Inc. 73,437
1,100 SoftBank Corp. 77,118
18,100 SONY Corp. 328,581
38,000 TOSHIBA Corp. 176,080
-------------
1,080,258
-------------
NETHERLANDS -- 2.8%
1,706 Gemalto N.V. 156,609
19,948 STMicroelectronics N.V. 154,196
-------------
310,805
-------------
RUSSIA -- 0.5%
4,169 Mobile TeleSystems OJSC, ADR 62,285
-------------
SINGAPORE -- 4.5%
2,040 Avago Technologies Ltd. 177,480
31,352 Flextronics International
Ltd. (b) 323,553
-------------
501,033
-------------
SOUTH KOREA -- 6.1%
4,498 KT Corp., ADR 72,913
4,642 LG Electronics, Inc. 289,011
284 Samsung Electronics Co., Ltd. 318,651
-------------
680,575
-------------
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
SPAIN -- 0.7%
4,838 Telefonica S.A. $ 74,886
-------------
SWEDEN -- 1.5%
13,397 Telefonaktiebolaget LM Ericsson,
Class B 170,062
-------------
TAIWAN -- 8.3%
75,243 HTC Corp. (b) 326,504
440,249 Inventec Corp. 286,557
295,596 Wistron Corp. 301,723
-------------
914,784
-------------
UNITED KINGDOM -- 0.7%
22,401 Vodafone Group PLC 74,228
-------------
UNITED STATES -- 42.0%
2,930 Agilent Technologies, Inc. 166,951
4,739 Altera Corp. 169,561
3,276 Analog Devices, Inc. 162,129
3,377 Apple, Inc. 340,233
2,200 AT&T, Inc. 77,528
14,053 Benchmark Electronics, Inc. (b) 312,117
4,253 Broadcom Corp., Class A 171,906
11,047 CEVA, Inc. (b) 148,472
8,095 Ciena Corp. (b) 135,348
2,106 Crown Castle International Corp. 169,596
288 Google, Inc., Class A (b) 169,462
293 Google, Inc., Class C (b) 169,167
5,422 Maxim Integrated Products, Inc. 163,961
5,137 Micron Technology, Inc. (b) 175,994
2,820 Motorola Solutions, Inc. 178,450
6,178 OmniVision Technologies, Inc. (b) 163,470
2,201 QUALCOMM, Inc. 164,569
13,431 RF Micro Devices, Inc. (b) 154,994
14,741 Sanmina Corp. (b) 307,497
1,519 SBA Communications Corp.,
Class A (b) 168,457
2,956 Skyworks Solutions, Inc. 171,596
13,711 Sprint Corp. (b) 86,928
2,040 Synaptics, Inc. (b) 149,328
3,476 Texas Instruments, Inc. 165,771
8,105 TriQuint Semiconductor, Inc. (b) 154,562
1,544 Verizon Communications, Inc. 77,185
3,964 Xilinx, Inc. 167,875
-------------
4,643,107
-------------
TOTAL INVESTMENTS -- 99.5% 11,009,131
(Cost $8,995,781) (c)
NET OTHER ASSETS AND
LIABILITIES -- 0.5% 50,060
-------------
NET ASSETS -- 100.0% $ 11,059,191
=============
See Notes to Financial Statements Page 51
FIRST TRUST NASDAQ CEA SMARTPHONE INDEX FUND (FONE)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) Non-income producing security.
(c) Aggregate cost for federal income tax purposes is $9,161,951. As of
September 30, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$2,299,340 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$452,160.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2014 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* $ 11,009,131 $ -- $ --
=======================================
* 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 September 30, 2014.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Semiconductors & Semiconductor Equipment 23.6%
Electronic Equipment, Instruments & Components 17.4
Technology Hardware, Storage & Peripherals 17.3
Communications Equipment 11.9
Wireless Telecommunication Services 6.3
Household Durables 5.6
Diversified Telecommunication Services 5.5
Internet Software & Services 3.0
Industrial Conglomerates 1.6
Real Estate Investment Trusts 1.5
Life Sciences Tools & Services 1.5
IT Services 1.5
Software 1.4
Automobiles 1.4
---------------------------------------------------------
TOTAL INVESTMENTS 99.5
NET OTHER ASSETS AND LIABILITIES 0.5
-------
TOTAL 100.0%
=======
Page 52 See Notes to Financial Statements
FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND (CARZ)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.7%
BERMUDA -- 1.3%
465,531 Brilliance China Automotive
Holdings Ltd. $ 812,971
-------------
CAYMAN ISLANDS -- 0.6%
800,332 Geely Automobile Holdings Ltd. 334,981
4,521 Kolao Holdings 71,976
-------------
406,957
-------------
CHINA -- 3.9%
164,000 AviChina Industry & Technology
Co., Ltd., Class H 117,221
115,577 BYD Co., Ltd., Class H 767,303
143,062 Chongqing Changan Automobile
Co., Ltd., Class B 307,318
163,169 Dongfeng Motor Group Co., Ltd.,
Class H 268,136
174,311 Great Wall Motor Co., Ltd.,
Class H 676,829
373,436 Guangzhou Automobile Group
Co., Ltd., Class H 361,179
-------------
2,497,986
-------------
FRANCE -- 4.9%
64,714 Peugeot S.A. (b) 830,044
31,920 Renault S.A. 2,312,167
-------------
3,142,211
-------------
GERMANY -- 18.8%
23,164 Bayerische Motoren Werke AG 2,487,468
65,949 Daimler AG 5,058,647
25,825 Porsche Automobil Holding SE
(Preference Shares) 2,069,314
12,012 Volkswagen AG (Preference
Shares) 2,494,251
-------------
12,109,680
-------------
ITALY -- 2.3%
147,685 Fiat S.p.A. (b) 1,425,124
28,206 Piaggio & C. S.p.A. (b) 76,097
-------------
1,501,221
-------------
JAPAN -- 38.1%
35,300 Daihatsu Motor Co., Ltd. 560,358
95,000 Fuji Heavy Industries Ltd. 3,140,825
159,900 Honda Motor Co., Ltd. 5,540,187
90,000 Mazda Motor Corp. 2,255,847
104,500 Mitsubishi Motors Corp. 1,268,197
281,100 Nissan Motor Co., Ltd. 2,739,876
13,000 Nissan Shatai Co., Ltd. 212,054
71,000 Suzuki Motor Corp. 2,353,504
94,700 Toyota Motor Corp. 5,580,543
47,200 Yamaha Motor Co., Ltd. 923,127
-------------
24,574,518
-------------
MALAYSIA -- 0.6%
112,314 UMW Holdings Berhad 419,744
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
SOUTH KOREA -- 6.8%
11,764 Hyundai Motor Co. $ 2,123,707
43,754 Kia Motors Corp. 2,226,572
7,174 Ssangyong Motor Co. (b) 44,801
-------------
4,395,080
-------------
TAIWAN -- 0.5%
115,364 Sanyang Industrial Co., Ltd. 105,809
145,903 Yulon Motor Co., Ltd. 218,235
-------------
324,044
-------------
UNITED STATES -- 21.9%
310,549 Ford Motor Co. 4,593,020
155,364 General Motors Co. 4,962,326
36,676 Harley-Davidson, Inc. 2,134,543
10,023 Tesla Motors, Inc. (b) 2,432,382
-------------
14,122,271
-------------
TOTAL COMMON STOCKS -- 99.7% 64,306,683
(Cost $60,771,596)
RIGHTS -- 0.0%
ITALY -- 0.0%
149,063 Fiat S.p.A., expiring
10/30/14 (b) (c) 0
(Cost $0)
TOTAL INVESTMENTS -- 99.7% 64,306,683
(Cost $60,771,596) (d)
NET OTHER ASSETS AND
LIABILITIES -- 0.3% 174,091
-------------
NET ASSETS -- 100.0% $ 64,480,774
=============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) Non-income producing security.
(c) This security is fair valued by the Advisor's Pricing Committee 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. At September 30, 2014, securities noted as such are valued at $0
or 0.00% of net assets.
(d) Aggregate cost for federal income tax purposes is $61,461,971. As of
September 30, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$5,113,894 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$2,269,182.
See Notes to Financial Statements Page 53
FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND (CARZ)
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 2014
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2014 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* $ 64,306,683 $ -- $ --
Rights* -- -- ** --
---------------------------------------
Total Investments $ 64,306,683 $ -- ** $ --
=======================================
* See Portfolio of Investments for country breakout.
** 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. There were no
transfers between Levels at September 30, 2014.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Automobiles 99.1%
Auto Components 0.3
Aerospace & Defense 0.2
Specialty Retail 0.1
-----------------------------------------------------------
TOTAL INVESTMENTS 99.7
NET OTHER ASSETS AND LIABILITIES 0.3
-------
TOTAL 100.0%
=======
% OF TOTAL
CURRENCY EXPOSURE DIVERSIFICATION INVESTMENTS
-----------------------------------------------------------
Japanese Yen 38.2%
Euro 26.0
United States Dollar 22.0
South Korean Won 6.9
Hong Kong Dollar 5.7
Malaysian Ringgit 0.7
New Taiwan Dollar 0.5
-------
TOTAL 100.0%
=======
Page 54 See Notes to Financial Statements
FIRST TRUST ISE CLOUD COMPUTING INDEX FUND (SKYY)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2014
SHARES DESCRIPTION VALUE
-----------------------------------------------------------
COMMON STOCKS (a) -- 99.9%
BELGIUM -- 0.6%
58,175 EVS Broadcast Equipment S.A. $ 2,029,472
-------------
CANADA -- 3.7%
227,058 Open Text Corp. 12,583,554
-------------
GERMANY -- 3.0%
143,199 SAP SE, ADR 10,333,240
-------------
INDIA -- 0.9%
252,529 Wipro Ltd., ADR 3,070,753
-------------
ISRAEL -- 0.9%
44,238 Check Point Software
Technologies Ltd. (b) 3,063,039
-------------
UNITED STATES -- 90.8%
135,997 Activision Blizzard, Inc. 2,827,378
43,570 Adobe Systems, Inc. (b) 3,014,608
184,891 Akamai Technologies, Inc. (b) 11,056,482
33,336 Amazon.com, Inc. (b) 10,748,860
91,615 Apple, Inc. 9,230,211
616,178 Aruba Networks, Inc. (b) 13,297,121
1,071,775 Brightcove, Inc. (b) 5,980,504
100,603 CA, Inc. 2,810,848
440,431 Cisco Systems, Inc. 11,085,648
408,666 EMC Corp. 11,957,567
52,795 Equinix, Inc. (b) 11,217,882
96,862 F5 Networks, Inc. (b) 11,501,394
168,666 Facebook, Inc., Class A (b) 13,331,361
9,710 Google, Inc., Class A (b) 5,713,461
9,851 Google, Inc., Class C (b) 5,687,573
237,857 Hewlett-Packard Co. 8,436,788
302,186 Informatica Corp. (b) 10,346,849
45,807 International Business Machines
Corp. 8,695,543
36,854 Intuit, Inc. 3,230,253
59,152 j2 Global, Inc. 2,919,743
442,404 Juniper Networks, Inc. 9,799,249
202,839 Microsoft Corp. 9,403,616
305,058 NetApp, Inc. 13,105,292
25,439 Netflix, Inc. (b) 11,477,568
71,308 NetScout Systems, Inc. (b) 3,265,906
131,256 NetSuite, Inc. (b) 11,752,662
258,159 Oracle Corp. 9,882,326
222,950 Polycom, Inc. (b) 2,738,941
292,511 Rackspace Hosting, Inc. (b) 9,521,233
209,523 Red Hat, Inc. (b) 11,764,716
200,301 salesforce.com, Inc. (b) 11,523,316
250,539 Teradata Corp. (b) 10,502,595
522,755 TIBCO Software, Inc. (b) 12,352,701
114,454 VMware, Inc., Class A (b) 10,740,363
3,509,208 Zynga, Inc., Class A (b) 9,474,862
-------------
310,395,420
-------------
TOTAL INVESTMENTS -- 99.9% 341,475,478
(Cost $315,147,776) (c)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 275,540
-------------
NET ASSETS -- 100.0% $ 341,751,018
=============
(a) Portfolio securities are categorized based upon their country of
incorporation.
(b) Non-income producing security.
(c) Aggregate cost for federal income tax purposes is $318,575,077. As of
September 30, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$39,981,146 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$17,080,745.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of September 30,
2014 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* $341,475,478 $ -- $ --
=======================================
* 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 September 30, 2014.
% OF
INDUSTRY NET ASSETS
-----------------------------------------------------------
Software 40.5%
Internet Software & Services 19.1
Communications Equipment 14.8
Technology Hardware, Storage & Peripherals 12.5
IT Services 6.5
Internet & Catalog Retail 6.5
-----------------------------------------------------------
TOTAL INVESTMENTS 99.9
NET OTHER ASSETS AND LIABILITIES 0.1
-------
TOTAL 100.0%
=======
See Notes to Financial Statements Page 55
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2014
FIRST TRUST
FIRST TRUST FTSE EPRA/NAREIT
STOXX(R) EUROPEAN DEVELOPED MARKETS
SELECT DIVIDEND REAL ESTATE
INDEX FUND INDEX FUND
(FDD) (FFR)
---------------------- ----------------------
ASSETS:
Investments, at value ................................................. $ 167,094,221 $ 108,695,246
Cash .................................................................. -- 5,122
Foreign currency, at value ............................................ -- 24,531
Receivables:
Capital shares sold ................................................ -- --
Investment securities sold ......................................... -- 554
Reclaims ........................................................... 282,141 41,466
Dividends .......................................................... 252,396 308,778
Interest ........................................................... 6 4
Currency receivable ................................................ -- --
Securities lending income .......................................... -- --
Prepaid expenses ...................................................... 1,633 1,654
-------------- --------------
TOTAL ASSETS ....................................................... 167,630,397 109,077,355
-------------- --------------
LIABILITIES:
Due to custodian ...................................................... -- --
Due to custodian foreign currency ..................................... 4,573 --
Payables:
Capital shares redeemed ............................................ -- --
Investment securities purchased .................................... -- 40,808
Investment advisory fees ........................................... 45,085 22,617
Audit and tax fees ................................................. 22,925 26,501
Printing fees ...................................................... 12,336 14,133
Licensing fees ..................................................... -- 34,745
Collateral for securities on loan .................................. -- --
Currency payable ................................................... -- --
Trustees' fees ..................................................... -- 33
Other liabilities ..................................................... 65,102 51,318
-------------- --------------
TOTAL LIABILITIES .................................................. 150,021 190,155
-------------- --------------
NET ASSETS ............................................................ $ 167,480,376 $ 108,887,200
============== ==============
NET ASSETS CONSIST OF:
Paid-in capital ....................................................... $ 180,391,654 $ 97,588,169
Par value ............................................................. 124,033 26,500
Accumulated net investment income (loss) .............................. -- (1,690,716)
Accumulated net realized gain (loss) on investments and
foreign currency transactions ...................................... (12,611,161) (2,731,203)
Net unrealized appreciation (depreciation) on investments and
foreign currency translation ....................................... (424,150) 15,694,450
-------------- --------------
NET ASSETS ............................................................ $ 167,480,376 $ 108,887,200
============== ==============
NET ASSET VALUE, per share ............................................ $ 13.50 $ 41.09
============== ==============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share) ............................. 12,403,334 2,650,002
============== ==============
Investments, at cost .................................................. $ 167,492,855 $ 92,995,056
============== ==============
Foreign currency, at cost (proceeds) .................................. $ (4,584) $ 24,542
============== ==============
Securities on loan, at value .......................................... $ -- $ --
============== ==============
Page 56 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
(FGD) (FAN) (FLM) (GRID)
---------------------- ---------------------- ---------------------- ----------------------
$ 559,849,150 $ 86,728,308 $ 17,087,660 $ 14,328,078
-- -- 32,036 39,535
-- -- -- --
402,326 -- -- 1,768,932
11,951,240 21,026 294,005 --
885,669 89,277 7,183 6,147
2,207,630 63,525 27,931 9,446
46 7 -- --
-- -- 2 --
-- -- 2,710 486
1,546 1,292 1,269 22
-------------- -------------- -------------- --------------
575,297,607 86,903,435 17,452,796 16,152,646
-------------- -------------- -------------- --------------
244,998 -- -- --
136,245 1,244 1,104 1,173
4,001,168 21,025 -- --
8,164,730 -- 301,354 1,755,403
148,498 20,502 10,103 9,324
26,501 25,751 25,751 25,751
45,225 14,474 2,921 2,546
89,683 27,662 5,417 2,914
-- -- 253,790 197,172
27,737 -- -- --
75 70 11 15
221,029 47,221 10,963 6,820
-------------- -------------- -------------- --------------
13,105,889 157,949 611,414 2,001,118
-------------- -------------- -------------- --------------
$ 562,191,718 $ 86,745,486 $ 16,841,382 $ 14,151,528
============== ============== ============== ==============
$ 544,987,940 $ 148,940,864 $ 22,756,156 $ 16,666,363
211,000 75,000 3,500 4,000
1,317,520 30,530 2,370 4,933
(13,138,690) (63,853,760) (4,618,052) (3,691,674)
28,813,948 1,552,852 (1,302,592) 1,167,906
-------------- -------------- -------------- --------------
$ 562,191,718 $ 86,745,486 $ 16,841,382 $ 14,151,528
============== ============== ============== ==============
$ 26.64 $ 11.57 $ 48.12 $ 35.38
============== ============== ============== ==============
21,100,002 7,500,002 350,002 400,002
============== ============== ============== ==============
$ 530,899,520 $ 85,169,702 $ 18,389,496 $ 13,159,919
============== ============== ============== ==============
$ (134,783) $ (1,227) $ (1,166) $ (1,188)
============== ============== ============== ==============
$ -- $ -- $ 244,658 $ 187,195
============== ============== ============== ==============
See Notes to Financial Statements Page 57
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
SEPTEMBER 30, 2014
FIRST TRUST FIRST TRUST
ISE GLOBAL ISE GLOBAL
COPPER PLATINUM
INDEX FUND INDEX FUND
(CU) (PLTM)
---------------------- ----------------------
ASSETS:
Investments, at value ................................................. $ 26,176,981 $ 10,456,298
Cash .................................................................. 5,534 --
Foreign currency, at value ............................................ -- 3,300
Receivables:
Capital shares sold ................................................ -- --
Investment securities sold ......................................... 230,691 228,976
Reclaims ........................................................... 57,336 3,238
Dividends .......................................................... 47,067 16,402
Interest ........................................................... -- --
Currency receivable ................................................ 108,100 33
Securities lending income .......................................... -- --
Prepaid expenses ...................................................... -- --
-------------- --------------
TOTAL ASSETS ....................................................... 26,625,709 10,708,247
-------------- --------------
LIABILITIES:
Due to custodian ...................................................... -- 24,756
Due to custodian foreign currency ..................................... 112,479 --
Payables:
Capital shares redeemed ............................................ -- --
Investment securities purchased .................................... 11,100 --
Investment advisory fees ........................................... 16,503 6,822
Audit and tax fees ................................................. -- --
Printing fees ...................................................... -- --
Licensing fees ..................................................... -- --
Collateral for securities on loan .................................. -- --
Currency payable ................................................... -- --
Trustees' fees ..................................................... -- --
Other liabilities ..................................................... -- --
-------------- --------------
TOTAL LIABILITIES .................................................. 140,082 31,758
-------------- --------------
NET ASSETS ............................................................ $ 26,485,627 $ 10,676,669
============== ==============
NET ASSETS CONSIST OF:
Paid-in capital ....................................................... $ 77,188,743 $ 23,501,080
Par value ............................................................. 12,500 9,500
Accumulated net investment income (loss) .............................. (3,928) 11,480
Accumulated net realized gain (loss) on investments and
foreign currency transactions ...................................... (41,519,512) (10,549,433)
Net unrealized appreciation (depreciation) on investments and
foreign currency translation ....................................... (9,192,176) (2,295,958)
-------------- --------------
NET ASSETS ............................................................ $ 26,485,627 $ 10,676,669
============== ==============
NET ASSET VALUE, per share ............................................ $ 21.19 $ 11.24
============== ==============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share) ............................. 1,250,002 950,002
============== ==============
Investments, at cost .................................................. $ 35,368,221 $ 12,752,344
============== ==============
Foreign currency, at cost (proceeds) .................................. $ (112,577) $ 3,246
============== ==============
Securities on loan, at value .......................................... $ -- $ --
============== ==============
Page 58 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
(BICK) (FONE) (CARZ) (SKYY)
---------------------- ---------------------- ---------------------- ----------------------
$ 17,563,217 $ 11,009,131 $ 64,306,683 $ 341,475,478
265,379 21,851 33,829 246,627
7,231 17,292 -- --
-- -- -- --
-- -- -- --
-- 708 13,484 33,296
28,044 7,831 166,182 168,735
-- -- -- --
-- 8,932 -- --
-- 55 -- --
-- -- -- --
-------------- -------------- -------------- --------------
17,863,871 11,065,800 64,520,178 341,924,136
-------------- -------------- -------------- --------------
-- -- -- --
-- -- 1,152 1,273
-- -- -- --
272,956 -- -- --
9,915 6,609 38,252 171,845
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-------------- -------------- -------------- --------------
282,871 6,609 39,404 173,118
-------------- -------------- -------------- --------------
$ 17,581,000 $ 11,059,191 $ 64,480,774 $ 341,751,018
============== ============== ============== ==============
$ 28,165,504 $ 10,845,576 $ 61,801,844 $ 320,417,897
7,000 3,000 17,000 125,000
39,263 8,004 147,765 7,076
(11,081,442) (1,810,710) (1,019,367) (5,126,355)
450,675 2,013,321 3,533,532 26,327,400
-------------- -------------- -------------- --------------
$ 17,581,000 $ 11,059,191 $ 64,480,774 $ 341,751,018
============== ============== ============== ==============
$ 25.12 $ 36.86 $ 37.93 $ 27.34
============== ============== ============== ==============
700,002 300,002 1,700,002 12,500,002
============== ============== ============== ==============
$ 17,112,533 $ 8,995,781 $ 60,771,596 $ 315,147,776
============== ============== ============== ==============
$ 7,228 $ 17,285 $ (1,175) $ (1,348)
============== ============== ============== ==============
$ -- $ -- $ -- $ --
============== ============== ============== ==============
See Notes to Financial Statements Page 59
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2014
FIRST TRUST
FIRST TRUST FTSE EPRA/NAREIT
STOXX(R) EUROPEAN DEVELOPED MARKETS
SELECT DIVIDEND REAL ESTATE
INDEX FUND INDEX FUND
(FDD) (FFR)
---------------------- ----------------------
INVESTMENT INCOME:
Dividends ............................................................. $ 6,858,395 $ 3,364,315
Foreign tax withholding ............................................... (365,576) (168,661)
Interest .............................................................. 43 55
Securities lending income (net of fees) ............................... -- --
-------------- --------------
Total investment income ............................................ 6,492,862 3,195,709
-------------- --------------
EXPENSES:
Investment advisory fees .............................................. 472,349 418,830
Licensing fees ........................................................ 93,875 125,652
Accounting and administration fees .................................... 63,615 79,525
Printing fees ......................................................... 27,329 24,070
Audit and tax fees .................................................... 23,239 26,815
Custodian fees ........................................................ 21,225 34,310
Registration and filing fees .......................................... 14,257 1,496
Legal fees ............................................................ 11,587 9,137
Listing fees .......................................................... 8,494 8,494
Trustees' fees and expenses ........................................... 6,081 5,939
Transfer agent fees ................................................... 5,902 5,220
Expenses previously waived or reimbursed .............................. -- --
Excise tax ............................................................ -- --
Other expenses ........................................................ 2,929 7,241
-------------- --------------
Total expenses ..................................................... 750,882 746,729
Less fees waived and expenses reimbursed by
the investment advisor ........................................... (42,359) (118,485)
-------------- --------------
Net expenses ....................................................... 708,523 628,244
-------------- --------------
NET INVESTMENT INCOME (LOSS) .......................................... 5,784,339 2,567,465
-------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ........................................................ (122,237) 766,264
In-kind redemptions ................................................ -- 1,159,228
Foreign currency transactions ...................................... (77,464) (13,514)
-------------- --------------
Net realized gain (loss) .............................................. (199,701) 1,911,978
-------------- --------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................................ (3,891,165) 914,658
Foreign currency translation ....................................... (30,577) (6,630)
-------------- --------------
Net change in unrealized appreciation (depreciation) .................. (3,921,742) 908,028
-------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ............................... (4,121,443) 2,820,006
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS .................................................... $ 1,662,896 $ 5,387,471
============== ==============
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
(FGD) (FAN) (FLM) (GRID)
---------------------- ---------------------- ---------------------- ----------------------
$ 27,575,741 $ 1,950,793 $ 476,919 $ 290,912
(2,016,923) (178,105) (48,760) (16,905)
313 107 -- --
-- -- 23,975 12,076
-------------- -------------- -------------- --------------
25,559,131 1,772,795 452,134 286,083
-------------- -------------- -------------- --------------
1,980,297 388,367 90,424 53,213
302,713 97,092 22,606 11,973
257,940 53,428 18,241 9,459
72,347 34,765 10,225 9,636
26,815 26,065 26,065 26,065
117,787 38,540 8,459 5,238
27,056 4,182 -- 125
48,371 11,314 2,195 1,242
7,776 10,254 10,254 7,479
13,111 5,843 4,441 4,257
24,721 4,851 1,126 663
75,731 -- -- --
-- -- -- --
15,781 2,839 1,993 1,332
-------------- -------------- -------------- --------------
2,970,446 677,540 196,029 130,682
-- (94,990) (37,787) (37,559)
-------------- -------------- -------------- --------------
2,970,446 582,550 158,242 93,123
-------------- -------------- -------------- --------------
22,588,685 1,190,245 293,892 192,960
-------------- -------------- -------------- --------------
889,554 (493,640) 133,480 450,027
5,532,511 8,750,944 1,521,326 512,605
(106,643) (27,783) (2,323) (1,669)
-------------- -------------- -------------- --------------
6,315,422 8,229,521 1,652,483 960,963
-------------- -------------- -------------- --------------
(56,989) (1,190,916) (1,244,648) (435,117)
(159,573) (5,622) (983) (841)
-------------- -------------- -------------- --------------
(216,562) (1,196,538) (1,245,631) (435,958)
-------------- -------------- -------------- --------------
6,098,860 7,032,983 406,852 525,005
-------------- -------------- -------------- --------------
$ 28,687,545 $ 8,223,228 $ 700,744 $ 717,965
============== ============== ============== ==============
See Notes to Financial Statements Page 61
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 2014
FIRST TRUST FIRST TRUST
ISE GLOBAL ISE GLOBAL
COPPER PLATINUM
INDEX FUND INDEX FUND
(CU) (PLTM)
---------------------- ----------------------
INVESTMENT INCOME:
Dividends ............................................................. $ 801,477 $ 158,577
Foreign tax withholding ............................................... (56,653) (23,006)
Interest .............................................................. -- --
Securities lending income (net of fees) ............................... -- --
-------------- --------------
Total investment income ............................................ 744,824 135,571
-------------- --------------
EXPENSES:
Investment advisory fees .............................................. 213,558 (a) 80,580 (a)
Licensing fees ........................................................ -- --
Accounting and administration fees .................................... -- --
Printing fees ......................................................... -- --
Audit and tax fees .................................................... -- --
Custodian fees ........................................................ -- --
Registration and filing fees .......................................... -- --
Legal fees ............................................................ -- --
Listing fees .......................................................... -- --
Trustees' fees and expenses ........................................... -- --
Transfer agent fees ................................................... -- --
Expenses previously waived or reimbursed .............................. -- --
Excise tax ............................................................ 1,870 1,970
Other expenses ........................................................ -- --
-------------- --------------
Total expenses ..................................................... 215,428 82,550
Less fees waived and expenses reimbursed by the investment
advisor ......................................................... -- --
-------------- --------------
Net expenses ....................................................... 215,428 82,550
-------------- --------------
NET INVESTMENT INCOME (LOSS) 529,396 53,021
-------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ........................................................ (10,721,118) (1,562,062)
In-kind redemptions ................................................ 741,359 583,177
Foreign currency transactions ...................................... 1,828 (408)
-------------- --------------
Net realized gain (loss) .............................................. (9,977,931) (979,293)
-------------- --------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................................ 8,760,828 (615,574)
Foreign currency translation ....................................... (5,659) 200
-------------- --------------
Net change in unrealized appreciation (depreciation) .................. 8,755,169 (615,374)
-------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ............................... (1,222,762) (1,594,667)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS .................................................... $ (693,366) $ (1,541,646)
============== ==============
(a) Fund is subject to a unitary fee (See Note 3 in the Notes to Financial
Statements).
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
(BICK) (FONE) (CARZ) (SKYY)
---------------------- ---------------------- ---------------------- ----------------------
$ 401,382 $ 216,932 $ 1,269,486 $ 1,772,774
(31,117) (20,508) (121,697) (48,037)
-- -- -- --
-- 6,783 52,605 --
-------------- -------------- -------------- --------------
370,265 203,207 1,200,394 1,724,737
-------------- -------------- -------------- --------------
118,980 (a) 73,915 (a) 408,966 (a) 1,485,515 (a)
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-------------- -------------- -------------- --------------
118,980 73,915 408,966 1,485,515
-- -- -- --
-------------- -------------- -------------- --------------
118,980 73,915 408,966 1,485,515
-------------- -------------- -------------- --------------
251,285 129,292 791,428 239,222
-------------- -------------- -------------- --------------
(1,245,039) 402,258 (527,204) (1,412,953)
57,867 -- 1,420,040 9,566,326
3,272 (1,388) (4,839) 443
-------------- -------------- -------------- --------------
(1,183,900) 400,870 887,997 8,153,816
-------------- -------------- -------------- --------------
2,183,410 1,025,589 (2,579,122) 9,290,396
(151) (70) (2,608) (302)
-------------- -------------- -------------- --------------
2,183,259 1,025,519 (2,581,730) 9,290,094
-------------- -------------- -------------- --------------
999,359 1,426,389 (1,693,733) 17,443,910
-------------- -------------- -------------- --------------
$ 1,250,644 $ 1,555,681 $ (902,305) $ 17,683,132
============== ============== ============== ==============
See Notes to Financial Statements Page 63
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST
STOXX(R) EUROPEAN
SELECT DIVIDEND
INDEX FUND
(FDD)
--------------------------------------------------
For the For the
Year Ended Year Ended
9/30/2014 9/30/2013
---------------------- ----------------------
OPERATIONS:
Net investment income (loss) ........................................... $ 5,784,339 $ 1,716,730
Net realized gain (loss) ............................................... (199,701) (754,138)
Net change in unrealized appreciation (depreciation) ................... (3,921,742) 4,700,378
-------------- --------------
Net increase (decrease) in net assets resulting
from operations ..................................................... 1,662,896 5,662,970
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................................. (5,813,996) (1,669,212)
Return of capital ...................................................... -- --
-------------- --------------
Total distributions to shareholders .................................... (5,813,996) (1,669,212)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold .............................................. 113,339,048 40,152,278
Cost of shares redeemed ................................................ -- (1,941,642)
-------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions ....................................... 113,339,048 38,210,636
-------------- --------------
Total increase (decrease) in net assets ................................ 109,187,948 42,204,394
NET ASSETS:
Beginning of period .................................................... 58,292,428 16,088,034
-------------- --------------
End of period .......................................................... $ 167,480,376 $ 58,292,428
============== ==============
Accumulated net investment income (loss)
at end of period .................................................... $ -- $ 83,918
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period ................................ 4,503,334 1,353,334
Shares sold ............................................................ 7,900,000 3,300,000
Shares redeemed ........................................................ -- (150,000)
-------------- --------------
Shares outstanding, end of period ...................................... 12,403,334 4,503,334
============== ==============
Page 64 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
(FFR) (FGD) (FAN)
---------------------------------------- --------------------------------------- ---------------------------------------
For the For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/2014 9/30/2013 9/30/2014 9/30/2013 9/30/2014 9/30/2013
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
$ 2,567,465 $ 2,611,776 $ 22,588,685 $ 14,976,392 $ 1,190,245 $ 244,367
1,911,978 6,591,675 6,315,422 1,526,749 8,229,521 (11,517,684)
908,028 403,743 (216,562) 22,239,416 (1,196,538) 24,264,584
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
5,387,471 9,607,194 28,687,545 38,742,557 8,223,228 12,991,267
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(2,813,427) (4,593,163) (22,845,557) (15,554,673) (1,163,700) (290,875)
-- -- -- -- -- --
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(2,813,427) (4,593,163) (22,845,557) (15,554,673) (1,163,700) (290,875)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
10,617,461 17,945,519 228,317,635 148,331,410 43,509,786 32,597,140
(3,968,174) (19,860,513) (30,585,554) (19,131,020) (27,965,655) (2,018,008)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
6,649,287 (1,914,994) 197,732,081 129,200,390 15,544,131 30,579,132
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
9,223,331 3,099,037 203,574,069 152,388,274 22,603,659 43,279,524
99,663,869 96,564,832 358,617,649 206,229,375 64,141,827 20,862,303
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 108,887,200 $ 99,663,869 $ 562,191,718 $ 358,617,649 $ 86,745,486 $ 64,141,827
================ ================ ================ ================ ================ ================
$ (1,690,716) $ (1,895,754) $ 1,317,520 $ (305,805) $ 30,530 $ 1,863
================ ================ ================ ================ ================ ================
2,500,002 2,550,002 14,000,002 8,750,002 6,150,002 3,100,002
250,000 450,000 8,200,000 6,050,000 3,650,000 3,350,000
(100,000) (500,000) (1,100,000) (800,000) (2,300,000) (300,000)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
2,650,002 2,500,002 21,100,002 14,000,002 7,500,002 6,150,002
================ ================ ================ ================ ================ ================
See Notes to Financial Statements Page 65
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST
ISE GLOBAL
ENGINEERING AND CONSTRUCTION
INDEX FUND
(FLM)
--------------------------------------------------
For the For the
Year Ended Year Ended
9/30/2014 9/30/2013
---------------------- ----------------------
OPERATIONS:
Net investment income (loss) ........................................... $ 293,892 $ 299,837
Net realized gain (loss) ............................................... 1,652,483 (873,823)
Net change in unrealized appreciation (depreciation) ................... (1,245,631) 4,423,998
-------------- --------------
Net increase (decrease) in net assets resulting
from operations ..................................................... 700,744 3,850,012
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................................. (371,592) (305,197)
Return of capital ...................................................... -- --
-------------- --------------
Total distributions to shareholders .................................... (371,592) (305,197)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold .............................................. 7,426,539 --
Cost of shares redeemed ................................................ (7,687,048) (4,362,667)
-------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions ....................................... (260,509) (4,362,667)
-------------- --------------
Total increase (decrease) in net assets ................................ 68,643 (817,852)
NET ASSETS:
Beginning of period .................................................... 16,772,739 17,590,591
-------------- --------------
End of period .......................................................... $ 16,841,382 $ 16,772,739
============== ==============
Accumulated net investment income (loss)
at end of period .................................................... $ 2,370 $ 11,201
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period ................................ 350,002 450,002
Shares sold ............................................................ 150,000 --
Shares redeemed ........................................................ (150,000) (100,000)
-------------- --------------
Shares outstanding, end of period ...................................... 350,002 350,002
============== ==============
Page 66 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
(GRID) (CU) (PLTM)
---------------------------------------- --------------------------------------- ---------------------------------------
For the For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/2014 9/30/2013 9/30/2014 9/30/2013 9/30/2014 9/30/2013
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
$ 192,960 $ 170,376 $ 529,396 $ 909,610 $ 53,021 $ 37,923
960,963 (112,362) (9,977,931) (10,758,179) (979,293) (4,003,081)
(435,958) 2,057,965 8,755,169 1,391,860 (615,374) 2,481,076
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
717,965 2,115,979 (693,366) (8,456,709) (1,541,646) (1,484,082)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(214,306) (150,721) (521,850) (978,626) (245,350) (24,315)
-- -- (61,191) -- -- --
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(214,306) (150,721) (583,041) (978,626) (245,350) (24,315)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
3,676,957 1,591,536 1,304,114 1,122,002 4,723,285 4,504,955
(1,869,682) (4,741,882) (6,788,099) (2,721,723) (3,845,222) --
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
1,807,275 (3,150,346) (5,483,985) (1,599,721) 878,063 4,504,955
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
2,310,934 (1,185,088) (6,760,392) (11,035,056) (908,933) 2,996,558
11,840,594 13,025,682 33,246,019 44,281,075 11,585,602 8,589,044
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 14,151,528 $ 11,840,594 $ 26,485,627 $ 33,246,019 $ 10,676,669 $ 11,585,602
================ ================ ================ ================ ================ ================
$ 4,933 $ 27,948 $ (3,928) $ (42,943) $ 11,480 $ 28,954
================ ================ ================ ================ ================ ================
350,002 450,002 1,500,002 1,550,002 900,002 600,002
100,000 50,000 50,000 50,000 350,000 300,000
(50,000) (150,000) (300,000) (100,000) (300,000) --
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
400,002 350,002 1,250,002 1,500,002 950,002 900,002
================ ================ ================ ================ ================ ================
See Notes to Financial Statements Page 67
FIRST TRUST EXCHANGE-TRADED FUND II
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST
BICK
INDEX FUND
(BICK)
--------------------------------------------------
For the For the
Year Ended Year Ended
9/30/2014 9/30/2013
---------------------- ----------------------
OPERATIONS:
Net investment income (loss) ........................................... $ 251,285 $ 455,457
Net realized gain (loss) ............................................... (1,183,900) (3,063,173)
Net change in unrealized appreciation (depreciation) ................... 2,183,259 3,179,657
-------------- --------------
Net increase (decrease) in net assets resulting
from operations ..................................................... 1,250,644 571,941
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................................. (293,611) (456,300)
Return of capital ...................................................... -- --
-------------- --------------
Total distributions to shareholders .................................... (293,611) (456,300)
-------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold .............................................. -- --
Cost of shares redeemed ................................................ (2,298,434) (26,631,596)
-------------- --------------
Net increase (decrease) in net assets resulting
from shareholder transactions ....................................... (2,298,434) (26,631,596)
-------------- --------------
Total increase (decrease) in net assets ................................ (1,341,401) (26,515,955)
NET ASSETS:
Beginning of period .................................................... 18,922,401 45,438,356
-------------- --------------
End of period .......................................................... $ 17,581,000 $ 18,922,401
============== ==============
Accumulated net investment income (loss)
at end of period .................................................... $ 39,263 $ 5,616
============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period ................................ 800,002 1,900,002
Shares sold ............................................................ -- --
Shares redeemed ........................................................ (100,000) (1,100,000)
-------------- --------------
Shares outstanding, end of period 700,002 800,002
============== ==============
Page 68 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
(FONE) (CARZ) (SKYY)
---------------------------------------- --------------------------------------- ---------------------------------------
For the For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/2014 9/30/2013 9/30/2014 9/30/2013 9/30/2014 9/30/2013
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
$ 129,292 $ 119,964 $ 791,428 $ 194,959 $ 239,222 $ 41,417
400,870 (289,365) 887,997 (348,537) 8,153,816 1,839,425
1,025,519 3,802,094 (2,581,730) 6,957,922 9,290,094 18,605,016
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
1,555,681 3,632,693 (902,305) 6,804,344 17,683,132 20,485,858
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(125,341) (123,106) (734,741) (139,330) (193,005) (12,480)
-- -- -- -- -- --
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
(125,341) (123,106) (734,741) (139,330) (193,005) (12,480)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
-- -- 23,473,108 34,935,628 222,781,454 44,566,249
-- (6,592,761) (3,859,611) -- (21,496,268) (18,552,069)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
-- (6,592,761) 19,613,497 34,935,628 201,285,186 26,014,180
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
1,430,340 (3,083,174) 17,976,451 41,600,642 218,775,313 46,487,558
9,628,851 12,712,025 46,504,323 4,903,681 122,975,705 76,488,147
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 11,059,191 $ 9,628,851 $ 64,480,774 $ 46,504,323 $ 341,751,018 $ 122,975,705
================ ================ ================ ================ ================ ================
$ 8,004 $ 5,441 $ 147,765 $ 88,335 $ 7,076 $ (39,584)
================ ================ ================ ================ ================ ================
300,002 550,002 1,200,002 200,002 5,000,002 3,850,002
-- -- 600,000 1,000,000 8,300,000 2,050,000
-- (250,000) (100,000) -- (800,000) (900,000)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
300,002 300,002 1,700,002 1,200,002 12,500,002 5,000,002
================ ================ ================ ================ ================ ================
See Notes to Financial Statements Page 69
FIRST TRUST EXCHANGE-TRADED FUND II
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST STOXX(R) EUROPEAN SELECT DIVIDEND INDEX FUND (FDD)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/2014 9/30/2013 9/30/2012 9/30/2011 9/30/2010
-------------- -------------- -------------- -------------- --------------
Net asset value, beginning of period $ 12.94 $ 11.89 $ 11.63 $ 13.09 $ 13.81
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.58 0.46 0.64 0.67 0.56
Net realized and unrealized gain (loss) 0.57 1.06 0.23 (1.46) (0.73)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.15 1.52 0.87 (0.79) (0.17)
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.59) (0.47) (0.61) (0.67) (0.55)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 13.50 $ 12.94 $ 11.89 $ 11.63 $ 13.09
========== ========== ========== ========== ==========
TOTAL RETURN (a) 8.68% 13.29% 7.73% (6.70)% (0.95)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 167,480 $ 58,292 $ 16,088 $ 8,762 $ 6,589
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.64% 0.90% 1.67% 1.93% 2.35%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 4.90% 5.09% 5.98% 5.09% 3.98%
Portfolio turnover rate (b) 32% 32% 31% 27% 54%
FIRST TRUST FTSE EPRA/NAREIT DEVELOPED MARKETS REAL ESTATE INDEX FUND (FFR)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/2014 9/30/2013 9/30/2012 9/30/2011 9/30/2010
-------------- -------------- -------------- -------------- --------------
Net asset value, beginning of period $ 39.87 $ 37.87 $ 30.00 $ 33.85 $ 30.48
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 1.05 0.95 0.99 1.05 1.24
Net realized and unrealized gain (loss) 1.27 2.80 7.96 (3.64) 3.84
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.32 3.75 8.95 (2.59) 5.08
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (1.10) (1.75) (1.08) (1.26) (1.71)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 41.09 $ 39.87 $ 37.87 $ 30.00 $ 33.85
========== ========== ========== ========== ==========
TOTAL RETURN (a) 5.86% 10.02% 30.22% (8.17)% 17.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 108,887 $ 99,664 $ 96,565 $ 61,508 $ 45,693
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.71% 0.68% 0.74% 0.86% 1.10%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 2.45% 2.42% 2.67% 2.29% 2.81%
Portfolio turnover rate (b) 12% 13% 8% 11% 11%
(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
and distributions at net asset value during the period, and redemption at
net asset value on the last day of the period. The returns presented do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 70 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 (FGD)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/2014 9/30/2013 9/30/2012 9/30/2011 9/30/2010
-------------- -------------- -------------- -------------- --------------
Net asset value, beginning of period $ 25.62 $ 23.57 $ 21.09 $ 22.43 $ 21.33
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 1.21 1.18 1.16 1.05 0.94
Net realized and unrealized gain (loss) 1.02 2.10 2.47 (1.31) 1.17
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.23 3.28 3.63 (0.26) 2.11
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (1.21) (1.23) (1.15) (1.08) (1.01)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 26.64 $ 25.62 $ 23.57 $ 21.09 $ 22.43
========== ========== ========== ========== ==========
TOTAL RETURN (a) 8.56% 14.39% 17.58% (1.57)% 10.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 562,192 $ 358,618 $ 206,229 $ 95,940 $ 37,008
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.60% 0.61% 0.63% 0.74% 0.97%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 4.56% 5.19% 5.41% 5.21% 4.37%
Portfolio turnover rate (b) 33% 20% 21% 22% 51%
FIRST TRUST ISE GLOBAL WIND ENERGY INDEX FUND (FAN)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/2014 9/30/2013 9/30/2012 9/30/2011 9/30/2010
-------------- -------------- -------------- -------------- --------------
Net asset value, beginning of period $ 10.43 $ 6.73 $ 8.13 $ 10.28 $ 16.27
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.14 0.08 0.09 0.06 0.08
Net realized and unrealized gain (loss) 1.14 3.71 (1.40) (2.15) (5.71)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.28 3.79 (1.31) (2.09) (5.63)
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.14) (0.09) (0.09) -- (0.35)
Return of capital -- -- -- (0.06) (0.01)
---------- ---------- ---------- ---------- ----------
Total distributions (0.14) (0.09) (0.09) (0.06) (0.36)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 11.57 $ 10.43 $ 6.73 $ 8.13 $ 10.28
========== ========== ========== ========== ==========
TOTAL RETURN (a) 12.17% 56.63% (16.14)% (20.47)% (35.10)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 86,745 $ 64,142 $ 20,862 $ 35,347 $ 54,505
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.70% 0.84% 0.67% 0.76% 0.81%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 1.23% 0.91% 1.12% 0.84% 0.80%
Portfolio turnover rate (b) 24% 19% 57% 35% 24%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption at
net asset value on the last day of the period. The returns presented do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return
calculated for the time period presented and is not annualized for periods
of less than a year. For some periods, the total returns would have been
lower if certain fees had not been waived and expenses reimbursed by the
investment advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 71
FIRST TRUST EXCHANGE-TRADED FUND II
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST ISE GLOBAL ENGINEERING AND CONSTRUCTION INDEX FUND (FLM)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
9/30/2014 9/30/2013 9/30/2012 9/30/2011 9/30/2010
9/30/2014 9/30/2013 9/30/2012 9/30/2011 9/30/2010
-------------- -------------- -------------- -------------- --------------
Net asset value, beginning of period $ 47.92 $ 39.09 $ 33.80 $ 39.56 $ 39.76
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.62 0.85 0.62 0.67 0.57
Net realized and unrealized gain (loss) 0.42 8.83 5.38 (5.77) (0.25)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.04 9.68 6.00 (5.10) 0.32
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.84) (0.85) (0.71) (0.66) (0.52)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 48.12 $ 47.92 $ 39.09 $ 33.80 $ 39.56
========== ========== ========== ========== ==========
TOTAL RETURN (a) 2.06% 25.04% 17.93% (13.30)% 1.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 16,841 $ 16,773 $ 17,591 $ 30,419 $ 31,644
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.87% 0.89% 0.71% 0.80% 0.92%
Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income (loss) to
average net assets 1.30% 1.77% 1.66% 1.83% 1.33%
Portfolio turnover rate (b) 41% 24% 22% 22% 26%
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) SMART GRID INFRASTRUCTURE INDEX FUND (GRID)
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE 11/16/2009 (c)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
9/30/2014 9/30/2013 9/30/2012 9/30/2011 9/30/2010
-------------- -------------- -------------- -------------- --------------
Net asset value, beginning of period $ 33.83 $ 28.95 $ 24.25 $ 30.33 $ 30.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.51 0.48 0.26 0.25 0.11
Net realized and unrealized gain (loss) 1.61 4.82 4.76 (6.16) 0.34
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.12 5.30 5.02 (5.91) 0.45
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.57) (0.42) (0.32) (0.17) (0.11)
Return of capital -- -- -- -- (0.01)
---------- ---------- ---------- ---------- ----------
Total distributions (0.57) (0.42) (0.32) (0.17) (0.12)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 35.38 $ 33.83 $ 28.95 $ 24.25 $ 30.33
========== ========== ========== ========== ==========
TOTAL RETURN (a) 6.19% 18.44% 20.82% (19.63)% 1.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 14,152 $ 11,841 $ 13,026 $ 18,187 $ 31,848
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.98% 1.11% 0.79% 0.85% 0.99%(d)
Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70%(d)
Ratio of net investment income (loss) to
average net assets 1.45% 1.38% 0.78% 0.71% 0.47%(d)
Portfolio turnover rate (b) 35% 44% 46% 28% 50%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividends
and distributions at net asset value during the period, and redemption at
net asset value on the last day of the period. The returns presented do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(c) Inception date.
(d) Annualized.
Page 72 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND II
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST ISE GLOBAL COPPER INDEX FUND (CU)
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE 3/11/2010 (a)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
9/30/2014 9/30/2013 9/30/2012 9/30/2011 9/30/2010
-------------- -------------- -------------- -------------- --------------
Net asset value, beginning of period $ 22.16 $ 28.57 $ 26.31 $ 33.54 $ 30.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.41 0.61 0.70 1.23 0.07
Net realized and unrealized gain (loss) (0.92) (6.37) 2.95 (7.88) 3.53
---------- ---------- ---------- ---------- ----------
Total from investment operations (0.51) (5.76) 3.65 (6.65) 3.60
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.41) (0.65) (1.39) (0.58) (0.06)
Return of capital (0.05) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions (0.46) (0.65) (1.39) (0.58) (0.06)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 21.19 $ 22.16 $ 28.57 $ 26.31 $ 33.54
========== ========== ========== ========== ==========
TOTAL RETURN (b) (2.38)% (20.27)% 13.82% (20.50)% 12.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 26,486 $ 33,246 $ 44,281 $ 55,258 $ 25,156
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.71% (d) 0.70% 0.70% 0.70% 0.70%(c)
Ratio of net expenses to average net assets 0.71% (d) 0.70% 0.70% 0.70% 0.70%(c)
Ratio of net investment income (loss) to
average net assets 1.74% 2.34% 1.79% 1.85% 0.58%(c)
Portfolio turnover rate (e) 28% 46% 46% 41% 22%
FIRST TRUST ISE GLOBAL PLATINUM INDEX FUND (PLTM)
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE 3/11/2010 (a)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
9/30/2014 9/30/2013 9/30/2012 9/30/2011 9/30/2010
-------------- -------------- -------------- -------------- --------------
Net asset value, beginning of period $ 12.87 $ 14.32 $ 19.15 $ 29.29 $ 30.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.09 0.05 0.07 0.19 0.09
Net realized and unrealized gain (loss) (1.43) (1.47) (4.62) (10.27) (0.72)
---------- ---------- ---------- ---------- ----------
Total from investment operations (1.34) (1.42) (4.55) (10.08) (0.63)
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.29) (0.03) (0.28) (0.06) (0.08)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 11.24 $ 12.87 $ 14.32 $ 19.15 $ 29.29
========== ========== ========== ========== ==========
TOTAL RETURN (b) (10.64)% (9.84)% (24.08)% (34.49)% (2.06)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 00's) $ 10,677 $ 11,586 $ 8,589 $ 7,660 $ 7,322
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.72% (d) 0.70% 0.70% 0.70% 0.70%(c)
Ratio of net expenses to average net assets 0.72% (d) 0.70% 0.70% 0.70% 0.70%(c)
Ratio of net investment income (loss) to
average net assets 0.46% 0.38% 0.50% 0.44% 0.66%(c)
Portfolio turnover rate (e) 43% 46% 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) Includes excise tax. If this excise tax expense was not included, the
expense ratio would have been 0.70%.
(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 73
FIRST TRUST EXCHANGE-TRADED FUND II
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST BICK INDEX FUND (BICK)
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE 4/12/2010 (a)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
9/30/2014 9/30/2013 9/30/2012 9/30/2011 9/30/2010
-------------- -------------- -------------- -------------- --------------
Net asset value, beginning of period $ 23.65 $ 23.91 $ 22.21 $ 31.16 $ 30.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.35 0.41 0.35 0.72 0.15
Net realized and unrealized gain (loss) 1.53 (0.26) 1.80 (8.98) 1.09
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.88 0.15 2.15 (8.26) 1.24
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.41) (0.41) (0.43) (0.69) (0.08)
Return of capital -- -- (0.02) -- --
---------- ---------- ---------- ---------- ----------
Total distributions (0.41) (0.41) (0.45) (0.69) (0.08)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 25.12 $ 23.65 $ 23.91 $ 22.21 $ 31.16
========== ========== ========== ========== ==========
TOTAL RETURN (b) 7.92% 0.69% 9.78% (27.18)% 4.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 17,581 $ 18,922 $ 45,438 $ 41,089 $ 28,043
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.64% 0.64% 0.64% 0.64% 0.70%(c)
Ratio of net expenses to average net assets 0.64% 0.64% 0.64% 0.64% 0.70%(c)
Ratio of net investment income (loss) to
average net assets 1.35% 1.39% 1.46% 1.11% 1.71%(c)
Portfolio turnover rate (d) 126% 56% 55% 96% 32%
FIRST TRUST NASDAQ CEA SMARTPHONE INDEX FUND (FONE)
FOR THE PERIOD
FOR THE FOR THE FOR THE 2/17/2011 (a)
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
9/30/2014 9/30/2013 9/30/2012 9/30/2011
-------------- -------------- -------------- --------------
Net asset value, beginning of period $ 32.10 $ 23.11 $ 22.51 $ 30.11
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.43 0.35 0.23 0.20
Net realized and unrealized gain (loss) 4.75 8.98 0.68 (7.70)
---------- ---------- ---------- ----------
Total from investment operations 5.18 9.33 0.91 (7.50)
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.42) (0.34) (0.31) (0.10)
---------- ---------- ---------- ----------
Net asset value, end of period $ 36.86 $ 32.10 $ 23.11 $ 22.51
========== ========== ========== ==========
TOTAL RETURN (b) 16.16% 40.61% 4.03% (24.97)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 11,059 $ 9,629 $ 12,712 $ 13,505
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.70% 0.70% 0.70% 0.70% (c)
Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% (c)
Ratio of net investment income (loss) to
average net assets 1.22% 1.10% 0.89% 1.30% (c)
Portfolio turnover rate (d) 32% 23% 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 74 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND II
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND (CARZ)
FOR THE PERIOD
FOR THE FOR THE FOR THE 5/9/2011 (a)
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
9/30/2014 9/30/2013 9/30/2012 9/30/2011
-------------- -------------- -------------- --------------
Net asset value, beginning of period $ 38.75 $ 24.52 $ 22.51 $ 29.88
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.51 0.29 0.22 0.08
Net realized and unrealized gain (loss) (0.84) 14.23 1.97 (7.40)
---------- ---------- ---------- ----------
Total from investment operations (0.33) 14.52 2.19 (7.32)
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.49) (0.29) (0.18) (0.05)
---------- ---------- ---------- ----------
Net asset value, end of period $ 37.93 $ 38.75 $ 24.52 $ 22.51
========== ========== ========== ==========
TOTAL RETURN (b) (0.92)% 59.44% 9.77% (24.55)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 64,481 $ 46,504 $ 4,904 $ 3,376
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.70% 0.70% 0.70% 0.70% (c)
Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% (c)
Ratio of net investment income (loss) to
average net assets 1.35% 1.20% 1.04% 0.70% (c)
Portfolio turnover rate (d) 20% 33% 17% 16%
FIRST TRUST ISE CLOUD COMPUTING INDEX FUND (SKYY)
FOR THE PERIOD
FOR THE FOR THE FOR THE 7/5/2011 (a)
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
9/30/2014 9/30/2013 9/30/2012 9/30/2011
-------------- -------------- -------------- --------------
Net asset value, beginning of period $ 24.60 $ 19.87 $ 15.93 $ 20.16
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.02 0.01 (0.01) (0.01)
Net realized and unrealized gain (loss) 2.74 4.72 3.96 (4.22)
---------- ---------- ---------- ----------
Total from investment operations 2.76 4.73 3.95 (4.23)
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.02) (0.00) (e) -- --
Net realized gain -- -- (0.01) --
---------- ---------- ---------- ----------
Total distributions (0.02) (0.00) (e) (0.01) --
---------- ---------- ---------- ----------
Net asset value, end of period $ 27.34 $ 24.60 $ 19.87 $ 15.93
========== ========== ========== ==========
TOTAL RETURN (b) 11.20% 23.82% 24.83% (20.98)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 341,751 $ 122,976 $ 76,488 $ 51,758
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.60% 0.60% 0.60% 0.60% (c)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (c)
Ratio of net investment income (loss) to
average net assets 0.10% 0.05% (0.14)% (0.31)% (c)
Portfolio turnover rate (d) 12% 22% 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 75
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014
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 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. If the NYSE closes early on a valuation day, the
NAV is determined as of that time. Foreign securities are priced using data
reflecting the earlier closing of the principal markets for those securities.
The NAV is calculated by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of shares
outstanding.
Each Fund's investments are valued daily at market value or, in absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e. a regulated market) and are primarily obtained from third
party pricing services. Fair value prices represent any prices not considered
Page 76
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014
market value prices and are either obtained from a third party pricing service
or are determined by First Trust Advisors L.P.'s ("First Trust" or the
"Advisor") Pricing Committee in accordance with valuation procedures adopted by
the Trust's Board of Trustees, and in accordance with provisions of the 1940
Act. Investments valued by the Advisor's Pricing Committee are footnoted as such
in the footnotes to the Portfolio of Investments. 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 the time of valuation. Each
Fund's investments are valued as follows:
Common stocks and other equity securities listed on any national or
foreign exchange (excluding NASDAQ and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for NASDAQ and
AIM securities, the official closing price. Securities traded on more than
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 fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Overnight repurchase agreements are fair valued at cost.
Short-term investments that mature in less than 60 days when purchased are
fair 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 Trust's 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 or fair value price is not available
from a pre-established pricing source; a security with respect to which an event
has occurred that is likely to materially affect the value of the security after
the market has closed but before the calculation of a Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
fair value. As a general principle, the current fair value of a security would
appear to be the amount which the owner might reasonably expect to receive for
the security upon its current sale. When fair value prices are used, generally
they will differ from market quotations or official closing prices on the
applicable exchanges. A variety of factors may be considered in determining the
fair value of such securities, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or 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 a 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:
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value each Fund's investments as of September 30, 2014, 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 settlement date and subsequent sale trade date is included in
"Net realized gain (loss) on investments" on the Statements of Operations.
D. Offsetting on the Statements of Assets and Liabilities
In December 2011, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update No. 2011-11 "Disclosures about Offsetting Assets and
Liabilities" ("ASU 2011-11"). This disclosure requirement is intended to help
investors and other financial statement users better assess the effect or
potential effect of offsetting arrangements on a fund's financial position. ASU
2011-11 requires entities to disclose both gross and net information about both
instruments and transactions eligible for offset on the Statements of Assets and
Liabilities, and disclose instruments and transactions subject to master netting
or similar agreements. In addition, in January 2013, FASB issued Accounting
Standards Update No. 2013-1 "Clarifying the Scope of Offsetting Assets and
Liabilities" ("ASU 2013-1"), specifying exactly which transactions are subject
to offsetting disclosures. The scope of the disclosure requirements is limited
to derivative instruments, repurchase agreements and reverse repurchase
agreements, and securities borrowing and securities lending transactions. ASU
2011-11 and ASU 2013-1 are effective for financial statements with fiscal years
beginning on or after January 1, 2013, and interim periods within those fiscal
years.
The Funds adopted the disclosure requirement on netting for the current
reporting period. This disclosure, if applicable, is included within each Fund's
Portfolio of Investments under the heading "Offsetting Assets and Liabilities."
For financial reporting purposes, the Funds do not offset financial assets and
financial liabilities that are subject to master netting arrangements or similar
agreements on the Statements of Assets and Liabilities.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014
E. Repurchase Agreements
Repurchase agreements involve the purchase of securities subject to the seller's
agreement to repurchase the securities at a mutually agreed upon date and price,
under the terms of a Master Repurchase Agreement ("MRA"). During the term of a
repurchase agreement, the value of the underlying securities held as collateral
on behalf of a Fund, including accrued interest, is required to exceed the value
of the repurchase agreement, including accrued interest. The underlying
securities for all repurchase agreements are held at the Funds' custodian or
designated sub-custodians under tri-party repurchase agreements.
MRAs govern transactions between a Fund and select counterparties. The MRAs
contain provisions for, among other things, initiation, income payments, events
of default, and maintenance of collateral for repurchase agreements.
If the seller defaults, a Fund could suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held by
the Fund are less than the repurchase price and the Fund's costs associated with
delay and enforcement of the repurchase agreement. In addition, in the event of
bankruptcy of the seller, a Fund could suffer additional losses if a court
determines that the Fund's interest in the collateral is not enforceable.
While the Funds may invest in repurchase agreements, any repurchase agreements
held by the Funds during the year ended September 30, 2014, were received as
collateral for lending securities.
F. Securities Lending
The Funds may lend securities representing up to 33 1/3% of the value of their
total assets to broker-dealers, banks and other institutions to generate
additional income. When a Fund loans its portfolio securities, it will receive,
at the inception of each loan, collateral equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
loaned securities. The collateral amount is valued at the beginning of each
business day and is compared to the market value of the loaned securities from
the prior business day to determine if additional collateral is required. If
additional collateral is required, a request is sent to the borrower. Securities
lending involves the risk that the Fund may lose money because the borrower of
the Fund's loaned securities fails to return the securities in a timely manner
or at all. The Fund could also lose money in the event of (i) a decline in the
value of the collateral provided for the loaned securities, (ii) a decline in
the value of any investments made with cash collateral or (iii) an increase in
the value of the loaned securities if the borrower does not increase the
collateral accordingly and the borrower fails to return the securities. These
events could also trigger adverse tax consequences for the Funds.
Under the Funds' Securities Lending Agency Agreement, the securities lending
agent will generally bear the risk that a borrower may default on its obligation
to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the
Funds' securities lending agent and is responsible for executing the lending of
the portfolio securities to creditworthy borrowers. The Funds, however, will be
responsible for the risks associated with the investment of cash collateral. A
Fund may lose money on its investment of cash collateral, which may affect its
ability to repay the collateral to the borrower without the use of other Fund
assets. Each Fund that engages in securities lending receives compensation (net
of any rebate and securities lending agent fees) for lending its securities.
Compensation can be in the form of fees received from the securities lending
agent or dividends or interest earned from the investment of cash collateral.
The dividend and interest earned on the securities loaned is accounted for in
the same manner as other dividend and interest income. At September 30, 2014,
only FLM and GRID have securities in the securities lending program. During the
year ended September 30, 2014, FLM, GRID, FONE and CARZ participated in the
securities lending program.
In the event of a default by a borrower with respect to any loan, BBH will
exercise any and all remedies provided under the applicable borrower agreement
to make the Funds whole. These remedies include purchasing replacement
securities by applying the collateral held from the defaulting broker against
the purchase cost of the replacement securities. If, despite such efforts by BBH
to exercise these remedies, a Fund sustains losses as a result of a borrower's
default, BBH will indemnify the Fund by purchasing replacement securities at its
own expense, or paying the Fund an amount equal to the market value of the
replacement securities, subject to certain limitations which are set forth in
detail in the Securities Lending Agency Agreement between the Trust on behalf of
the Funds and BBH.
G. Dividends and Distribution to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid
quarterly or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by each Fund, if any, are distributed
at least annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Funds and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some time in the future.
Page 79
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014
The tax character of distributions paid by each Fund during the year ended
September 30, 2014 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 $ 5,813,996 $ -- $ --
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 2,813,427 -- --
First Trust Dow Jones Global Select Dividend Index Fund 22,845,557 -- --
First Trust ISE Global Wind Energy Index Fund 1,163,700 -- --
First Trust ISE Global Engineering and Construction Index Fund 371,592 -- --
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 214,306 -- --
First Trust ISE Global Copper Index Fund 521,850 -- 61,191
First Trust ISE Global Platinum Index Fund 245,350 -- --
First Trust BICK Index Fund 293,611 -- --
First Trust NASDAQ CEA Smartphone Index Fund 125,341 -- --
First Trust NASDAQ Global Auto Index Fund 734,741 -- --
First Trust ISE Cloud Computing Index Fund 193,005 -- --
The tax character of distributions paid by each Fund during the year ended
September 30, 2013 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 $ 1,669,212 $ -- $ --
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 4,593,163 -- --
First Trust Dow Jones Global Select Dividend Index Fund 15,554,673 -- --
First Trust ISE Global Wind Energy Index Fund 290,875 -- --
First Trust ISE Global Engineering and Construction Index Fund 305,197 -- --
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 150,721 -- --
First Trust ISE Global Copper Index Fund 978,626 -- --
First Trust ISE Global Platinum Index Fund 24,315 -- --
First Trust BICK Index Fund 456,300 -- --
First Trust NASDAQ CEA Smartphone Index Fund 123,106 -- --
First Trust NASDAQ Global Auto Index Fund 139,330 -- --
First Trust ISE Cloud Computing Index Fund 12,480 -- --
As of September 30, 2014, 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 $ -- $ (11,478,728) $ (1,556,583)
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund -- (1,095,550) 12,368,081
First Trust Dow Jones Global Select Dividend Index Fund 1,422,927 (5,509,247) 21,079,098
First Trust ISE Global Wind Energy Index Fund 180,796 (60,810,054) (1,641,120)
First Trust ISE Global Engineering and Construction Index Fund 4,654 (4,602,727) (1,320,201)
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 4,933 (3,387,208) 863,440
First Trust ISE Global Copper Index Fund -- (38,352,525) (12,363,091)
First Trust ISE Global Platinum Index Fund 124,929 (8,816,569) (4,142,271)
First Trust BICK Index Fund 39,401 (9,347,183) (1,283,722)
First Trust NASDAQ CEA Smartphone Index Fund 8,004 (1,644,540) 1,847,151
First Trust NASDAQ Global Auto Index Fund 147,765 (328,992) 2,843,157
First Trust ISE Cloud Computing Index Fund 7,076 (1,699,054) 22,900,099
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014
H. 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.
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2011, 2012,
2013 and 2014 remain open to federal and state audit. As of September 30, 2014,
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, 2014, the Funds had pre-enactment and
post-enactment net capital losses for federal income tax purposes as shown in
the following table. To the extent that these loss carryforwards are used to
offset future capital gains, it is probable that the capital gains so offset
will not be distributed to Fund shareholders. The Funds are subject to certain
limitations, under U.S. tax rules, on the use of capital loss carryforwards and
net unrealized built-in losses. These limitations apply when there has been a
50% change in ownership.
Capital Loss Capital Loss Capital Loss Capital Loss Total
Available Available Available Available Post Capital
through through through through Enactment - Loss
9/30/2016 9/30/2017 9/30/2018 9/30/2019 No Expiration Available
------------ ------------- ------------ ------------ ------------- ------------
First Trust STOXX(R) European Select
Dividend Index Fund $ -- $ 5,960,236 $ 4,853,444 $ 161,155 $ 503,893 $ 11,478,728
First Trust FTSE EPRA/NAREIT Developed
Markets Real Estate Index Fund -- 68,465 744,825 1,838 280,422 1,095,550
First Trust Dow Jones Global Select
Dividend Index Fund 131,352 208,741 1,274,694 323,583 3,570,877 5,509,247
First Trust ISE Global Wind Energy
Index Fund 174,186 30,175 8,357,650 9,549,964 42,698,079 60,810,054
First Trust ISE Global Engineering and
Construction Index Fund -- 1,914 -- 615,538 3,985,275 4,602,727
First Trust NASDAQ(R) Clean Edge(R)
Smart Grid Infrastructure Index Fund -- -- 928,889 -- 2,458,319 3,387,208
First Trust ISE Global Copper Index Fund -- -- 74,393 -- 38,278,132 38,352,525
First Trust ISE Global Platinum Index Fund -- -- 344,523 -- 8,472,046 8,816,569
First Trust BICK Index Fund -- -- -- -- 9,347,183 9,347,183
First Trust NASDAQ CEA Smartphone
Index Fund -- -- -- -- 1,644,540 1,644,540
First Trust NASDAQ Global Auto Index Fund -- -- -- -- 328,992 328,992
First Trust ISE Cloud Computing Index Fund -- -- -- -- 1,699,054 1,699,054
During the taxable year ended September 30, 2014, the following Funds utilized
capital loss carryforwards in the following amounts:
Capital Loss Carryforward Utilized
----------------------------------
First Trust STOXX(R) European Select Dividend Index Fund $ 259,233
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 261,107
First Trust Dow Jones Global Select Dividend Index Fund 12,266
First Trust ISE Global Wind Energy Index Fund 1,261,121
First Trust ISE Global Engineering and Construction Index Fund 113,918
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 515,380
First Trust BICK Index Fund 152,864
First Trust NASDAQ CEA Smartphone Index Fund 367,154
First Trust ISE Cloud Computing Index Fund 5,927
In order to present paid-in capital, accumulated net investment income (loss)
and accumulated net realized gain (loss) on investments on the Statements of
Assets and Liabilities that more closely represent their tax character, certain
adjustments have been made to paid-in capital, accumulated net investment income
(loss) and accumulated net realized gain (loss) on investments. These
adjustments
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014
are primarily due to the difference between book and tax treatments of income
and gains on various investment securities held by the Funds and in-kind
transactions. The results of operations and net assets were not affected by
these adjustments. For the fiscal year ended September 30, 2014, the adjustments
for each Fund were as follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss) Paid-in
Income (Loss) on Investments Capital
---------------- ---------------- ------------
First Trust STOXX(R) European Select Dividend Index Fund $ (54,261) $ 77,464 $ (23,203)
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 451,000 (1,326,621) 875,621
First Trust Dow Jones Global Select Dividend Index Fund 1,880,197 (6,127,356) 4,247,159
First Trust ISE Global Wind Energy Index Fund 2,122 (8,005,657) 8,003,535
First Trust ISE Global Engineering and Construction Index Fund 68,869 (1,481,533) 1,412,664
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund (1,669) (489,799) 491,468
First Trust ISE Global Copper Index Fund 31,469 227,202 (258,671)
First Trust ISE Global Platinum Index Fund 174,855 (89,984) (84,871)
First Trust BICK Index Fund 75,973 (62,322) (13,651)
First Trust NASDAQ CEA Smartphone Index Fund (1,388) 1,388 --
First Trust NASDAQ Global Auto Index Fund 2,743 (1,382,198) 1,379,455
First Trust ISE Cloud Computing Index Fund 443 (9,190,571) 9,190,128
I. 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 the
Advisor. General expenses of the Trust are allocated to all the Funds based upon
the net assets of each Fund.
The Advisor has entered into licensing agreements with each of the following
"Licensors" for the respective Funds:
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.
J. Accounting Pronouncement
In June 2014, FASB issued Accounting Standards Update (ASU) No. 2014-11,
Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions,
Repurchase Financings, and Disclosures. A repurchase-to-maturity transaction is
one where the repurchase agreement settles at the same time as the maturity of
the transferred financial asset. These transactions, unlike other repurchase
agreements, were accounted for as sales and purchases instead of being treated
as secured borrowings. This ASU changes that accounting practice and treats all
repurchase agreements as secured borrowings. The ASU additionally requires two
new disclosures which are intended to: a) disclose information on transferred
assets accounted for as sales in transactions that are economically similar to
repurchase agreements, and b) provide increased transparency about the types of
collateral pledged in repurchase agreements and similar transactions accounted
for as secured borrowings.
The ASU impacts all entities that enter into repurchase-to-maturity
transactions, entities that account for these transactions as a sale and a
purchase, and entities that engage in repurchase agreements and securities
lending transactions.
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014
The ASU is effective for financial statements with fiscal years beginning on or
after December 15, 2014 and interim periods within those fiscal years.
Management is evaluating the impact, if any, of this guidance on the Funds'
financial statement disclosures.
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, 2016.
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 incurred, but no reimbursement payment will be
made by a Fund if it results in the Fund exceeding an expense ratio equal to the
Expense Cap in place at the time the expenses were reimbursed or fees waived by
First Trust. These amounts are included in "Expenses previously waived or
reimbursed" on the Statements of Operations.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014
The advisory fee waivers and expense reimbursements for the year ended September
30, 2014 and the fees waived or expenses borne by the Advisor subject to
recovery from each Fund for the periods indicated were as follows:
Expenses Borne by Advisor Subject to Recovery
----------------------------------------------------
Advisory Expense
Fee Reim- Year Ended Year Ended Year Ended
Waivers bursements 9/30/2012 9/30/2013 9/30/2014 Total
------------ ------------ ------------ ------------- ------------- --------
First Trust STOXX(R) European
Select Dividend Index Fund $ 42,359 $ -- $ 113,312 $ 100,869 $ 42,359 $256,540
First Trust FTSE EPRA/NAREIT Developed
Markets Real Estate Index Fund 118,485 -- 109,938 86,139 118,485 314,562
First Trust Dow Jones Global
Select Dividend Index Fund -- -- 54,497 35,045 -- 89,542
First Trust ISE Global Wind
Energy Index Fund 94,990 -- 17,370 64,592 94,990 176,952
First Trust ISE Global Engineering
and Construction Index Fund 37,787 -- 4,508 32,237 37,787 74,532
First Trust NASDAQ(R) Clean Edge(R) Smart
Grid Infrastructure Index Fund 37,559 -- 12,659 50,638 37,559 100,856
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 that is allocated pro rata among each fund in the First Trust Fund
Complex based on net assets. Each Independent Trustee is also paid an annual per
fund fee that varies based on whether the fund is a closed-end or other actively
managed fund or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the year ended September 30, 2014, the cost of purchases and proceeds from
sales of investment securities for each Fund, excluding short-term investments
and in-kind transactions, were as follows:
Purchases Sales
--------------- ---------------
First Trust STOXX(R) European Select Dividend Index Fund $ 37,882,581 $ 37,853,399
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 12,853,272 12,197,966
First Trust Dow Jones Global Select Dividend Index Fund 166,852,230 162,557,470
First Trust ISE Global Wind Energy Index Fund 23,728,382 22,358,892
First Trust ISE Global Engineering and Construction Index Fund 8,866,952 8,893,045
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 4,697,123 4,707,987
First Trust ISE Global Copper Index Fund 8,638,303 9,963,953
First Trust ISE Global Platinum Index Fund 4,910,859 5,472,379
First Trust BICK Index Fund 23,305,183 24,263,925
First Trust NASDAQ CEA Smartphone Index Fund 3,412,150 3,399,584
First Trust NASDAQ Global Auto Index Fund 13,896,646 11,378,527
First Trust ISE Cloud Computing Index Fund 28,990,559 29,646,413
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014
For the year ended September 30, 2014, 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 $ 112,863,479 $ --
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 10,636,535 3,943,191
First Trust Dow Jones Global Select Dividend Index Fund 221,529,230 30,049,143
First Trust ISE Global Wind Energy Index Fund 43,257,528 27,681,178
First Trust ISE Global Engineering and Construction Index Fund 7,408,659 7,719,272
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 3,661,753 1,874,536
First Trust ISE Global Copper Index Fund 1,286,672 6,691,257
First Trust ISE Global Platinum Index Fund 4,730,896 3,840,929
First Trust BICK Index Fund -- 1,461,656
First Trust NASDAQ CEA Smartphone Index Fund -- --
First Trust NASDAQ Global Auto Index Fund 20,762,841 3,565,225
First Trust ISE Cloud Computing Index Fund 222,463,486 20,775,075
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.
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
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014
6. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
in the sale of Creation Units or the provision of investor services. FTP may
also use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, the Funds will not pay 12b-1 fees any time before January 31, 2016.
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
was the following subsequent event:
On November 5, 2014, First Trust International IPO ETF, an additional series of
the Trust, began trading under the ticker symbol "FPXI" on NASDAQ.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST EXCHANGE-TRADED FUND
II:
We have audited the accompanying statements of assets and liabilities 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, and First Trust ISE Cloud Computing Index Fund (collectively,
the "Funds"), each a series of the First Trust Exchange-Traded Fund II (the
"Trust"), including the portfolios of investments, as of September 30, 2014, and
the related statements of operations for the year then ended, and the statements
of changes in net assets and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Trust is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of September 30, 2014, by correspondence with the Trust's
custodian and brokers; where replies were not received, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds listed above included in the First Trust Exchange-Traded Fund II as of
September 30, 2014, the results of their operations for the year then ended, and
the changes in their net assets and the financial highlights for each of the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
November 21, 2014
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Funds' website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of each Fund's portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q. The
Trust's Forms N-Q are available (1) by calling (800) 988-5891;
(2) on the Funds' website located at http://www.ftportfolios.com; (3) on the
SEC's website at http://www.sec.gov; and (4) for review and copying at the SEC's
Public Reference Room ("PRR") in Washington, DC. Information regarding the
operation of the PRR may be obtained by calling (800) SEC-0330.
FEDERAL TAX INFORMATION
For the taxable year ended September 30, 2014, the following percentages of
income dividend paid by the Funds qualified for the dividends received deduction
available to corporations:
Dividends Received Deduction
----------------------------
First Trust STOXX(R) European Select Dividend Index Fund 0.00%
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 0.00%
First Trust Dow Jones Global Select Dividend Index Fund 16.20%
First Trust ISE Global Wind Energy Index Fund 21.78%
First Trust ISE Global Engineering and Construction Index Fund 8.37%
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 28.10%
First Trust ISE Global Copper Index Fund 20.84%
First Trust ISE Global Platinum Index Fund 0.00%
First Trust BICK Index Fund 0.00%
First Trust NASDAQ CEA Smartphone Index Fund 29.49%
First Trust NASDAQ Global Auto Index Fund 31.04%
First Trust ISE Cloud Computing Index Fund 100.00%
For the taxable year ended September 30, 2014, the following percentages of
income dividend paid by the Funds is hereby designated as qualified dividend
income:
Qualified Dividend Income
----------------------------
First Trust STOXX(R) European Select Dividend Index Fund 100.00%
First Trust FTSE EPRA/NAREIT Developed Markets Real Estate Index Fund 16.37%
First Trust Dow Jones Global Select Dividend Index Fund 100.00%
First Trust ISE Global Wind Energy Index Fund 100.00%
First Trust ISE Global Engineering and Construction Index Fund 100.00%
First Trust NASDAQ(R) Clean Edge(R) Smart Grid Infrastructure Index Fund 100.00%
First Trust ISE Global Copper Index Fund 100.00%
First Trust ISE Global Platinum Index Fund 80.60%
First Trust BICK Index Fund 100.00%
First Trust NASDAQ CEA Smartphone Index Fund 100.00%
First Trust NASDAQ Global Auto Index Fund 100.00%
First Trust ISE Cloud Computing Index Fund 100.00%
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014 (UNAUDITED)
The following Funds meet the requirements of Section 853 of the Internal Revenue
Code and elects to pass through to its shareholders credit for foreign taxes
paid. The total amounts of income received by the Funds from sources within
foreign countries and possessions of the United States and of taxes paid to such
countries are as follows:
Gross Foreign Income Foreign Taxes Paid
-------------------- --------------------
Amount Per Share Amount Per Share
------------------------ ----------------------
First Trust STOXX(R) European Select Dividend Index Fund $ 6,863,686 $ 0.55 $ 365,576 $ 0.03
First Trust Dow Jones Global Select Dividend Index Fund 23,518,636 1.11 2,015,406 0.10
First Trust ISE Global Wind Energy Index Fund 1,674,659 0.22 178,105 0.02
First Trust ISE Global Engineering and Construction Index Fund 349,989 1.00 35,647 0.10
First Trust ISE Global Copper Index Fund 681,463 0.55 56,653 0.05
First Trust ISE Global Platinum Index Fund 158,832 0.17 23,006 0.02
First Trust BICK Index Fund 402,030 0.57 30,672 0.04
First Trust NASDAQ CEA Smartphone Index Fund 164,648 0.55 19,696 0.07
First Trust NASDAQ Global Auto Index Fund 687,370 0.40 76,475 0.04
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER EACH FUND'S INVESTMENT
OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN
DOWNLOAD EACH FUND'S PROSPECTUS AT 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.
ASIA RISK. 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. 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.
BRAZIL RISK. 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.
CANADA RISK. 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.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014 (UNAUDITED)
CHINA RISK. 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.
CLOUD COMPUTING COMPANIES RISK. 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.
CONCENTRATION RISK. 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.
CONSUMER DISCRETIONARY COMPANIES RISK. 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 non-diversified in both product line and customer base and may be more
vulnerable to certain events that may negatively impact the automotive industry.
COPPER RISK. 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.
COPPER MINING COMPANY RISK. 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.
CURRENCY RISK. 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.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014 (UNAUDITED)
DEPOSITARY RECEIPTS RISK. 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.
ENGINEERING AND CONSTRUCTION COMPANIES RISK. 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.
EUROPE RISK. 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.
FINANCIAL COMPANIES RISK. 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.
INDEX CORRELATION RISK. 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.
INDIA RISK. 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.
INDUSTRIALS COMPANIES RISK. 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.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014 (UNAUDITED)
INFORMATION TECHNOLOGY COMPANIES RISK. 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.
INTELLECTUAL PROPERTY RISK. 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.
INTEREST RATE RISK. 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.
JAPAN RISK. 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.
LIQUIDITY RISK. 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.
MARKET RISK. 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.
MATERIAL COMPANIES RISK. 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.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014 (UNAUDITED)
NON-CORRELATION RISK. 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.
NON-DIVERSIFICATION RISK. 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.
NON-U.S. SECURITIES RISK. 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.
PASSIVE FOREIGN INVESTMENT COMPANY RISK. 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.
PASSIVE INVESTMENT RISK. 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.
PGM RISK. 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 ("PGM"). 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.
PGM MINING COMPANY RISK. 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.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014 (UNAUDITED)
REAL ESTATE INVESTMENT RISK. 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.
REPLICATION MANAGEMENT RISK. 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.
RUSSIA RISK. 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.
SECURITIES LENDING RISK. Certain Funds may lend securities representing up to 33
1/3% of the value of their total assets to broker-dealers, banks, and other
institutions to generate additional income. 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.
SMALLER COMPANIES RISK. 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.
SMART GRID COMPANIES RISK. 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.
SMARTPHONE COMPANIES RISK. 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.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014 (UNAUDITED)
SOUTH AFRICA RISK. 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.
SOUTH KOREA RISK. 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.
TELECOMMUNICATIONS COMPANIES RISK. 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.
UNITED KINGDOM RISK. The First Trust STOXX(R) European Select Dividend Index
Fund and the First Trust ISE Global Copper Index Fund invest a significant
portion of their assets in companies that are domiciled in the United Kingdom,
the Funds are particularly sensitive to political, economic and social
conditions in that country. The Funds may be affected unfavorably by political
developments, social instability, changes in government policies and other
political and economic developments in the United Kingdom.
UTILITY COMPANIES RISK. 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.
WIND ENERGY COMPANIES RISK. 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.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014 (UNAUDITED)
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE THE FIRST TRUST OTHER
NAME, ADDRESS, AND YEAR FIRST FUND COMPLEX TRUSTEESHIPS OR
DATE OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
---------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton 110 None
c/o First Trust Advisors L.P. Orthopedics; Limited Partner,
120 E. Liberty Drive, o Since Inception Gundersen Real Estate Limited
Suite 400 Partnership; Member, Sportsmed LLC
Wheaton, IL 60187
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), Senior 110 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services,
120 E. Liberty Drive, o Since Inception (May 2007 to March 2010), ADM Investor Inc. and ADM
Suite 400 Services, Inc. (Futures Commission Investor Services,
Wheaton, IL 60187 Merchant) International
D.O.B.: 11/57
Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 110 Director of Trust
c/o First Trust Advisors L.P. Enterprises (Financial and Management Company of
120 E. Liberty Drive, o Since Inception Consulting) Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Indefinite Term President and Chief Executive Officer 110 Director of
c/o First Trust Advisors L.P. (June 2012 to Present), Dew Learning LLC Covenant
120 E. Liberty Drive, o Since Inception (Educational Products and Services); Transport Inc.
Suite 400 President (June 2002 to June 2012),
Wheaton, IL 60187 Covenant College
D.O.B.: 03/54
---------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
---------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer (December 2010 110 None
Chairman of the Board to Present), President (until December
120 E. Liberty Drive, o Since Inception 2010), First Trust Advisors L.P. and
Suite 400 First Trust Portfolios L.P.; Chairman of
Wheaton, IL 60187 the Board of Directors, BondWave LLC
D.O.B.: 09/55 (Software Development Company/
Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as CEO of First Trust Advisors L.P., investment advisor of the
Trust.
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014 (UNAUDITED)
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
POSITION AND TERM OF OFFICE
NAME, ADDRESS OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES(2)
------------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley President and Chief Executive o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 E. Liberty Drive, Officer and Chief Financial Officer, First Trust Advisors
Suite 400 o Since Inception L.P. and First Trust Portfolios L.P.; Chief
Wheaton, IL 60187 Financial Officer, BondWave LLC (Software
D.O.B.: 11/57 Development Company/Investment Advisor) and
Stonebridge Advisors LLC (Investment Advisor)
James M. Dykas Treasurer, Chief Financial o Indefinite Term Controller (January 2011 to Present), Senior Vice
120 E. Liberty Drive, Officer and Chief President (April 2007 to Present), First Trust
Suite 400 Accounting Officer o Since Inception Advisors L.P. and First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 01/66
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P., First
120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General
Suite 400 o Since Inception Counsel, BondWave LLC (Software Development Company/
Wheaton, IL 60187 Investment Advisor) and Stonebridge Advisors LLC
D.O.B.: 05/60 (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present), Senior
120 E. Liberty Drive, Vice President (September 2005 to July 2012), First
Suite 400 o Since Inception Trust Advisors L.P. and First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 02/70
Kristi A. Maher Chief Compliance Officer and o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
120 E. Liberty Drive, Assistant Secretary and First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 12/66
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L. P.
120 E. Liberty Drive, and First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 06/66
Stan Ueland Vice President o Indefinite Term Senior Vice President (September 2012 to Present),
120 E. Liberty Drive, Vice President (August 2005 to September 2012),
Suite 400 o Since Inception First Trust Advisors L.P.
and First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 11/70
-----------------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND II
SEPTEMBER 30, 2014 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and consider your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information with affiliates of the Fund.
PRIVACY ONLINE
We allow third-party companies, including AddThis, to collect certain anonymous
information when you visit our website. These companies may use non-personally
identifiable information during your visits to this and other websites in order
to provide advertisements about goods and services likely to be of greater
interest to you. These companies typically use a cookie, third party web beacon
or pixel tags, to collect this information. To learn more about this behavioral
advertising practice, you can visit www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, we restrict access to your
nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
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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.
(a) The registrant, as of the end of the period covered by this report,
has adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless
of whether these individuals are employed by the registrant or a third
party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, and that relates to any element of the code
of ethics description.
(d) The registrant, during the period covered by this report, has not
granted any waivers, including an implicit waiver, from a provision of the
code of ethics that applies to the registrant's principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, regardless of whether
these individuals are employed by the registrant or a third party, that
relates to one or more of the items set forth in paragraph (b) of this
item's instructions.
(e) Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's Board of
Trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each of them is "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees (Registrant) -- The aggregate fees billed for each of the
last two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial statements or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements were $262,500 for the fiscal
year ended September 30, 2013 and $262,500 for the fiscal year ended September
30, 2014.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in each
of the last two fiscal years for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit of the
registrant's financial statements and are not reported under paragraph (a) of
this Item were $0 for the fiscal year ended September 30, 2013 and $0 for the
fiscal year ended September 30, 2014.
Audit-Related Fees (Investment Adviser and Distributor) -- The aggregate
fees billed in each of the last two fiscal years for assurance and related
services by the principal accountant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item were $0 for the fiscal year ended
September 30, 2013 and $0 for the fiscal year ended September 30, 2014.
(c) Tax Fees (Registrant) -- The aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning to the registrant were $40,500
for the fiscal year ended September 30, 2013 and $39,525 for the fiscal year
ended September 30, 2014. These fees were for tax return review and multi-state
tax compliance.
Tax Fees (Investment Adviser and Distributor) -- The aggregate fees billed
in each of the last two fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning to the
registrant's adviser and distributor were $0 for the fiscal year ended September
30, 2013 and $0 for the fiscal year ended September 30, 2014.
(d) All Other Fees (Registrant) -- The aggregate fees billed in each of
the last two fiscal years for products and services provided by the principal
accountant to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 for the fiscal year ended September 30, 2013
and $0 for the fiscal year ended September 30, 2014.
All Other Fees (Investment Adviser and Distributor) -- The aggregate fees
billed in each of the last two fiscal years for products and services provided
by the principal accountant to the registrant's investment adviser and
distributor, other than the services reported in paragraphs (a) through (c) of
this Item were $0 for the fiscal year ended September 30, 2013 and $0 for the
fiscal year ended September 30, 2014.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the registrant, if the engagement relates
directly to the operations and financial reporting of the registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the registrant and the registrant's investment adviser and
distributor of this Item that were approved by the audit committee pursuant to
the pre-approval exceptions included in paragraph (c)(7)(i)(C) or
paragraph(C)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:
Registrant: Adviser and Distributor:
----------- -------------------------
(b) 0% (b) 0%
(c) 0% (c) 0%
(d) 0% (d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser),
and any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for the fiscal year
ended September 30, 2013 were $40,500 for the registrant, $3,000 for the
registrant's investment adviser and $60,600 for the registrant's distributor,
and for the fiscal year ended September 30, 2014 were $39,325 for the
registrant, $43,500 for the registrant's investment adviser and $36,000 for the
registrant's distributor.
(h) The registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEMS 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
The audit committee of the registrant is comprised of: Richard E. Erickson,
Thomas R. Kadlec, Robert F. Keith and Niel B. Nielson.
ITEM 6. INVESTMENTS.
(a) The Schedule of Investments in securities of unaffiliated issuers as of
the close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407 (c) (2) (iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22 (b) (15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3 (c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal quarter of
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a) (1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a) (2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a) (3) Not Applicable
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Exchange-Traded Fund II
-----------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: November 20, 2014
----------------------
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: November 20, 2014
----------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: November 20, 2014
----------------------
* Print the name and title of each signing officer under his or her signature.