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Name | Symbol | Market | Type |
---|---|---|---|
First Trust STOXX European Select Dividend Income Fund | AMEX:FDD | AMEX | Exchange Traded Fund |
Price Change | % Change | Price | High Price | Low Price | Open Price | Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
-0.1556 | -1.29% | 11.88 | 11.9099 | 11.80 | 11.83 | 104,815 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
The registrant's semi-annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows:
[LOGO OMITTED] FIRST TRUST
First Trust DJ STOXX(R) Select Dividend 30 Index Fund First Trust FTSEEPRA/NAREIT Global Real Estate Index Fund First Trust Dow Jones Global Select Dividend Index Fund
Front Cover
First Trust Exchange-Traded Fund II March 31, 2008 Shareholder Letter 2 Market Overview 3 Performance Overview First Trust DJ STOXX(R) Select Dividend 30 Index Fund 4 First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund 6 First Trust Dow Jones Global Select Dividend Index Fund 8 Notes to Performance Overview 10 Understanding Your Fund Expenses 11 Portfolio of Investments First Trust DJ STOXX(R) Select Dividend 30 Index Fund 12 First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund 13 First Trust Dow Jones Global Select Dividend Index Fund 17 Statements of Assets and Liabilities 19 Statements of Operations 20 Statements of Changes in Net Assets 22 Financial Highlights 24 Notes to Financial Statements 26 Additional Information 31 Risk Considerations 34 |
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (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 First Trust Exchange-Traded Fund II (the "Trust") to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any Fund (individually called a "Fund" and collectively, the "Funds") of the Trust will achieve its investment objective. Each Fund of the Trust 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 Additional Information 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 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 the portfolios and presents data and analysis that provide insight into each Fund's performance and investment approach.
By reading the portfolio commentary by Robert F. Carey, Chief Investment Officer of the Advisor, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund's performance compared to that of relevant market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The risks of investing in each Fund are spelled out in its prospectus.
Trust Exchange-Traded Fund II Semi-Annual Report March 31, 2008
Dear Shareholders:
The year 2007 and the first quarter of 2008 were somewhat challenging times for the financial markets and for many investors. Yet, regardless of the market, First Trust Advisors L.P. ("First Trust") believes that in order to be successful in reaching your financial goals, you should be invested for the long-term. We also believe that investors should seek professional help from a financial advisor who has been through many types of markets, knows the range of investments available, and is committed to bringing you investments suitable to your particular situation.
Our goal at First Trust has always been to offer a wide range of investment products, including our family of exchange-traded funds, to help financial advisors give you the opportunity to meet your financial objectives. We have continued to expand our product line to ensure that you have many choices to fit into your investment portfolio.
The report you hold will give you detailed information about First Trust DJ STOXX(R) Select Dividend 30 Index Fund ("FDD"), First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund ("FFR") and First Trust Dow Jones Global Select Dividend Index Fund ("FGD"), one or more of which you have purchased. It contains such current information as the performance of the Funds and a market recap of the period this report covers. We are proud to bring these unique investments to our customers, and are pleased you have chosen a First Trust exchange-traded fund(s) for a portion of your investment portfolio. I encourage you to read this report and discuss it with your financial advisor.
First Trust has been through many types of markets and remains committed to bringing you quality investment solutions regardless of the inevitable ups and downs the market experiences. We offer a variety of products that we believe can fit many financial plans to help those investors seeking long-term investment success. As well, we are committed to giving you up-to-date information about your investments so you and your financial advisor are always current on your portfolio.
We continue to value our relationship with you and we thank you for the opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen James A. Bowen President of First Trust Exchange-Traded Fund II |
First Trust Exchange-Traded Fund II Semi-Annual Report March 31, 2008
[PHOTO OMITTED] Robert F. Carey, CFA Senior Vice President and Chief Investment Officer First Trust Advisors L.P. Mr. Carey is responsible for the overall management of research and analysis of the First Trust product line. Mr. Carey has 21 years of experience as an Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial Analyst ("CFA") designation. He is a graduate of the University of Illinois at Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been quoted by several publications, including The Wall Street Journal, The Wall Street Reporter, Bloomberg News Service, and Registered Rep. |
Market Overview - First Trust DJ STOXX(R) Select Dividend 30 Index Fund ("FDD") and First Trust Dow Jones Global Select Dividend Index Fund ("FGD")
The past six months proved to be quite a volatile period for most global equity markets, including Europe. The primary catalyst behind the disappointing performance was the deterioration of the subprime mortgage market in the U.S. and the credit crunch it produced. Mounting foreclosures coupled with persistent weakness in the broader residential real estate market pushed housing and mortgage-backed securities prices substantially lower. Banks and other financial institutions (worldwide) that invested in subprime mortgage-backed securities, such as Collateralized Debt Obligations (CDOs), have collectively written-down tens of billions of dollars in losses. Some of the largest financial institutions in the U.S. and Europe have borrowed from sovereign wealth funds or other sources to bolster capital reserves for the near-term. Standard & Poor's recently reported that it believes the worst is behind us and that financial institutions, when all is said and done, may learn that actual losses were less than those taken. FDD's and FGD's exposure to financials is currently nearly 40% and 50%, respectively.
The U.S. economy barely grew at all over the past six months and that has impacted the global economy. Real Gross Domestic Product growth was just 0.6% in the fourth quarter of 2007 and the first quarter of 2008. The Federal Reserve Board (the "Fed") cut the federal funds target rate three percentage points from 5.25% to 2.25% over the past six months in an effort to stimulate growth. It usually takes 6-9 months before a Fed rate action influences economic activity. The value of the U.S. dollar fell as a result of those rate cuts. The euro gained nearly 11.5% against the dollar over the past six months, while the dollar fell 7.4% against a basket of major currencies monitored by the Fed. As the dollar fell the value of commodities, particularly oil, soared. The price of a barrel of crude oil jumped 24% over the six-month span, while a broader basket of commodities (Reuters/Jefferies CRB Index) rose 16%. These price gains have stoked inflation in China, India, Europe and elsewhere. Many central banks have either hiked lending rates or, in the case of the European Central Bank (ECB), refrained from lowering rates. European stocks have suffered to some degree because the ECB has chosen to fight inflation rather than stimulate growth.
Market Overview - First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund ("FFR")
Global real estate valuations fell nearly twice as much, on average, in the fourth quarter of 2007 as in the first quarter of 2008, according to data from the National Association of Real Estate Investment Trusts (NAREIT). The combination of the threat of a U.S. recession, fears over a global credit crunch and several years of outsized gains finally caught up with the real estate sector. Prior to 2007, global real estate had not posted a down year since 2001. North America and Europe were both down more than 10% in the fourth quarter of 2007, while Asia was a bit more resilient declining by roughly 7%, according to NAREIT. In the first quarter of 2008, however, both North America and Europe rebounded back into positive territory, albeit modestly, while Asia declined 16.4%.
While real estate has historically carried a relatively low correlation to equities, returns tracked global indices fairly closely over the past six months. Over the long haul, REITs tend to be influenced more by interest rate fluctuations since they pass through at least 90% of their cash flows. Interest rate levels remain low to moderate across the globe.
FDD - FIRST TRUST DJ STOXX(R) SELECT DIVIDEND 30 INDEX FUND
First Trust DJ STOXX(R) Select Dividend 30 Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Dow Jones STOXX(R) Select Dividend 30 Index (the "STOXX Index"). The Shares of the Fund are listed and trade on the American Stock Exchange under the ticker symbol "FDD." The Fund will normally invest at least 90% of its assets in non-U.S. common stocks that comprise the STOXX Index or in depositary receipts that may include American Depositary Receipts, Global Depositary Receipts, European Depositary Receipts, New York shares or global shares representing securities in the STOXX Index. The Fund began trading on August 30, 2007.
The STOXX Index consists of 30 securities selected from the Dow Jones
STOXX(R) 600 Index, including secondary lines of those companies (where
there are multiple lines of equity capital in a company), which includes
the highest dividend-yielding companies across 18 European countries:
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland,
Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland and the United Kingdom. The STOXX Index is compiled
and maintained by STOXX Limited. Only dividend-paying companies in the
Dow Jones STOXX(R) 600 Index (including secondary lines of those
companies) are considered for inclusion in the STOXX Index. In addition,
a company must have a non-negative five-year dividend-per share growth
rate and a dividend-to-earnings ratio of 60% or less.
---------------------------------------------------------------------------------------------------------- Performance as of March 31, 2008 ---------------------------------------------------------------------------------------------------------- Cumulative Total Returns Six Months Ended Since Fund Inception March 31, 2008 (August 27, 2007) Fund Performance NAV -14.36% -11.59% Market Price -14.05% -10.82% Index Performance Dow Jones STOXX(R) Select Dividend 30 Index -12.28% -9.61% Dow Jones STOXX(R) 600 Index -8.97% -3.30% ---------------------------------------------------------------------------------------------------------- |
(See Notes to Performance Overview on page 10.)
PERFORMANCE REVIEW
All seven sectors represented in the portfolio posted negative returns for the six months ended March 31, 2008. Utilities was the best-performing sector, followed by telecommunications services. Financials were the biggest detractors from portfolio performance, caused by a large weighting and poor performance from the sector. Materials stocks posted the worst returns in the portfolio.
All countries represented in the portfolio posted negative returns over the period. France and Belgium posted the best relative performance. The two countries combined accounted for approximately 11% of the portfolio over the period covered by this report. The United Kingdom was the biggest drag on portfolio performance. In addition to being the largest weighting in the portfolio, the country's holdings were one of the worst performers.
FDD - FIRST TRUST DJ STOXX(R) SELECT DIVIDEND 30 INDEX FUND (Continued)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Taylor Wimpey PLC DSG International PLC Tomkins PLC Alliance & Leicester PLC HBOS PLC Norske Skogindustrier ASA Zurich Financial Services AG Deutsche Telekom AG Fortis RWE AG ------------------------------------------------------------------------------- |
% of Long-Term Sector Investments ------------------------------------------------------------------- Financials 49.63% Consumer Discretionary 22.20 Telecommunication Services 11.17 Industrials 6.55 Utilities 5.89 Materials 2.44 Energy 2.12 ----------- Total 100.00% =========== ------------------------------------------------------------------- |
% of Long-Term Security Investments ------------------------------------------------------------------- DSG International PLC 7.90% Taylor Wimpey PLC 5.38 Alliance & Leicester PLC 5.17 Tomkins PLC 4.77 Royal Bank of Scotland Group PLC 4.58 Barratt Developments PLC 4.55 Trinity Mirror PLC 4.38 Lloyds TSB Group PLC 4.32 HBOS PLC 4.31 Provident Financial PLC 4.16 ----------- Total 49.52% =========== ------------------------------------------------------------------- |
FFR - FIRST TRUST FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDEX FUND
First Trust FTSE EPRA/NAREIT Global 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 Global Real Estate Index (the "FTSE Index"). The Shares of the Fund are listed and trade on the American Stock Exchange under the ticker symbol "FFR." The Fund will normally invest at least 90% of its assets in common stocks that comprise the FTSE Index or in depositary receipts that may include American Depositary Receipts, Global Depositary Receipts, European Depositary Receipts, New York shares or global shares representing securities in the FTSE Index. The Fund began trading on August 30, 2007.
The FTSE Index is compiled and maintained by FTSE International Limited. The FTSE Index is modified market cap weighted based on free float market capitalization and tracks the performance of listed real estate companies or real estate investment trusts ("REITs") in North America, Europe and Asia. The FTSE Index is comprised of the FTSE EPRA/NAREIT North America Series, the FTSE EPRA/NAREIT Europe Series and the FTSE EPRA/NAREIT Asia Series.
---------------------------------------------------------------------------------------------------------- Performance as of March 31, 2008 ---------------------------------------------------------------------------------------------------------- Cumulative Total Returns Six Months Ended Since Fund Inception March 31, 2008 (August 27, 2007) Fund Performance NAV -15.67% -9.88% Market Price -15.33% -9.11% Index Performance FTSE EPRA/NAREIT Global Real Estate Index -15.30% -9.43% S&P Global REIT Index -13.48% -8.38% ---------------------------------------------------------------------------------------------------------- |
(See Notes to Performance Overview on page 10.)
FUND PERFORMANCE
The self storage and healthcare industries were the best performers for the six months ended March 31, 2008 measured by contribution to return. These two sub-industries were the only positive contributors to return out of the ten industries represented in the index. The diversified sub-industry was the biggest drag on absolute performance, followed by the retail and office sub-industries.
France posted the largest contribution to return followed by Switzerland and the Netherlands. Australia had the most negative contribution to return followed by Japan, the United States and Hong Kong.
FFR - FIRST TRUST FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDEX FUND (Continued)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Public Storage Sumitomo Realty & Development Co., Ltd. Unibail-Rodamco S.A. Mitsui Fudosan Co., Ltd. Equity Residential Centro Properties Group PSP Swiss Property AG Westfield Group Ventas, Inc. Sun Hung Kai Properties Ltd. ------------------------------------------------------------------------------- |
% of Long-Term Sector Investments ------------------------------------------------------------------- Financials 99.23% Industrials 0.46 Consumer Discretionary 0.25 Health Care 0.06 ----------- Total 100.00% =========== ------------------------------------------------------------------- |
% of Long-Term Security Investments ------------------------------------------------------------------- Westfield Group 4.24% Sun Hung Kai Properties Ltd. 3.94 Mitsubishi Estate Co., Ltd. 3.29 Unibail-Rodamco S.A. 2.83 Simon Property Group, Inc. 2.81 Mitsui Fudosan Co., Ltd. 2.31 ProLogis 2.04 Land Securities Group PLC 1.89 Vornado Realty Trust 1.77 Public Storage 1.53 ----------- Total 26.65% =========== ------------------------------------------------------------------- |
FGD - FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
First Trust Dow Jones Global Select Dividend Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Dow Jones Global Select Dividend Index(SM) (the "Index"). The Shares of the Fund are listed and trade on the American Stock Exchange under the ticker symbol "FGD." The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index or in depositary receipts that may include American Depositary Receipts, Global Depositary Receipts, European Depositary Receipts, New York shares or global shares representing securities in the Index. The Fund began trading on November 27, 2007.
The Index is an indicated annual dividend yield weighted index of 100 stocks selected from the developed market portion of the Dow Jones World Developed Index. Indicated annual dividend yield is a stock's unadjusted indicated annual dividend (not including any special dividends) divided by its unadjusted price. As of November 16, 2007, the Index covered 16 developed markets.
-------------------------------------------------------------------------------- Performance as of March 31, 2008 -------------------------------------------------------------------------------- Cumulative Total Returns Since Fund Inception (November 21, 2007) Fund Performance NAV -6.55% Market Price -6.29% Index Performance Dow Jones Global Select Dividend Index -6.38% Dow Jones World Developed Index -6.21% -------------------------------------------------------------------------------- |
(See Notes to Performance Overview on page 10.)
FUND PERFORMANCE
Energy was the best-performing sector by contribution to return over the period since inception, followed by consumer staples. The financials sector was the biggest drag on performance by contribution to return and was the second worst performer over the period. The telecommunications services sector also hurt performance.
Sweden and the Netherlands provided the biggest contributions to return over the period. The portfolio's holdings in these countries performed well relative to the overall market; however, small weights limited their impact on overall portfolio performance. Canada, Ireland and Norway also contributed positively to the portfolio return. Australia and the United States were the two biggest drags on performance. Combined, the two countries accounted for approximately 42% of the portfolio and both posted returns that trailed the return of the overall portfolio.
FGD - FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND (Continued)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS NCC AB, Class B National City Corp. Kungsleden AB Telecom Italia S.p.A. Mullen Group Income Fund First Horizon National Corp. Wereldhave N.V. REIT VTECH Holdings Ltd. D.R. Horton, Inc. Bradford & Bingley PLC ------------------------------------------------------------------------------- |
% of Long-Term Sector Investments ------------------------------------------------------------------- Financials 48.99% Industrials 12.83 Utilities 9.84 Telecommunication Services 8.26 Energy 5.39 Consumer Discretionary 5.19 Materials 4.65 Consumer Staples 3.26 Information Technology 1.59 ----------- Total 100.00% =========== ------------------------------------------------------------------- |
% of Long-Term Security Investments ------------------------------------------------------------------- Kungsleden AB 2.88% Mullen Group Income Fund 2.32 Telecom Corp. of New Zealand Ltd. 2.24 UOB-Kay Hian Holdings Ltd. 1.66 NCC AB, Class B 1.53 Pirelli & C Real Estate S.p.A 1.44 Russel Metals, Inc. 1.44 Norsk Hydro ASA 1.42 Tomkins PLC 1.36 FKI PLC 1.35 ----------- Total 17.64% =========== ------------------------------------------------------------------- |
Total returns for the period since inception are calculated from the inception date of each Fund. "Cumulative total returns" represent the total change in value of an investment over the periods indicated. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the Advisor.
The Fund's per share net asset value ("NAV") is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the the stock exchange on which shares of the Fund are listed for trading as of the time that the Fund's NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund's inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Price, respectively.
An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results.
FIRST TRUST EXCHANGE-TRADED FUND II
Understanding Your Fund Expenses
March 31, 2008 (Unaudited)
As a shareholder of First Trust DJ STOXX(R) Select Dividend 30 Index Fund, First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund, or First Trust Dow Jones Global Select Dividend Index Fund (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 dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds.
The example is based on an investment of $1,000 invested at the beginning of the period (or since inception) and held through the six-month period ended March 31, 2008.
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 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 the Funds' actual expense ratios and an assumed rate of return of 5% per year before expenses, which are not the Funds' actual returns. 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 to other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions paid on purchases and sales of the Funds' shares. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Annualized Expense Ratio Expenses Paid Beginning Ending Based on the During the Period Account Value Account Value Six-Month October 1, 2007 October 1, 2007 March 31, 2008 Period (a) to March 31, 2008 (b) First Trust DJSTOXX(R) Select Dividend 30 Index Fund Actual $1,000.00 $856.40 0.60% $2.79 Hypothetical (5% return before expenses) $1,000.00 $1,022.00 0.60% $3.04 First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund Actual $1,000.00 $843.30 0.60% $2.77 Hypothetical (5% return before expenses) $1,000.00 $1,022.00 0.60% $3.04 Annualized Expense Ratio Expenses Paid Beginning Ending Based on the During the Period Account Value Account Value Number of Days November 21, 2007 November 21, 2007 (c) March 31, 2008 in the Period (a) to March 31, 2008 (d) First Trust Dow Jones Global Select Dividend Index Fund Actual $1,000.00 $934.50 0.60% $2.09 Hypothetical (5% return before expenses) $1,000.00 $1,022.00 0.60% $3.04 (a) These expense ratios reflect expense caps. (b) Expenses are equal to the annualized expense ratio of 0.60% multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). (c) Inception date. (d) Actual expenses are equal to the annualized expense ratio of 0.60%, multiplied by the average account value over the period, multiplied by 132/366 (to reflect the actual period November 21, 2007 to March 31, 2008). Hypothetical expenses are assumed for the most recent fiscal half-year. |
FIRST TRUST DJ STOXX(R) SELECT DIVIDEND 30 INDEX FUND
Portfolio of Investments (a)
March 31, 2008 (Unaudited)
Shares Description Value ---------------------------------------------------------------- COMMON STOCKS--99.4% AUSTRIA--3.6% 11,697 Telekom Austria AG $ 241,729 4,426 Wienerberger AG 235,411 ----------- 477,140 ----------- BELGIUM--6.5% 7,604 Belgacom SA 336,736 21,074 Fortis 530,335 ----------- 867,071 ----------- DENMARK--1.8% 6,523 Danske Bank A/S 240,639 ----------- FRANCE--5.2% 11,952 Credit Agricole S.A. 369,838 9,475 France Telecom SA 318,621 ----------- 688,459 ----------- GERMANY--7.1% 3,006 Deutsche Bank AG 340,270 19,242 Deutsche Telekom AG 320,492 2,981 RWE AG 282,800 ----------- 943,562 ----------- IRELAND--9.0% 15,537 Allied Irish Banks PLC 331,143 26,681 Bank of Ireland Group 396,797 23,518 Irish Life & Permanent PLC 459,659 ----------- 1,187,599 ----------- NORWAY--4.4% 19,611 DnB NOR ASA 297,688 9,320 StatoilHydro ASA 279,288 ----------- 576,976 ----------- SWITZERLAND--6.0% 8,796 Ciba Specialty Chemicals AG 320,805 740 Swisscom AG 253,534 717 Zurich Financial Services AG 225,800 ----------- 800,139 ----------- UNITED KINGDOM--55.8% 66,225 Alliance & Leicester PLC 681,478 69,771 Amlin PLC 376,293 72,960 Barratt Developments PLC 598,745 825,650 DSG International PLC 1,040,522 51,114 HBOS PLC 568,080 63,594 Lloyds TSB Group PLC 569,212 32,580 Provident Financial PLC 547,343 90,082 Royal Bank of Scotland Group PLC 602,936 190,312 Taylor Wimpey PLC 708,189 177,089 Tomkins PLC 628,231 98,423 Trinity Mirror PLC 576,236 Shares Description Value ---------------------------------------------------------------- UNITED KINGDOM (Continued) 35,984 United Utilities PLC $ 493,122 ----------- 7,390,387 ----------- TOTAL COMMON STOCKS--99.4% (Cost $14,154,157) 13,171,972 MONEY MARKET FUND--26.3% UNITED STATES--26.3% 3,479,484 J.P. Morgan Institutional Treasury Money Market Fund--0.84% (b) (Cost $3,479,484) 3,479,484 ----------- TOTAL INVESTMENTS--125.7% (Cost $17,633,641) (c) 16,651,456 NET OTHER ASSETS AND LIABILITIES--(25.7%) (3,406,542) ----------- NET ASSETS--100.0% $13,244,914 =========== |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) Represents annualized 7-day yield at March 31, 2008.
(c) Aggregate cost for federal income tax and financial
reporting purposes. % of Industry Net Assets -------------------------------------------------------------- Commercial Banks 30.63% Money Market Fund 26.27 Diversified Telecommunication Services 11.11 Household Durables 9.87 Insurance 8.02 Multi-Utilities 5.86 Specialty Retail 7.86 Industrial Conglomerates 4.74 Media 4.35 Consumer Finance 4.13 Diversified Financial Services 4.00 Capital Markets 2.57 Chemicals 2.42 Oil, Gas & Consumable Fuels 2.11 Building Products 1.78 -------------------------------------------------------------- Total Investments 125.72 Net Other Asset and Liabilities (25.72) ----------- Total 100.00% =========== |
Page 12 See Notes to Financial Statements.
FIRST TRUST FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDEX FUND
Portfolio of Investments (a)
March 31, 2008 (Unaudited)
Shares Description Value ---------------------------------------------------------------- COMMON STOCKS--98.7% AUSTRALIA--10.8% 3,796 Abacus Property Group $ 4,597 2,741 Australand Property Group 4,534 3,063 Babcock & Brown Japan Property Trust 3,023 1,783 Bunnings Warehouse Property Trust 3,178 13,521 Centro Retail Group (b) 4,201 9,914 CFS Retail Property Trust 19,661 9,549 Commonwealth Property Office Fund 11,607 17,340 DB RREEF Trust 26,702 1,543 FKP Property Group 4,019 10,126 Goodman Group 39,885 12,223 GPT Group 36,305 6,605 ING Industrial Fund 12,857 7,443 ING Office Fund 9,013 7,897 Macquarie CountryWide Trust 8,444 5,497 Macquarie DDR Trust 2,135 12,001 Macquarie Office Trust 9,981 6,077 Mirvac Group 22,326 8,578 Stockland 54,798 1,413 Sunland Group Ltd. 3,190 2,029 Tishman Speyer Office Fund 2,550 9,002 Valad Property Group 7,980 11,394 Westfield Group 185,352 ----------- 476,338 ----------- AUSTRIA--1.2% 516 CA Immobilien Anlagen AG (b) 11,014 505 Conwert Immobilien Invest AG (b) 8,491 2,714 Immofinanz Immobilien Analagen AG 29,393 13 Sparkassen Immo Invest Genusscheine 1,909 403 Sparkassen Immobilien AG (b) 4,384 ----------- 55,191 ----------- BELGIUM--0.6% 77 Befimmo S.C.A. 9,360 47 Cofinimmo SA 10,161 41 Intervest Offices NV 1,856 9 Leasinvest Real Estate S.C.A. 971 38 Warehouses De Pauw S.C.A 2,664 13 Wereldhave Belgium S.C.A. 1,094 ----------- 26,106 ----------- BERMUDA--1.9% 1,787 Great Eagle Holdings, Ltd. 4,845 9,922 Hongkong Land Holdings Ltd. 40,978 3,483 Hopson Development Holdings Ltd. 5,370 3,343 Kerry Properties Ltd. 20,146 249 Orient-Express Hotels Ltd., Class A 10,747 ----------- 82,086 ----------- CANADA--3.3% 166 Allied Properties Real Estate Investment Trust 3,146 Shares Description Value ---------------------------------------------------------------- CANADA (Continued) 306 Boardwalk Real Estate Investment $ 11,328 1,760 Brookfield Properties 33,950 450 Calloway Real Estate Investment Trust 8,851 393 Canadian Apartment Properties Real Estate Investment Trust 6,076 357 Canadian Real Estate Investment Trust 9,356 554 Chartwell Seniors Housing Real Estate Investment Trust 4,992 267 Cominar Real Estate Investment Trust 5,306 100 Dundee Real Estate Investment Trust 3,164 357 Extendicare Real Estate Investment Trust 4,069 801 H&R Real Estate Investment Trust 15,248 429 InnVest Real Estate Investment Trust 4,179 262 Morguard Real Estate Investment Trust 3,254 133 Northern Property Real Estate Investment Trust 2,694 365 Primaris Retail Real Estate Investment Trust 5,917 1,233 RioCan Real Estate Investment Trust 24,865 ----------- 146,395 ----------- CAYMAN ISLANDS--1.5% 8,861 Agile Property Holdings Ltd. 9,348 9,540 China Resources Land Ltd. 16,548 19,350 Country Garden Holdings, Co., Ltd. (b) 16,683 6,745 New World China Land Ltd. 4,281 7,789 Shimao Property Holdings Ltd. 13,971 7,425 Shui On Land Ltd. 6,955 ----------- 67,786 ----------- DENMARK--0.0% 166 TK Development A/S (b) 2,161 ----------- FINLAND--0.3% 975 Citycon Oyj 5,972 491 Sponda Oyj 6,411 261 Technopolis Oyj 2,328 ----------- 14,711 ----------- FRANCE--5.0% 256 Acanthe Developpement SA 958 24 Affine Group 1,398 123 Fonciere des Regions Group 18,108 74 Gecina SA 11,040 105 Icade 15,625 410 Klepierre LLC 25,160 178 Mercialys 8,124 30 Societe de la Tour Eiffel 4,463 77 Societe Immobiliere de Location pour l'Industrie et le Commerce 11,679 481 Unibail-Rodamco S.A. 123,788 ----------- 220,343 ----------- |
See Notes to Financial Statements. Page 13
FIRST TRUST FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDEX FUND
Portfolio of Investments (a) (Continued)
March 31, 2008 (Unaudited)
Shares Description Value ---------------------------------------------------------------- COMMON STOCKS (Continued) GERMANY--0.9% 166 Alstria Office AG (b) $ 3,507 129 Colonia Real Estate AG (b) 2,627 203 Deutsche Euroshop AG 8,519 114 Deutsche Wohnen AG (b) 3,263 126 DIC Asset AG 4,191 514 IVG Immobilien AG 14,379 154 Patrizia Immobilien AG (b) 1,145 114 Vivacon AG 2,408 ----------- 40,039 ----------- GREECE--0.2% 151 Babis Vovos International Construction S.A. 4,649 109 Eurobank Properties Real Estate Investment Co. 1,425 78 Lamda Development S.A. 1,246 ----------- 7,320 ----------- GUERNSEY--0.4% 1,734 F&C Commercial Property Trust Ltd. 3,338 1,960 ING UK Real Estate Income Trust Ltd. 2,684 2,091 Invista Foundation Property Trus Ltd. 2,666 336 ISIS Property Trust Ltd. 709 490 ISIS Property Trust 2 Ltd. 924 70 Mapeley Ltd. 1,966 615 Standard Life Investment Property Income Trust PLC 964 844 Teesland Advantage Property Income Trust Ltd. 951 1,538 UK Commercial Property Trust Ltd. 2,381 ----------- 16,583 ----------- HONG KONG--9.7% 8,110 Champion Real Estate Investment Trust 4,147 22,895 China Overseas Land & Investment Ltd. 42,244 12,248 Hang Lung Properties Ltd. 43,357 6,348 Henderson Land Development Co., Ltd. 45,106 4,604 Hysan Development Co., Ltd. 12,896 3,402 Kowloon Development Co., Ltd. 6,548 12,641 Link (The) REIT 28,035 16,375 New World Development Co., Ltd. 39,682 9,516 Shenzhen Investment Ltd. 4,011 14,230 Sino Land Co., Ltd. 30,718 11,049 Sun Hung Kai Properties Ltd. 172,350 ----------- 429,094 ----------- Shares Description Value ---------------------------------------------------------------- ITALY--0.3% 448 Aedes S.p.A. $ 1,357 4,529 Beni Stabili S.p.A. 5,681 732 Immobiliare Grande Distribuzione 2,635 649 Risanamento S.p.A. (b) 1,913 ----------- 11,586 ----------- JAPAN--11.2% 416 AEON Mall Co., Ltd. 11,539 337 DAIBIRU Corp. 3,178 840 HEIWA Real Estate, Co., Ltd. 3,994 4 Japan Prime Realty Investment Corp. 13,202 2 Japan Real Estate Investment Corp. 23,274 2 Japan Retail Fund Investment Corp. 12,620 1 Kenedix Realty Investment Corp. 6,049 5,930 Mitsubishi Estate Co., Ltd. 143,966 5,081 Mitsui Fudosan Co., Ltd. 100,876 3 Nippon Building Fund, Inc. 37,921 2 Nippon Commercial Investment Corp. 7,725 2 Nomura Real Estate Office Fund, Inc. 16,212 8 NTT Urban Development Corp. 11,477 1 ORIX JREIT, Inc. 5,819 1 Premier Investment Co. 6,009 2,744 Sumitomo Realty & Development Co., Ltd. 48,367 592 TOC Co., Ltd. 4,442 1,375 Tokyo Tatemono Co., Ltd. 9,049 2,297 Tokyu Land Corp. 14,402 1 TOKYU REIT, Inc. 7,524 1 United Urban Investment Corp. 6,220 ----------- 493,865 ----------- JERSEY--0.0% 908 Invesco Property Income Trust Ltd. 631 ----------- LUXEMBOURG--0.2% 266 Gagfah SA 4,989 335 ProLogis European Properties 5,310 ----------- 10,299 ----------- NETHERLANDS--1.9% 398 Corio NV 34,873 211 Eurocommercial Properties NV 11,789 212 Nieuwe Steen Investments Funds NV 6,071 692 Plaza Centers (Europe) BV (b) 2,922 125 VastNed Offices/Industrial NV 4,434 99 Vastned Retail NV 10,528 123 Wereldhave NV 15,174 ----------- 85,791 ----------- NEW ZEALAND--0.1% 4,211 Kiwi Income Property Trust 4,006 ----------- NORWAY--0.1% 468 Norwegian Property ASA 4,044 ----------- |
Page 14 See Notes to Financial Statements.
FIRST TRUST FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDEX FUND
Portfolio of Investments (a) (Continued)
March 31, 2008 (Unaudited)
Shares Description Value ---------------------------------------------------------------- COMMON STOCKS (Continued) POLAND--0.2% 641 Globe Trade Centre S.A. (b) $ 10,794 ----------- SINGAPORE--2.7% 4,539 Allgreen Properties, Ltd. 4,056 7,400 Ascendas Real Estate Investment Trust 12,795 5,945 CapitaCommercial Trust 9,588 8,020 Capitaland Ltd. 36,999 7,728 CapitaMall Trust 19,370 1,558 Guocoland Ltd. 4,516 2,064 Keppel Land Ltd. 8,322 4,790 Mapletree Logistics Trust 3,463 1,000 Singapore Land Ltd. 4,940 9,197 Suntec Real Estate Investment Trust 9,688 3,087 Wing Tai Holdings Ltd. 4,912 ----------- 118,649 ----------- SPAIN--0.0% 59 Renta Corporation Real Estate SA 1,039 ----------- SWEDEN--1.1% 1,017 Castellum AB 12,409 1,055 Fabege AB 11,275 480 Hufvudstaden AB 5,049 739 Klovern AB 3,010 807 Kungsleden AB 10,016 227 Wihlborgs Fastigheter AB 5,186 ----------- 46,945 ----------- SWITZERLAND--0.8% 34 Allreal Holding AG 4,790 277 PSP Swiss Property AG 18,702 114 Swiss Prime Site AG 7,806 201 Zueblin Immobilien Holding AG 2,044 ----------- 33,342 ----------- UNITED KINGDOM--7.7% 142 A.J. Mucklow Group PLC 986 509 Big Yellow Group PLC 4,392 3,025 British Land Co. PLC 55,082 1,587 Brixton PLC 10,394 420 Capital & Regional PLC 4,585 307 CLS Holdings PLC (b) 2,169 29 Daejan Holdings PLC 1,784 595 Derwent London PLC 17,925 241 Development Securities PLC 2,200 573 Grainger PLC 4,680 1,071 Great Portland Estates PLC 11,255 1,718 Hammerson PLC 37,983 564 Helical Bar PLC 4,209 2,751 Land Securities Group PLC 82,389 2,145 Liberty International PLC 41,528 946 Minerva PLC (b) 1,802 199 Primary Health Properties PLC 1,236 765 Quintain Estates & Development PLC 6,844 Shares Description Value ---------------------------------------------------------------- United Kingdom (Continued) 2,560 Segro PLC $ 25,810 800 Shaftesbury PLC 9,169 536 St. Modwen Properties PLC 5,215 727 Unite Group PLC 4,732 1,026 Workspace Group PLC 5,589 ----------- 341,958 ----------- UNITED STATES--36.6% 190 Acadia Realty Trust 4,589 45 Agree Realty Corp. 1,235 12 Alexander's, Inc. (b) 4,254 189 Alexandria Real Estate Equities, Inc. 17,524 585 AMB Property Corp. 31,836 160 American Campus Communities, Inc. 4,378 760 American Financial Realty Trust 6,034 565 Apartment Investment & Management Co. 20,233 725 Ashford Hospitality Trust 4,118 97 Associated Estates Realty Corp. 1,110 465 AvalonBay Communities, Inc. 44,882 387 BioMed Realty Trust, Inc. 9,245 703 Boston Properties, Inc. 64,725 515 Brandywine Realty Trust 8,734 301 BRE Properties, Inc. 13,714 328 Camden Property Trust 16,466 387 CBL & Associates Properties, Inc. 9,106 261 Cedar Shopping Centers, Inc. 3,048 278 Colonial Properties Trust 6,686 278 Corporate Office Properties Trust 9,344 736 Corrections Corp. of America (b) 20,255 229 Cousins Properties, Inc. 5,659 988 DCT Industrial Trust, Inc. 9,840 715 Developers Diversified Realty Corp. 29,944 559 DiamondRock Hospitality Co. 7,083 383 Digital Realty Trust, Inc. 13,597 325 Douglas Emmett, Inc. 7,170 861 Duke Realty Corp. 19,639 210 DuPont Fabros Technology, Inc. 3,463 140 EastGroup Properties, Inc. 6,504 169 Education Realty Trust, Inc. 2,124 166 Entertainment Properties Trust 8,189 144 Equity Lifestyle Properties, Inc. 7,109 218 Equity One, Inc. 5,225 1,594 Equity Residential 66,135 149 Essex Property Trust, Inc. 16,983 383 Extra Space Storage, Inc. 6,201 356 Federal Realty Investment Trust 27,750 367 FelCor Lodging Trust, Inc. 4,415 264 First Industrial Realty Trust, Inc. 8,155 143 First Potomac Realty Trust 2,198 463 Forest City Enterprises, Inc., Class A 17,038 1,449 General Growth Properties, Inc. 55,308 109 Getty Realty Corp. 1,736 223 Glimcher Realty Trust 2,667 246 GMH Communities Trust 2,135 1,274 HCP, Inc. 43,074 |
See Notes to Financial Statements. Page 15
FIRST TRUST FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDEX FUND
Portfolio of Investments (a) (Continued)
March 31, 2008 (Unaudited)
Shares Description Value ---------------------------------------------------------------- COMMON STOCKS (Continued) UNITED STATES (Continued) 523 Health Care REIT, Inc. $ 23,603 300 Healthcare Realty Trust, Inc. 7,845 245 Hersha Hospitality Trust 2,212 335 Highwoods Properties, Inc. 10,408 250 Hilltop Holdings, Inc. (b) 2,600 199 Home Properties, Inc. 9,550 555 Hospitality Properties Trust 18,881 3,098 Host Hotels & Resorts, Inc. 49,320 1,328 HRPT Properties Trust 8,937 385 Inland Real Estate Corp. 5,856 334 Investors Real Estate Trust 3,267 192 Kilroy Realty Corp. 9,429 1,497 Kimco Realty Corp. 58,637 171 Kite Realty Group Trust 2,394 236 LaSalle Hotel Properties 6,780 379 Lexington Realty Trust 5,461 544 Liberty Property Trust 16,924 136 LTC Properties, Inc. 3,497 429 Macerich (The) Co. 30,146 388 Mack-Cali Realty Corp. 13,855 278 Maguire Properties, Inc. 3,978 298 Medical Properties Trust, Inc. 3,373 150 Mid-America Apartment Communities, Inc. 7,476 56 National Healthcare Corp. 2,727 425 National Retail Properties, Inc. 9,371 550 Nationwide Health Properties, Inc. 18,563 407 OMEGA Healthcare Investors, Inc. 7,066 91 Parkway Properties, Inc. 3,363 229 Pennsylvania Real Estate Investment Trust 5,585 256 Post Properties, Inc. 9,887 1,515 ProLogis 89,174 94 PS Business Parks, Inc. 4,879 755 Public Storage 66,909 109 Ramco-Gershenson Properties 2,301 597 Realty Income Corp. 15,295 412 Regency Centers Corp. 26,681 78 Saul Centers, Inc. 3,919 558 Senior Housing Properties Trust 13,225 1,321 Simon Property Group, Inc. 122,735 347 SL Green Realty Corp. 28,270 128 Sovran Self Storage, Inc. 5,467 440 Strategic Hotels & Resorts, Inc. 5,777 108 Sun Communities, Inc. 2,214 354 Sunstone Hotel Investors, Inc. 5,668 185 Tanger Factory Outlet Centers, Inc. 7,117 235 Taubman Centers, Inc. 12,244 796 UDR, Inc. 19,518 69 Universal Health Realty Income Trust 2,298 111 Urstadt Biddle Properties, Inc. 1,746 341 U-Store-It Trust 3,864 813 Ventas, Inc. 36,512 896 Vornado Realty Trust 77,245 276 Washington Real Estate Investment Trust 9,224 506 Weingarten Realty Investors 17,427 Shares Description Value ---------------------------------------------------------------- UNITED STATES (Continued) 294 Winthrop Realty Trust, Inc. $ 1,211 ----------- 1,622,768 ----------- TOTAL COMMON STOCKS--98.7% (Cost $4,898,179) 4,369,870 MONEY MARKET FUND--2.1% UNITED STATES--2.1% 91,358 J.P. Morgan Institutional Treasury Money Market Fund--0.84% (c) (Cost $91,358) 91,358 ----------- TOTAL INVESTMENTS--100.8% (Cost $4,989,537) (d) 4,461,228 NET OTHER ASSETS AND LIABILITIES--(0.8%) (33,396) ----------- NET ASSETS--100.0% $ 4,427,832 =========== |
(a) All percentages shown in Portfolio of Investments are based on net assets.
(b) Non-income producing security.
(c) Represents annualized 7-day yield at March 31, 2008.
(d) Aggregate cost for federal income tax and financial reporting purposes.
REIT - Real Estate Investment Trust. % of Industry Net Assets -------------------------------------------------------------- Real Estate Investment Trusts 68.65% Real Estate Management & Development 29.14 Money Market Fund 2.06 Commercial Services & Supplies 0.46 Hotels, Restaurants & Leisure 0.24 Capital Markets 0.08 Health Care Providers & Services 0.06 Insurance 0.06 -------------------------------------------------------------- TOTAL INVESTMENTS 100.75 NET OTHER ASSET AND LIABILITIES (0.75) ----------- TOTAL 100.00% =========== |
Page 16 See Notes to Financial Statements.
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
Portfolio of Investments (a)
March 31, 2008 (Unaudited)
Shares Description Value ---------------------------------------------------------------- COMMON STOCKS--99.4% AUSTRALIA--20.3% 1,042 Australia & New Zealand Banking Group Ltd. $ 21,474 3,107 BlueScope Steel Ltd. 28,026 422 Commonwealth Bank of Australia 16,125 21,178 Commonwealth Property Office Fund REIT 25,742 10,079 CSR Ltd. 29,476 5,279 Fairfax Meolia Ltd. 16,741 15,870 ING Industrial Fund REIT 30,893 22,688 ING Office Fund REIT 27,473 8,998 Insurance Australia Group Ltd. 30,097 2,725 Lion Nathan Ltd. 21,791 9,084 Macquarie Airports 26,815 12,077 Macquarie Infrastructure Group 30,683 29,527 Macquarie Office Trust 24,556 996 National Australia Bank Ltd. 27,444 5,255 Qantas Airways Ltd. 18,874 843 Sims Group Ltd. 22,881 839 St George Bank Ltd. 19,713 3,526 Stockland REIT 22,525 1,880 Suncorp-Metway Ltd. 22,112 7,354 Telestra Corp. Ltd. 29,572 749 Wesfarmers Ltd. 27,374 1,406 Westfield Group REIT 22,872 882 Westpac Banking Corp. 19,144 ----------- 562,403 ----------- BELGIUM--2.2% 1,268 Fortis 31,910 318 Mobistar SA 28,817 ----------- 60,727 ----------- BERMUDA--0.7% 3,976 VTech Holdings Ltd. 19,286 ----------- CANADA--6.5% 850 Canadian Oil Sands Trust 34,365 663 Manitoba Telecom Services, Inc. 25,294 3,479 Mullen Group Income Fund 63,889 3,343 Norbord, Inc. 16,284 1,545 Russel Metals, Inc. 39,496 ----------- 179,328 ----------- FINLAND--0.7% 488 Fortum Oyj 19,885 ----------- FRANCE--1.5% 661 France Telecom SA 22,228 201 Societe Generale 19,681 ----------- 41,909 ----------- GERMANY--0.6% 137 RWE AG 16,840 ----------- Shares Description Value ---------------------------------------------------------------- HONG KONG--3.4% 9,091 BOC Hong Kong Holdings Ltd. $ 21,890 3,961 Citic Pacific Ltd. 16,795 3,362 CLP Holdings Ltd. 27,669 4,304 Hongkong Electric Holdings Ltd. 27,181 ----------- 93,535 ----------- IRELAND--3.4% 1,237 Allied Irish Banks PLC 26,364 2,269 Bank of Ireland 33,744 1,721 Irish Life & Permanent PLC 33,637 ----------- 93,745 ----------- ITALY--4.2% 747 Eni S.p.A. 25,474 4,205 Milano Assicurazioni S.p.A. 28,231 1,060 Pirelli & C. Real Estate S.p.A. 39,628 10,238 Telecom Italia S.p.A. 21,416 ----------- 114,749 ----------- JAPAN--1.1% 1,400 TAKEFUJI Corp. 29,635 ----------- NETHERLANDS--4.3% 818 Heijmans N.V. 31,562 722 ING Groep N.V. 27,038 1,433 OCE N.V. 24,388 288 Wereldhave N.V. REIT 35,528 ----------- 118,516 ----------- NEW ZEALAND--2.2% 20,977 Telecom Corp. of New Zealand Ltd. 61,680 ----------- NORWAY--2.3% 1,559 DnB NOR ASA 23,665 2,674 Norsk Hydro ASA 38,963 ----------- 62,628 ----------- SINGAPORE--2.5% 5,000 Singapore Petroleum Co., Ltd. 24,556 32,000 UOB-Kay Hian Holdings Ltd. 45,566 ----------- 70,122 ----------- SWEDEN--4.4% 6,375 Kungsleden AB 79,126 1,448 NCC AB, Class B 42,160 ----------- 121,286 ----------- UNITED KINGDOM--20.4% 3,481 Alliance & Leicester PLC 35,821 3,555 Amlin PLC 19,173 3,109 Barclays PLC 27,951 7,254 Bradford & Bingley PLC 26,886 7,216 Brit Insurance Holdings PLC 34,693 4,765 BT Group PLC 20,545 |
See Notes to Financial Statements. Page 17
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND
Portfolio of Investments (a) (Continued)
March 31, 2008 (Unaudited)
Shares Description Value ---------------------------------------------------------------- COMMON STOCKS (Continued) UNITED KINGDOM (Continued) 26,765 FKI PLC $ 37,051 2,001 HBOS PLC 22,239 13,876 HMV Group PLC 35,732 2,443 IMI PLC 22,048 4,457 Jardine Lloyd Thompson Group PLC 32,751 14,445 JJB Sports PLC 31,248 4,027 Lloyds TSB Group PLC 36,045 1,790 Provident Financial PLC 30,072 10,622 Rentokil Initial PLC 20,501 2,576 Rexam PLC 21,805 684 Severn Trent PLC 19,263 10,534 Tomkins PLC 37,370 4,589 Trinity Mirror PLC 26,867 2,023 United Utilities PLC 27,723 ----------- 565,784 ----------- UNITED STATES--18.7% 269 Altria Group, Inc. 5,972 462 AT&T, Inc. 17,695 718 Bank of America Corp. 27,219 859 BB&T Corp. 27,540 1,162 Citigroup, Inc. 24,890 736 Comerica, Inc. 25,819 481 Consolidated Edison, Inc. 19,096 2,038 D.R. Horton, Inc. 32,099 465 DTE Energy Co. 18,084 2,207 First Horizon National Corp. 30,920 2,673 Huntington Bancshares, Inc. 28,735 1,336 KeyCorp 29,325 2,639 National City Corp. 26,258 643 Pepco Holdings, Inc. 15,895 269 Philip Morris International, Inc. (b) 13,606 510 Progress Energy, Inc. 21,267 1,329 Regions Financial Corp. 26,248 481 SCANA Corp. 17,595 539 Southern Co. 19,194 1,315 TECO Energy, Inc. 20,974 1,756 Umpqua Holdings Corp. 27,236 382 UST, Inc. 20,826 801 Wachovia Corp. 21,627 ----------- 518,120 ----------- TOTAL INVESTMENTS--99.4% (Cost $2,992,961) (c) 2,750,178 NET OTHER ASSETS AND LIABILITIES--0.6% 17,749 ----------- |
(a) All percentages shown in the Portfolio of Investments are based on net assets.
(b) This security was spun-off from Altria Group, Inc. on March 28, 2008. As of March 31, 2008 this security has not paid a distribution to the Fund.
(c) Aggregate cost for federal income tax and financial reporting purposes.
REIT - Real Estate Investment Trust. % of Industry Net Assets -------------------------------------------------------------- Commercial Banks 21.50% Insurance 7.25 Diversified Telecommunication Services 7.17 Real Estate Investment Trusts 6.85 Electric Utilities 4.74 Multi-Utilities 4.35 Real Estate Management & Development 4.29 Diversified Financial Services 4.01 Metals & Mining 3.25 Oil, Gas & Consumable Fuels 3.05 Industrial Conglomerates 3.02 Construction & Engineering 2.66 Specialty Retail 2.42 Energy Equipment & Services 2.31 Consumer Finance 2.16 Machinery 2.14 Transportation Infrastructure 2.08 Capital Markets 1.65 Media 1.58 Tobacco 1.46 Trading Companies & Distribution 1.43 Household Durables 1.16 Wireless Telecommunication Services 1.04 Food & Staples Retailing 0.99 Thrifts & Mortgage Finance 0.97 Office Electronics 0.88 Beverages 0.79 Containers & Packaging 0.79 Commercial Services & Supplies 0.74 Communications Equipment 0.70 Water Utilities 0.70 Airlines 0.68 Paper &Forest Products 0.59 -------------------------------------------------------------- TOTAL INVESTMENTS 99.36 NET OTHER ASSET AND LIABILITIES 0.64 ----------- TOTAL 100.00% =========== |
Page 18 See Notes to Financial Statements.
FIRST TRUST EXCHANGE-TRADED FUND II
Statements of Assets and Liabilities
March 31, 2008 (Unaudited)
First Trust First Trust First Trust DJ STOXX(R) FTSE EPRA/NAREIT Dow Jones Select Dividend 30 Global Real Estate Global Select Dividend Index Fund Index Fund Index Fund ------------------ ------------------ ---------------------- ASSETS: Investments at value $ 16,651,456 $ 4,461,228 $ 2,750,178 Cash 24,978 -- -- Foreign currency at value 8 2,188 1,235 Receivables: Investment securities sold 1,516,231 154 30,676 Dividends 60,814 17,780 22,636 From investment advisor 26,266 3,400 16,821 Foreign tax reclaims 7,004 421 -- Interest 164 82 -- Other assets 330 -- 18,455 --------------- --------------- --------------- Total Assets 18,287,251 4,485,253 2,840,001 --------------- --------------- --------------- LIABILITIES: Due to Custodian -- 2,181 33,313 Payables: Investment securities purchased 4,981,243 -- -- Investment advisory fees 4,489 1,460 934 Trustee fees 12,753 9,029 144 Audit and tax fees 11,407 15,086 12,524 Printing fees 9,585 9,014 7,795 Licensing 6,066 1,306 -- Accrued expenses and other liabilities 16,794 19,345 17,364 --------------- --------------- --------------- Total Liabilities 5,042,337 57,421 72,074 --------------- --------------- --------------- NET ASSETS $ 13,244,914 $ 4,427,832 $ 2,767,927 ================ ================ =============== NET ASSETS consist of: Paid-in capital 15,212,815 $ 4,999,100 $ 2,999,060 Par value 5,033 1,000 1,000 Accumulated net investment income (loss) (1,958) 5,412 5,444 Accumulated net realized gain (loss) on investments (989,377) (49,470) 5,357 Net unrealized appreciation (depreciation) on investments, foreign currency transactions and translation of assets and liabilities denominated in foreign currencies (981,599) (528,210) (242,934) --------------- ---------------- --------------- NET ASSETS $ 13,244,914 $ 4,427,832 $ 2,767,927 =============== ================ =============== NET ASSET VALUE, per share $ 26.31 $ 44.28 $ 27.68 =============== ================ =============== Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) 503,334 100,002 100,002 --------------- ---------------- --------------- Investments at cost $ 17,633,641 $ 4,989,537 $ 2,992,961 =============== ================ =============== Foreign currency at cost $ 8 $ 2,167 $ 1,241 =============== ================ ================ |
See Notes to Financial Statements. Page 19
FIRST TRUST EXCHANGE-TRADED FUND II
Statements of Operations
First Trust First Trust First Trust DJ STOXX(R) FTSE EPRA/NAREIT Dow Jones Select Dividend 30 Global Real Estate Global Select Dividend Index Fund Index Fund Index Fund --------------------- ---------------------- ---------------------- For the Period For the Six For the Six November 21, 2007 (a) Months Ended Months Ended through March 31, 2008 March 31, 2008 March 31, 2008 (Unaudited) (Unaudited) (Unaudited) --------------------- ---------------------- ---------------------- INVESTMENT INCOME: Dividends (b) $ 153,618 $ 87,107 $ 47,894 ---------------- ---------------- ---------------- Total investment income 153,618 87,107 47,894 ---------------- ---------------- ---------------- EXPENSES: Licensing fees 37,603 2,846 9,033 Investment advisory fees 24,946 9,485 3,966 Trustees' fees and expenses 20,167 7,954 2,747 Audit and tax fees 14,085 15,303 14,256 Listing fees 12,009 12,003 12,127 Printing fees 7,621 3,308 7,795 Custodian fees 5,434 4,215 1,801 Accounting and administration fees 5,349 11,328 2,547 Legal fees 5,252 5,068 6,404 Transfer agent fees 312 119 50 Registration and filing fees 41 92 33 Other expenses 2,960 2,966 1,317 ---------------- ---------------- ---------------- Total expenses 135,779 74,687 62,076 Less fees waived and expenses reimbursed by the investment advisor (98,362) (60,459) (56,127) ---------------- ---------------- ---------------- Net expenses 37,417 14,228 5,949 ---------------- ---------------- ---------------- NET INVESTMENT INCOME (LOSS) 116,201 72,879 41,945 ---------------- ---------------- ---------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from investments (989,377) (48,081) 5,357 Net change in unrealized appreciation (depreciation) on: Investments (1,079,274) (856,624) (242,783) Foreign currency translation 517 (1,306) (151) ---------------- ---------------- ---------------- Net change in unrealized appreciation (depreciation) (1,078,757) (857,930) (242,934) ---------------- ---------------- ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (2,068,134) (906,011) (237,577) ---------------- ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (1,951,933) $ (833,132) $ (195,632) ================ ================ ================ (a) Inception date. (b) Net of foreign withholding tax of $8,768 for the First Trust DJ STOXX(R) Select Dividend 30 Index Fund, $7,210 for the First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund and $3,294 for the First Trust Dow Jones Global Select Dividend Index Fund. |
Page 20 See Notes to Financial Statements.
This page is left intentionally blank.
FIRST TRUST EXCHANGE-TRADED FUND II
Statement of Changes in Net Assets
First Trust DJ STOXX(R) Select Dividend 30 Index Fund ------------------------------------------------------ For the Six For the Period Months Ended August 27, 2007 (a) March 31, 2008 through (Unaudited) September 30, 2007 ------------------------ ------------------------ OPERATIONS: Net investment income (loss) $ 116,201 $ 3,218 Net realized gain (loss) (989,377) (74) Net change in unrealized appreciation (depreciation) (1,078,757) 97,158 --------------- --------------- Net increase (decrease) in net assets resulting from operations (1,951,933) 100,302 --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (121,303) -- --------------- --------------- Total distributions to shareholders (121,303) -- --------------- --------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold 12,117,828 3,100,020 --------------- --------------- Net increase (decrease) in net assets resulting from shareholder transactions 12,117,828 3,100,020 --------------- --------------- Net increase (decrease) in net assets 10,044,592 3,200,322 NET ASSETS: Beginning of Period 3,200,322 -- --------------- --------------- End of Period $ 13,244,914 $ 3,200,322 =============== =============== Accumulated net investment income (loss) at end of period $ (1,958) $ 3,144 =============== =============== CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period 103,334 -- Shares sold 400,000 103,334 Shares repurchased -- -- --------------- --------------- Shares outstanding, end of period 503,334 103,334 =============== =============== (a) Inception date. |
Page 22 See Notes to Financial Statements.
First Trust First Trust FTSE EPRA/NAREIT Dow Jones Global Real Estate Global Select Dividend Index Fund Index Fund ------------------------------------------------------- ----------------------------- For the Six For the Period For the Period Months Ended August 27, 2007 (a) November 21, 2007 (a) March 31, 2008 through through March 31, 2008 (Unaudited) September 30, 2007 (Unaudited) ------------------------- ------------------------ ----------------------------- $ 72,879 $ 14,412 $ 41,945 (48,081) (1,066) 5,357 (857,930) 329,720 (242,934) ---------------- ---------------- ---------------- (833,132) 343,066 (195,632) ---------------- ---------------- ---------------- (82,202) -- (36,501) ---------------- ---------------- ---------------- (82,202) -- (36,501) ---------------- ---------------- ---------------- -- 5,000,100 3,000,060 ---------------- ---------------- ---------------- -- 5,000,100 3,000,060 ---------------- ---------------- ---------------- (915,334) 5,343,166 2,767,927 5,343,166 -- -- ---------------- ---------------- ---------------- $ 4,427,832 $ 5,343,166 $ 2,767,927 ================ ================ ================ $ 5,412 $ 14,735 $ 5,444 ================ ================ ================ 100,002 -- -- -- 100,002 100,002 -- -- -- ---------------- ---------------- ---------------- 100,002 100,002 100,002 ================ ================ ================ |
See Notes to Financial Statements. Page 23
FIRST TRUST EXCHANGE-TRADED FUND II
Financial Highlights
For a Share outstanding throughout each period
FIRST TRUST DJ STOXX(R) SELECT DIVIDEND 30 INDEX FUND For the For the Period Six Months Ended August 27, 2007 (a) March 31, 2008 through (Unaudited) September 30, 2007 ------------------------ ------------------------ Net asset value, beginning of period $ 30.97 $ 30.00 ----------------- ----------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.21 0.03 (b) Net realized and unrealized gain (loss) (4.63) 0.94 (b) ----------------- ----------------- Total from investment operations (4.42) 0.97 DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.24) -- ----------------- ----------------- Net asset value, end of period $ 26.31 $ 30.97 ================= ================= TOTAL RETURN (c) (14.36)% 3.23% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 13,245 $ 3,200 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 2.18% (d) 19.64% (d) Ratio of net expenses to average net assets 0.60% (d) 0.60% (d) Ratio of net investment income to average net assets 1.87% (d) 1.18% (d) Portfolio turnover rate (e) 54% 0% FIRST TRUST FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDEX FUND For the For the Period Six Months Ended August 27, 2007 (a) March 31, 2008 through (Unaudited) September 30, 2007 ------------------------ ------------------------ Net asset value, beginning of period $ 53.43 $ 50.00 ----------------- ----------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.73 0.14 (b) Net realized and unrealized gain (loss) (9.06) 3.29 (b) ----------------- ----------------- Total from investment operations (8.33) 3.43 DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.82) -- ----------------- ----------------- Net asset value, end of period $ 44.28 $ 53.43 ================= ================= TOTAL RETURN (c) (15.67)% 6.86% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 4,428 $ 5,343 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 3.15% (d) 11.51% (d) Ratio of net expenses to average net assets 0.60% (d) 0.60% (d) Ratio of net investment income to average net assets 3.08% (d) 3.22% (d) Portfolio turnover rate (e) 5% 1% (a) Inception date. (b) Based on average shares outstanding. (c) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (d) Annualized. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
Page 24 See Notes to Financial Statements.
FIRST TRUST EXCHANGE-TRADED FUND II
Financial Highlights
For a Share outstanding throughout the period
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND For the Period November 21, 2007 (a) through March 31, 2008 (Unaudited) ------------------------ Net asset value, beginning of period $ 30.00 ---------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.42 Net realized and unrealized gain (loss) (2.37) ---------------- Total from investment operations (1.95) DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.37) ---------------- Net asset value, end of period $ 27.68 ================ TOTAL RETURN (b) (6.55)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 2,768 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 6.27% (c) Ratio of net expenses to average net assets 0.60% (c) Ratio of net investment income to average net assets 4.23% (c) Portfolio turnover rate (d) 36% (a) Inception date. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The return presented does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total return would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) Annualized. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements. Page 25
First Trust Exchange-Traded Fund II March 31, 2008 (Unaudited)
1. ORGANIZATION
First Trust Exchange-Traded Fund II (the "Trust") is an open-end management investment company organized as a Massachusetts business trust on July 20, 2006, and is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of three funds:
First Trust DJ STOXX(R) Select Dividend 30 Index Fund - (AMEX ticker "FDD")
First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund -
(AMEX ticker "FFR")
First Trust Dow Jones Global Select Dividend Index Fund - (AMEX ticker "FGD")
Each fund represents a separate series of shares of beneficial interest in the Trust (individually, each a "Fund" and collectively, the "Funds"). Each Fund's shares are listed and traded on the American Stock Exchange ("AMEX"). 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 100,000 shares called "Creation Units". Creation Units are issued and redeemed principally in-kind for securities included in a Fund's relevant index. Except when aggregated in Creation Units, shares are not redeemable securities of a Fund. The investment objective of each Fund is to seek investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of the following indices:
FUND INDEX First Trust DJ STOXX(R) Select Dividend 30 Index Fund Dow Jones STOXX(R) Select Dividend 30 Index First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund FTSE EPRA/NAREIT Global Real Estate Index First Trust Dow Jones Global Select Dividend Index Fund Dow Jones Global Select Dividend Index(SM) |
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
A. PORTFOLIO VALUATION
The NAV of each Fund's shares is determined daily as of the close of regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. The NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Each Fund's investments are valued at market value or, in the absence of market value with respect to any portfolio securities, at fair value according to procedures adopted by the Trust's Board of Trustees. Portfolio securities listed on any exchange other than The NASDAQ Stock Market, Inc. ("NASDAQ(R)") are valued at the last sale price on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the most recent bid and asked prices on such day. Securities traded on the NASDAQ(R) are valued at the NASDAQ(R) Official Closing Price as determined by NASDAQ(R). Portfolio securities traded on more than one securities exchange are valued at the last sale price on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities. Portfolio securities traded in the over-the-counter market, but excluding securities traded on the NASDAQ(R), are valued at the closing bid prices. Short-term investments that mature in less than 60 days are valued at amortized cost.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Board of Trustees or its delegate at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund's NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, does not reflect the security's "fair value." As a general principle, the current "fair value" of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. The use of fair value prices by a Fund generally results in the prices used by a Fund differing from the closing sale prices on the applicable exchange and fair value prices may not reflect the actual value of a security. A variety of factors may be considered in determining the fair value of such securities.
First Trust Exchange-Traded Fund II March 31, 2008 (Unaudited)
Valuing a Fund's securities using fair value pricing will result in using prices for those securities that may differ from current market valuations. Use of fair value prices and certain current market valuations could result in a difference between the prices used to calculate a Fund's NAV and the prices used by the Index, which, in turn, could result in a difference between a Fund's performance and the performance of that Index.
Because foreign markets may be open on different days than the days during which investors may purchase the shares of each Fund, the value of each Fund's securities may change on the days when investors are not able to purchase the shares of the Fund. The value of securities denominated in foreign currencies is converted into U.S. dollars using exchange rates determined daily as of the close of regular trading on the NYSE. Any use of a different rate from the rates used by a relevant Index may adversely affect the Fund's ability to track the Index.
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.
C. DIVIDENDS AND DISTRIBUTION TO SHAREHOLDERS
Dividends from net investment income of the Funds, if any, are declared and paid quarterly by the First Trust DJ STOXX(R) Select Dividend 30 Index Fund and the First Trust Dow Jones Global Select Dividend Index Fund and semi-annually by the First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by each Fund, if any, are distributed at least annually.
Distributions from income and capital gains are determined in accordance with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Funds, timing differences and differing characterization of distributions made by the Funds.
As of September 30, 2007, the components of distributable earnings on a tax basis for the Funds were as follows:
Accumulated Net Unrealized Undistributed Capital Appreciation Ordinary Income Gain (Loss) (Depreciation) ------------------- --------------- ------------------ First Trust DJ STOXX(R) Select Dividend 30 Index Fund $ 4,004 $ -- $ 96,298 First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund 39,936 (1,389) 304,519 |
First Trust Dow Jones Global Select Dividend Index Fund did not commence operations until November 21, 2007.
D. 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, and by distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes.
In June 2006, Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), an interpretation of FASB Statement 109 was issued and is effective for fiscal years beginning after December 15, 2006. This interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. As of March 31, 2008, management has evaluated the application of FIN 48 to each Fund, and has determined that there is no material impact resulting from the adoption of this interpretation on the Funds' financial statements.
At September 30, 2007, for federal income tax purposes, the Fund listed below has capital loss carryforwards available as shown in the table below, to the extent provided by regulations, to offset future capital gains through the year indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders.
Capital Loss Available Through September 30, 2015
First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund $ 1,389
First Trust Exchange-Traded Fund II March 31, 2008 (Unaudited)
E. EXPENSES
Expenses that are directly related to one of the Funds are charged directly to the respective Fund. General expenses of the Trust are allocated to all the Funds based upon the average net assets of each Fund. First Trust Advisors L.P. ("First Trust") has entered into licensing agreements with each of the following "Licensors" for the respective Funds:
FUNDS LICENSOR First Trust DJ STOXX(R) Select Dividend 30 Index Fund STOXX Limited First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund FTSE International Limited First Trust Dow Jones Global Select Dividend Index Fund Dow Jones & Company, Inc. |
The license agreements allow for the use by First Trust and First Trust Portfolios L.P. ("First Trust Portfolios") of certain trademarks and trade names of the Licensors. The Funds are sub-licensees to the applicable license agreements. As such, the Funds pay licensing fees, which are shown on the Statements of Operations.
F. ACCOUNTING PRONOUNCEMENT
In September 2006, Statement of Financial Accounting Standards No. 157 Fair Value Measurements ("SFAS 157") was issued by the FASB and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands required note disclosures about fair value measurements. Disclosure will include fair value measurement at the reporting date and the assignment by levels within the fair value hierarchy in which the fair value measurements fall. At this time, management is evaluating the implications of SFAS 157 and its impact on the Funds' financial statements, if any, has not been determined.
3. INVESTMENT ADVISORY FEE AND OTHER AFFILIATED TRANSACTIONS
First Trust (or the "Advisor") is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. First Trust serves as investment advisor to the Funds pursuant to an Investment Management Agreement. First Trust is responsible for the selection and ongoing monitoring of the securities in each Fund's portfolio and certain other services necessary for the management of the Funds.
For these services, First Trust may receive monthly fees from each Fund calculated at an annual rate of 0.40% of such Fund's average daily net assets.
The Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver and Recovery Agreement in which the Advisor has agreed to waive fees and/or reimburse the Funds to the extent that the operating expenses of each Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceed 0.60% of average daily net assets per year (the "Expense Cap").
Each Fund's Expense Cap will be in effect for at least until two years from its inception date. Expenses borne by the Advisor are subject to reimbursement by the Funds up to three years from the date the fee or expense was incurred, but no reimbursement payment will be made by a Fund if it would result in the Fund exceeding its Expense Cap.
For the period ended March 31, 2008, the advisory fee waivers and reimbursements of expenses (in order to maintain the Expense Caps) were as follows:
Advisory Fee Expense Waivers Reimbursements ------------- --------------------- First Trust DJ STOXX(R) Select Dividend 30 Index Fund $ 24,946 $ 73,416 First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund 9,485 50,974 First Trust Dow Jones Global Select Dividend Index Fund 3,966 52,161 |
The Trust has multiple service agreements with The Bank of New York ("BNY"). Under the servicing agreements, BNY will perform custodial, fund accounting, certain administrative services, and transfer agency services for the Trust. As custodian, BNY is responsible for custody of the Trust's assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Trust's securities and cash. As transfer agent, BNY is responsible for performing transfer agency services for the Trust. The Bank of New York is a subsidiary of the Bank of New York Mellon Corporation, a financial holding company.
First Trust Exchange-Traded Fund II March 31, 2008 (Unaudited)
The Trust, on behalf of the Funds, has entered into an agreement with PFPC, Inc. ("PFPC"), whereby PFPC will provide certain administrative services to the Trust and the Funds in connection with the Board's meetings and other related matters.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates ("Independent Trustees") is paid an annual retainer of $10,000 per trust for the first 14 trusts of the First Trust Fund Complex and an annual retainer of $7,500 per trust for each subsequent trust added to the First Trust Fund Complex. The annual retainer is allocated equally among each of the trusts. No additional meeting fees are paid in connection with board or committee meetings.
Additionally, the Lead Independent Trustee is paid $10,000 annually and the Audit Committee Chairman is paid $5,000 annually with such compensation paid by the trusts in the First Trust Fund Complex and divided among those trusts. Trustees are also reimbursed by the trusts in the First Trust Fund Complex for travel and out-of-pocket expenses in connection with all meetings. Effective January 1, 2008, each of the chairmen of the Nominating and Governance Committee and the Valuation Committee are paid $2,500 annually to serve in such capacities with such compensation paid by the trusts in the First Trust Fund Complex and divided among those trusts. Also effective January 1, 2008, the Lead Independent Trustee and each committee chairman will serve two year terms.
4. PURCHASES AND SALES OF SECURITIES
For the period ended March 31, 2008, the cost of purchases and proceeds from sales of investment securities, excluding short-term investments and in-kind transactions, were as follows:
Purchases Sales ----------- ----------- First Trust DJ STOXX(R) Select Dividend 30 Index Fund $ 6,710,342 $ 6,713,877 First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund 241,367 221,392 First Trust Dow Jones Global Select Dividend Index Fund 1,124,463 1,030,338 |
For the period ended March 31, 2008, the cost of in-kind purchases and proceeds from in-kind sales were as follows:
Purchases Sales ----------- ----------- First Trust DJ STOXX(R) Select Dividend 30 Index Fund $12,108,929 $ -- First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund -- -- First Trust Dow Jones Global Select Dividend Index Fund 2,893,382 -- |
Gains on in-kind transactions are not considered taxable for federal income tax purposes.
As of March 31, 2008, the costs of investments for federal income tax purposes and accumulated net unrealized appreciation (depreciation) on investments were as follows:
Net Unrealized Gross Gross Appreciation Unrealized Unrealized Cost (Depreciation) Appreciation Depreciation ------------- ---------------- ------------ ------------ First Trust DJ STOXX(R) Select Dividend 30 Index Fund $ 17,633,641 $ (982,185) $ 131,863 $ (1,114,048) First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund 4,989,537 (528,309) 117,400 (645,709) First Trust Dow Jones Global Select Dividend Index Fund 2,992,961 (242,783) 86,904 (329,687) |
5. CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Shares are created and redeemed by each Fund only in Creation Unit size aggregations of 100,000 shares. In order to purchase Creation Units of a Fund, an investor must deposit (i) cash in lieu of all or a portion of the Deposit Securities, as defined below, and/or (ii) a designated portfolio of equity securities determined by First Trust (the "Deposit Securities") and generally make a cash payment referred to as the "Cash Component." Purchasers of Creation Units must pay a creation fee (the "Creation Transaction Fee"), which is currently $4,000 for the First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund, $500 for the First Trust DJ STOXX(R) Select Dividend 30 Index Fund and $1,000 for the First Trust Dow Jones Global Select Dividend Index Fund, regardless of the number of Creation Units purchased in the transaction. The Creation Transaction Fee may vary and is based on the composition of the securities included in each
First Trust Exchange-Traded Fund II March 31, 2008 (Unaudited)
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 a redemption transaction fee (the "Redemption Transaction Fee"), which is currently $4,000 for the First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund, $500 for the First Trust DJ STOXX(R) Select Dividend 30 Index Fund and $1,000 for the First Trust Dow Jones Global Select Dividend Index Fund, regardless of the number of Creation Units redeemed in the transaction. The Redemption Transaction Fee may vary and is based on the composition of the securities included in each Fund's portfolio and the countries in which the transactions are settled. The Redemption Transaction Fee may increase or decrease as each Fund's portfolio is adjusted to conform to changes in the composition of its corresponding index. Each Fund reserves the right to effect redemptions in cash. A shareholder may request a cash redemption in lieu of securities; however, each Fund may, in its discretion, reject any such request.
6. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios, the distributor, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. First Trust Portfolios 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 April 30, 2009.
7. INDEMNIFICATION
The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust's maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
8. CONCENTRATION RISK
Each Fund may be concentrated in stocks of companies in an individual industry or sector if the Fund's corresponding index is concentrated in an individual industry or sector. You should be aware that an investment in a portfolio that is concentrated in an individual industry or sector involves additional risk, including limited diversification.
First Trust Exchange-Traded Fund II March 31, 2008 (Unaudited)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Funds use to determine how to vote proxies and information on how the Funds voted proxies relating to portfolio securities during the period ending June 30, 2007 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Trust's website located at http://www.ftportfolios.com; and (3) on the Securities and Exchange Commission's website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Trust's Form N-Q is available (1) by calling (800) 988-5891; (2) on the Trust's website located at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov; and (4) for review and copying at the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding the operation of the PRR may be obtained by calling (800) SEC-0330.
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF
FIRST TRUST DOW JONES GLOBAL SELECT DIVIDEND INDEX FUND ADVISORY CONTRACT
The Board of Trustees of the First Trust Exchange-Traded Fund II (the "Trust"), including the Independent Trustees, approved the Investment Management Agreement (the "Agreement") with First Trust Advisors L.P. ("First Trust") on behalf of the First Trust Dow Jones Global Select Dividend Index Fund (the "Fund") for an initial two-year term at a meeting held on July 18, 2007. The Board of Trustees determined that the Agreement is in the best interests of the Fund in light of the services, expenses and such other matters as the Board considered to be relevant in the exercise of its reasonable business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the "1940 Act"), as well as under the general principles of state law in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisers with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. To assist the Board in its evaluation of the Agreement, the Independent Trustees received a report in advance of the Board meeting responding to a request for information from counsel to the Independent Trustees that, among other things, outlined the services to be provided by First Trust (including the relevant personnel responsible for these services and their experience); the proposed advisory fee as compared to fees charged by investment advisors to comparable funds and as compared to fees charged to other First Trust clients; estimated expenses of the Fund as compared to those of comparable funds; the nature of expenses to be incurred in providing services to the Fund and the potential for economies of scale, if any; financial data on First Trust; fall-out benefits to First Trust and First Trust Portfolios L.P.; and a summary of First Trust's compliance program. The Independent Trustees also met separately with their independent legal counsel to discuss the information provided by First Trust with respect to the Fund. The Board also applied its business judgment to determine whether the arrangement between the Trust and First Trust is a reasonable business arrangement from the Fund's perspective as well as from the perspective of shareholders.
In evaluating whether to approve the Agreement for the Fund, the Board considered the nature, extent and quality of services to be provided under the Agreement, and noted that First Trust's employees provide management services to other investment companies, including other exchange-traded funds ("ETFs"), in the First Trust complex with diligence and care. The Board also considered the compliance program that had been developed by First Trust and the skills of its employees who would be working with the Fund. It also considered the efforts expended by First Trust in organizing the Trust and making arrangements for entities to provide services to the Fund. Since the Fund is newly organized, the Board did not consider investment performance of the Fund, but the Board did consider performance of the applicable index for the Fund. The Board concluded it was comfortable that First Trust had the capabilities and resources to oversee the operations of the Fund, including the services to be provided by other service providers. The Trustees reviewed information showing the advisory fee and estimated expense ratio as compared to those of a peer group. They noted that the peer group for each Fund consisted solely of other ETFs. The Board considered the limitations of the peer group, notably the small number of ETFs in the peer group and the fact that many were recently launched. The Board noted the services to be provided by First Trust to the Fund for the annual advisory fee of 0.40% of the Fund's average daily net assets. The Board noted that the proposed advisory fee for the Fund was equal to or lower than the advisory fees of the other funds in its peer group, most of which paid a unitary fee. The Board also considered that First Trust has agreed to waive fees and/or pay expenses for the Fund for
First Trust Exchange-Traded Fund II March 31, 2008 (Unaudited)
two years to the extent necessary to prevent the operating expenses of the Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) from exceeding 0.60% of average daily net assets per year. The Trustees noted that expenses borne by First Trust are proposed to be subject to reimbursement by the Fund for up to three years from the date the fee or expense was incurred, but no reimbursement payment would be made by the Fund if it would result in the Fund exceeding its expense cap, or if the expense cap is no longer in effect, would result in the Fund exceeding an expense ratio equal to its most recent expense cap. The Board considered the fees charged by First Trust to funds with investment objectives and policies similar to the Fund's, noting that those fees generally were similar for other ETFs, but higher for non-ETFs, except non-ETFs for which First Trust served as sub-advisor, for which the annual fee usually was 0.35% of average daily net assets, and the Board noted First Trust's statement that the services provided to these funds may not be comparable to those to be provided to the Fund. In light of the nature, extent and quality of services to be provided to the Fund under the Agreement, and in light of First Trust's agreement to waive fees and/or pay the Fund's expenses for at least two years up to the expense cap, the Board determined that the investment advisory fee for the Fund was fair and reasonable.
Finally, the Board noted First Trust's commitment to attempt to analyze whether economies of scale can be realized as the Fund's assets increase and operations experience is accumulated, and noted that First Trust intended to continue to make investments in infrastructure and personnel. The Board took the costs to be borne by First Trust in connection with its services to be performed under the Agreement into consideration and noted that First Trust was unable to estimate the profitability of the Agreement to First Trust for the Fund, but had agreed to cap the Fund's expenses for two years. The Board considered that First Trust had identified as a fall-out benefit to First Trust and First Trust Portfolios L.P. their exposure to investors and brokers who, in the absence of the Fund or other funds of the Trust, may have had no dealings with First Trust. The Board also noted that First Trust would not utilize soft dollars in connection with its management of the Fund's portfolio.
After discussion of the Agreement for the Fund, the Board of Trustees, including the Independent Trustees, concluded that First Trust had the capabilities, resources and personnel necessary to manage the Fund. Based upon such information as it considered necessary to the exercise of its reasonable business judgment, the Board of Trustees concluded that it was in the best interests of the Fund to approve the Agreement. No single factor was determinative in the Board's analysis.
PRIVACY POLICY
The open-end and closed-end funds advised by First Trust Advisors L.P. (each a "Fund") consider your privacy an important priority in maintaining our relationship. We are committed to protecting the security and confidentiality of your personal information.
Sources of Information
We may collect nonpublic personal information about you from the following sources:
o Information we receive from you or your broker-dealer, investment advisor or financial representative through interviews, applications, agreements or other forms;
o Information about your transactions with us, our affiliates or others;
o Information we receive from your inquiries by mail, e-mail or telephone; and
o Information we collect on our website through the use of "cookies." For example, we may identify the pages on our website that your browser requests or visits.
Information Collected
The type of data we collect may include your name, address, social security number, age, financial status, assets, income, tax information, retirement and estate plan information, transaction history, account balance, payment history, investment objectives, marital status, family relationships and other personal information.
Disclosure of Information
We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. The permitted uses include the disclosure of such information to unaffiliated companies for the following reasons:
First Trust Exchange-Traded Fund II March 31, 2008 (Unaudited)
o In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as trustees, banks, financial representatives and printers.
o We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services, we may share your personal information with affiliates of the Fund. Please note, however, that the California Financial Information Privacy Act contains an "opt out" mechanism that California consumers may use to prevent us from sharing nonpublic personal information with affiliates.
Confidentiality and Security
With regard to our internal security procedures, the Fund restricts access to your nonpublic personal information to those individual who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information.
Policy Updates and Inquiries
As required by federal law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time; however, if we do change it, we will tell you promptly.
For questions about our policy, or for additional copies of this notice, please contact us at (800) 621-1675.
RISK CONSIDERATIONS
YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE, RISKS, AND CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT HTTP://WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT 1-800-621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT THE PARTICULAR FUND. READ IT CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS THE DISTRIBUTOR OF FIRST TRUST EXCHANGE-TRADED FUND II.
Each Fund's shares will change in value, and you could lose money by investing in a Fund. An investment in a Fund involves risks similar to those of investing in any fund of equity securities traded on an exchange. Investors buying or selling Fund shares on the secondary market may incur brokerage commissions. In addition, investors who sell Fund shares may receive less than the shares' net asset value. Unlike shares of open-end funds, investors are generally not able to purchase Exchange-Traded Fund (") shares directly from a Fund and individual ETF shares are not redeemable. However, specified large blocks of shares called creation units can be purchased from, or redeemed to, the Fund.
You should anticipate that the value of each Fund's shares will decline, more or less, in correlation with any decline in the value of that Fund's corresponding index.
Each Fund's return may not match the return of its corresponding index for a number of reasons. For example, the Funds incur operating expenses not applicable to their corresponding indexes, and may incur costs in buying and selling securities, especially when rebalancing the Fund's portfolio holdings to reflect changes in the composition of its corresponding index. In addition, each Fund's portfolio holdings may not exactly replicate the securities included in its corresponding index or the ratios between the securities included in such index.
Each Fund is exposed to additional market risk due to its policy of investing principally in the securities included in its corresponding index. As a result of this policy, securities held by each Fund will generally not be bought or sold in response to market fluctuations and the securities may be issued by companies concentrated in a particular industry. Therefore, the Funds will generally not sell a stock because the stock's issuer is in financial trouble, unless that stock is removed or is anticipated to be removed from a Fund's index.
Each Fund relies on a license and related sublicense that permits it to use its corresponding index and associated trade names and trademarks 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. In the event the license is terminated or the index provider does not have rights to license such intellectual property, it may have a significant effect on the operation of the respective Fund.
The value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole.
Each Fund may be concentrated in stocks of companies in an individual industry or sector if the Fund's corresponding index is concentrated in an individual industry or sector. You should be aware that an investment in a portfolio that is concentrated in an individual industry or sector involves additional risk, including limited diversification.
Each Fund is classified as "non-diversified" under the Investment Company Act of 1940, as amended. As a result, each Fund is only limited as to the percentage of its assets which may be invested in the securities of any one issuer by the diversification requirements imposed by the Internal Revenue Code of 1986, as amended. Because the Funds may invest a relatively high percentage of their assets in a limited number of issuers, the Funds may be more susceptible to any single economic, political or regulatory occurrence and to the financial conditions of the issuers in which they invest.
None of the Funds are actively managed. The funds may be affected by a general decline in certain market segments relating to their respective indices. The Funds invest in securities included in, or representative of, their respective index regardless of such investment's merit. The Funds do not attempt to take defensive positions in declining markets.
Each Fund invests in securities of European companies and, therefore, is subject to certain risks associated specifically with Europe. A significant number of countries in Europe are member states in the European Union (the "EU"), and the member states no longer control their own monetary policies by directing independent interest rates for their currencies. Additionally, European corporations and other entities with significant markets or operations in Europe adapting to a single transnational currency, the Euro, may have a material impact on revenues, expenses or income from operations; increase competition due to the increased price transparency of EU markets; affect issuers' currency exchange rate risk and derivatives exposure; disrupt current contracts; cause issuers to increase spending on information technology updates required for the conversion; and result in potential adverse tax consequences. Furthermore, you should be aware that investments in such companies are subject to additional risks associated with possible adverse economic, political and social occurrences in Europe.
Furthermore, the First Trust DJ STOXX(R) Select Dividend 30 Index Fund has a significant portion of its investment in securities issued by companies headquartered in the United Kingdom. The Fund may therefore be more susceptible to adverse economic, political or social occurrences in the United Kingdom and may subject the Fund to greater risk than funds that are not significantly invested in issuers headquartered in the United Kingdom.
The First Trust Dow Jones Global Select Dividend Index Fund invests in the securities of companies in the financials sector. Banks, thrifts and their holding companies are especially subject to the adverse effects of economic recession; volatile interest rates; portfolio concentrations in geographic markets and in commercial and residential real estate loans; and competition from new entrants in their fields of business. These industries are generally extensively regulated and may be adversely affected by increased regulations. Banks and thrifts face increased competition from nontraditional lending sources as regulatory changes permit new entrants to offer various financial products. Technological advances such as the Internet allow these nontraditional lending sources to cut overhead and permit the more efficient use of customer data. In addition, all financial service companies face shrinking profit margins due to new competitors, the cost of new technology and the pressure to compete globally.
The First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund invests in securities of Asian companies and, therefore, is subject to certain risks associated with possible adverse economic, political and social occurrences in Asia.
Each Fund's NAV is determined on the basis of the U.S. dollar. 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 the Fund's holdings goes up.
Each Fund may hold securities of certain non-U.S. and non-Canadian companies in the form of Depositary Receipts. Depositary Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. The issuers of unsponsored Depositary Receipts are not obligated to disclose material information in the United States; therefore, there may be less information available regarding such issuers and there may not be a correlation between such information and the market value of the Depositary Receipts.
Each Fund invests in securities of non-U.S. issuers. Investing in securities of non-U.S. issuers, which are generally denominated in non-U.S. currencies, may involve certain risks not typically associated with investing in securities of U.S. issuers such as there being less publicly available information about non-U.S. issuers or markets and non-U.S. markets being smaller, less liquid and more volatile than the U.S. market. These risks may be more pronounced to the extent that each Fund invests a significant amount of its assets in companies located in one region.
Each Fund may invest in small capitalization and 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.
The First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund invests in companies that are considered to be "passive foreign investment companies" and could be subject to U.S. federal income tax and additional interest charges on gains and certain distributions with respect to those equity interests.
The First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund invests in companies in the real estate industry, including real estate investment trusts ("REITS") and is subject to the risks associated with investing in real estate such as possible declines in the value of real estate, adverse general and local economic conditions and changes in interest rates and environmental problems.
Additionally, the First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund's investment in REITs involves certain other risks related to their structure and focus such as dependency upon management skills, limited diversification and the risks of locating and managing financing for projects.
Furthermore, for the First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund, 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. The value of the Fund will generally decline when investors anticipate or experience rising interest rates.
The First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund may invest in real estate companies that may be affected by the downturn in the subprime mortgage lending market in the United States. The downturn in the subprime mortgage lending market may have far-reaching consequences into many aspects and geographic regions of the real estate business, and consequently, the value of the Fund may decline in response to such developments.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
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[BLANK INSIDE BACK COVER]
[LOGO OMITTED] FIRST TRUST
FIRST TRUST EXCHANGE-TRADED FUND II
INVESTMENT ADVISOR
First Trust Advisors L.P.
1001 Warrenville Road
Lisle, IL 60532
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York
101 Barclay Street
New York, NY 10286
BOARD ADMINISTRATOR
PFPC, Inc.
301 Bellevue Parkway
Wilmington, DE 19809
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & TOUCHE LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
Back Cover
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEMS 6. SCHEDULE OF INVESTMENTS.
Schedules of Investments in securities of unaffiliated issuers as of the close of the reporting period are included as part of the report to shareholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant's board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3
(c))) are effective, as of a date within 90 days of the filing date of the
report that includes the disclosure required by this paragraph, based on their
evaluation of these controls and procedures required by Rule 30a-3(b) under the
1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the
Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15
(b)).
(b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
By: /s/ James A. Bowen ----------------------------- Name: James A. Bowen Title: Chairman of the Board, President and Chief Executive Officer Date: May 27, 2008 ---------------------------- |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ James A. Bowen ----------------------------- Name: James A. Bowen Title: Chairman of the Board, President and Chief Executive Officer Date: May 27, 2008 ---------------------------- |
By: /s/ Mark R. Bradley ----------------------------- Name: Mark R. Bradley Title: Treasurer, Controller, Chief Financial Officer and Chief Accounting Officer Date: May 27, 2008 ---------------------------- |
1 Year First Trust STOXX Europe... Chart |
1 Month First Trust STOXX Europe... Chart |
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