CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 1
This Post-Effective Amendment to the Registration Statement
comprises the following papers and contents:
Fund, First Trust Consumer Staples AlphaDEX(TM) Fund, First Trust Energy
AlphaDEX(TM) Fund, First Trust Financials AlphaDEX(TM) Fund, First Trust
Health Care AlphaDEX(TM) Fund, First Trust Industrials/Producer Durables
AlphaDEX(TM) Fund, First Trust Materials AlphaDEX(TM) Fund, First Trust
Technology AlphaDEX(TM) Fund and First Trust Utilities AlphaDEX(TM) Fund;
Prospectus for First Trust Large Cap Core AlphaDEX(TM) Fund, First Trust
Mid Cap Core AlphaDEX(TM) Fund, First Trust Small Cap Core AlphaDEX(TM)
Fund, First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund, First
Trust Large Cap Growth Opportunities AlphDEX(TM) Fund, First Trust Multi
Cap Value AlphaDEX(TM) Fund and First Trust Multi Cap Growth AlphaDEX(TM)
Fund
Index to Exhibits
Exhibits
[LOGO OMITTED] AlphaDEX(TM)
Family of ETFs
_______________________________________________________________________________
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First Trust Consumer Discretionary AlphaDEX(TM) Fund
First Trust Consumer Staples AlphaDEX(TM) Fund
First Trust Energy AlphaDEX(TM) Fund
First Trust Financials AlphaDEX(TM) Fund
First Trust Health Care AlphaDEX(TM) Fund
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund
First Trust Materials AlphaDEX(TM) Fund
First Trust Technology AlphaDEX(TM) Fund
First Trust Utilities AlphaDEX(TM) Fund
First Trust AlphaDEX(TM) Funds
November 28, 2007
Front Cover
[BLANK INSIDE FRONT COVER]
FIRST TRUST CONSUMER DISCRETIONARY ALPHADEX(TM) FUND
FIRST TRUST CONSUMER STAPLES ALPHADEX(TM) FUND
FIRST TRUST ENERGY ALPHADEX(TM) FUND
FIRST TRUST FINANCIALS ALPHADEX(TM) FUND
FIRST TRUST HEALTH CARE ALPHADEX(TM) FUND
FIRST TRUST INDUSTRIALS/PRODUCER DURABLES ALPHADEX(TM) FUND
FIRST TRUST MATERIALS ALPHADEX(TM) FUND
FIRST TRUST TECHNOLOGY ALPHADEX(TM) FUND
FIRST TRUST UTILITIES ALPHADEX(TM) FUND
PROSPECTUS
November 28, 2007
Each of First Trust Consumer Discretionary AlphaDEX(TM) Fund, First Trust
Consumer Staples AlphaDEX(TM) Fund, First Trust Energy AlphaDEX(TM) Fund, First
Trust Financials AlphaDEX(TM) Fund, First Trust Health Care AlphaDEX(TM) Fund,
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund, First Trust
Materials AlphaDEX(TM) Fund, First Trust Technology AlphaDEX(TM) Fund and First
Trust Utilities AlphaDEX(TM) Fund (each, a "Fund," and collectively, the
"Funds") is a series of a registered management investment company that is
offering its shares (the "Shares") through this Prospectus.
Each Fund lists and trades its Shares on the American Stock Exchange LLC (the
"AMEX") at market prices that may differ to some degree from the net asset value
("NAV") of its Shares. Unlike conventional mutual funds, each Fund issues and
redeems Shares on a continuous basis, at NAV, only in large specified blocks
consisting of 50,000 Shares called a "Creation Unit." Each Fund's Creation Units
are issued and redeemed principally in-kind for securities included in such
Fund's corresponding equity index in the StrataQuant(TM) Series (as hereinafter
defined).
EXCEPT WHEN AGGREGATED IN CREATION UNITS, THE SHARES ARE NOT REDEEMABLE
SECURITIES OF EACH FUND.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NOT FDIC INSURED. MAY LOSE VALUE.
NO BANK GUARANTEE.
1
TABLE OF CONTENTS
Introduction ............................................................... 3
Who Should Invest in the Funds ............................................. 3
Tax Efficient Product Structure ............................................ 3
First Trust Consumer Discretionary AlphaDEX(TM) Fund Investment Objective,
Strategies and Risks ....................................................... 4
First Trust Consumer Staples AlphaDEX(TM) Fund Investment Objective,
Strategies and Risks ....................................................... 9
First Trust Energy AlphaDEX(TM) Fund Investment Objective, Strategies
and Risks .................................................................. 13
First Trust Financials AlphaDEX(TM) Fund Investment Objective, Strategies
and Risks .................................................................. 17
First Trust Health Care AlphaDEX(TM) Fund Investment Objective, Strategies
and Risks ................................................................. 22
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund Investment
Objective, Strategies and Risks ............................................ 26
First Trust Materials AlphaDEX(TM) Fund Investment Objective, Strategies
and Risks .................................................................. 30
First Trust Technology AlphaDEX(TM) Fund Investment Objective, Strategies
and Risks .................................................................. 34
First Trust Utilities AlphaDEX(TM) Fund Investment Objective, Strategies
and Risks .................................................................. 38
Additional Investment Strategies ........................................... 44
Additional Risks of Investing in the Funds ................................. 45
Fund Organization .......................................................... 46
Management of the Funds .................................................... 47
How to Buy and Sell Shares ................................................. 48
Creations, Redemptions and Transaction Fees ................................ 50
Dividends, Distributions and Taxes ......................................... 53
Federal Tax Matters ........................................................ 53
Distribution Plan .......................................................... 55
Net Asset Value ............................................................ 56
Fund Service Providers ..................................................... 57
Index Provider ............................................................. 57
Disclaimers ................................................................ 57
Additional Index Information ............................................... 59
Premium/Discount Information ............................................... 59
Total Return Information ................................................... 62
Financial Highlights ....................................................... 65
Other Information .......................................................... 70
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2
INTRODUCTION--
FIRST TRUST CONSUMER DISCRETIONARY ALPHADEX(TM) FUND
FIRST TRUST CONSUMER STAPLES ALPHADEX(TM) FUND
FIRST TRUST ENERGY ALPHADEX(TM) FUND
FIRST TRUST FINANCIALS ALPHADEX(TM) FUND
FIRST TRUST HEALTH CARE ALPHADEX(TM) FUND
FIRST TRUST INDUSTRIALS/PRODUCER DURABLES ALPHADEX(TM) FUND
FIRST TRUST MATERIALS ALPHADEX(TM) FUND
FIRST TRUST TECHNOLOGY ALPHADEX(TM) FUND
FIRST TRUST UTILITIES ALPHADEX(TM) FUND
Each Fund is a series of the First Trust Exchange-Traded AlphaDEX(TM) Fund (the
"Trust"), an investment company and an exchange-traded "index fund." The
investment objective of each Fund is to seek investment results that correspond
generally to the price and yield (before each Fund's fees and expenses) of such
Fund's corresponding equity index in a family of custom "enhanced" indices
developed, maintained and sponsored by the AMEX, the "Index Provider" (the
"StrataQuant(TM) Series"), comprised of the StrataQuant(TM) Consumer
Discretionary Index, StrataQuant(TM) Consumer Staples Index, StrataQuant(TM)
Energy Index, StrataQuant(TM) Financials Index, StrataQuant(TM) Health Care
Index, StrataQuant(TM) Industrials Index, StrataQuant(TM) Materials Index,
StrataQuant(TM) Technology Index and StrataQuant(TM) Utilities Index. First
Trust Advisors L.P. ("First Trust") is the investment adviser for the Funds.
WHO SHOULD INVEST IN THE FUNDS
The Funds are designed for investors who seek a relatively low-cost approach for
investing in a portfolio of equity securities of companies in one or more of the
indices within the StrataQuant(TM) Series. The Funds may be suitable for
long-term investment in the markets represented by the StrataQuant(TM) Series
and may also be used as an asset allocation tool or as a speculative trading
instrument.
TAX EFFICIENT PRODUCT STRUCTURE
Unlike many conventional mutual funds, the Shares of each Fund are traded
throughout the day on the AMEX, whereas mutual funds are typically only bought
and sold at closing NAVs. The Shares of each Fund have been designed to be
tradable in the secondary market on the AMEX on an intra-day basis, and to be
created and redeemed principally in-kind in Creation Units at each day's next
calculated NAV. These arrangements are designed to protect ongoing shareholders
from adverse effects on the Funds that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have
an adverse tax impact on taxable shareholders because of the mutual fund's need
to sell portfolio securities to obtain cash to meet fund redemptions. These
sales may generate taxable gains for the shareholders of the mutual fund,
whereas the Shares' in-kind redemption mechanism generally will not lead to a
tax event for the Funds or their ongoing shareholders.
3
FIRST TRUST CONSUMER DISCRETIONARY ALPHADEX(TM) FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
The First Trust Consumer Discretionary AlphaDEX(TM) Fund (the "Consumer
Discretionary AlphaDEX(TM) Fund") seeks investment results that correspond
generally to the price and yield (before the Consumer Discretionary AlphaDEX(TM)
Fund's fees and expenses) of an equity index called the StrataQuant(TM) Consumer
Discretionary Index (Symbol: STRQCD) (the "Consumer Discretionary Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FXD."
PRINCIPAL INVESTMENT STRATEGIES
The Consumer Discretionary AlphaDEX(TM) Fund will normally invest at least 90%
of its total assets in common stocks that comprise the Consumer Discretionary
Index. The Consumer Discretionary AlphaDEX(TM) Fund's investment objective and
the 90% investment strategy are non-fundamental policies and require 60 days'
prior written notice to shareholders before they can be changed. As
non-fundamental policies, the Board of Trustees of the Trust can change such
policies without receiving shareholder approval.
The Consumer Discretionary AlphaDEX(TM) Fund, using an "indexing" investment
approach, attempts to replicate, before expenses, the performance of the
Consumer Discretionary Index. First Trust seeks a correlation of 0.95 or better
(before fees and expenses) between the Consumer Discretionary AlphaDEX(TM)
Fund's performance and the performance of the Consumer Discretionary Index; a
figure of 1.00 would represent perfect correlation. First Trust will regularly
monitor the Consumer Discretionary AlphaDEX(TM) Fund's tracking accuracy and
will use the investment techniques described below in seeking to maintain an
appropriate correlation.
In seeking to achieve the Consumer Discretionary AlphaDEX(TM) Fund's investment
objective, the Consumer Discretionary AlphaDEX(TM) Fund generally will invest in
all of the stocks comprising the Consumer Discretionary Index in proportion to
their weightings in the Consumer Discretionary Index. However, under various
circumstances, it may not be possible or practicable to purchase all of those
stocks in those weightings. In those circumstances, the Consumer Discretionary
AlphaDEX(TM) Fund may purchase a sample of stocks in the Consumer Discretionary
Index. There may also be instances in which First Trust may choose to overweight
certain stocks in the Consumer Discretionary Index, purchase securities not in
the Consumer Discretionary Index which First Trust believes are appropriate to
substitute for certain securities in the Consumer Discretionary Index, use
futures or other derivative instruments, or utilize various combinations of the
above techniques in seeking to track the Consumer Discretionary Index. The
Consumer Discretionary AlphaDEX(TM) Fund may sell stocks that are represented in
the Consumer Discretionary Index in anticipation of their removal from the
Consumer Discretionary Index or purchase stocks not represented in the Consumer
Discretionary Index in anticipation of their addition to the Consumer
Discretionary Index.
4
INDEX CONSTRUCTION
The Consumer Discretionary Index is a modified equal-dollar weighted index
designed by the AMEX to objectively identify and select stocks from the Russell
1000(R) Index that may generate positive alpha relative to traditional passive
style indices through the use of the AlphaDEX(TM) screening methodology. Alpha
is an indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark. The Russell 1000(R) Index
consists of approximately 1,000 of the largest stocks within the Russell 3000(R)
Index. The Russell 3000(R) Index is constructed to represent approximately 98%
of the U.S. market. The initial divisor was created to set a benchmark value of
1000.00 on July 3, 2003. The Consumer Discretionary Index was created and
trademarked by the AMEX on April 11, 2007. As of October 31, 2007, the Russell
1000(R) Index consisted of 1,004 stocks and the Consumer Discretionary Index
consisted of 136 stocks.
The Consumer Discretionary Index is constructed by the AMEX in the following
manner:
1. The AMEX begins with the universe of stocks in the Russell 1000(R)
Index.
2a. The AMEX ranks all stocks in the above universe using the following
growth and value factors: three, six and 12-month price appreciation, sales
to price and one year sales growth (growth factors) and book value to
price, cash flow to price and return on assets (value factors). All stocks
are ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2b. For stocks in the Russell 1000(R) Index that Russell has classified
solely as growth or value, such stocks receive a rank for that style from
step 2a as their selection score. For stocks in the Russell 1000(R) Index
that Russell has allocated between growth and value, such stocks receive
the best rank from step 2a as their selection score.
3. The AMEX then ranks those stocks contained in the consumer
discretionary sector (the members of the Russell 1000(R) Consumer
Discretionary and Services Index) according to their selection score from
step 2b. The bottom 25% in such sector is eliminated.
4. The top 75% of the stocks contained in the consumer discretionary
sector is then split into quintiles based on their score from step 3. The
top ranked quintile receives 5/15 (33.3%) of the portfolio weight with
successive quintiles receiving 4/15 (26.7%), 3/15 (20.0%), 2/15 (13.3%) and
1/15 (6.7%), respectively. Stocks are equally weighted within each
quintile.
The Consumer Discretionary Index is rebalanced and reconstituted on the last
business day of each calendar quarter. Changes will be effective at the open on
the fourth business day of the following month. Acquired companies are deleted
at the close on the day the merger closes for both cash and stock deals. An
acquired company's weight in the Consumer Discretionary Index is reallocated
pro-rata among the remaining index constituents. Spin-offs are not included in
the Consumer Discretionary Index. The value of the spin-off is reallocated to
the parent company.
See "Additional Index Information" for additional information regarding the
Consumer Discretionary Index.
5
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Consumer Discretionary
AlphaDEX(TM) Fund will change in value, and loss of money is a risk of investing
in the Consumer Discretionary AlphaDEX(TM) Fund. The Consumer Discretionary
AlphaDEX(TM) Fund may not achieve its objective. An investment in the Consumer
Discretionary AlphaDEX(TM) Fund is not a deposit with a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. An investment in the Consumer Discretionary AlphaDEX(TM) Fund
involves risks similar to those of investing in any fund of equity securities
traded on an exchange. The following specific risk factors have been identified
as the principal risks of investing in the Consumer Discretionary AlphaDEX(TM)
Fund.
MARKET RISK
One of the principal risks of investing in the Consumer Discretionary
AlphaDEX(TM) Fund is market risk. Market risk is the risk that a particular
stock owned by the Consumer Discretionary AlphaDEX(TM) Fund, Shares of the
Consumer Discretionary AlphaDEX(TM) Fund or stocks in general may fall in value.
Shares are subject to market fluctuations caused by such factors as economic,
political, regulatory or market developments, changes in interest rates and
perceived trends in stock prices. Overall stock values could decline generally
or could underperform other investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Consumer Discretionary
Index.
NON-CORRELATION RISK
The Consumer Discretionary AlphaDEX(TM) Fund's return may not match the return
of the Consumer Discretionary Index for a number of reasons. For example, the
Consumer Discretionary AlphaDEX(TM) Fund incurs operating expenses not
applicable to the Consumer Discretionary Index, and may incur costs in buying
and selling securities, especially when rebalancing the Consumer Discretionary
AlphaDEX(TM) Fund's portfolio holdings to reflect changes in the composition of
the Consumer Discretionary Index. In addition, the Consumer Discretionary
AlphaDEX(TM) Fund's portfolio holdings may not exactly replicate the securities
included in the Consumer Discretionary Index or the ratios between the
securities included in the Consumer Discretionary Index.
The Consumer Discretionary AlphaDEX(TM) Fund may not be fully invested at times,
either as a result of cash flows into the Consumer Discretionary AlphaDEX(TM)
Fund or reserves of cash held by the Consumer Discretionary AlphaDEX(TM) Fund to
meet redemptions and expenses. If the Consumer Discretionary AlphaDEX(TM) Fund
utilizes a sampling approach or invests in futures or other derivative
positions, its return may not correlate as well with the return of the Consumer
Discretionary Index, as would be the case if it purchased all of the stocks in
the Consumer Discretionary Index with the same weightings as the Consumer
Discretionary Index. While First Trust seeks to have a correlation of 0.95 or
better, before fees and expenses, between the Consumer Discretionary
AlphaDEX(TM) Fund's performance and the performance of the Consumer
Discretionary Index, there can be no assurance that the Consumer Discretionary
AlphaDEX(TM) Fund will be able to achieve such a correlation. Accordingly, the
Consumer Discretionary AlphaDEX(TM) Fund's performance may correlate to a lesser
extent and may possibly vary substantially from the performance of the Consumer
Discretionary Index.
REPLICATION MANAGEMENT RISK
The Consumer Discretionary AlphaDEX(TM) Fund is also exposed to additional
market risk due to its policy of investing principally in the securities
included in the Consumer Discretionary Index. As a result of this policy,
securities held by the Consumer Discretionary AlphaDEX(TM) Fund will generally
6
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
Consumer Discretionary AlphaDEX(TM) Fund 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 the Consumer Discretionary Index.
INTELLECTUAL PROPERTY RISK.
The Consumer Discretionary AlphaDEX(TM) Fund relies on a license and related
sublicense that permits the Consumer Discretionary AlphaDEX(TM) Fund to use its
corresponding equity index in the StrataQuant(TM) Series and associated trade
names and trademarks ("Intellectual Property") in connection with the name and
investment strategies of the Consumer Discretionary AlphaDEX(TM) Fund. Such
license and related sublicense may be terminated by the Index Provider and, as a
result, the Consumer Discretionary AlphaDEX(TM) Fund may lose its ability to use
the Intellectual Property. There is also no guarantee that the Index Provider
has all rights to license the Intellectual Property to First Trust Portfolios
L.P. ("FTP"), on behalf of First Trust and the Consumer Discretionary
AlphaDEX(TM) Fund. Accordingly, in the event the license is terminated or the
Index Provider does not have rights to license the Intellectual Property, it may
have a significant effect on the operation of the Consumer Discretionary
AlphaDEX(TM) Fund.
ISSUER SPECIFIC CHANGES RISK.
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. The value of securities of smaller issuers can be more
volatile than that of larger issuers.
CONCENTRATION RISK.
The Consumer Discretionary AlphaDEX(TM) Fund will be concentrated in the
securities of a given industry if the Consumer Discretionary Index is
concentrated in such industry. A concentration makes the Consumer Discretionary
AlphaDEX(TM) Fund more susceptible to any single occurrence affecting the
industry and may subject the Consumer Discretionary AlphaDEX(TM) Fund to greater
market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Consumer Discretionary AlphaDEX(TM) Fund is classified as "non-diversified"
under the Investment Company Act of 1940, as amended (the "1940 Act"). As a
result, the Consumer Discretionary AlphaDEX(TM) 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 (the "Internal Revenue Code"). Because the Consumer
Discretionary AlphaDEX(TM) Fund may invest a relatively high percentage of its
assets in a limited number of issuers, the Consumer Discretionary AlphaDEX(TM)
Fund may be more susceptible to any single economic, political or regulatory
occurrence and to the financial conditions of the issuers in which it invests.
CONSUMER DISCRETIONARY SECTOR RISK.
The Consumer Discretionary AlphaDEX(TM) Fund invests in the securities of
companies in the consumer discretionary sector. Because companies in the
consumer discretionary sector manufacture products and provide discretionary
services directly to the consumer, the success of these companies is tied
closely to the performance of the overall domestic and international economy,
interest rates, competition and consumer confidence. Success depends heavily on
disposable household income and consumer spending. Changes in demographics and
consumer tastes can also affect the demand for, and success of, consumer
discretionary products in the marketplace.
7
SMALL CAP AND MID CAP COMPANY RISK
The Consumer Discretionary AlphaDEX(TM) 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 as a result of several factors, including limited trading
volumes, products or financial resources, management inexperience and less
publicly available information. Accordingly, such companies are generally
subject to greater market risk than larger, more established companies.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
8
First Trust Consumer Staples AlphaDEX(TM) Fund
Investment Objective, Strategies and Risks
INVESTMENT OBJECTIVE
The First Trust Consumer Staples AlphaDEX(TM) Fund (the "Consumer Staples
AlphaDEX(TM) Fund") seeks investment results that correspond generally to the
price and yield (before the Consumer Staples AlphaDEX(TM) Fund's fees and
expenses) of an equity index called the StrataQuant(TM) Consumer Staples Index
(Symbol: STRQCS) (the "Consumer Staples Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FXG."
PRINCIPAL INVESTMENT STRATEGIES
The Consumer Staples AlphaDEX(TM) Fund will normally invest at least 90% of its
total assets in common stocks that comprise the Consumer Staples Index. The
Consumer Staples AlphaDEX(TM) Fund's investment objective and the 90% investment
strategy are non-fundamental policies and require 60 days' prior written notice
to shareholders before they can be changed. As non-fundamental policies, the
Board of Trustees of the Trust can change such policies without receiving
shareholder approval.
The Consumer Staples AlphaDEX(TM) Fund, using an "indexing" investment approach,
attempts to replicate, before expenses, the performance of the Consumer Staples
Index. First Trust seeks a correlation of 0.95 or better (before fees and
expenses) between the Consumer Staples AlphaDEX(TM) Fund's performance and the
performance of the Consumer Staples Index; a figure of 1.00 would represent
perfect correlation. First Trust will regularly monitor the Consumer Staples
AlphaDEX(TM) Fund's tracking accuracy and will use the investment techniques
described below in seeking to maintain an appropriate correlation.
In seeking to achieve the Consumer Staples AlphaDEX(TM) Fund's investment
objective, the Consumer Staples AlphaDEX(TM) Fund generally will invest in all
of the stocks comprising the Consumer Staples Index in proportion to their
weightings in the Consumer Staples Index. However, under various circumstances,
it may not be possible or practicable to purchase all of those stocks in those
weightings. In those circumstances, the Consumer Staples AlphaDEX(TM) Fund may
purchase a sample of stocks in the Consumer Staples Index. There may also be
instances in which First Trust may choose to overweight certain stocks in the
Consumer Staples Index, purchase securities not in the Consumer Staples Index
which First Trust believes are appropriate to substitute for certain securities
in the Consumer Staples Index, use futures or other derivative instruments, or
utilize various combinations of the above techniques in seeking to track the
Consumer Staples Index. The Consumer Staples AlphaDEX(TM) Fund may sell stocks
that are represented in the Consumer Staples Index in anticipation of their
removal from the Consumer Staples Index or purchase stocks not represented in
the Consumer Staples Index in anticipation of their addition to the Consumer
Staples Index.
INDEX CONSTRUCTION
The Consumer Staples Index is a modified equal-dollar weighted index designed by
the AMEX to objectively identify and select stocks from the Russell 1000(R)
Index that may generate positive alpha relative to traditional passive style
9
indices through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark. The Russell 1000(R) Index
consists of approximately 1,000 of the largest stocks within the Russell 3000(R)
Index. The Russell 3000(R) Index is constructed to represent approximately 98%
of the U.S. market. The initial divisor was created to set a benchmark value of
1000.00 on July 3, 2003. The Consumer Staples Index was created and trademarked
by the AMEX on April 11, 2007. As of October 31, 2007, the Russell 1000(R)
consisted of 1,004 stocks and the Consumer Staples Index consisted of 32 stocks.
The Consumer Staples Index is constructed by the AMEX in the following manner:
1. The AMEX begins with the universe of stocks in the Russell 1000(R)
Index.
2a. The AMEX ranks all stocks in the above universe using the following
growth and value factors: three, six and 12-month price appreciation, sales
to price and one year sales growth (growth factors) and book value to
price, cash flow to price and return on assets (value factors). All stocks
are ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2b. For stocks in the Russell 1000(R) Index that Russell has classified
solely as growth or value, such stocks receive a rank for that style from
step 2a as their selection score. For stocks in the Russell 1000(R) Index
that Russell has allocated between growth and value, such stocks receive
the best rank from step 2a as their selection score.
3. The AMEX then ranks those stocks contained in the consumer staples
sector (the members of the Russell 1000(R) Consumer Staples Index)
according to their selection score from step 2b. The bottom 25% in such
sector is eliminated.
4. The top 75% of the stocks contained in the consumer staples sector
is then split into quintiles based on their score from step 3. The top
ranked quintile receives 5/15 (33.3%) of the portfolio weight with
successive quintiles receiving 4/15 (26.7%), 3/15 (20.0%), 2/15 (13.3%) and
1/15 (6.7%), respectively. Stocks are equally weighted within each
quintile.
The Consumer Staples Index is rebalanced and reconstituted on the last business
day of each calendar quarter. Changes will be effective at the open on the
fourth business day of the following month. Acquired companies are deleted at
the close on the day the merger closes for both cash and stock deals. An
acquired company's weight in the Consumer Staples Index is reallocated pro-rata
among the remaining index constituents. Spin-offs are not included in the
Consumer Staples Index. The value of the spin-off is reallocated to the parent
company.
See "Additional Index Information" for additional information regarding the
Consumer Staples Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Consumer Staples
AlphaDEX(TM) Fund will change in value, and loss of money is a risk of investing
in the Consumer Staples AlphaDEX(TM) Fund. The Consumer Staples AlphaDEX(TM)
Fund may not achieve its objective. An investment in the Consumer Staples
10
AlphaDEX(TM) Fund is not a deposit with a bank and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. An
investment in the Consumer Staples AlphaDEX(TM) Fund involves risks similar to
those of investing in any fund of equity securities traded on an exchange. The
following specific risk factors have been identified as the principal risks of
investing in the Consumer Staples AlphaDEX(TM) Fund.
MARKET RISK
One of the principal risks of investing in the Consumer Staples AlphaDEX(TM)
Fund is market risk. Market risk is the risk that a particular stock owned by
the Consumer Staples AlphaDEX(TM) Fund, Shares of the Consumer Staples
AlphaDEX(TM) Fund or stocks in general may fall in value. Shares are subject to
market fluctuations caused by such factors as economic, political, regulatory or
market developments, changes in interest rates and perceived trends in stock
prices. Overall stock values could decline generally or could underperform other
investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Consumer Staples Index.
NON-CORRELATION RISK
The Consumer Staples AlphaDEX(TM) Fund's return may not match the return of the
Consumer Staples Index for a number of reasons. For example, the Consumer
Staples AlphaDEX(TM) Fund incurs operating expenses not applicable to the
Consumer Staples Index, and may incur costs in buying and selling securities,
especially when rebalancing the Consumer Staples AlphaDEX(TM) Fund's portfolio
holdings to reflect changes in the composition of the Consumer Staples Index. In
addition, the Consumer Staples AlphaDEX(TM) Fund's portfolio holdings may not
exactly replicate the securities included in the Consumer Staples Index or the
ratios between the securities included in the Consumer Staples Index.
The Consumer Staples AlphaDEX(TM) Fund may not be fully invested at times,
either as a result of cash flows into the Consumer Staples AlphaDEX(TM) Fund or
reserves of cash held by the Consumer Staples AlphaDEX(TM) Fund to meet
redemptions and expenses. If the Consumer Staples AlphaDEX(TM) Fund utilizes a
sampling approach or invests in futures or other derivative positions, its
return may not correlate as well with the return of the Consumer Staples Index,
as would be the case if it purchased all of the stocks in the Consumer Staples
Index with the same weightings as the Consumer Staples Index. While First Trust
seeks to have a correlation of 0.95 or better, before fees and expenses, between
the Consumer Staples AlphaDEX(TM) Fund's performance and the performance of the
Consumer Staples Index, there can be no assurance that the Consumer Staples
AlphaDEX(TM) Fund will be able to achieve such a correlation. Accordingly, the
Consumer Staples AlphaDEX(TM) Fund's performance may correlate to a lesser
extent and may possibly vary substantially from the performance of the Consumer
Staples Index.
REPLICATION MANAGEMENT RISK
The Consumer Staples AlphaDEX(TM) Fund is also exposed to additional market risk
due to its policy of investing principally in the securities included in the
Consumer Staples Index. As a result of this policy, securities held by the
Consumer Staples AlphaDEX(TM) 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 Consumer Staples
AlphaDEX(TM) Fund 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 the Consumer Staples Index.
INTELLECTUAL PROPERTY RISK.
The Consumer Staples AlphaDEX(TM) Fund relies on a license and related
sublicense that permits the Consumer Staples AlphaDEX(TM) Fund to use its
corresponding equity index in the StrataQuant(TM) Series and the Intellectual
Property in connection with the name and investment strategies of the Consumer
11
Staples AlphaDEX(TM) Fund. Such license and related sublicense may be terminated
by the Index Provider and, as a result, the Consumer Staples AlphaDEX(TM) Fund
may lose its ability to use the Intellectual Property. There is also no
guarantee that the Index Provider has all rights to license the Intellectual
Property to FTP, on behalf of First Trust and the Consumer Staples AlphaDEX(TM)
Fund. Accordingly, in the event the license is terminated or the Index Provider
does not have rights to license the Intellectual Property, it may have a
significant effect on the operation of the Consumer Staples AlphaDEX(TM) Fund.
ISSUER SPECIFIC CHANGES RISK.
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. The value of securities of smaller issuers can be more
volatile than that of larger issuers.
CONCENTRATION RISK.
The Consumer Staples AlphaDEX(TM) Fund will be concentrated in the securities of
a given industry if the Consumer Staples Index is concentrated in such industry.
A concentration makes the Consumer Staples AlphaDEX(TM) Fund more susceptible to
any single occurrence affecting the industry and may subject the Consumer
Staples AlphaDEX(TM) Fund to greater market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Consumer Staples AlphaDEX(TM) Fund is classified as "non-diversified" under
the 1940 Act. As a result, the Consumer Staples AlphaDEX(TM) 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. Because the Consumer Staples AlphaDEX(TM) Fund may invest
a relatively high percentage of its assets in a limited number of issuers, the
Consumer Staples AlphaDEX(TM) Fund may be more susceptible to any single
economic, political or regulatory occurrence and to the financial conditions of
the issuers in which it invests.
CONSUMER STAPLES SECTOR RISK.
The Consumer Staples AlphaDEX(TM) Fund invests in the securities of companies in
the consumer staples sector. Because companies in the consumer staples sector
provide products directly to the consumer that are typically considered
non-discretionary items based on consumer purchasing habits, these companies may
be affected by a variety of factors which could impact company profitability.
For instance, government regulations may affect the permissibility of using
various food additives and the production methods of companies that manufacture
food products. Tobacco companies may be adversely affected by the adoption of
proposed legislation and/or by litigation. Also, the success of foods and soft
drinks may be strongly affected by fads, marketing campaigns and other factors
affecting supply and demand.
SMALL CAP AND MID CAP COMPANY RISK
The Consumer Staples AlphaDEX(TM) 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 as a result of several factors, including limited trading volumes,
products or financial resources, management inexperience and less publicly
available information. Accordingly, such companies are generally subject to
greater market risk than larger, more established companies.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
12
First Trust Energy AlphaDEX(TM) Fund
Investment Objective, Strategies and Risks
INVESTMENT OBJECTIVE
The First Trust Energy AlphaDEX(TM) Fund (the "Energy AlphaDEX(TM) Fund") seeks
investment results that correspond generally to the price and yield (before the
Energy AlphaDEX(TM) Fund's fees and expenses) of an equity index called the
StrataQuant(TM) Energy Index (Symbol: STRQEN) (the "Energy Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FXN."
PRINCIPAL INVESTMENT STRATEGIES
The Energy AlphaDEX(TM) Fund will normally invest at least 90% of its total
assets in common stocks that comprise the Energy Index. The Energy AlphaDEX(TM)
Fund's investment objective and the 90% investment strategy are non-fundamental
policies and require 60 days' prior written notice to shareholders before they
can be changed. As non-fundamental policies, the Board of Trustees of the Trust
can change such policies without receiving shareholder approval.
The Energy AlphaDEX(TM) Fund, using an "indexing" investment approach, attempts
to replicate, before expenses, the performance of the Energy Index. First Trust
seeks a correlation of 0.95 or better (before fees and expenses) between the
Energy AlphaDEX(TM) Fund's performance and the performance of the Energy Index;
a figure of 1.00 would represent perfect correlation. First Trust will regularly
monitor the Energy AlphaDEX(TM) Fund's tracking accuracy and will use the
investment techniques described below in seeking to maintain an appropriate
correlation.
In seeking to achieve the Energy AlphaDEX(TM) Fund's investment objective, the
Energy AlphaDEX(TM) Fund generally will invest in all of the stocks comprising
the Energy Index in proportion to their weightings in the Energy Index. However,
under various circumstances, it may not be possible or practicable to purchase
all of those stocks in those weightings. In those circumstances, the Energy
AlphaDEX(TM) Fund may purchase a sample of stocks in the Energy Index. There may
also be instances in which First Trust may choose to overweight certain stocks
in the Energy Index, purchase securities not in the Energy Index which First
Trust believes are appropriate to substitute for certain securities in the
Energy Index, use futures or other derivative instruments, or utilize various
combinations of the above techniques in seeking to track the Energy Index. The
Energy AlphaDEX(TM) Fund may sell stocks that are represented in the Energy
Index in anticipation of their removal from the Energy Index or purchase stocks
not represented in the Energy Index in anticipation of their addition to the
Energy Index.
INDEX CONSTRUCTION
The Energy Index is a modified equal-dollar weighted index designed by the AMEX
to objectively identify and select stocks from the Russell 1000(R) Index that
may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark. The Russell 1000(R) Index
consists of approximately 1,000 of the largest stocks within the Russell 3000(R)
13
Index. The Russell 3000(R) Index is constructed to represent approximately 98%
of the U.S. market. The initial divisor was created to set a benchmark value of
1000.00 on July 3, 2003. The Energy Index was created and trademarked by the
AMEX on April 11, 2007. As of October 31, 2007, the Russell 1000(R) Index
consisted of 1,004 stocks and the Energy Index consisted of 56 stocks.
The Energy Index is constructed by the AMEX in the following manner:
1. The AMEX begins with the universe of stocks in the Russell 1000(R)
Index.
2a. The AMEX ranks all stocks in the above universe using the following
growth and value factors: three, six and 12-month price appreciation, sales
to price and one year sales growth (growth factors) and book value to
price, cash flow to price and return on assets (value factors). All stocks
are ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2b. For stocks in the Russell 1000(R) Index that Russell has classified
solely as growth or value, such stocks receive the rank for that style from
step 2a as their selection score. For stocks in the Russell 1000(R) Index
that Russell has allocated between growth and value, such stocks receive
the best rank from step 2a as their selection score.
3. The AMEX then ranks those stocks contained in the energy sector (the
members of the Russell 1000(R) Integrated Oils Index and Russell 1000(R)
Other Energy Index) according to their selection score from step 2b. The
bottom 25% in such sector is eliminated.
4. The top 75% of the stocks contained in the energy sector is then
split into quintiles based on their score from step 3. The top ranked
quintile receives 5/15 (33.3%) of the portfolio weight with successive
quintiles receiving 4/15 (26.7%), 3/15 (20.0%), 2/15 (13.3%) and 1/15
(6.7%), respectively. Stocks are equally weighted within each quintile.
The Energy Index is rebalanced and reconstituted on the last business day of
each calendar quarter. Changes will be effective at the open on the fourth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Energy Index is reallocated pro-rata among the remaining
index constituents. Spin-offs are not included in the Energy Index. The value of
the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the
Energy Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Energy AlphaDEX(TM) Fund
will change in value, and loss of money is a risk of investing in the Energy
AlphaDEX(TM) Fund. The Energy AlphaDEX(TM) Fund may not achieve its objective.
An investment in the Energy AlphaDEX(TM) Fund is not a deposit with a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. An investment in the Energy AlphaDEX(TM) Fund involves
risks similar to those of investing in any fund of equity securities traded on
an exchange. The following specific risk factors have been identified as the
principal risks of investing in the Energy AlphaDEX(TM) Fund.
14
MARKET RISK
One of the principal risks of investing in the Energy AlphaDEX(TM) Fund is
market risk. Market risk is the risk that a particular stock owned by the Energy
AlphaDEX(TM) Fund, Shares of the Energy AlphaDEX(TM) Fund or stocks in general
may fall in value. Shares are subject to market fluctuations caused by such
factors as economic, political, regulatory or market developments, changes in
interest rates and perceived trends in stock prices. Overall stock values could
decline generally or could underperform other investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Energy Index.
NON-CORRELATION RISK
The Energy AlphaDEX(TM) Fund's return may not match the return of the Energy
Index for a number of reasons. For example, the Energy AlphaDEX(TM) Fund incurs
operating expenses not applicable to the Energy Index, and may incur costs in
buying and selling securities, especially when rebalancing the Energy
AlphaDEX(TM) Fund's portfolio holdings to reflect changes in the composition of
the Energy Index. In addition, the Energy AlphaDEX(TM) Fund's portfolio holdings
may not exactly replicate the securities included in the Energy Index or the
ratios between the securities included in the Energy Index.
The Energy AlphaDEX(TM) Fund may not be fully invested at times, either as a
result of cash flows into the Energy AlphaDEX(TM) Fund or reserves of cash held
by the Energy AlphaDEX(TM) Fund to meet redemptions and expenses. If the Energy
AlphaDEX(TM) Fund utilizes a sampling approach or invests in futures or other
derivative positions, its return may not correlate as well with the return of
the Energy Index, as would be the case if it purchased all of the stocks in the
Energy Index with the same weightings as the Energy Index. While First Trust
seeks to have a correlation of 0.95 or better, before fees and expenses, between
the Energy AlphaDEX(TM) Fund's performance and the performance of the Energy
Index, there can be no assurance that the Energy AlphaDEX(TM) Fund will be able
to achieve such a correlation. Accordingly, the Energy AlphaDEX(TM) Fund's
performance may correlate to a lesser extent and may possibly vary substantially
from the performance of the Energy Index.
REPLICATION MANAGEMENT RISK
The Energy AlphaDEX(TM) Fund is also exposed to additional market risk due to
its policy of investing principally in the securities included in the Energy
Index. As a result of this policy, securities held by the Energy AlphaDEX(TM)
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 Energy AlphaDEX(TM) Fund 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 the Energy Index.
INTELLECTUAL PROPERTY RISK.
The Energy AlphaDEX(TM) Fund relies on a license and related sublicense that
permits the Energy AlphaDEX(TM) Fund to use its corresponding equity index in
the StrataQuant(TM) Series and the Intellectual Property in connection with the
name and investment strategies of the Energy AlphaDEX(TM) Fund. Such license and
related sublicense may be terminated by the Index Provider and, as a result, the
Energy AlphaDEX(TM) Fund may lose its ability to use the Intellectual Property.
There is also no guarantee that the Index Provider has all rights to license the
Intellectual Property to FTP, on behalf of First Trust and the Energy
AlphaDEX(TM) Fund. Accordingly, in the event the license is terminated or the
Index Provider does not have rights to license the Intellectual Property, it may
have a significant effect on the operation of the Energy AlphaDEX(TM) Fund.
15
ISSUER SPECIFIC CHANGES RISK.
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. The value of securities of smaller issuers can be more
volatile than that of larger issuers.
CONCENTRATION RISK.
The Energy AlphaDEX(TM) Fund will be concentrated in the securities of a given
industry if the Energy Index is concentrated in such industry. A concentration
makes the Energy AlphaDEX(TM) Fund more susceptible to any single occurrence
affecting the industry and may subject the Energy AlphaDEX(TM) Fund to
greater market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Energy AlphaDEX(TM) Fund is classified as "non-diversified" under the 1940
Act. As a result, the Energy AlphaDEX(TM) 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.
Because the Energy AlphaDEX(TM) Fund may invest a relatively high percentage of
its assets in a limited number of issuers, the Energy AlphaDEX(TM) Fund may be
more susceptible to any single economic, political or regulatory occurrence and
to the financial conditions of the issuers in which it invests.
ENERGY SECTOR RISK.
The Energy AlphaDEX(TM) Fund invests in the securities of companies in the
energy sector. The companies in the energy sector include integrated oil
companies that are involved in the exploration, production and refining process,
gas distributors and pipeline-related companies and other energy companies
involved with mining, producing and delivering energy-related services and
drilling. General problems of issuers in the energy sector include volatile
fluctuations in price and supply of energy fuels, international politics,
terrorist attacks, reduced demand as a result of increases in energy efficiency
and energy conservation, the success of exploration projects, clean-up and
litigation costs relating to oil spills and environmental damage, and tax and
other regulatory policies of various governments. Natural disasters such as
hurricanes in the Gulf of Mexico will also impact the petroleum industry. Oil
production and refining companies are subject to extensive federal, state and
local environmental laws and regulations regarding air emissions and the
disposal of hazardous materials. In addition, declines in U.S. and Russian crude
oil production will likely lead to a greater world dependence on oil from OPEC
nations, which may result in more volatile oil prices.
SMALL CAP AND MID CAP COMPANY RISK
The Energy AlphaDEX(TM) 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 as a result of several factors, including limited trading volumes,
products or financial resources, management inexperience and less publicly
available information. Accordingly, such companies are generally subject to
greater market risk than larger, more established companies.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
16
First Trust Financials AlphaDEX(TM) Fund
Investment Objective, Strategies and Risks
INVESTMENT OBJECTIVE
The First Trust Financials AlphaDEX(TM) Fund (the "Financials AlphaDEX(TM)
Fund") seeks investment results that correspond generally to the price and yield
(before the Financials AlphaDEX(TM) Fund's fees and expenses) of an equity index
called the StrataQuant(TM) Financials Index (Symbol: STRQFN) (the "Financials
Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FXO."
PRINCIPAL INVESTMENT STRATEGIES
The Financials AlphaDEX(TM) Fund will normally invest at least 90% of its total
assets in common stocks that comprise the Financials Index. The Financials
AlphaDEX(TM) Fund's investment objective and the 90% investment strategy are
non-fundamental policies and require 60 days' prior written notice to
shareholders before they can be changed. As non-fundamental policies, the Board
of Trustees of the Trust can change such policies without receiving shareholder
approval.
The Financials AlphaDEX(TM) Fund, using an "indexing" investment approach,
attempts to replicate, before expenses, the performance of the Financials Index.
First Trust seeks a correlation of 0.95 or better (before fees and expenses)
between the Financials AlphaDEX(TM) Fund's performance and the performance of
the Financials Index; a figure of 1.00 would represent perfect correlation.
First Trust will regularly monitor the Financials AlphaDEX(TM) Fund's tracking
accuracy and will use the investment techniques described below in seeking to
maintain an appropriate correlation.
In seeking to achieve the Financials AlphaDEX(TM) Fund's investment objective,
the Financials AlphaDEX(TM) Fund generally will invest in all of the stocks
comprising the Financials Index in proportion to their weightings in the
Financials Index. However, under various circumstances, it may not be possible
or practicable to purchase all of those stocks in those weightings. In those
circumstances, the Financials AlphaDEX(TM) Fund may purchase a sample of stocks
in the Financials Index. There may also be instances in which First Trust may
choose to overweight certain stocks in the Financials Index, purchase securities
not in the Financials Index which First Trust believes are appropriate to
substitute for certain securities in the Financials Index, use futures or other
derivative instruments, or utilize various combinations of the above techniques
in seeking to track the Financials Index. The Financials AlphaDEX(TM) Fund may
sell stocks that are represented in the Financials Index in anticipation of
their removal from the Financials Index or purchase stocks not represented in
the Financials Index in anticipation of their addition to the Financials Index.
INDEX CONSTRUCTION
The Financials Index is a modified equal-dollar weighted index designed by the
AMEX to objectively identify and select stocks from the Russell 1000(R) Index
that may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark. The Russell 1000(R) Index
consists of approximately 1,000 of the largest stocks within the Russell 3000(R)
17
Index. The Russell 3000(R) Index is constructed to represent approximately 98%
of the U.S. market. The initial divisor was created to set a benchmark value of
1000.00 on July 3, 2003. The Financials Index was created and trademarked by the
AMEX on April 11, 2007. As of October 31, 2007, the Russell 1000(R) Index
consisted of 1,004 stocks and the Financials Index consisted of 168 stocks.
The Financials Index is constructed by the AMEX in the following manner:
1. The AMEX begins with the universe of stocks in the Russell 1000(R)
Index.
2a. The AMEX ranks all stocks in the above universe using the following
growth and value factors: three, six and 12-month price appreciation, sales
to price and one year sales growth (growth factors) and book value to
price, cash flow to price and return on assets (value factors). All stocks
are ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2b. For stocks in the Russell 1000(R) Index that Russell has classified
solely as growth or value, such stocks receive a rank for that style from
step 2a as their selection score. For stocks in the Russell 1000(R) Index
that Russell has allocated between growth and value, such stocks receive
the best rank from step 2a as their selection score.
3. The AMEX then ranks those stocks contained in the financials sector
(the members of the Russell 1000(R) Financials Services Index) according to
their selection score from step 2b. The bottom 25% in such sector is
eliminated.
4. The top 75% of the stocks contained in the financials sector is then
split into quintiles based on their score from step 3. The top ranked
quintile receives 5/15 (33.3%) of the portfolio weight with successive
quintiles receiving 4/15 (26.7%), 3/15 (20.0%), 2/15 (13.3%) and 1/15
(6.7%), respectively. Stocks are equally weighted within each quintile.
The Financials Index is rebalanced and reconstituted on the last business day of
each calendar quarter. Changes will be effective at the open on the fourth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Financials Index is reallocated pro-rata among the
remaining index constituents. Spin-offs are not included in the Financials
Index. The value of the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the
Financials Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Financials AlphaDEX(TM)
Fund will change in value, and loss of money is a risk of investing in the
Financials AlphaDEX(TM) Fund. The Financials AlphaDEX(TM) Fund may not achieve
its objective. An investment in the Financials AlphaDEX(TM) Fund is not a
deposit with a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. An investment in the
Financials AlphaDEX(TM) Fund involves risks similar to those of investing in any
fund of equity securities traded on an exchange. The following specific risk
factors have been identified as the principal risks of investing in the
Financials AlphaDEX(TM) Fund.
18
MARKET RISK
One of the principal risks of investing in the Financials AlphaDEX(TM) Fund is
market risk. Market risk is the risk that a particular stock owned by the
Financials AlphaDEX(TM) Fund, Shares of the Financials AlphaDEX(TM) Fund or
stocks in general may fall in value. Shares are subject to market fluctuations
caused by such factors as economic, political, regulatory or market
developments, changes in interest rates and perceived trends in stock prices.
Overall stock values could decline generally or could underperform other
investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Financials Index.
NON-CORRELATION RISK
The Financials AlphaDEX(TM) Fund's return may not match the return of the
Financials Index for a number of reasons. For example, the Financials
AlphaDEX(TM) Fund incurs operating expenses not applicable to the Financials
Index, and may incur costs in buying and selling securities, especially when
rebalancing the Financials AlphaDEX(TM) Fund's portfolio holdings to reflect
changes in the composition of the Financials Index. In addition, the Financials
AlphaDEX(TM) Fund's portfolio holdings may not exactly replicate the securities
included in the Financials Index or the ratios between the securities included
in the Financials Index.
The Financials AlphaDEX(TM) Fund may not be fully invested at times, either as a
result of cash flows into the Financials AlphaDEX(TM) Fund or reserves of cash
held by the Financials AlphaDEX(TM) Fund to meet redemptions and expenses. If
the Financials AlphaDEX(TM) Fund utilizes a sampling approach or invests in
futures or other derivative positions, its return may not correlate as well with
the return of the Financials Index, as would be the case if it purchased all of
the stocks in the Financials Index with the same weightings as the Financials
Index. While First Trust seeks to have a correlation of 0.95 or better, before
fees and expenses, between the Financials AlphaDEX(TM) Fund's performance and
the performance of the Financials Index, there can be no assurance that the
Financials AlphaDEX(TM) Fund will be able to achieve such a correlation.
Accordingly, the Financials AlphaDEX(TM) Fund's performance may correlate to a
lesser extent and may possibly vary substantially from the performance of the
Financials Index.
REPLICATION MANAGEMENT RISK
The Financials AlphaDEX(TM) Fund is also exposed to additional market risk due
to its policy of investing principally in the securities included in the
Financials Index. As a result of this policy, securities held by the Financials
AlphaDEX(TM) 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 Financials AlphaDEX(TM) Fund 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 the Financials
Index.
INTELLECTUAL PROPERTY RISK.
The Financials AlphaDEX(TM) Fund relies on a license and related sublicense that
permits the Financials AlphaDEX(TM) Fund to use its corresponding equity index
in the StrataQuant(TM) Series and the Intellectual Property in connection with
the name and investment strategies of the Financials AlphaDEX(TM) Fund. Such
license and related sublicense may be terminated by the Index Provider and, as a
result, the Financials AlphaDEX(TM) Fund may lose its ability to use the
Intellectual Property. There is also no guarantee that the Index Provider has
all rights to license the Intellectual Property to FTP, on behalf of First Trust
and the Financials AlphaDEX(TM) Fund. Accordingly, in the event the license is
19
terminated or the Index Provider does not have rights to license the
Intellectual Property, it may have a significant effect on the operation of the
Financials AlphaDEX(TM) Fund.
ISSUER SPECIFIC CHANGES RISK.
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. The value of securities of smaller issuers can be more
volatile than that of larger issuers.
CONCENTRATION RISK.
The Financials AlphaDEX(TM) Fund will be concentrated in the securities of a
given industry if the Financial Index is concentrated in such industry.
A concentration makes the Financials AlphaDEX(TM) Fund more susceptible to
any single occurrence affecting the industry and may subject the
Financials AlphaDEX(TM) Fund to greater market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Financials AlphaDEX(TM) Fund is classified as "non-diversified" under the
1940 Act. As a result, the Financials AlphaDEX(TM) 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.
Because the Financials AlphaDEX(TM) Fund may invest a relatively high percentage
of its assets in a limited number of issuers, the Financials AlphaDEX(TM) Fund
may be more susceptible to any single economic, political or regulatory
occurrence and to the financial conditions of the issuers in which it invests.
FINANCIALS SECTOR RISK.
The Financials AlphaDEX(TM) 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. Although the barriers which separated the banking, insurance and
securities industries were eliminated by legislation, these industries are still
extensively regulated at both the federal and state level 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.
Brokerage firms, broker/dealers, investment banks, finance companies and mutual
fund companies are also financial services providers. These companies compete
with banks and thrifts to provide traditional financial service products, in
addition to their traditional services, such as brokerage and investment advice.
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.
Companies involved in the insurance industry are engaged in underwriting,
selling, distributing or placing of property and casualty, life or health
insurance. Insurance company profits are affected by many factors, including
interest rate movements, the imposition of premium rate caps, competition and
pressure to compete globally. Property and casualty insurance profits may also
be affected by weather catastrophes, such as hurricanes and earthquakes, acts of
terrorism and other disasters. Life and health insurance profits may be affected
by mortality rates. Already extensively regulated, insurance companies' profits
may also be adversely affected by increased government regulations or tax law
changes.
20
The Financials AlphaDEX(TM) Fund may invest in companies that may be affected by
the downturn in the subprime mortgage lending market in the United States.
Subprime loans have higher defaults and losses than prime loans. Subprime loans
also have higher serious delinquency rates than prime loans. The downturn in the
subprime mortgage lending market may have far-reaching consequences into various
aspects of the financials sector, and consequently, the value of the Financials
AlphaDEX(TM) Fund may decline in response to such developments.
SMALL CAP AND MID CAP COMPANY RISK
The Financials AlphaDEX(TM) 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 as a result of several factors, including limited trading volumes,
products or financial resources, management inexperience and less publicly
available information. Accordingly, such companies are generally subject to
greater market risk than larger, more established companies.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
21
First Trust Health Care AlphaDEX(TM) Fund
Investment Objective, Strategies and Risks
INVESTMENT OBJECTIVE
The First Trust Health Care AlphaDEX(TM) Fund (the "Health Care AlphaDEX(TM)
Fund") seeks investment results that correspond generally to the price and yield
(before the Health Care AlphaDEX(TM) Fund's fees and expenses) of an equity
index called the StrataQuant(TM) Health Care Index (Symbol: STRQHC) (the "Health
Care Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FXH."
PRINCIPAL INVESTMENT STRATEGIES
The Health Care AlphaDEX(TM) Fund will normally invest at least 90% of its total
assets in common stocks that comprise the Health Care Index. The Health Care
AlphaDEX(TM) Fund's investment objective and the 90% investment strategy are
non-fundamental policies and require 60 days' prior written notice to
shareholders before they can be changed. As non-fundamental policies, the Board
of Trustees of the Trust can change such policies without receiving shareholder
approval.
The Health Care AlphaDEX(TM) Fund, using an "indexing" investment approach,
attempts to replicate, before expenses, the performance of the Health Care
Index. First Trust seeks a correlation of 0.95 or better (before fees and
expenses) between the Health Care AlphaDEX(TM) Fund's performance and the
performance of the Health Care Index; a figure of 1.00 would represent perfect
correlation. First Trust will regularly monitor the Health Care AlphaDEX(TM)
Fund's tracking accuracy and will use the investment techniques described below
in seeking to maintain an appropriate correlation.
In seeking to achieve the Health Care AlphaDEX(TM) Fund's investment objective,
the Health Care AlphaDEX(TM) Fund generally will invest in all of the stocks
comprising the Health Care Index in proportion to their weightings in the Health
Care Index. However, under various circumstances, it may not be possible or
practicable to purchase all of those stocks in those weightings. In those
circumstances, the Health Care AlphaDEX(TM) Fund may purchase a sample of stocks
in the Health Care Index. There may also be instances in which First Trust may
choose to overweight certain stocks in the Health Care Index, purchase
securities not in the Health Care Index which First Trust believes are
appropriate to substitute for certain securities in the Health Care Index, use
futures or other derivative instruments, or utilize various combinations of the
above techniques in seeking to track the Health Care Index. The Health Care
AlphaDEX(TM) Fund may sell stocks that are represented in the Health Care Index
in anticipation of their removal from the Health Care Index or purchase stocks
not represented in the Health Care Index in anticipation of their addition to
the Health Care Index.
INDEX CONSTRUCTION
The Health Care Index is a modified equal-dollar weighted index designed by AMEX
to objectively identify and select stocks from the Russell 1000(R) Index that
may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
22
risk-adjusted basis relative to its benchmark. The Russell 1000(R) Index
consists of approximately 1,000 of the largest stocks within the Russell 3000(R)
Index. The Russell 3000(R) Index is constructed to represent approximately 98%
of the U.S. market. The initial divisor was created to set a benchmark value of
1000.00 on July 3, 2003. The Health Care Index was created and trademarked by
the AMEX on April 11, 2007. As of October 31, 2007, the Russell 1000(R) Index
consisted of 1,004 stocks and the Health Care Index consisted of 72 stocks.
The Health Care Index is constructed by the AMEX in the following manner:
1. The AMEX begins with the universe of stocks in the Russell 1000(R)
Index.
2a. The AMEX ranks all stocks in the above universe using the following
growth and value factors: three, six and 12-month price appreciation, sales
to price and one year sales growth (growth factors) and book value to
price, cash flow to price and return on assets (value factors). All stocks
are ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2b. For stocks in the Russell 1000(R) Index that Russell has classified
solely as growth or value, such stocks receive a rank for that style from
step 2a as their selection score. For stocks in the Russell 1000(R) Index
that Russell has allocated between growth and value, such stocks receive
the best rank from step 2a as their selection score.
3. The AMEX then ranks those stocks contained in the health care sector
(the members of the Russell 1000(R) Health Care Index) according to their
selection score from step 2b. The bottom 25% in such sector is eliminated.
4. The top 75% of the stocks contained in the health care sector is
then split into quintiles based on their score from step 3. The top ranked
quintile receives 5/15 (33.3%) of the portfolio weight with successive
quintiles receiving 4/15 (26.7%), 3/15 (20.0%), 2/15 (13.3%) and 1/15
(6.7%), respectively. Stocks are equally weighted within each quintile.
The Health Care Index is rebalanced and reconstituted on the last business day
of each calendar quarter. Changes will be effective at the open on the fourth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Health Care Index is reallocated pro-rata among the
remaining index constituents. Spin-offs are not included in the Health Care
Index. The value of the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the
Health Care Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Health Care AlphaDEX(TM)
Fund will change in value, and loss of money is a risk of investing in the
Health Care AlphaDEX(TM) Fund. The Health Care AlphaDEX(TM) Fund may not achieve
its objective. An investment in the Health Care AlphaDEX(TM) Fund is not a
deposit with a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. An investment in the
Health Care AlphaDEX(TM) Fund involves risks similar to those of investing in
any fund of equity securities traded on an exchange. The following specific risk
factors have been identified as the principal risks of investing in the Health
Care AlphaDEX(TM) Fund.
23
MARKET RISK
One of the principal risks of investing in the Health Care AlphaDEX(TM) Fund is
market risk. Market risk is the risk that a particular stock owned by the Health
Care AlphaDEX(TM) Fund, Shares of the Health Care AlphaDEX(TM) Fund or stocks in
general may fall in value. Shares are subject to market fluctuations caused by
such factors as economic, political, regulatory or market developments, changes
in interest rates and perceived trends in stock prices. Overall stock values
could decline generally or could underperform other investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Health Care Index.
NON-CORRELATION RISK
The Health Care AlphaDEX(TM) Fund's return may not match the return of the
Health Care Index for a number of reasons. For example, the Health Care
AlphaDEX(TM) Fund incurs operating expenses not applicable to the Health Care
Index, and may incur costs in buying and selling securities, especially when
rebalancing the Health Care AlphaDEX(TM) Fund's portfolio holdings to reflect
changes in the composition of the Health Care Index. In addition, the Health
Care AlphaDEX(TM) Fund's portfolio holdings may not exactly replicate the
securities included in the Health Care Index or the ratios between the
securities included in the Health Care Index.
The Health Care AlphaDEX(TM) Fund may not be fully invested at times, either as
a result of cash flows into the Health Care AlphaDEX(TM) Fund or reserves of
cash held by the Health Care AlphaDEX(TM) Fund to meet redemptions and expenses.
If the Health Care AlphaDEX(TM) Fund utilizes a sampling approach or invests in
futures or other derivative positions, its return may not correlate as well with
the return of the Health Care Index, as would be the case if it purchased all of
the stocks in the Health Care Index with the same weightings as the Health Care
Index. While First Trust seeks to have a correlation of 0.95 or better, before
fees and expenses, between the Health Care AlphaDEX(TM) Fund's performance and
the performance of the Health Care Index, there can be no assurance that the
Health Care AlphaDEX(TM) Fund will be able to achieve such a correlation.
Accordingly, the Health Care AlphaDEX(TM) Fund's performance may correlate to a
lesser extent and may possibly vary substantially from the performance of the
Health Care Index.
REPLICATION MANAGEMENT RISK
The Health Care AlphaDEX(TM) Fund is also exposed to additional market risk due
to its policy of investing principally in the securities included in the Health
Care Index. As a result of this policy, securities held by the Health Care
AlphaDEX(TM) 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 Health Care AlphaDEX(TM) Fund 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 the Health
Care Index.
INTELLECTUAL PROPERTY RISK.
The Health Care AlphaDEX(TM) Fund relies on a license and related sublicense
that permits the Health Care AlphaDEX(TM) Fund to use its corresponding equity
index in the StrataQuant(TM) Series and the Intellectual Property in connection
with the name and investment strategies of the Health Care AlphaDEX(TM) Fund.
Such license and related sublicense may be terminated by the Index Provider and,
as a result, the Health Care AlphaDEX(TM) Fund may lose its ability to use the
Intellectual Property. There is also no guarantee that the Index Provider has
all rights to license the Intellectual Property to FTP, on behalf of First Trust
and the Health Care AlphaDEX(TM) Fund. Accordingly, in the event the license is
24
terminated or the Index Provider does not have rights to license the
Intellectual Property, it may have a significant effect on the operation of the
Fund.
ISSUER SPECIFIC CHANGES RISK.
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. The value of securities of smaller issuers can be more
volatile than that of larger issuers.
CONCENTRATION RISK.
The Health Care AlphaDEX(TM) Fund will be concentrated in the securities of a
given industry if the Health Care Index is concentrated in such industry.
A concentration makes the Health Care AlphaDEX(TM) Fund more susceptible to
any single occurrence affecting the industry and may subject the
Health Care AlphaDEX(TM) Fund to greater market risk than more diversified
funds.
NON-DIVERSIFICATION RISK.
The Health Care AlphaDEX(TM) Fund is classified as "non-diversified" under the
1940 Act. As a result, the Health Care AlphaDEX(TM) 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.
Because the Health Care AlphaDEX(TM) Fund may invest a relatively high
percentage of its assets in a limited number of issuers, the Health Care
AlphaDEX(TM) Fund may be more susceptible to any single economic, political or
regulatory occurrence and to the financial conditions of the issuers in which it
invests.
HEALTH CARE SECTOR RISK.
The Health Care AlphaDEX(TM) Fund invests in the securities of companies in the
health care sector. Because companies in the health care sector are involved in
medical services or health care including biotechnology research and production,
drugs and pharmaceuticals, and health care facilities and services, general
problems of these companies include extensive competition, generic drug sales or
the loss of patent protection, product liability litigation and increased
government regulation. Research and development costs of bringing new drugs to
market are substantial, and there is no guarantee that the product will ever
come to market. Health care facility operators may be affected by the demand for
services, efforts by government or insurers to limit rates, restriction of
government financial assistance and competition from other providers.
SMALL CAP AND MID CAP COMPANY RISK
The Health Care AlphaDEX(TM) 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 as a result of several factors, including limited trading volumes,
products or financial resources, management inexperience and less publicly
available information. Accordingly, such companies are generally subject to
greater market risk than larger, more established companies.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
25
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund
Investment Objective, Strategies and Risks
INVESTMENT OBJECTIVE
The First Trust Industrials/Producer Durables AlphaDEX(TM) Fund (the
"Industrials AlphaDEX(TM) Fund") seeks investment results that correspond
generally to the price and yield (before the Industrials AlphaDEX(TM) Fund's
fees and expenses) of an equity index called the StrataQuant(TM) Industrials
Index (Symbol: STRQIN) (the "Industrials Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FXR."
PRINCIPAL INVESTMENT STRATEGIES
The Industrials AlphaDEX(TM) Fund will normally invest at least 90% of its total
assets in common stocks that comprise the Industrials Index. The Industrials
AlphaDEX(TM) Fund's investment objective and the 90% investment strategy are
non-fundamental policies and require 60 days' prior written notice to
shareholders before they can be changed. As non-fundamental policies, the Board
of Trustees of the Trust can change such policies without receiving shareholder
approval.
The Industrials AlphaDEX(TM) Fund, using an "indexing" investment approach,
attempts to replicate, before expenses, the performance of the Industrials
Index. First Trust seeks a correlation of 0.95 or better (before fees and
expenses) between the Industrials AlphaDEX(TM) Fund's performance and the
performance of the Industrials Index; a figure of 1.00 would represent perfect
correlation. First Trust will regularly monitor the Industrials AlphaDEX(TM)
Fund's tracking accuracy and will use the investment techniques described below
in seeking to maintain an appropriate correlation.
In seeking to achieve the Industrials AlphaDEX(TM) Fund's investment objective,
the Industrials AlphaDEX(TM) Fund generally will invest in all of the stocks
comprising the Industrials Index in proportion to their weightings in the
Industrials Index. However, under various circumstances, it may not be possible
or practicable to purchase all of those stocks in those weightings. In those
circumstances, the Industrials AlphaDEX(TM) Fund may purchase a sample of stocks
in the Industrials Index. There may also be instances in which First Trust may
choose to overweight certain stocks in the Industrials Index, purchase
securities not in the Industrials Index which First Trust believes are
appropriate to substitute for certain securities in the Industrials Index, use
futures or other derivative instruments, or utilize various combinations of the
above techniques in seeking to track the Industrials Index. The Industrials
AlphaDEX(TM) Fund may sell stocks that are represented in the Industrials Index
in anticipation of their removal from the Industrials Index or purchase stocks
not represented in the Industrials Index in anticipation of their addition to
the Industrials Index.
INDEX CONSTRUCTION
The Industrials Index is a modified equal-dollar weighted index designed by the
AMEX to objectively identify and select stocks from the Russell 1000(R) Index
that may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark. The Russell 1000(R) Index
26
consists of approximately 1,000 of the largest stocks within the Russell 3000(R)
Index. The Russell 3000(R) Index is constructed to represent approximately 98%
of the U.S. market. The initial divisor was created to set a benchmark value of
1000.00 on July 3, 2003. The Industrials Index was created and trademarked by
the AMEX on April 11, 2007. As of October 31, 2007, the Russell 1000(R) Index
consisted of 1,004 stocks and the Industrials Index consisted of 52 stocks.
The Industrials Index is constructed by the AMEX in the following manner:
1. The AMEX begins with the universe of stocks in the Russell 1000(R)
Index.
2a. The AMEX ranks all stocks in the above universe using the following
growth and value factors: three, six and 12-month price appreciation, sales
to price and one year sales growth (growth factors) and book value to
price, cash flow to price and return on assets (value factors). All stocks
are ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2b. For stocks in the Russell 1000(R) Index that Russell has classified
solely as growth or value, such stocks receive a rank for that style from
step 2a as their selection score. For stocks in the Russell 1000(R) Index
that Russell has allocated between growth and value, such stocks receive
the best rank from step 2a as their selection score.
3. The AMEX then ranks those stocks contained in the industrials sector
(the members of the Russell 1000(R) Producer Durables Index) according to
their selection score from step 2b. The bottom 25% in such sector is
eliminated.
4. The top 75% of the stocks contained in the industrials sector is
then split into quintiles based on their score from step 3. The top ranked
quintile receives 5/15 (33.3%) of the portfolio weight with successive
quintiles receiving 4/15 (26.7%), 3/15 (20.0%), 2/15 (13.3%) and 1/15
(6.7%), respectively. Stocks are equally weighted within each quintile.
The Industrials Index is rebalanced and reconstituted on the last business day
of each calendar quarter. Changes will be effective at the open on the fourth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Industrials Index is reallocated pro-rata among the
remaining index constituents. Spin-offs are not included in the Industrials
Index. The value of the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the
Industrials Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Industrials AlphaDEX(TM)
Fund will change in value, and loss of money is a risk of investing in the
Industrials AlphaDEX(TM) Fund. The Industrials AlphaDEX(TM) Fund may not achieve
its objective. An investment in the Industrials AlphaDEX(TM) Fund is not a
deposit with a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. An investment in the
Industrials AlphaDEX(TM) Fund involves risks similar to those of investing in
any fund of equity securities traded on an exchange. The following specific risk
factors have been identified as the principal risks of investing in the
Industrials AlphaDEX(TM) Fund.
27
MARKET RISK
One of the principal risks of investing in the Industrials AlphaDEX(TM) Fund is
market risk. Market risk is the risk that a particular stock owned by the
Industrials AlphaDEX(TM) Fund, Shares of the Industrials AlphaDEX(TM) Fund or
stocks in general may fall in value. Shares are subject to market fluctuations
caused by such factors as economic, political, regulatory or market
developments, changes in interest rates and perceived trends in stock prices.
Overall stock values could decline generally or could underperform other
investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Industrials Index.
NON-CORRELATION RISK
The Industrials AlphaDEX(TM) Fund's return may not match the return of the
Industrials Index for a number of reasons. For example, the Industrials
AlphaDEX(TM) Fund incurs operating expenses not applicable to the Industrials
Index, and may incur costs in buying and selling securities, especially when
rebalancing the Industrials AlphaDEX(TM) Fund's portfolio holdings to reflect
changes in the composition of the Industrials Index. In addition, the
Industrials AlphaDEX(TM) Fund's portfolio holdings may not exactly replicate the
securities included in the Industrials Index or the ratios between the
securities included in the Industrials Index.
The Industrials AlphaDEX(TM) Fund may not be fully invested at times, either as
a result of cash flows into the Industrials AlphaDEX(TM) Fund or reserves of
cash held by the Industrials AlphaDEX(TM) Fund to meet redemptions and expenses.
If the Industrials AlphaDEX(TM) Fund utilizes a sampling approach or invests in
futures or other derivative positions, its return may not correlate as well with
the return of the Industrials Index, as would be the case if it purchased all of
the stocks in the Industrials Index with the same weightings as the Industrials
Index. While First Trust seeks to have a correlation of 0.95 or better, before
fees and expenses, between the Industrials AlphaDEX(TM) Fund's performance and
the performance of the Industrials Index, there can be no assurance that the
Industrials AlphaDEX(TM) Fund will be able to achieve such a correlation.
Accordingly, the Industrials AlphaDEX(TM) Fund's performance may correlate to a
lesser extent and may possibly vary substantially from the performance of the
Industrials Index.
REPLICATION MANAGEMENT RISK
The Industrials AlphaDEX(TM) Fund is also exposed to additional market risk due
to its policy of investing principally in the securities included in the
Industrials Index. As a result of this policy, securities held by the
Industrials AlphaDEX(TM) 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 Industrials
AlphaDEX(TM) Fund 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 the Industrials Index.
INTELLECTUAL PROPERTY RISK.
The Industrials AlphaDEX(TM) Fund relies on a license and related sublicense
that permits the Industrials AlphaDEX(TM) Fund to use its corresponding equity
index in the StrataQuant(TM) Series and the Intellectual Property in connection
with the name and investment strategies of the Industrials AlphaDEX(TM) Fund.
Such license and related sublicense may be terminated by the Index Provider and,
as a result, the Industrials AlphaDEX(TM) Fund may lose its ability to use the
Intellectual Property. There is also no guarantee that the Index Provider has
all rights to license the Intellectual Property to FTP, on behalf of First Trust
28
and the Industrials AlphaDEX(TM) Fund. Accordingly, in the event the license is
terminated or the Index Provider does not have rights to license the
Intellectual Property, it may have a significant effect on the operation of the
Industrials AlphaDEX(TM) Fund.
ISSUER SPECIFIC CHANGES RISK.
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. The value of securities of smaller issuers can be more
volatile than that of larger issuers.
CONCENTRATION RISK.
The Industrials AlphaDEX(TM) Fund will be concentrated in the securities of a
given industry if the Industrials Index is concentrated in such industry. A
concentration makes the Industrials AlphaDEX(TM) Fund more susceptible to any
single occurrence affecting the industry and may subject the Industrials
AlphaDEX(TM) Fund to greater market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Industrials AlphaDEX(TM) Fund is classified as "non-diversified" under the
1940 Act. As a result, the Industrials AlphaDEX(TM) 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.
Because the Industrials AlphaDEX(TM) Fund may invest a relatively high
percentage of its assets in a limited number of issuers, the Industrials
AlphaDEX(TM) Fund may be more susceptible to any single economic, political or
regulatory occurrence and to the financial conditions of the issuers in which it
invests.
INDUSTRIALS AND PRODUCER DURABLES SECTORS RISK.
The Industrials AlphaDEX(TM) Fund invests in the securities of companies in the
industrials and producer durables sectors. Many companies in these sectors
convert unfinished goods into finished durables used to manufacture other goods
or provide services. Some industries included in these sectors are electrical
equipment and components, industrial products, manufactured housing and
telecommunications equipment. General risks of these companies include the
general state of the economy, intense competition, consolidation, domestic and
international politics, excess capacity and consumer demand and spending trends.
In addition, they may also be significantly affected by overall capital spending
levels, economic cycles, technical obsolescence, delays in modernization, labor
relations, government regulations and e-commerce initiatives.
SMALL CAP AND MID CAP COMPANY RISK
The Industrials AlphaDEX(TM) 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 as a result of several factors, including limited trading volumes,
products or financial resources, management inexperience and less publicly
available information. Accordingly, such companies are generally subject to
greater market risk than larger, more established companies.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
29
First Trust Materials AlphaDEX(TM) Fund
Investment Objective, Strategies and Risks
INVESTMENT OBJECTIVE
The First Trust Materials AlphaDEX(TM) Fund (the "Materials AlphaDEX(TM) Fund")
seeks investment results that correspond generally to the price and yield
(before the Materials AlphaDEX(TM) Fund's fees and expenses) of an equity index
called the StrataQuant(TM) Materials Index (Symbol: STRQMT) (the "Materials
Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FXZ."
PRINCIPAL INVESTMENT STRATEGIES
The Materials AlphaDEX(TM) Fund will normally invest at least 90% of its total
assets in common stocks that comprise the Materials Index. The Materials
AlphaDEX(TM) Fund's investment objective and the 90% investment strategy are
non-fundamental policies and require 60 days' prior written notice to
shareholders before they can be changed. As non-fundamental policies, the Board
of Trustees of the Trust can change such policies without receiving shareholder
approval.
The Materials AlphaDEX(TM) Fund, using an "indexing" investment approach,
attempts to replicate, before expenses, the performance of the Materials Index.
First Trust seeks a correlation of 0.95 or better (before fees and expenses)
between the Materials AlphaDEX(TM) Fund's performance and the performance of the
Materials Index; a figure of 1.00 would represent perfect correlation. First
Trust will regularly monitor the Materials AlphaDEX(TM) Fund's tracking accuracy
and will use the investment techniques described below in seeking to maintain an
appropriate correlation.
In seeking to achieve the Materials AlphaDEX(TM) Fund's investment objective,
the Materials AlphaDEX(TM) Fund generally will invest in all of the stocks
comprising the Materials Index in proportion to their weightings in the
Materials Index. However, under various circumstances, it may not be possible or
practicable to purchase all of those stocks in those weightings. In those
circumstances, the Materials AlphaDEX(TM) Fund may purchase a sample of stocks
in the Materials Index. There may also be instances in which First Trust may
choose to overweight certain stocks in the Materials Index, purchase securities
not in the Materials Index which First Trust believes are appropriate to
substitute for certain securities in the Materials Index, use futures or other
derivative instruments, or utilize various combinations of the above techniques
in seeking to track the Materials Index. The Materials AlphaDEX(TM) Fund may
sell stocks that are represented in the Materials Index in anticipation of their
removal from the Materials Index or purchase stocks not represented in the
Materials Index in anticipation of their addition to the Materials Index.
INDEX CONSTRUCTION
The Materials Index is a modified equal-dollar weighted index designed by the
AMEX to objectively identify and select stocks from the Russell 1000(R) Index
that may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
30
risk-adjusted basis relative to its benchmark. The Russell 1000(R) Index
consists of approximately 1,000 of the largest stocks within the Russell 3000(R)
Index. The Russell 3000(R) Index is constructed to represent approximately 98%
of the U.S. market. The initial divisor was created to set a benchmark value of
1000.00 on July 3, 2003. The Materials Index was created and trademarked by the
AMEX on April 11, 2007. As of October 31, 2007, the Russell 1000(R) Index
consisted of 1,004 stocks and the Materials Index consisted of 63 stocks.
The Materials Index is constructed by the AMEX in the following manner:
1. The AMEX begins with the universe of stocks in the Russell 1000(R)
Index.
2a. The AMEX ranks all stocks in the above universe using the following
growth and value factors: three, six and 12-month price appreciation, sales
to price and one year sales growth (growth factors) and book value to
price, cash flow to price and return on assets (value factors). All stocks
are ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2b. For stocks in the Russell 1000(R) Index that Russell has classified
solely as growth or value, such stocks receive a rank for that style from
step 2a as their selection score. For stocks in the Russell 1000(R) Index
that Russell has allocated between growth and value, such stocks receive
the best rank from step 2a as their selection score.
3. The AMEX then ranks those stocks contained in the materials sector
(the members of the Russell 1000(R) Materials and Processing Index)
according to their selection score from step 2b. The bottom 25% in such
sector is eliminated.
4. The top 75% of the stocks contained in the materials sector is then
split into quintiles based on their score from step 3. The top ranked
quintile receives 5/15 (33.3%) of the portfolio weight with successive
quintiles receiving 4/15 (26.7%), 3/15 (20.0%), 2/15 (13.3%) and 1/15
(6.7%), respectively. Stocks are equally weighted within each quintile.
The Materials Index is rebalanced and reconstituted on the last business day of
each calendar quarter. Changes will be effective at the open on the fourth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Materials Index is reallocated pro-rata among the
remaining index constituents. Spin-offs are not included in the Materials Index.
The value of the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the
Materials Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Materials AlphaDEX(TM) Fund
will change in value, and loss of money is a risk by investing in the Materials
AlphaDEX(TM) Fund. The Materials AlphaDEX(TM) Fund may not achieve its
objective. An investment in the Materials AlphaDEX(TM) Fund is not a deposit
with a bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. An investment in the Materials
AlphaDEX(TM) Fund involves risks similar to those of investing in any fund of
equity securities traded on an exchange. The following specific risk factors
have been identified as the principal risks of investing in the Materials
AlphaDEX(TM) Fund.
31
MARKET RISK
One of the principal risks of investing in the Materials AlphaDEX(TM) Fund is
market risk. Market risk is the risk that a particular stock owned by the
Materials AlphaDEX(TM) Fund, Shares of the Materials AlphaDEX(TM) Fund or stocks
in general may fall in value. Shares are subject to market fluctuations caused
by such factors as economic, political, regulatory or market developments,
changes in interest rates and perceived trends in stock prices. Overall stock
values could decline generally or could underperform other investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Materials Index.
NON-CORRELATION RISK
The Materials AlphaDEX(TM) Fund's return may not match the return of the
Materials Index for a number of reasons. For example, the Materials AlphaDEX(TM)
Fund incurs operating expenses not applicable to the Materials Index, and may
incur costs in buying and selling securities, especially when rebalancing the
Materials AlphaDEX(TM) Fund's portfolios holdings to reflect changes in the
composition of the Materials Index. In addition, the Materials AlphaDEX(TM)
Fund's portfolio holdings may not exactly replicate the securities included in
the Materials Index or the ratios between the securities included in the
Materials Index.
The Materials AlphaDEX(TM) Fund may not be fully invested at times, either as a
result of cash flows into the Materials AlphaDEX(TM) Fund or reserves of cash
held by the Materials AlphaDEX(TM) Fund to meet redemptions and expenses. If the
Materials AlphaDEX(TM) Fund utilizes a sampling approach or invests in futures
or other derivative positions, its return may not correlate as well with the
return of the Materials Index, as would be the case if it purchased all of the
stocks in the Materials Index with the same weightings as the Materials Index.
While First Trust seeks to have a correlation of 0.95 or better, before fees and
expenses, between the Materials AlphaDEX(TM) Fund's performance and the
performance of the Materials Index, there can be no assurance that the Materials
AlphaDEX(TM) Fund will be able to achieve such a correlation. Accordingly, the
Materials AlphaDEX(TM) Fund's performance may correlate to a lesser extent and
may possibly vary substantially from the performance of the Materials Index.
REPLICATION MANAGEMENT RISK
The Materials AlphaDEX(TM) Fund is also exposed to additional market risk due to
its policy of investing principally in the securities included in the Materials
Index. As a result of this policy, securities held by the Materials AlphaDEX(TM)
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 Materials AlphaDEX(TM) Fund 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 the Materials Index.
INTELLECTUAL PROPERTY RISK.
The Materials AlphaDEX(TM) Fund relies on a license and related sublicense that
permits the Materials AlphaDEX(TM) Fund to use its corresponding equity index in
the StrataQuant(TM) Series and the Intellectual Property in connection with the
name and investment strategies of the Materials AlphaDEX(TM) Fund. Such license
and related sublicense may be terminated by the Index Provider and, as a result,
the Materials AlphaDEX(TM) Fund may lose its ability to use the Intellectual
Property. There is also no guarantee that the Index Provider has all rights to
license the Intellectual Property to FTP, on behalf of First Trust and the
Materials AlphaDEX(TM) Fund. Accordingly, in the event the license is terminated
32
or the Index Provider does not have rights to license the Intellectual Property,
it may have a significant effect on the operation of the Materials AlphaDEX(TM)
Fund.
ISSUER SPECIFIC CHANGES RISK.
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. The value of securities of smaller issuers can be more
volatile than that of larger issuers.
CONCENTRATION RISK.
The Materials AlphaDEX(TM) Fund will be concentrated in the securities of a
given industry if the Materials Index is concentrated in such industry. A
concentration makes the Materials AlphaDEX(TM) Fund more susceptible to any
single occurrence affecting the industry and may subject the Materials
AlphaDEX(TM) Fund to greater market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Materials AlphaDEX(TM) Fund is classified as "non-diversified" under the
1940 Act. As a result, the Materials AlphaDEX(TM) 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.
Because the Materials AlphaDEX(TM) Fund may invest a relatively high percentage
of its assets in a limited number of issuers, the Materials AlphaDEX(TM) Fund
may be more susceptible to any single economic, political or regulatory
occurrence and to the financial conditions of the issuers in which it invests.
MATERIALS SECTOR RISK.
The Materials AlphaDEX(TM) Fund invests in the securities of companies in the
materials sector. Because companies in the materials sector are involved in the
extracting or processing of raw materials, general risks of these companies
include the general state of the economy, consolidation, domestic and
international politics and excess capacity. In addition, materials companies may
also be significantly affected by volatility of commodity prices, import
controls, worldwide competition, liability for environmental damage, depletion
of resources, and mandated expenditures for safety and pollution control
devices.
SMALL CAP AND MID CAP COMPANY RISK
The Materials AlphaDEX(TM) 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 as a result of several factors, including limited trading volumes,
products or financial resources, management inexperience and less publicly
available information. Accordingly, such companies are generally subject to
greater market risk than larger, more established companies.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
33
First Trust Technology AlphaDEX(TM) Fund
Investment Objective, Strategies and Risks
INVESTMENT OBJECTIVE
The First Trust Technology AlphaDEX(TM) Fund (the "Technology AlphaDEX(TM)
Fund") seeks investment results that correspond generally to the price and yield
(before the Technology AlphaDEX(TM) Fund's fees and expenses) of an equity index
called the StrataQuant(TM) Technology Index (Symbol: STRQTC) (the "Technology
Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FXL."
PRINCIPAL INVESTMENT STRATEGIES
The Technology AlphaDEX(TM) Fund will normally invest at least 90% of its total
assets in common stocks that comprise the Technology Index. The Technology
AlphaDEX(TM) Fund's investment objective and the 90% investment strategy are
non-fundamental policies and require 60 days' prior written notice to
shareholders before they can be changed. As non-fundamental policies, the Board
of Trustees of the Trust can change such policies without receiving shareholder
approval.
The Technology AlphaDEX(TM) Fund, using an "indexing" investment approach,
attempts to replicate, before expenses, the performance of the Technology Index.
First Trust seeks a correlation of 0.95 or better (before fees and expenses)
between the Technology AlphaDEX(TM) Fund's performance and the performance of
the Technology Index; a figure of 1.00 would represent perfect correlation.
First Trust will regularly monitor the Technology AlphaDEX(TM) Fund's tracking
accuracy and will use the investment techniques described below in seeking to
maintain an appropriate correlation.
In seeking to achieve the Technology AlphaDEX(TM) Fund's investment objective,
the Technology AlphaDEX(TM) Fund generally will invest in all of the stocks
comprising the Technology Index in proportion to their weightings in the
Technology Index. However, under various circumstances, it may not be possible
or practicable to purchase all of those stocks in those weightings. In those
circumstances, the Technology AlphaDEX(TM) Fund may purchase a sample of stocks
in the Technology Index. There may also be instances in which First Trust may
choose to overweight certain stocks in the Technology Index, purchase securities
not in the Technology Index which First Trust believes are appropriate to
substitute for certain securities in the Technology Index, use futures or other
derivative instruments, or utilize various combinations of the above techniques
in seeking to track the Technology Index. The Technology AlphaDEX(TM) Fund may
sell stocks that are represented in the Technology Index in anticipation of
their removal from the Technology Index or purchase stocks not represented in
the Technology Index in anticipation of their addition to the Technology Index.
INDEX CONSTRUCTION
The Technology Index is a modified equal-dollar weighted index designed by the
AMEX to objectively identify and select stocks from the Russell 1000(R) Index
that may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
34
risk-adjusted basis relative to its benchmark. The Russell 1000(R) Index
consists of approximately 1,000 of the largest stocks within the Russell 3000(R)
Index. The Russell 3000(R) Index is constructed to represent approximately 98%
of the U.S. market. The initial divisor was created to set a benchmark value of
1000.00 on July 3, 2003. The Technology Index was created and trademarked by the
AMEX on April 11, 2007. As of October 31, 2007, the Russell 1000(R) Index
consisted of 1,004 stocks and the Technology Index consisted of 76 stocks.
The Technology Index is constructed by the AMEX in the following manner:
1. The AMEX begins with the universe of stocks in the Russell 1000(R)
Index.
2a. The AMEX ranks all stocks in the above universe using the following
growth and value factors: three, six and 12-month price appreciation, sales
to price and one year sales growth (growth factors) and book value to
price, cash flow to price and return on assets (value factors). All stocks
are ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2b. For stocks in the Russell 1000(R) Index that Russell has classified
solely as growth or value, such stocks receive a rank for that style from
step 2a as their selection score. For stocks in the Russell 1000(R) Index
that Russell has allocated between growth and value, such stocks receive
the best rank from step 2a as their selection score.
3. The AMEX then ranks those stocks contained in the technology sector
(the members of the Russell 1000(R) Technology Index) according to their
selection score from step 2b. The bottom 25% in such sector is eliminated.
4. The top 75% of the stocks contained in the technology sector is then
split into quintiles based on their score from step 3. The top ranked
quintile receives 5/15 (33.3%) of the portfolio weight with successive
quintiles receiving 4/15 (26.7%), 3/15 (20.0%), 2/15 (13.3%) and 1/15
(6.7%), respectively. Stocks are equally weighted within each quintile.
The Technology Index is rebalanced and reconstituted on the last business day of
each calendar quarter. Changes will be effective at the open on the fourth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Technology Index is reallocated pro-rata among the
remaining index constituents. Spin-offs are not included in the Technology
Index. The value of the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the
Technology Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Technology AlphaDEX(TM)
Fund will change in value, and loss of money is a risk of investing in the
Technology AlphaDEX(TM) Fund. The Technology AlphaDEX(TM) Fund may not achieve
its objective. An investment in the Technology AlphaDEX(TM) Fund is not a
deposit with a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. An investment in the
Technology AlphaDEX(TM) Fund involves risks similar to those of investing in any
fund of equity securities traded on an exchange. The following specific risk
factors have been identified as the principal risks of investing in the
Technology AlphaDEX(TM) Fund.
35
MARKET RISK
One of the principal risks of investing in the Technology AlphaDEX(TM) Fund is
market risk. Market risk is the risk that a particular stock owned by the
Technology AlphaDEX(TM) Fund, Shares of the Technology AlphaDEX(TM) Fund or
stocks in general may fall in value. Shares are subject to market fluctuations
caused by such factors as economic, political, regulatory or market
developments, changes in interest rates and perceived trends in stock prices.
Overall stock values could decline generally or could underperform other
investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Technology Index.
NON-CORRELATION RISK
The Technology AlphaDEX(TM) Fund's return may not match the return of the
Technology Index for a number of reasons. For example, the Technology
AlphaDEX(TM) Fund incurs operating expenses not applicable to the Technology
Index, and may incur costs in buying and selling securities, especially when
rebalancing the Technology AlphaDEX(TM) Fund's portfolio holdings to reflect
changes in the composition of the Technology Index. In addition, the Technology
AlphaDEX(TM) Fund's portfolio holdings may not exactly replicate the securities
included in the Technology Index or the ratios between the securities included
in the Technology Index.
The Technology AlphaDEX(TM) Fund may not be fully invested at times, either as a
result of cash flows into the Technology AlphaDEX(TM) Fund or reserves of cash
held by the Technology AlphaDEX(TM) Fund to meet redemptions and expenses. If
the Technology AlphaDEX(TM) Fund utilizes a sampling approach or invests in
futures or other derivative positions, its return may not correlate as well with
the return of the Technology Index, as would be the case if it purchased all of
the stocks in the Technology Index with the same weightings as the Technology
Index. While First Trust seeks to have a correlation of 0.95 or better, before
fees and expenses, between the Technology AlphaDEX(TM) Fund's performance and
the performance of the Technology Index, there can be no assurance that the
Technology AlphaDEX(TM) Fund will be able to achieve such a correlation.
Accordingly, the Technology AlphaDEX(TM) Fund's performance may correlate to a
lesser extent and may possibly vary substantially from the performance of the
Technology Index.
REPLICATION MANAGEMENT RISK
The Technology AlphaDEX(TM) Fund is also exposed to additional market risk due
to its policy of investing principally in the securities included in the
Technology Index. As a result of this policy, securities held by the Technology
AlphaDEX(TM) 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 Technology AlphaDEX(TM) Fund 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 the Technology
Index.
INTELLECTUAL PROPERTY RISK.
The Fund relies on a license and related sublicense that permits the Technology
AlphaDEX(TM) Fund to use its corresponding equity index in the StrataQuant(TM)
Series and the Intellectual Property in connection with the name and investment
strategies of the Technology AlphaDEX(TM) Fund. Such license and related
sublicense may be terminated by the Index Provider and, as a result, the
Technology AlphaDEX(TM) Fund may lose its ability to use the Intellectual
Property. There is also no guarantee that the Index Provider has all rights to
license the Intellectual Property to FTP, on behalf of First Trust and the
Technology AlphaDEX(TM) Fund. Accordingly, in the event the license is
36
terminated or the Index Provider does not have rights to license the
Intellectual Property, it may have a significant effect on the operation of the
Technology AlphaDEX(TM) Fund.
ISSUER SPECIFIC CHANGES RISK.
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. The value of securities of smaller issuers can be more
volatile than that of larger issuers.
CONCENTRATION RISK.
The Technology AlphaDEX(TM) Fund will be concentrated in the securities of a
given industry if the Technology Index is concentrated in such industry.
A concentration makes the Technology AlphaDEX(TM) Fund more susceptible to
any single occurrence affecting the industry and may subject the Technology
AlphaDEX(TM) Fund to greater market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Technology AlphaDEX(TM) Fund is classified as "non-diversified" under the
1940 Act. As a result, the Technology AlphaDEX(TM) 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.
Because the Technology AlphaDEX(TM) Fund may invest a relatively high percentage
of its assets in a limited number of issuers, the Technology AlphaDEX(TM) Fund
may be more susceptible to any single economic, political or regulatory
occurrence and to the financial conditions of the issuers in which it invests.
TECHNOLOGY SECTOR RISK.
The Technology AlphaDEX(TM) Fund invests in the securities of companies in the
technology sector. Because companies in the technology sector serve the
electronics and computer industries or manufacture products based on the latest
applied science, general risks of these companies include the risks of rapidly
changing technologies, short product life cycles, fierce competition, aggressive
pricing and reduced profit margins, loss of patent, copyright and trademark
protections, cyclical market patterns, evolving industry standards, and frequent
new product introductions. Technology companies may be smaller and less
experienced companies, with limited product lines, markets or financial
resources and fewer experienced management or marketing personnel. Technology
company stocks, particularly those involved with the Internet, have experienced
extreme price and volume fluctuations that often have been unrelated to their
operating performance. Also, the stocks of many technology companies have
exceptionally high price-to-earning ratios with little or no earnings histories.
SMALL CAP AND MID CAP COMPANY RISK
The Technology AlphaDEX(TM) 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 as a result of several factors, including limited trading volumes,
products or financial resources, management inexperience and less publicly
available information. Accordingly, such companies are generally subject to
greater market risk than larger, more established companies.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
37
First Trust Utilities AlphaDEX(TM) Fund
Investment Objective, Strategies and Risks
INVESTMENT OBJECTIVE
The First Trust Utilities AlphaDEX(TM) Fund (the "Utilities AlphaDEX(TM) Fund")
seeks investment results that correspond generally to the price and yield
(before the Utilities AlphaDEX(TM) Fund's fees and expenses) of an equity index
called the StrataQuant(TM) Utilities Index (Symbol: STRQUT) (the "Utilities
Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FXU."
PRINCIPAL INVESTMENT STRATEGIES
The Utilities AlphaDEX(TM) Fund will normally invest at least 90% of its total
assets in common stocks that comprise the Utilities Index. The Utilities
AlphaDEX(TM) Fund's investment objective and the 90% investment strategy are
non-fundamental policies and require 60 days' prior written notice to
shareholders before they can be changed. As non-fundamental policies, the Board
of Trustees of the Trust can change such policies without receiving shareholder
approval.
The Utilities AlphaDEX(TM) Fund, using an "indexing" investment approach,
attempts to replicate, before expenses, the performance of the Utilities Index.
First Trust seeks a correlation of 0.95 or better (before fees and expenses)
between the Utilities AlphaDEX(TM) Fund's performance and the performance of the
Utilities Index; a figure of 1.00 would represent perfect correlation. First
Trust will regularly monitor the Utilities AlphaDEX(TM) Fund's tracking accuracy
and will use the investment techniques described below in seeking to maintain an
appropriate correlation.
In seeking to achieve the Utilities AlphaDEX(TM) Fund's investment objective,
the Utilities AlphaDEX(TM) Fund generally will invest in all of the stocks
comprising the Utilities Index in proportion to their weightings in the
Utilities Index. However, under various circumstances, it may not be possible or
practicable to purchase all of those stocks in those weightings. In those
circumstances, the Utilities AlphaDEX(TM) Fund may purchase a sample of stocks
in the Utilities Index. There may also be instances in which First Trust may
choose to overweight certain stocks in the Utilities Index, purchase securities
not in the Utilities Index which First Trust believes are appropriate to
substitute for certain securities in the Utilities Index, use futures or other
derivative instruments, or utilize various combinations of the above techniques
in seeking to track the Utilities Index. The Utilities AlphaDEX(TM) Fund may
sell stocks that are represented in the Utilities Index in anticipation of their
removal from the Utilities Index or purchase stocks not represented in the
Utilities Index in anticipation of their addition to the Utilities Index.
INDEX CONSTRUCTION
The Utilities Index is a modified equal-dollar weighted index designed by the
AMEX to objectively identify and select stocks from the Russell 1000(R) Index
that may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark. The Russell 1000(R) Index
consists of approximately 1,000 of the largest stocks within the Russell 3000(R)
Index. The Russell 3000(R) Index is constructed to represent approximately 98%
38
of the U.S. market. The initial divisor was created to set a benchmark value of
1000.00 on July 3, 2003. The Utilities Index was created and trademarked by the
AMEX on April 11, 2007. As of October 31, 2007, the Russell 1000(R) Index
consisted of 1,004 stocks and the Utilities Index consisted of 55 stocks.
The Utilities Index is constructed by the AMEX in the following manner:
1. The AMEX begins with the universe of stocks in the Russell 1000(R)
Index.
2a. The AMEX ranks all stocks in the above universe using the following
growth and value factors: three, six and 12-month price appreciation, sales
to price and one year sales growth (growth factors) and book value to
price, cash flow to price and return on assets (value factors). All stocks
are ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2b. For stocks in the Russell 1000(R) Index that Russell has classified
solely as growth or value, such stocks receive a rank for that style from
step 2a as their selection score. For stocks in the Russell 1000(R) Index
that Russell has allocated between growth and value, such stocks receive
the best rank from step 2a as their selection score.
3. The AMEX then ranks those stocks contained in the utilities sector
(the members of the Russell 1000(R) Utilities Index) according to their
selection score from step 2b. The bottom 25% in such sector is eliminated.
4. The top 75% of the stocks contained in the utilities sector is then
split into quintiles based on their score from step 3. The top ranked
quintile receives 5/15 (33.3%) of the portfolio weight with successive
quintiles receiving 4/15 (26.7%), 3/15 (20.0%), 2/15 (13.3%) and 1/15
(6.7%), respectively. Stocks are equally weighted within each quintile.
The Utilities Index is rebalanced and reconstituted on the last business day of
each calendar quarter. Changes will be effective at the open on the fourth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Utilities Index is reallocated pro-rata among the
remaining index constituents. Spin-offs are not included in the Utilities Index.
The value of the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the
Utilities Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Utilities AlphaDEX(TM) Fund
will change in value, and loss of money is a risk of investing in the Utilities
AlphaDEX(TM) Fund. The Utilities AlphaDEX(TM) Fund may not achieve its
objective. An investment in the Utilities AlphaDEX(TM) Fund is not a deposit
with a bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. An investment in the Utilities
AlphaDEX(TM) Fund involves risks similar to those of investing in any fund of
equity securities traded on an exchange. The following specific risk factors
have been identified as the principal risks of investing in the Utilities
AlphaDEX(TM) Fund.
39
MARKET RISK
One of the principal risks of investing in the Utilities AlphaDEX(TM) Fund is
market risk. Market risk is the risk that a particular stock owned by the
Utilities AlphaDEX(TM) Fund, Shares of the Utilities AlphaDEX(TM) Fund or stocks
in general may fall in value. Shares are subject to market fluctuations caused
by such factors as economic, political, regulatory or market developments,
changes in interest rates and perceived trends in stock prices. Overall stock
values could decline generally or could underperform other investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Utilities Index.
NON-CORRELATION RISK
The Utilities AlphaDEX(TM) Fund's return may not match the return of the
Utilities Index for a number of reasons. For example, the Utilities AlphaDEX(TM)
Fund incurs operating expenses not applicable to the Utilities Index, and may
incur costs in buying and selling securities, especially when rebalancing the
Utilities AlphaDEX(TM) Fund's portfolio holdings to reflect changes in the
composition of the Utilities Index. In addition, the Utilities AlphaDEX(TM)
Fund's portfolio holdings may not exactly replicate the securities included in
the Utilities Index or the ratios between the securities included in the
Utilities Index.
The Utilities AlphaDEX(TM) Fund may not be fully invested at times, either as a
result of cash flows into the Utilities AlphaDEX(TM) Fund or reserves of cash
held by the Utilities AlphaDEX(TM) Fund to meet redemptions and expenses. If the
Utilities AlphaDEX(TM) Fund utilizes a sampling approach or invests in futures
or other derivative positions, its return may not correlate as well with the
return of the Utilities Index, as would be the case if it purchased all of the
stocks in the Utilities Index with the same weightings as the Utilities Index.
While First Trust seeks to have a correlation of 0.95 or better, before fees and
expenses, between the Utilities AlphaDEX(TM) Fund's performance and the
performance of the Utilities Index, there can be no assurance that the Utilities
AlphaDEX(TM) Fund will be able to achieve such a correlation. Accordingly, the
Utilities AlphaDEX(TM) Fund's performance may correlate to a lesser extent and
may possibly vary substantially from the performance of the Utilities Index.
REPLICATION MANAGEMENT RISK
The Utilities AlphaDEX(TM) Fund is also exposed to additional market risk due to
its policy of investing principally in the securities included in the Utilities
Index. As a result of this policy, securities held by the Utilities AlphaDEX(TM)
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 Utilities AlphaDEX(TM) Fund 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 the Utilities Index.
INTELLECTUAL PROPERTY RISK.
The Utilities AlphaDEX(TM) Fund relies on a license and related sublicense that
permits the Utilities AlphaDEX(TM) Fund to use its corresponding equity index in
the StrataQuant(TM) Series and the Intellectual Property in connection with the
name and investment strategies of the Utilities AlphaDEX(TM) Fund. Such license
and related sublicense may be terminated by the Index Provider and, as a result,
the Utilities AlphaDEX(TM) Fund may lose its ability to use the Intellectual
Property. There is also no guarantee that the Index Provider has all rights to
license the Intellectual Property to FTP, on behalf of First Trust and the
Utilities AlphaDEX(TM) Fund. Accordingly, in the event the license is terminated
or the Index Provider does not have rights to license the Intellectual Property,
it may have a significant effect on the operation of the Utilities AlphaDEX(TM)
Fund.
40
ISSUER SPECIFIC CHANGES RISK.
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. The value of securities of smaller issuers can be more
volatile than that of larger issuers.
CONCENTRATION RISK.
The Utilities AlphaDEX(TM) Fund will be concentrated in a given industry if the
Utilities Index is concentrated in such industry. A concentration makes the
Utilities AlphaDEX(TM) Fund more susceptible to any single occurrence affecting
the industry and may subject the Utilities AlphaDEX(TM) Fund to greater
market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Utilities AlphaDEX(TM) Fund is classified as "non-diversified" under the
1940 Act. As a result, the Utilities AlphaDEX(TM) 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.
Because the Utilities AlphaDEX(TM) Fund may invest a relatively high percentage
of its assets in a limited number of issuers, the Utilities AlphaDEX(TM) Fund
may be more susceptible to any single economic, political or regulatory
occurrence and to the financial conditions of the issuers in which it invests.
UTILITIES SECTOR RISK.
The Utilities AlphaDEX(TM) Fund invests in the securities of companies in the
utilities sector. General problems of issuers in the utilities sector include
the imposition of rate caps, increased competition due to deregulation, the
difficulty in obtaining an adequate return on invested capital or in financing
large construction projects, the limitations on operations and increased costs
and delays attributable to environmental considerations, and the capital
market's ability to absorb utility debt. In addition, taxes, government
regulation, international politics, price and supply fluctuations, volatile
interest rates and energy conservation may cause difficulties for utilities. All
of such issuers have been experiencing certain of these problems in varying
degrees.
SMALL CAP AND MID CAP COMPANY RISK
The Utilities AlphaDEX(TM) 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 as a result of several factors, including limited trading volumes,
products or financial resources, management inexperience and less publicly
available information. Accordingly, such companies are generally subject to
greater market risk than larger, more established companies.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
41
HOW THE FUNDS HAVE PERFORMED
The Funds have not yet operated for a full calendar year and therefore,
performance information is not included in this section of the Prospectus.
However, see "Total Return Information" for performance information regarding
the Funds.
WHAT ARE THE COSTS OF INVESTING?
The following table describes the estimated fees and expenses you may pay when
you buy or sell Creation Units of each Fund. Investors purchasing Shares in the
secondary market will not pay the shareholder fees shown below, but may be
subject to costs (including customary brokerage commissions) charged by their
broker.
Consumer Consumer
Discretionary Staples Energy Financials Health Care Industrials Materials
AlphaDEX(TM) AlphaDEX(TM) AlphaDEX(TM) AlphaDEX(TM) AlphaDEX(TM) AlphaDEX(TM) AlphaDEX(TM)
Fund Fund Fund Fund Fund Fund Fund
Shareholder Fees
(paid directly by
Authorized
Participants)
Sales charges
(loads) None None None None None None None
Standard
transaction fee
per order(1) $1,000 $500 $500 $1,000 $500 $500 $500
Additional Up to 3 Up to 3 Up to 3 Up to 3 Up to 3 Up to 3 Up to 3
transaction times the times the times the times the times the times the times the
charge if settled standard standard standard standard standard standard standard
outside of the transaction transaction transaction transaction transaction transaction transaction
usual process fee fee fee fee fee fee fee
through the
Continuous Net
Settlement System
of the National
Securities
Clearing
Corporation(1)
---------------------------------------------------------------------------------------------------------------------------------
Annual Fund
Operating
Expenses(2)
(Expenses that
are deducted
from the Fund's
assets)
---------------
Management Fees 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Distribution and
Service (12b-1)
Fees(3) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses(4) 4.76% 3.90% 4.02% 4.84% 4.80% 4.28% 4.00%
Total Annual Fund
Operating Expenses 5.26% 4.40 % 4.52% 5.34% 5.30% 4.78% 4.50%
Fee Waivers
and Expense
Reimbursement(5) 4.56% 3.70% 3.82% 4.64% 4.60% 4.08% 3.80%
Total Net Annual
Operating Expenses 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
|
Technology Utilities
AlphaDEX(TM) AlphaDEX(TM)
Fund Fund
Shareholder Fees
(paid directly by
Authorized
Participants)
Sales charges
(loads) None None
Standard
transaction fee
per order(1) $500 $500
Additional Up to 3 Up to 3
transaction times the times the
charge if settled standard standard
outside of the transaction transaction
usual process fee fee
through the
Continuous Net
Settlement System
of the National
Securities
Clearing
Corporation(1)
---------------------------------------------------
Annual Fund
Operating
Expenses(2)
(Expenses that
are deducted
from the Fund's
assets)
---------------
Management Fees 0.50% 0.50%
Distribution and
Service (12b-1)
Fees(3) 0.00% 0.00%
Other Expenses(4) 4.45% 4.24%
Total Annual Fund
Operating Expenses 4.95% 4.74%
Fee Waivers
and Expense
Reimbursement(5) 4.25% 4.04%
Total Net Annual
Operating Expenses 0.70% 0.70%
|
42
EXAMPLE
This example is intended to help you compare the cost of investing in each Fund
with the cost of investing in other funds. This example does not take into
account transaction fees on purchases and redemptions of Creation Units of each
of the Funds or customary brokerage commissions that you pay when purchasing or
selling Shares of each of the Funds in the secondary market.
The example assumes that you invest $10,000 in a Fund for the time periods
indicated and then you retain the Shares or sell all of your Shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, your costs, based on these assumptions,
would be as set forth in the table below:
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Consumer Discretionary AlphaDEX(TM) Fund $ 72 $1,166 $2,255 $4,952
Consumer Staples AlphaDEX(TM) Fund 72 995 1,929 4,315
Energy AlphaDEX(TM) Fund 72 1,019 1,975 4,407
Financials AlphaDEX(TM) Fund 72 1,182 2,284 5,008
Health Care AlphaDEX(TM) Fund 72 1,174 2,269 4,980
Industrials AlphaDEX(TM) Fund 72 1,071 2,075 4,603
Materials AlphaDEX(TM) Fund 72 1,015 1,968 4,392
Technology AlphaDEX(TM) Fund 72 1,105 2,139 4,729
Utilities AlphaDEX(TM) Fund 72 1,063 2,059 4,573
-------------
(1) Purchasers of Creation Units and parties redeeming Creation Units must pay
a standard creation or redemption transaction fee of $1,000 for the Consumer
Discretionary AlphaDEX(TM) Fund (assuming 101 to 200 different securities in
a Creation Unit); $500 for the Consumer Staples AlphaDEX(TM) Fund (assuming
1 to 100 different securities in a Creation Unit); $500 for the Energy
AlphaDEX(TM) Fund (assuming 1 to 100 different securities in a Creation
Unit); $1,000 for the Financials AlphaDEX(TM) Fund (assuming 101 to 200
different securities in a Creation Unit); $500 for the Health Care
AlphaDEX(TM) Fund (assuming 1 to 100 different securities in a Creation
Unit); $500 for the Industrials AlphaDEX(TM) Fund (assuming 1 to 100
different securities in a Creation Unit); $500 for the Materials
AlphaDEX(TM) Fund (assuming 1 to 100 different securities in a Creation
Unit); $500 for the Technology AlphaDEX(TM) Fund (assuming 1 to 100
different securities in a Creation Unit); and $500 for the Utilities
AlphaDEX(TM) Fund (assuming 1 to 100 different securities in a Creation
Unit). However, if a Creation Unit is purchased or redeemed outside the
usual process through the National Securities Clearing Corporation or for
cash, an additional variable fee of up to three times the standard creation
or redemption transaction fee may be charged. See "Creation Transaction Fees
and Redemption Transaction Fees" below.
(2) Expressed as a percentage of average daily net assets.
(3) Each Fund has adopted a distribution and service (12b-1) plan pursuant to
which each Fund may bear a 12b-1 fee not to exceed 0.25% per annum of the
Fund's average daily net assets. However, no such fee is currently paid by a
Fund and pursuant to a contractual arrangement, the Funds will not pay 12b-1
fees any time before April 30, 2009.
(4) Other Expenses are based on estimated expenses for the current fiscal year.
(5) First Trust has agreed to waive fees and/or pay each Fund's expenses to the
extent necessary to prevent the operating expenses of each Fund (excluding
interest expense, brokerage commissions and other trading expenses, taxes,
and extraordinary expenses) from exceeding 0.70% of average net assets per
year, at least until May 10, 2009. Expenses borne by First Trust are subject
to reimbursement by each Fund up to three years from the date the fee or
expense was incurred, but no reimbursement payment will be made by a Fund at
any time if it would result in such Fund's expenses exceeding 0.70% of
average daily net assets per year.
|
43
CREATION TRANSACTION FEES AND REDEMPTION TRANSACTION FEES
The Funds issue and redeem Shares at NAV only in large blocks of 50,000 Shares
(each block of 50,000 Shares called a "Creation Unit") or multiples thereof. As
a practical matter, only broker-dealers or large institutional investors that
have entered into authorized participant agreements with respect to purchases
and redemptions of Creation Units, called "Authorized Participants" ("APs"), can
purchase or redeem these Creation Units. Purchasers of Creation Units at NAV
must pay a standard Creation Transaction Fee (as defined below) as set forth on
the expense table for each purchase transaction (regardless of the number of
Creation Units involved). The value of a Creation Unit as of the first creation
of such Creation Unit was approximately $1,000,000. An AP who holds Creation
Units and wishes to redeem at NAV would also pay a standard Redemption
Transaction Fee (as defined below) as set forth on the expense table for each
redemption transaction (regardless of the number of Creation Units involved).
See "Creations, Redemptions and Transaction Fees" later in the Prospectus. APs
who hold Creation Units in inventory will also indirectly pay Fund expenses.
Assuming an investment in a Creation Unit of $1,000,000 and a 5% return each
year, assuming that a Fund's operating expenses remain the same, and assuming
brokerage costs are not included, the total costs would be as set forth in the
table below if the Creation Unit is redeemed after the periods indicated:
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Consumer Discretionary AlphaDEX(TM) Fund $9,151 $118,589 $227,459 $497,167
Consumer Staples AlphaDEX(TM) Fund 8,151 100,486 193,933 432,500
Energy AlphaDEX(TM) Fund 8,151 102,891 198,043 441,719
Financials AlphaDEX(TM) Fund 9,151 120,164 230,425 502,812
Health Care AlphaDEX(TM) Fund 8,151 118,377 227,943 498,996
Industrials AlphaDEX(TM) Fund 8,151 108,081 208,451 461,316
Materials AlphaDEX(TM) Fund 8,151 102,490 197,776 440,191
Technology AlphaDEX(TM) Fund 8,151 111,459 214,871 473,854
Utilities AlphaDEX(TM) Fund 8,151 107,284 206,934 458,334
|
If a Creation Unit is purchased or redeemed outside the usual process through
the National Securities Clearing Corporation or for cash, an additional variable
fee of up to three times the standard Creation or Redemption Transaction Fee may
be charged to the AP making the transaction.
The Creation Transaction Fee, Redemption Transaction Fee and variable fee are
not expenses of a Fund and do not impact a Fund's expense ratio.
ADDITIONAL INVESTMENT STRATEGIES
Each of the policies described herein is a non-fundamental policy of each Fund
that may be changed by the Board of Trustees of the Trust without shareholder
approval. Certain fundamental policies of the Funds are set forth in the
Statement of Additional Information ("SAI") under "Investment Objective and
Policies."
44
EQUITY SECURITIES
The Funds invest primarily in equity securities of U.S. issuers. Eligible equity
securities include common stocks and warrants to purchase common stocks. In
addition, the Funds may invest in equity securities of non-U.S. issuers listed
on any national exchange if such securities are included in the applicable
equity index in the StrataQuant(TM) Series, including depositary receipts that
represent non-U.S. common stocks deposited with a custodian.
SHORT-TERM INVESTMENTS
The Funds may invest in cash equivalents or other short-term investments,
including U.S. government securities, commercial paper, repurchase agreements,
money-market funds or similar fixed-income securities with remaining maturities
of one year or less. For more information on short-term investments, see the
SAI.
FUTURES AND OPTIONS
The Funds may use various investment strategies designed to hedge against
changes in the values of securities the Funds own or expect to purchase or to
hedge against interest rate or currency exchange rate changes. The securities
used to implement these strategies include financial futures contracts, options,
forward contracts, options on financial futures and stock index options.
DELAYED DELIVERY SECURITIES
The Funds may buy or sell securities on a when-issued or delayed-delivery basis,
paying for or taking delivery of the securities at a later date, normally within
15 to 45 days of the trade. Such transactions involve an element of risk because
the value of the securities to be purchased may decline before the settlement
date.
DISCLOSURE OF PORTFOLIO HOLDINGS
A description of the policies and procedures with respect to the disclosure of
each Fund's portfolio securities is included in the Fund's SAI.
ADDITIONAL RISKS OF INVESTING IN THE FUNDS
Risk is inherent in all investing. Investing in each Fund involves risk,
including the risk that you may lose all or part of your investment. There can
be no assurance that each Fund will meet its stated objective. Before you
invest, you should consider the following risks.
TRADING ISSUES
Trading in Shares on the AMEX may be halted due to market conditions or for
reasons that, in the view of the AMEX, make trading in Shares inadvisable. In
addition, trading in Shares on the AMEX is subject to trading halts caused by
extraordinary market volatility pursuant to the AMEX "circuit breaker" rules.
There can be no assurance that the requirements of the AMEX necessary to
maintain the listing of the Funds will continue to be met or will remain
unchanged.
45
FLUCTUATION OF NET ASSET VALUE
The NAV of Shares of each Fund will generally fluctuate with changes in the
market value of each Fund's holdings. The market prices of Shares will generally
fluctuate in accordance with changes in NAV as well as the relative supply of
and demand for Shares on the AMEX. First Trust cannot predict whether Shares
will trade below, at or above their NAV. Price differences may be due, in large
part, to the fact that supply and demand forces at work in the secondary trading
market for Shares will be closely related to, but not identical to, the same
forces influencing the prices of the stocks of the Funds trading individually or
in the aggregate at any point in time. However, given that Shares can be
purchased and redeemed in Creation Units (unlike shares of many closed-end
funds, which frequently trade at appreciable discounts from, and sometimes at
premiums to, their NAV), First Trust believes that large discounts or premiums
to the NAV of Shares should not be sustained.
INFLATION
Inflation risk is the risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of a Fund's assets can decline as can the value
of the Fund's distributions. Common stock prices may be particularly sensitive
to rising interest rates, as the cost of capital rises and borrowing costs
increase.
NON-U.S. INVESTMENT
The Funds may invest in non-U.S. securities publicly traded in the United
States. Securities issued by non-U.S. companies present risks beyond those of
securities of U.S. issuers. Risks of investing in non-U.S. securities include:
different accounting standards; expropriation, nationalization or other adverse
political or economic developments; currency devaluation, blockages or transfer
restrictions; changes in non-U.S. currency exchange rates; taxes; restrictions
on non-U.S. investments and exchange of securities; and less government
supervision and regulation of issuers in non-U.S. countries. Prices of non-U.S.
securities also may be more volatile.
INVESTMENT STRATEGY
Each Fund is exposed to additional market risk due to its policy of investing
principally in the securities included in each Fund's corresponding equity index
in the StrataQuant(TM) Series. As a result of this policy, securities held by a
Fund will generally not be bought or sold in response to market fluctuations.
This policy may subject investors to greater market risk than other mutual
funds.
FUND ORGANIZATION
Each Fund is a series of the Trust, an investment company registered under the
1940 Act. Each Fund is treated as a separate fund with its own investment
objective and policies. The Trust is organized as a Massachusetts business
trust. Its Board of Trustees (the "Board") is responsible for its overall
management and direction. The Board elects the Trust's officers and approves all
significant agreements, including those with the investment adviser, custodian
and fund administrative and accounting agent.
46
MANAGEMENT OF THE FUNDS
First Trust Advisors L.P. ("First Trust"), 1001 Warrenville Road, Lisle,
Illinois 60532, is the investment adviser to the Funds. In this capacity, 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 portfolios.
First Trust is a limited partnership with one limited partner, Grace Partners of
DuPage L.P., and one general partner, The Charger Corporation. Grace Partners of
DuPage L.P. is a limited partnership with one general partner, The Charger
Corporation, and a number of limited partners. The Charger Corporation is an
Illinois corporation controlled by the Robert Donald Van Kampen family. First
Trust discharges its responsibilities subject to the policies of the Board of
Trustees of the Trust.
First Trust serves as adviser or sub-adviser for 25 mutual fund portfolios, 36
exchange-traded fund portfolios and 14 closed-end funds and is also the
portfolio supervisor of certain unit investment trusts sponsored by FTP, 1001
Warrenville Road, Lisle, Illinois 60532. FTP specializes in the underwriting,
trading and distribution of unit investment trusts and other securities. FTP is
the principal underwriter of the Shares of each Fund.
There is no one individual primarily responsible for portfolio management
decisions for the Funds. Investments are made under the direction of a committee
(the "Investment Committee"). The Investment Committee consists of Daniel J.
Lindquist, Robert F. Carey, Jon C. Erickson, David G. McGarel, Roger F. Testin
and Stan Ueland. Mr. Lindquist rejoined First Trust as a Vice President in April
2004 after serving as Chief Operating Officer of Mina Capital Management LLC
from January 2004 to April 2004 and Samaritan Asset Management Services, Inc.
from April 2000 to January 2004 and has been a Senior Vice President of First
Trust and FTP since September 2005. Mr. Lindquist is Chairman of the Investment
Committee and presides over Investment Committee meetings. Mr. Lindquist is
responsible for overseeing the implementation of the Fund's investment
strategies. Mr. Carey is the Chief Investment Officer and Senior Vice President
of First Trust and Senior Vice President of FTP. As First Trust's Chief
Investment Officer, Mr. Carey consults with the Investment Committee on market
conditions and First Trust's general investment philosophy. Mr. Erickson is a
Senior Vice President of First Trust and FTP. As the head of First Trust's
Equity Research Group, Mr. Erickson is responsible for determining the
securities to be purchased and sold by funds that do not utilize quantitative
investment strategies. Mr. McGarel is a Senior Vice President of First Trust and
FTP. As the head of First Trust's Strategy Research Group, Mr. McGarel is
responsible for developing and implementing quantitative investment strategies
for those funds that have investment policies that require them to follow such
strategies. Since November 2003, Mr. Testin has been a Senior Vice President of
First Trust and FTP. From August 2001 to November 2003, Mr. Testin was a Vice
President of First Trust and FTP. Prior to joining First Trust, Mr. Testin was
an analyst for Dolan Capital Management. Mr. Testin is the head of First Trust's
Portfolio Management Group. Mr. Ueland has been a Vice President of First Trust
and FTP since August 2005. At First Trust, he plays an important role in
executing the investment strategies of each portfolio of exchange-traded funds
advised by First Trust. Before joining First Trust, Mr. Ueland was vice
president of sales at BondWave LLC from May 2004 through August 2005, an account
executive for Mina Capital Management LLC and Samaritan Asset Management
Services, Inc. from January 2003 through May 2004, and a sales consultant at
Oracle Corporation from January 1997 through January 2003. For additional
information concerning First Trust, including a description of the services
47
provided to the Funds, see the Funds' SAI. In addition, the SAI provides
additional information about the compensation of Investment Committee members,
other accounts managed by members of the Investment Committee and ownership by
members of the Investment Committee of Shares of the Funds.
The table below sets forth the annual management fee that First Trust receives
from each Fund. Due to expense reimbursements, none of the Funds paid a
management fee for the period ended July 31, 2007. A discussion regarding the
approval of the Investment Management Agreement is available in the Funds'
Annual Report to Shareholders for the period ended July 31, 2007. FUND ANNUAL
MANAGEMENT FEE Consumer Discretionary AlphaDEX(TM) Fund 0.50% of average daily
net assets Consumer Staples AlphaDEX(TM) Fund 0.50% of average daily net assets
Energy AlphaDEX(TM) Fund 0.50% of average daily net assets Financials
AlphaDEX(TM) Fund 0.50% of average daily net assets Health Care AlphaDEX(TM)
Fund 0.50% of average daily net assets Industrials AlphaDEX(TM) Fund 0.50% of
average daily net assets Materials AlphaDEX(TM) Fund 0.50% of average daily net
assets Technology AlphaDEX(TM) Fund 0.50% of average daily net assets Utilities
AlphaDEX(TM) Fund 0.50% of average daily net assets
Each Fund is responsible for all of its expenses, including the investment
advisory fees, costs of transfer agency, custody, fund administration, legal,
audit and other services, interest, taxes, brokerage commissions and other
expenses connected with the execution of portfolio transactions, paying for its
sublicensing fees related to each Fund's corresponding equity index in the
StrataQuant(TM) Series, any distribution fees or expenses, and extraordinary
expenses. First Trust has agreed to waive fees and/or pay Fund expenses to the
extent necessary to prevent the operating expenses of each Fund (excluding
interest expense, brokerage commissions and other trading expenses, taxes and
extraordinary expenses) from exceeding 0.70% of average daily net assets per
year, at least until May 10, 2009. Expenses borne by First Trust are subject to
reimbursement by each Fund up to three years from the date the fee or expense
was incurred, but no reimbursement payment will be made by a Fund at any time if
it would result in such Fund's expenses exceeding 0.70% of average daily net
assets per year.
HOW TO BUY AND SELL SHARES
Shares will be issued or redeemed by the Funds at NAV per Share only in Creation
Unit size. See "Creations, Redemptions and Transaction Fees."
Most investors will buy and sell Shares of the Funds in secondary market
transactions through brokers. Shares of the Funds will be listed for trading on
the secondary market on the AMEX. Shares can be bought and sold throughout the
trading day like other publicly traded shares. There is no minimum investment.
Although Shares are generally purchased and sold in "round lots" of 100 Shares,
brokerage firms typically permit investors to purchase or sell Shares in smaller
"odd lots," at no per-Share price differential. When buying or selling Shares
through a broker, you should expect to incur customary brokerage commissions,
48
you may receive less than the NAV of the Shares, and you may pay some or all of
the spread between the bid and the offer price in the secondary market on each
leg of a round trip (purchase and sale) transaction. Share prices are reported
in dollars and cents per Share.
Investors may acquire Shares directly from a Fund, and shareholders may tender
their Shares for redemption directly to such Fund, only in Creation Units of
50,000 Shares, as discussed in the "Creations, Redemptions and Transaction Fees"
section below.
For the purpose of the 1940 Act, each Fund is treated as a registered investment
company, and the acquisition of Shares by other registered investment companies
is subject to the restrictions of Section 12(d)(1) of the 1940 Act. The Trust,
on behalf of the Funds, has received an exemptive order from the Securities and
Exchange Commission that permites certain registered investment companies to
invest in a Fund beyond the limits set forth in Section 12(d)(1), subject to
certain terms and conditions, inlucding that any such investment companies enter
into such agreements with a Fund regarding the terms of any investment.
BOOK ENTRY
Shares are held in book-entry form, which means that no Share certificates are
issued. The Depository Trust Company ("DTC") or its nominee is the record owner
of all outstanding Shares of the Funds and is recognized as the owner of all
Shares for all purposes.
Investors owning Shares are beneficial owners as shown on the records of DTC or
its participants. DTC serves as the securities depository for all Shares.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
Shares, you are not entitled to receive physical delivery of Share certificates
or to have Shares registered in your name, and you are not considered a
registered owner of Shares. Therefore, to exercise any right as an owner of
Shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any other stocks that you hold in
book-entry or "street name" form.
SHARE TRADING PRICES
The trading prices of Shares of a Fund on the AMEX may differ from such Fund's
daily NAV and can be affected by market forces of supply and demand, economic
conditions and other factors.
The AMEX disseminates the approximate value of Shares of the Funds every 15
seconds. This approximate value should not be viewed as a "real-time" update of
the NAV per Share of the Funds because the approximate value may not be
calculated in the same manner as the NAV, which is computed once a day,
generally at the end of the business day. The Funds are not involved in, or
responsible for, the calculation or dissemination of the approximate value and
the Funds do not make any warranty as to its accuracy.
FREQUENT PURCHASES AND REDEMPTIONS OF THE FUNDS' SHARES
Each Fund imposes no restrictions on the frequency of purchases and redemptions
("market timing"). In determining not to approve a written, established policy,
the Board evaluated the risks of market timing activities by each Fund's
shareholders. The Board considered that, unlike traditional mutual funds, the
49
Funds issue and redeem their Shares at NAV per Share for a basket of securities
intended to mirror a Fund's portfolio, plus a small amount of cash, and the
Shares may be purchased and sold on the AMEX at prevailing market prices. The
Board noted that a Fund's Shares can only be purchased and redeemed directly
from the Fund in Creation Units by APs and that the vast majority of trading in
Shares occurs on the secondary market. Because the secondary market trades do
not involve a Fund directly, it is unlikely those trades would cause many of the
harmful effects of market timing, including: dilution, disruption of portfolio
management, increases in a Fund's trading costs and the realization of capital
gains. With respect to trades directly with a Fund, to the extent effected
in-kind (i.e., for securities), those trades do not cause any of the harmful
effects (as noted above) that may result from frequent cash trades. To the
extent trades are effected in whole or in part in cash, the Board noted that
those trades could result in dilution to a Fund and increased transaction costs,
which could negatively impact a Fund's ability to achieve its investment
objective. However, the Board noted that direct trading by APs is critical to
ensuring that the Shares trade at or close to NAV. The Funds also employ fair
valuation pricing to minimize potential dilution from market timing. The Funds
impose transaction fees on in-kind purchases and redemptions of Shares to cover
the custodial and other costs incurred by a Fund in executing in-kind trades,
and with respect to the redemption fees, these fees increase if an investor
substitutes cash in part or in whole for securities, reflecting the fact that a
Fund's trading costs increase in those circumstances. Given this structure, the
Board determined that (a) it is unlikely that market timing would be attempted
by the Funds' shareholders and (b) any attempts to market time the Funds by
shareholders would not be expected to negatively impact the Funds or their
shareholders.
CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Investors such as market makers, large investors and institutions who wish to
deal in Creation Units directly with the Funds must have entered into an AP
agreement with the Funds' distributor and transfer agent, or purchase through a
dealer that has entered into such an agreement. Set forth below is a brief
description of the procedures applicable to purchases and redemptions of
Creation Units. For more detailed information, see "Creation and Redemption of
Creation Unit Aggregations" in the SAI.
PURCHASE
In order to purchase Creation Units of the Funds, an investor must generally
deposit a designated portfolio of equity securities constituting a substantial
replication, or a representation, of the stocks included in each Fund's
corresponding equity index in the StrataQuant(TM) Series (the "Deposit
Securities") and generally make a small cash payment referred to as the "Cash
Component." The list of the names and the numbers of shares of the Deposit
Securities is made available by the Funds' custodian through the facilities of
the National Securities Clearing Corporation ("NSCC"), immediately prior to the
opening of business each day of the AMEX. The Cash Component represents the
difference between the NAV of a Creation Unit and the market value of the
Deposit Securities.
Orders must be placed in proper form by or through an AP which is either (i) a
"Participating Party," i.e., a broker-dealer or other participant in the
Clearing Process of the Continuous Net Settlement System of the NSCC (the
"Clearing Process"), or (ii) a participant of DTC ("DTC Participant") that has
entered into an AP agreement with the Funds' distributor and transfer agent,
with respect to purchases and redemptions of Creation Units of each Fund. All
orders must be placed for one or more whole Creation Units of Shares of the
50
Funds and must be received by the Funds' transfer agent in proper form no later
than the close of regular trading on the New York Stock Exchange (ordinarily
4:00 p.m., Eastern time) ("Closing Time") in order to receive that day's closing
NAV per Share. In the case of custom orders, as further described in the SAI,
the order must be received by the Funds' transfer agent no later than 3:00 p.m.,
Eastern time. A custom order may be placed by an AP in the event that a Fund
permits or requires the substitution of an amount of cash to be added to the
Cash Component to replace any Deposit Security which may not be available in
sufficient quantity for delivery or which may not be eligible for trading by
such AP or the investor for which it is acting or any other relevant reason. See
"Creation and Redemption of Creation Unit Aggregations" in the SAI.
Purchasers of Creation Units must pay a standard creation transaction fee (the
"Creation Transaction Fee"), which is based on the number of different
securities in a Creation Unit according to the fee schedule set forth below:
NUMBER OF SECURITIES CREATION
IN A CREATION UNIT TRANSACTION FEE
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
|
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by a Fund with respect to
transactions effected outside of the Clearing Process (I.E., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. See "Creation and Redemption of Creation Unit
Aggregations" in the SAI. 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 transfer taxes.
Shares of each Fund may be issued in advance of receipt of all Deposit
Securities subject to various conditions, including a requirement to maintain on
deposit with a Fund cash at least equal to 115% of the market value of the
missing Deposit Securities. See "Creation and Redemption of Creation Unit
Aggregations" in the SAI.
LEGAL RESTRICTIONS ON TRANSACTIONS IN CERTAIN STOCKS
An investor subject to a legal restriction with respect to a particular stock
required to be deposited in connection with the purchase of a Creation Unit may,
at a Fund's discretion, be permitted to deposit an equivalent amount of cash in
substitution for any stock which would otherwise be included in the Deposit
Securities applicable to the purchase of a Creation Unit. For more details, see
"Creation and Redemption of Creation Unit Aggregations" in the SAI.
51
REDEMPTION
The Funds' custodian makes available immediately prior to the opening of
business each day of the AMEX, through the facilities of the NSCC, the list of
the names and the numbers of shares of each Fund's portfolio securities that
will be applicable that day to redemption requests in proper form ("Fund
Securities"). Fund Securities received on redemption may not be identical to
Deposit Securities, which are applicable to purchases of Creation Units. Unless
cash redemptions are available or specified for a Fund, the redemption proceeds
consist of the Fund Securities, plus cash in an amount equal to the difference
between the NAV of Shares being redeemed as next determined after receipt by the
Funds' transfer agent of a redemption request in proper form, and the value of
the Fund Securities (the "Cash Redemption Amount"), less the applicable
redemption fee and, if applicable, any transfer taxes. Should the Fund
Securities have a value greater than the NAV of Shares being redeemed, a
compensating cash payment to a Fund equal to the differential, plus the
applicable redemption fee and, if applicable, any transfer taxes will be
required to be arranged for by or on behalf of the redeeming AP. Investors
should expect to incur customary brokerage commissions in connection with
assembling a sufficient number of Shares of a Fund to constitute a redeemable
Creation Unit. For more details, see "Creation and Redemption of Creation Unit
Aggregations" in the SAI.
An order to redeem Creation Units of a Fund may only be effected by or through
an AP. An order to redeem must be placed for one or more whole Creation Units
and must be received by the Funds' transfer agent in proper form no later than
the Closing Time in order to receive that day's closing NAV per Share. In the
case of custom orders, as further described in the SAI, the order must be
received by the Funds' transfer agent no later than 3:00 p.m., Eastern time.
Parties redeeming Creation Units must pay a standard redemption transaction fee
(the "Redemption Transaction Fee"), which is based on the number of different
securities in a Creation Unit according to the fee schedule set forth below:
NUMBER OF SECURITIES REDEMPTION
IN A CREATION UNIT TRANSACTION FEE
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
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The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable fee of up to three times the Redemption Transaction Fee may
be charged to approximate additional expenses incurred by a Fund with respect to
redemptions effected outside of the Clearing Process or to the extent that
redemptions are for cash. The Funds reserve the right to effect redemptions in
cash. A shareholder may request a cash redemption in lieu of securities,
however, a Fund may, in its discretion, reject any such request. See "Creation
and Redemption of Creation Unit Aggregations" in the SAI.
52
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends from net investment income, if any, are declared and paid
semi-annually. Each Fund distributes its net realized capital gains, if any, to
shareholders annually.
Distributions in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option
available. Such Shares will generally be reinvested by the broker based upon the
market price of those Shares and investors may be subject to customary brokerage
commissions charged by the broker.
FEDERAL TAX MATTERS
This section summarizes some of the main U.S. federal income tax consequences of
owning Shares of the Funds. This section is current as of the date of this
Prospectus. Tax laws and interpretations change frequently, and these summaries
do not describe all of the tax consequences to all taxpayers. For example, these
summaries generally do not describe your situation if you are a corporation, a
non-U.S. person, a broker-dealer, or other investor with special circumstances.
In addition, this section does not describe your state, local or non-U.S. tax
consequences.
This federal income tax summary is based in part on the advice of counsel to the
Funds. The Internal Revenue Service could disagree with any conclusions set
forth in this section. In addition, counsel to the Funds was not asked to
review, and has not reached a conclusion with respect to, the federal income tax
treatment of the assets to be included in the Funds. This may not be sufficient
for you to use for the purpose of avoiding penalties under federal tax law.
As with any investment, you should seek advice based on your individual
circumstances from your own tax adviser.
FUND STATUS
Each Fund intends to qualify as a "regulated investment company" under the
federal tax laws. If a Fund qualifies as a regulated investment company and
distributes its income as required by the tax law, the Fund generally will not
pay federal income taxes.
DISTRIBUTIONS
The Funds' distributions are generally taxable. After the end of each year, you
will receive a tax statement that separates the distributions of a Fund into two
categories, ordinary income distributions and capital gains dividends. Ordinary
income distributions are generally taxed at your ordinary tax rate, however, as
further discussed below, certain ordinary income distributions received from the
Fund may be taxed at the capital gains tax rates. Generally, you will treat all
capital gains dividends as long-term capital gains regardless of how long you
have owned your Shares. To determine your actual tax liability for your capital
gains dividends, you must calculate your total net capital gain or loss for the
tax year after considering all of your other taxable transactions, as described
below. In addition, the Fund may make distributions that represent a return of
capital for tax purposes and thus will generally not be taxable to you. The tax
status of your distributions from a Fund is not affected by whether you reinvest
your distributions in additional Shares or receive them in cash. The income from
53
a Fund that you must take into account for federal income tax purposes is not
reduced by amounts used to pay a deferred sales fee, if any. The tax laws may
require you to treat distributions made to you in January as if you had received
them on December 31 of the previous year.
DIVIDENDS RECEIVED DEDUCTION
A corporation that owns Shares generally will not be entitled to the dividends
received deduction with respect to many dividends received from the Funds
because the dividends received deduction is generally not available for
distributions from regulated investment companies. However, certain ordinary
income dividends on Shares that are attributable to qualifying dividends
received by the Funds from certain corporations may be designated by the Funds
as being eligible for the dividends received deduction.
CAPITAL GAINS AND LOSSES AND CERTAIN ORDINARY INCOME DIVIDENDS
If you are an individual, the maximum marginal federal tax rate for net capital
gain is generally 15% (generally 5% for certain taxpayers in the 10% and 15% tax
brackets). These capital gains rates are generally effective for taxable years
beginning before January 1, 2011. For later periods, if you are an individual,
the maximum marginal federal tax rate for net capital gain is generally 20% (10%
for certain taxpayers in the 10% and 15% tax brackets). The 20% rate is reduced
to 18% and the 10% rate is reduced to 8% for long-term capital gains from most
property acquired after December 31, 2000 with a holding period of more than
five years.
Net capital gain equals net long-term capital gain minus net short-term capital
loss for the taxable year. Capital gain or loss is long-term if the holding
period for the asset is more than one year and is short-term if the holding
period for the asset is one year or less. You must exclude the date you purchase
your Shares to determine your holding period. However, if you receive a capital
gain dividend from a Fund and sell your Shares at a loss after holding it for
six months or less, the loss will be recharacterized as long-term capital loss
to the extent of the capital gain dividend received. The tax rates for capital
gains realized from assets held for one year or less are generally the same as
for ordinary income. The Internal Revenue Code treats certain capital gains as
ordinary income in special situations.
Ordinary income dividends received by an individual shareholder from regulated
investment companies such as the Funds are generally taxed at the same rates
that apply to net capital gain (as discussed above), provided certain holding
period requirements are satisfied and provided the dividends are attributable to
qualifying dividends received by the Funds themselves. These special rules
relating to the taxation of ordinary income dividends from regulated investment
companies generally apply to taxable years beginning before January 1, 2011. The
Funds will provide notice to its shareholders of the amount of any distribution
which may be taken into account as a dividend which is eligible for the capital
gains tax rates.
SALE OF SHARES
If you sell your Shares, you will generally recognize a taxable gain or loss. To
determine the amount of this gain or loss, you must subtract your tax basis in
your Shares from the amount you receive in the transaction. Your tax basis in
your Shares is generally equal to the cost of your Shares, generally including
sales charges. In some cases, however, you may have to adjust your tax basis
after you purchase your Shares.
54
TAXES ON PURCHASE AND REDEMPTION OF CREATION UNITS
If you exchange equity securities for Creation Units you will generally
recognize a gain or a loss. The gain or loss will be equal to the difference
between the market value of the Creation Units at the time and your aggregate
basis in the securities surrendered and the Cash Component paid. If you exchange
Creation Units for equity securities, you will generally recognize a gain or
loss equal to the difference between your basis in the Creation Units and the
aggregate market value of the securities received and the Cash Redemption
Amount. The Internal Revenue Service, however, may assert that a loss realized
upon an exchange of securities for Creation Units cannot be deducted currently
under the rules governing "wash sales," or on the basis that there has been no
significant change in economic position.
DEDUCTIBILITY OF FUND EXPENSES
Expenses incurred and deducted by the Funds will generally not be treated as
income taxable to you.
NON-U.S. TAX CREDIT
If a Fund invests in any non-U.S. securities, the tax statement that you receive
may include an item showing non-U.S. taxes a Fund paid to other countries. In
this case, dividends taxed to you will include your share of the taxes a Fund
paid to other countries. You may be able to deduct or receive a tax credit for
your share of these taxes.
NON-U.S. INVESTORS
If you are a non-U.S. investor (I.E., an investor other than a U.S. citizen or
resident or a U.S. corporation, partnership, estate or trust), you should be
aware that, generally, subject to applicable tax treaties, distributions from a
Fund will be characterized as dividends for federal income tax purposes (other
than dividends which the Fund designates as capital gain dividends) and will be
subject to U.S. federal income taxes, including withholding taxes, subject to
certain exceptions described below. However, distributions received by a
non-U.S. investor from the Fund that are properly designated by the Fund as
capital gain dividends may not be subject to U.S. federal income taxes,
including withholding taxes, provided that the Fund makes certain elections and
certain other conditions are met. In the case of dividends with respect to
taxable years of the Fund beginning prior to 2008, distributions from the Fund
that are properly designated by the Fund as an interest-related dividend
attributable to certain interest income received by the Fund or as a short-term
capital gain dividend attributable to certain net short-term capital gain income
received by the Fund may not be subject to U.S. federal income taxes, including
withholding taxes when received by certain non-U.S. investors, provided that the
Funds make certain elections and certain other conditions are met.
DISTRIBUTION PLAN
FTP serves as the distributor of Creation Units for the Funds on an agency
basis. FTP does not maintain a secondary market in Shares.
The Board has adopted a Distribution and Service Plan pursuant to Rule 12b-1
under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse FTP for amounts expended to finance activities primarily
intended to result in the sale of Creation Units or the provision of investor
services. FTP may also use this amount to compensate securities dealers or other
55
persons that are APs 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.
However, in the event 12b-1 fees are charged in the future, because these fees
are paid out of the Funds' assets, over time these fees will increase the cost
of your investment and may cost you more than certain other types of sales
charges.
NET ASSET VALUE
Each Fund's NAV is determined as of the close of trading (normally 4:00 p.m.,
Eastern time) on each day the New York Stock Exchange is open for business. NAV
is calculated for a Fund by taking the market price of the Fund's total assets,
including interest or dividends accrued but not yet collected, less all
liabilities, and dividing such amount by the total number of Shares outstanding.
The result, rounded to the nearest cent, is the NAV per Share. All valuations
are subject to review by the Board of Trustees or its delegate.
In determining NAV, expenses are accrued and applied daily and securities and
other assets are generally valued as set forth below. Common stocks and other
equity securities listed on any national or non-U.S. exchange will be valued at
the last sale price on the exchange or system in which they are principally
traded on the valuation date. If there are no transactions on the valuation
date, securities traded principally on an exchange will be valued at the mean
between the most recent bid and ask prices. Equity securities traded in the
over-the-counter market are valued at their closing bid prices. Fixed income
securities with a remaining maturity of 60 days or more will be valued by the
Fund accounting agent using a pricing service. When price quotes are not
available, fair market value is based on prices of comparable securities. Fixed
income securities maturing within 60 days are valued by the Fund accounting
agent on an amortized cost basis. The value of any portfolio security held by a
Fund for which market quotations are not readily available or securities for
which market quotations are deemed unreliable will be determined by the Board or
its designee in a manner that most fairly reflects the market value of the
security on the valuation date.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board 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) 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 the Fund generally results in the
56
prices used by the 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. See the SAI for details.
FUND SERVICE PROVIDERS
The Bank of New York is the administrator, custodian and fund accounting and
transfer agent for the Funds. Chapman and Cutler LLP, 111 West Monroe Street,
Chicago, Illinois 60603, serves as legal counsel to the Funds.
The Trust, on behalf of the Funds, has entered into an agreement with PFPC, Inc.
("PFPC"), 301 Bellevue Parkway, Wilmington, Delaware 19809, whereby PFPC will
provide certain administrative services to the Trust in connection with the
Board's meetings and other related matters.
INDEX PROVIDER
Each equity index in the StrataQuant(TM) Series that each respective Fund seeks
to track is compiled by the AMEX. The AMEX is not affiliated with the Funds,
First Trust or FTP. The Funds are entitled to use each equity index in the
StrataQuant(TM) Series pursuant to sublicensing arrangements by and among each
Fund, the AMEX, First Trust and FTP, which in turn has a licensing agreement
with the AMEX.
DISCLAIMERS
First Trust does not guarantee the accuracy and/or the completeness of the
StrataQuant(TM) Series or any data included therein, and First Trust shall have
no liability for any errors, omissions or interruptions therein. First Trust
makes no warranty, express or implied, as to results to be obtained by the
Funds, owners of the Shares of the Funds or any other person or entity from the
use of the StrataQuant(TM) Series or any data included therein. First Trust
makes no express or implied warranties, and expressly disclaims all warranties
of merchantability or fitness for a particular purpose or use with respect to
the StrataQuant(TM) Series or any data included therein. Without limiting any of
the foregoing, in no event shall First Trust have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits)
arising out of matters relating to the use of the StrataQuant(TM) Series, even
if notified of the possibility of such damages.
Each of the StrataQuant(TM) Series indices is a trademark of the American Stock
Exchange LLC and is licensed for use by FTP. FTP sublicenses the StrataQuant(TM)
Series indices to the Funds and to First Trust. The Funds are not sponsored,
endorsed, sold or promoted by the American Stock Exchange LLC. The American
Stock Exchange LLC makes no representation or warranty, express or implied, to
the owners of the Funds or any member of the public regarding the advisability
of investing in securities generally or the Funds particularly or as to the
result to be obtained by any person from the use of the StrataQuant(TM) Series
in connection with the trading of the Funds.
57
FTP has licensed to AMEX, free of charge, the right to use certain intellectual
property owned by FTP, including the AlphaDEX(TM) trademark and the AlphaDEX(TM)
stock selection method, in connection with AMEX's creation of the
StrataQuant(TM) Series indices. A patent application with respect to the
AlphaDEX(TM) stock selection method is pending at the United States Patent and
Trademark Office.
Notwithstanding such license, AMEX is solely responsible for the creation,
compilation and administration of the StrataQuant(TM) Series indices and has the
exclusive right to determine the stocks included in the indices and the indices'
methodologies.
The Funds are not sponsored, endorsed, sold or promoted by Frank Russell Company
("Underlying Index Provider") or by the Index Provider. Neither Underlying Index
Provider nor Index Provider makes any representation or warranty, express or
implied, to the owners of the Funds or any member of the public regarding the
advisability of investing in securities generally or in the Funds particularly
or the ability of any of the StrataQuant(TM) Series to track general stock
market performance or a segment of the same. Index Provider's publication of the
StrataQuant(TM) Series in no way suggests or implies an opinion by the
Underlying Index Provider or by Index Provider as to the advisability of
investment in any or all of the securities upon which the StrataQuant(TM) Series
is based. Index Provider's only relationship to FTP is the licensing of certain
trade marks and trade names of Index Provider and of the StrataQuant(TM) Series
which is determined, composed and calculated by Index Provider without regard to
FTP, First Trust or the Funds. Underlying Index Provider and Index Provider are
not responsible for and have not reviewed the Funds nor any associated
literature or publications and make no representation or warranty express or
implied as to their accuracy or completeness, or otherwise. Underlying Index
Provider reserves the right, at any time and without notice, to alter, amend,
terminate or in any way change the StrataQuant(TM) Series. Underlying Index
Provider and Index Provider have no obligation or liability in connection with
the administration, marketing or trading of the Funds.
INDEX PROVIDER DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF ANY OF
THE STRATAQUANT(TM) SERIES OR ANY DATA INCLUDED THEREIN. INDEX PROVIDER SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. INDEX
PROVIDER MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
FTP, FIRST TRUST, INVESTORS, OWNERS OF THE FUNDS, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE STRATAQUANT(TM) SERIES OR ANY DATA INCLUDED THEREIN. INDEX
PROVIDER MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE STRATAQUANT(TM) SERIES OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL INDEX PROVIDER HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
"AlphaDEX(TM)" is a trademark of FTP. The Funds and First Trust on behalf of the
Funds have been granted the right by FTP to use the name "AlphaDEX(TM)" for
certain purposes.
58
ADDITIONAL INDEX INFORMATION
The StrataQuant(TM) Series was created and trademarked by the AMEX. The Funds
will make changes to their portfolios shortly after changes to the
StrataQuant(TM) Series are released to the public. Investors are able to access
the holdings of each Fund and the composition and compilation methodology of the
StrataQuant(TM) Series through the Funds' website at www.ftportfolios.com.
In the event that AMEX no longer calculates the StrataQuant(TM) Series, the
StrataQuant(TM) Series license is terminated or the identity or character of any
equity index of the StrataQuant(TM) Series is materially changed, the Board will
seek to engage a replacement index. However, if that proves to be impracticable,
the Board will take whatever action it deems to be in the best interests of the
Funds. The Board will also take whatever actions it deems to be in the best
interests of the Funds if the Funds' Shares are delisted.
PREMIUM/DISCOUNT INFORMATION
The tables that follow present information about the differences between each
Fund's daily market price on the AMEX and its NAV. The "Market Price" of a Fund
generally is determined using the midpoint between the highest bid and lowest
offer on the exchange, as of the time a Fund's NAV is calculated. A Fund's
Market Price may be at, above, or below its NAV. The NAV of a Fund will
fluctuate with changes in the market value of its portfolio holdings. The Market
Price of a Fund will fluctuate in accordance with changes in its NAV, as well as
market supply and demand.
Premiums or discounts are the differences (generally expressed as a percentage)
between the NAV and Market Price of a Fund on a given day, generally at the time
NAV is calculated. A premium is the amount that a Fund is trading above the
reported NAV, expressed as a percentage of the NAV. A discount is the amount
that a Fund is trading below the reported NAV, expressed as a percentage of the
NAV.
The following information shows the frequency distribution of premiums and
discounts of the daily bid/ask price of each Fund against each Fund's NAV. The
information shown for each Fund is for the period indicated. All data presented
here represents past performance, which cannot be used to predict future
results.
FIRST TRUST CONSUMER DISCRETIONARY ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 45 1 0 0
7/31/07* 15 0 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 19 0 0 0
7/31/07* 42 0 0 0
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59
FIRST TRUST CONSUMER STAPLES ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 29 0 0 0
7/31/07* 27 0 1 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 36 0 0 0
7/31/07* 29 0 0 0
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FIRST TRUST ENERGY ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 35 0 0 0
7/31/07* 27 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 29 1 0 0
7/31/07* 29 0 0 0
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FIRST TRUST FINANCIALS ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 37 0 0 0
7/31/07* 19 0 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 28 0 0 0
7/31/07* 38 0 0 0
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60
FIRST TRUST HEALTH CARE ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 42 1 1 0
7/31/07* 27 0 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 21 0 0 0
7/31/07* 30 0 0 0
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FIRST TRUST INDUSTRIALS/PRODUCER DURABLES ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 31 0 0 0
7/31/07* 40 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 34 0 0 0
7/31/07* 16 0 0 0
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FIRST TRUST MATERIALS ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 41 0 0 0
7/31/07* 27 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 21 3 0 0
7/31/07* 29 0 0 0
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61
FIRST TRUST TECHNOLOGY ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 38 0 0 0
7/31/07* 23 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 27 0 0 0
7/31/07* 33 0 0 0
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FIRST TRUST UTILITIES ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 44 0 0 0
7/31/07* 27 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 21 0 0 0
7/31/07* 29 0 0 0
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* TRADING COMMENCED ON MAY 10, 2007.
TOTAL RETURN INFORMATION
The tables below compare the total return of each Fund to the total return of
the Index on which it is based. In addition, the total return of each Fund is
compared to the total return of a broad measure of market performance. The
information presented for each Fund is for the periods indicated.
"Cumulative total returns" represent the total change in value of an investment
over the period indicated. The NAV return is based on the NAV per Share of a
Fund, and the market return is based on the market price per Share of a Fund.
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
applicable exchange, as of the time that a Fund's NAV is calculated. Since the
Shares of each Fund typically do not trade in the secondary market until several
days after a Fund's inception, for the period from inception to the first day of
secondary market trading in Shares of a Fund, the NAV of a Fund is used as a
proxy for the secondary market trading price to calculate market returns. Market
and NAV returns assume that dividends and capital gain distributions have been
reinvested in a Fund at Market Price and NAV, respectively. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
each Fund, an index does not actually hold a portfolio of securities and
therefore does not incur the expenses incurred by a Fund. These expenses
negatively impact the performance of each Fund. Also, market returns do not
62
include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table below do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Shares of a Fund. The investment return and principal value of Shares of
a Fund will vary with changes in market conditions. Shares of a Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. A Fund's past performance is no guarantee of future results.
FIRST TRUST CONSUMER DISCRETIONARY ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV -5.85% 0.80%
Market Price -5.80% 0.48%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26% 7.07%
StrataQuant(TM) Consumer Discretionary Index -5.61% 1.00%
Russell 1000(R) Consumer Discretionary and Services Index -4.94% 5.05%
|
FIRST TRUST CONSUMER STAPLES ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV -4.45% 6.38%
Market Price -4.45% 6.23%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26% 7.07%
StrataQuant(TM) Consumer Staples Index -4.26% 6.50%
Russell 1000(R) Consumer Staples Index -2.20% 9.75%
|
FIRST TRUST ENERGY ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV 3.70% 9.02%
Market Price 3.75% 8.82%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26% 7.07%
StrataQuant(TM) Energy Index 3.87% 9.17%
Russell 1000(R) Integrated Oils Index 7.37% 8.96%
Russell 1000(R) Other Energy Index 4.00% 12.66%
|
63
FIRST TRUST FINANCIALS ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV -10.45% -2.23%
Market Price -10.35% -2.57%
INDEX PERFORMANCE
StrataQuant(TM) Financials Index -10.14% -1.98%
Russell 1000(R) Index -3.26% 7.07%
Russell 1000(R) Financial Services Index -10.82% 2.28%
|
FIRST TRUST HEALTH CARE ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV -2.60% 5.44%
Market Price -2.50% 5.18%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26% 7.07%
StrataQuant(TM) Health Care Index -2.36% 5.55%
Russell 1000(R) Health Care Index -7.09% 7.67%
|
FIRST TRUST INDUSTRIALS/PRODUCER DURABLES ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV -5.65% 3.92%
Market Price -5.40% 3.59%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26% 7.07%
StrataQuant(TM) Industrials Index -5.43% 4.09%
Russell 1000(R) Producer Durables Index 2.91% 3.55%
|
FIRST TRUST MATERIALS ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV 0.85% 12.30%
Market Price 0.85% 12.35%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26% 7.07%
StrataQuant(TM) Materials Index 1.04% 12.38%
Russell 1000(R) Materials and Processing Index 1.21% 11.42%
|
64
FIRST TRUST TECHNOLOGY ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV 2.35% 11.09%
Market Price 2.25% 11.05%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26% 7.07%
StrataQuant(TM) Technology Index 2.52% 11.17%
Russell 1000(R) Technology Index 2.26% 13.51%
|
FIRST TRUST UTILITIES ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV -8.15% 7.08%
Market Price -8.15% 6.91%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26% 7.07%
StrataQuant(TM) Utilities Index -7.95% 7.12%
Russell 1000(R) Utilities Index -4.22% 4.94%
|
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance since its inception. Certain information reflects
financial results for a single Share of each Fund. The total returns represent
the rate that an investor would have earned (or lost) on an investment in a Fund
(assuming reinvestment of all dividends and distributions). The information for
the periods indicated has been derived from financial statements audited by
Deloitte & Touche LLP, whose report for the period ended July 31, 2007, along
with each Fund's financial statements, are included in the Annual Report to
Shareholders dated July 31, 2007 and are incorporated by reference in the SAI,
which are available upon request.
65
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST CONSUMER DISCRETIONARY ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $20.00
-----------
Income from investment operations:
Net investment income (loss) (b) 0.00 (f)
Net realized and unrealized gain (loss) (1.17)
-----------
Total from investment operations (1.17)
-----------
Net asset value, end of period $18.83
===========
TOTAL RETURN (c) (5.85)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $1,883
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 11.39% (d)
Ratio of net investment income to average net assets 0.04% (d)
Portfolio turnover rate (e) 34%
FIRST TRUST CONSUMER STAPLES ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $20.00
-----------
Income from investment operations:
Net investment income (loss) (b) 0.04
Net realized and unrealized gain (loss) (0.93)
-----------
Total from investment operations (0.89)
-----------
Net asset value, end of period $19.11
===========
TOTAL RETURN (c) (4.45)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $2,866
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 9.34% (d)
Ratio of net investment income to average net assets 0.98% (d)
Portfolio turnover rate (e) 1%
SEE "NOTES TO FINANCIAL HIGHLIGHTS" ON PAGE 70.
_______________________________________________________________________________
66
|
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST ENERGY ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $20.00
-----------
Income from investment operations:
Net investment income (loss) (b) (0.00) (f)
Net realized and unrealized gain (loss) 0.74
-----------
Total from investment operations 0.74
-----------
Net asset value, end of period $20.74
===========
TOTAL RETURN (c) 3.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $5,184
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 9.49% (d)
Ratio of net investment loss to average net assets (0.03)% (d)
Portfolio turnover rate (e) 1%
FIRST TRUST FINANCIALS ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $20.00
-----------
Income from investment operations:
Net investment income (loss) (b) 0.07
Net realized and unrealized gain (loss) (2.16)
-----------
Total from investment operations (2.09)
-----------
Net asset value, end of period $17.91
===========
TOTAL RETURN (c) (10.45)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $1,791
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 11.58% (d)
Ratio of net investment income to average net assets 1.46% (d)
Portfolio turnover rate (e) 26%
SEE "NOTES TO FINANCIAL HIGHLIGHTS" ON PAGE 70.
_______________________________________________________________________________
67
|
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST HEALTH CARE ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $20.00
-----------
Income from investment operations:
Net investment income (loss) (b) (0.01)
Net realized and unrealized gain (loss) (0.51)
-----------
Total from investment operations (0.52)
-----------
Net asset value, end of period $19.48
===========
TOTAL RETURN (c) (2.60)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $1,949
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 11.48% (d)
Ratio of net investment loss to average net assets (0.31)% (d)
Portfolio turnover rate (e) 30%
FIRST TRUST INDUSTRIALS/PRODUCER DURABLES ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $20.00
-----------
Income from investment operations:
Net investment income (loss) (b) (0.00) (f)
Net realized and unrealized gain (loss) (1.13)
-----------
Total from investment operations (1.13)
-----------
Net asset value, end of period $18.87
===========
TOTAL RETURN (c) (5.65)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $4,718
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 10.09% (d)
Ratio of net investment loss to average net assets (0.14)% (d)
Portfolio turnover rate (e) 24%
SEE "NOTES TO FINANCIAL HIGHLIGHTS" ON PAGE 70.
_______________________________________________________________________________
68
|
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST MATERIALS ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $20.00
-----------
Income from investment operations:
Net investment income (loss) (b) 0.02
Net realized and unrealized gain (loss) 0.15
-----------
Total from investment operations 0.17
-----------
Net asset value, end of period $20.17
===========
TOTAL RETURN (c) 0.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $3,025
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 9.56% (d)
Ratio of net investment income to average net assets 0.46% (d)
Portfolio turnover rate (e) 1%
FIRST TRUST TECHNOLOGY ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $20.00
-----------
Income from investment operations:
Net investment income (loss) (b) (0.02)
Net realized and unrealized gain (loss) 0.49
-----------
Total from investment operations 0.47
-----------
Net asset value, end of period $20.47
===========
TOTAL RETURN (c) 2.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $2,149
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 10.64% (d)
Ratio of net investment loss to average net assets (0.47)% (d)
Portfolio turnover rate (e) 6%
SEE "NOTES TO FINANCIAL HIGHLIGHTS" ON PAGE 70.
_______________________________________________________________________________
69
|
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST UTILITIES ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $20.00
-----------
Income from investment operations:
Net investment income (loss) (b) 0.09
Net realized and unrealized gain (loss) (1.72)
-----------
Total from investment operations (1.63)
-----------
Net asset value, end of period $18.37
===========
TOTAL RETURN (c) (8.15)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $2,756
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 10.12% (d)
Ratio of net investment income to average net assets 2.18% (d)
Portfolio turnover rate (e) 1%
|
NOTES TO FINANCIAL HIGHLIGHTS
(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 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.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(f) Amount represents less than $0.01 Per share.
OTHER INFORMATION
For purposes of the 1940 Act, each Fund is treated as a registered investment
company and the acquisition of Shares by other investment companies is subject
to the restrictions of Section 12(d)(1) of the 1940 Act. The Trust, on behalf of
the Funds, has received an exemptive order from the Securities and Exchange
Commission that permits certain registered investment companies to invest in a
Fund beyond the limits set forth in Section 12(d)(1), subject to certain terms
and conditions, including that any such investment companies enter into
agreements with a Fund regarding the terms of any investment.
70
CONTINUOUS OFFERING
Each Fund will issue, on a continuous offering basis, its Shares in one or more
groups of a fixed number of Fund Shares (each such group of such specified
number of individual Shares of a Fund, a "Creation Unit Aggregation"). The
method by which Creation Unit Aggregations of Fund Shares are created and traded
may raise certain issues under applicable securities laws. Because new Creation
Unit Aggregations of Shares are issued and sold by a Fund on an ongoing basis, a
"distribution," as such term is used in the Securities Act of 1933, as amended
(the "Securities Act"), may occur at any point. Broker-dealers and other persons
are cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
manner which could render them statutory underwriters and subject them to the
prospectus delivery requirement and liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with
FTP, breaks them down into constituent Shares and sells such Shares directly to
customers, or if it chooses to couple the creation of a supply of new Shares
with an active selling effort involving solicitation of secondary market demand
for Shares. A determination of whether one is an underwriter for purposes of the
Securities Act must take into account all the facts and circumstances pertaining
to the activities of the broker-dealer or its client in the particular case, and
the examples mentioned above should not be considered a complete description of
all the activities that could lead to a characterization as an underwriter.
Broker-dealer firms should also note that dealers who are not "underwriters" but
are effecting transactions in Shares, whether or not participating in the
distribution of Shares, are generally required to deliver a Prospectus. This is
because the prospectus delivery exemption in Section 4(3) of the Securities Act
is not available in respect of such transactions as a result of Section 24(d) of
the 1940 Act. The Trust, on behalf of each Fund, however, has received from the
Securities and Exchange Commission an exemption from the prospectus delivery
obligation in ordinary secondary market transactions under certain
circumstances, on the condition that purchasers are provided with a product
description of the Shares. As a result, broker-dealer firms should note that
dealers who are not underwriters but are participating in a distribution (as
contrasted with ordinary secondary market transactions) and thus dealing with
the Shares that are part of an overallotment within the meaning of Section
4(3)(a) of the Securities Act would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(3) of the Securities Act.
Firms that incur a prospectus delivery obligation with respect to Shares are
reminded that, under the Securities Act Rule 153, a prospectus delivery
obligation under Section 5(b)(2) of the Securities Act owed to a broker-dealer
in connection with a sale on the AMEX is satisfied by the fact that the
Prospectus is available from the AMEX upon request. The prospectus delivery
mechanism provided in Rule 153 is available with respect to transactions on a
national securities exchange, a trading facility or an alternative trading
system.
71
This page intentionally left blank.
72
[BLANK INSIDE BACK COVER]
[LOGO OMITTED] AlphaDEX(TM)
Family of ETFs
_______________________________________________________________________________
|
First Trust Consumer Discretionary AlphaDEX(TM) Fund
First Trust Consumer Staples AlphaDEX(TM) Fund
First Trust Energy AlphaDEX(TM) Fund
First Trust Financials AlphaDEX(TM) Fund
First Trust Health Care AlphaDEX(TM) Fund
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund
First Trust Materials AlphaDEX(TM) Fund
First Trust Technology AlphaDEX(TM) Fund
First Trust Utilities AlphaDEX(TM) Fund
FOR MORE INFORMATION
For more detailed information on the Funds, several additional sources of
information are available to you. The SAI, incorporated by reference into this
Prospectus, contains detailed information on the Funds' policies and operation.
Additional information about the Funds' investments is available in the annual
and semi-annual reports to Shareholders. In the Funds' annual reports, you will
find a discussion of the market conditions and investment strategies that
significantly impacted the Funds' performance during the last fiscal year. The
Funds' most recent SAI and certain other information are available free of
charge by calling the Funds at (800) 621-1675, on the Funds' website at
www.ftportfolios.com or through your financial adviser. Shareholders may call
the toll-free number above with any inquiries.
You may obtain this and other information regarding the Funds, including the
Codes of Ethics adopted by First Trust, FTP and the Trust, directly from the
Securities and Exchange Commission (the "SEC"). Information on the SEC's website
is free of charge. Visit the SEC's on-line EDGAR database at http://www.sec.gov
or in person at the SEC's Public Reference Room in Washington, D.C., or call the
SEC at (202) 551-8090 for information on the Public Reference Room. You may also
request information regarding the Funds by sending a request (along with a
duplication fee) to the SEC's Public Reference Section, 100 F Street, N.E.,
Washington, D.C. 20549 or by sending an electronic request to
publicinfo@sec.gov.
1001 Warrenville Road
Suite 300
Lisle, Illinois 60532
(800) 621-1675 SEC File #: 333-140895
www.ftportfolios.com 811-22019
Back Cover
[LOGO OMITTED] AlphaDEX(TM)
Family of ETFs
_______________________________________________________________________________
|
First Trust Large Cap Core AlphaDEX(TM) Fund
First Trust Mid Cap Core AlphaDEX(TM) Fund
First Trust Small Cap Core AlphaDEX(TM) Fund
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund
First Trust Multi Cap Value AlphaDEX(TM) Fund
First Trust Multi Cap Growth AlphaDEX(TM) Fund
First Trust AlphaDEX(TM) Funds
November 28, 2007
Front Cover
[BLANK INSIDE FRONT COVER]
FIRST TRUST LARGE CAP CORE ALPHADEX(TM) FUND
FIRST TRUST MID CAP CORE ALPHADEX(TM) FUND
FIRST TRUST SMALL CAP CORE ALPHADEX(TM) FUND
FIRST TRUST LARGE CAP VALUE OPPORTUNITIES ALPHADEX(TM) FUND
FIRST TRUST LARGE CAP GROWTH OPPORTUNITIES ALPHADEX(TM) FUND
FIRST TRUST MULTI CAP VALUE ALPHADEX(TM) FUND
FIRST TRUST MULTI CAP GROWTH ALPHADEX(TM) FUND
PROSPECTUS
November 28, 2007
Each of First Trust Large Cap Core AlphaDEX(TM) Fund, First Trust Mid Cap Core
AlphaDEX(TM) Fund, First Trust Small Cap Core AlphaDEX(TM) Fund, First Trust
Large Cap Value Opportunities AlphaDEX(TM) Fund, First Trust Large Cap Growth
Opportunities AlphaDEX(TM) Fund, First Trust Multi Cap Value AlphaDEX(TM) Fund
and First Trust Multi Cap Growth AlphaDEX(TM) Fund (each, a "Fund" and
collectively, the "Funds") is a series of a registered management investment
company that is offering its shares (the "Shares") through this Prospectus.
Each Fund lists and trades its Shares on the American Stock Exchange LLC (the
"AMEX") at market prices that may differ to some degree from the net asset value
("NAV") of its Shares. Unlike conventional mutual funds, each Fund issues and
redeems Shares on a continuous basis, at NAV, only in large specified blocks
consisting of 100,000 Shares called a "Creation Unit." Each Fund's Creation
Units are issued and redeemed principally in-kind for securities included in
such Fund's corresponding equity index in the Defined Index Series (as
hereinafter defined).
EXCEPT WHEN AGGREGATED IN CREATION UNITS, THE SHARES ARE NOT REDEEMABLE
SECURITIES OF EACH FUND.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NOT FDIC INSURED. MAY LOSE VALUE.
NO BANK GUARANTEE.
1
Table of Contents
Introduction ............................................................... 3
Who Should Invest in the Funds ............................................. 3
Tax Efficient Product Structure ............................................ 3
First Trust Large Cap Core AlphaDEX(TM) Fund Investment Objective,
Strategies and Risks .................................................... 4
First Trust Mid Cap Core AlphaDEX(TM) Fund Investment Objective,
Strategies and Risks .................................................... 8
First Trust Small Cap Core AlphaDEX(TM) Fund Investment Objective,
Strategies and Risks .................................................... 12
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund Investment
Objective, Strategies and Risks ......................................... 16
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund Investment
Objective, Strategies and Risks ......................................... 20
First Trust Multi Cap Value AlphaDEX(TM) Fund Investment Objective,
Strategies and Risks .................................................... 24
First Trust Multi Cap Growth AlphaDEX(TM) Fund Investment Objective,
Strategies and Risks .................................................... 30
Additional Investment Strategies ........................................... 38
Additional Risks of Investing in the Funds ................................. 39
Fund Organization .......................................................... 40
Management of the Funds .................................................... 40
How to Buy and Sell Shares ................................................. 42
Creations, Redemptions and Transaction Fees ................................ 44
Dividends, Distributions and Taxes ......................................... 46
Federal Tax Matters ........................................................ 47
Distribution Plan .......................................................... 49
Net Asset Value ............................................................ 50
Fund Service Providers ..................................................... 50
Index Provider ............................................................. 51
Disclaimers ................................................................ 51
Additional Index Information ............................................... 52
Premium/Discount Information ............................................... 52
Total Return Information ................................................... 55
Financial Highlights ....................................................... 57
Other Information .......................................................... 61
|
2
INTRODUCTION--
FIRST TRUST LARGE CAP CORE ALPHADEX(TM) FUND
FIRST TRUST MID CAP CORE ALPHADEX(TM) FUND
FIRST TRUST SMALL CAP CORE ALPHADEX(TM) FUND
FIRST TRUST LARGE CAP VALUE OPPORTUNITIES ALPHADEX(TM) FUND
FIRST TRUST LARGE CAP GROWTH OPPORTUNITIES ALPHADEX(TM) FUND
FIRST TRUST MULTI CAP VALUE ALPHADEX(TM) FUND
FIRST TRUST MULTI CAP GROWTH ALPHADEX(TM) FUND
Each Fund is a series of the First Trust Exchange-Traded AlphaDEX(TM) Fund (the
"Trust"), an investment company and an exchange-traded "index fund." The
investment objective of each Fund is to seek investment results that correspond
generally to the price and yield (before each Fund's fees and expenses) of such
Fund's corresponding equity index in a family of custom "enhanced" indices (the
"Defined Index Series") developed, maintained and sponsored by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P" or the "Index
Provider"), which is comprised of the Defined Large Cap Core Index, the Defined
Mid Cap Core Index, the Defined Small Cap Core Index, the Defined Large Cap
Value Opportunities Index, the Defined Large Cap Growth Opportunities Index, the
Defined Multi Cap Value Index and the Defined Multi Cap Growth Index. First
Trust Advisors L.P. ("First Trust") is the investment adviser for the Funds.
WHO SHOULD INVEST IN THE FUNDS
The Funds are designed for investors who seek a relatively low-cost approach for
investing in a portfolio of equity securities of companies in one or more of the
indices within the Defined Index Series. The Funds may be suitable for long-term
investment in the markets represented by the Defined Index Series and may also
be used as an asset allocation tool or as a speculative trading instrument.
TAX EFFICIENT PRODUCT STRUCTURE
Unlike many conventional mutual funds, the Shares of each Fund are traded
throughout the day on the AMEX, whereas mutual funds are typically only bought
and sold at closing NAVs. The Shares of each Fund have been designed to be
tradable in the secondary market on the AMEX on an intra-day basis, and to be
created and redeemed principally in-kind in Creation Units at each day's next
calculated NAV. These arrangements are designed to protect ongoing shareholders
from adverse effects on the Funds that could arise from frequent cash creation
and redemption transactions. In a conventional mutual fund, redemptions can have
an adverse tax impact on taxable shareholders because of the mutual fund's need
to sell portfolio securities to obtain cash to meet fund redemptions. These
sales may generate taxable gains for the shareholders of the mutual fund,
whereas the Shares' in-kind redemption mechanism generally will not lead to a
tax event for the Funds or their ongoing shareholders
3
FIRST TRUST LARGE CAP CORE ALPHADEX(TM) FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
The First Trust Large Cap Core AlphaDEX(TM) Fund (the "Large Cap Core
AlphaDEX(TM) Fund") seeks investment results that correspond generally to the
price and yield (before the Large Cap Core AlphaDEX(TM) Fund's fees and
expenses) of an equity index called the Defined Large Cap Core Index (Symbol:
DEFILCCI) (the "Large Cap Core Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FEX."
PRINCIPAL INVESTMENT STRATEGIES
The Large Cap Core AlphaDEX(TM) Fund will normally invest at least 90% of its
total assets in common stocks that comprise the Large Cap Core Index. The Large
Cap Core AlphaDEX(TM) Fund's investment objective and the 90% investment
strategy are non-fundamental policies and require 60 days' prior written notice
to shareholders before they can be changed. As non-fundamental policies, the
Board of Trustees of the Trust can change such policies without receiving
shareholder approval.
The Large Cap Core AlphaDEX(TM) Fund, using an "indexing" investment approach,
attempts to replicate, before expenses, the performance of the Large Cap Core
Index. First Trust seeks a correlation of 0.95 or better (before fees and
expenses) between the Large Cap Core AlphaDEX(TM) Fund's performance and the
performance of the Large Cap Core Index; a figure of 1.00 would represent
perfect correlation. First Trust will regularly monitor the Large Cap Core
AlphaDEX(TM) Fund's tracking accuracy and will use the investment techniques
described below in seeking to maintain an appropriate correlation.
In seeking to achieve the Large Cap Core AlphaDEX(TM) Fund's investment
objective, the Large Cap Core AlphaDEX(TM) Fund generally will invest in all of
the stocks comprising the Large Cap Core Index in proportion to their weightings
in the Large Cap Core Index. However, under various circumstances, it may not be
possible or practicable to purchase all of those stocks in those weightings. In
those circumstances, the Large Cap Core AlphaDEX(TM) Fund may purchase a sample
of stocks in the Large Cap Core Index. There may also be instances in which
First Trust may choose to overweight certain stocks in the Large Cap Core Index,
purchase securities not in the Large Cap Core Index which First Trust believes
are appropriate to substitute for certain securities in the Large Cap Core
Index, use futures or other derivative instruments, or utilize various
combinations of the above techniques in seeking to track the Large Cap Core
Index. The Large Cap Core AlphaDEX(TM) Fund may sell stocks that are represented
in the Large Cap Core Index in anticipation of their removal from the Large Cap
Core Index or purchase stocks not represented in the Large Cap Core Index in
anticipation of their addition to the Large Cap Core Index.
INDEX CONSTRUCTION
The Large Cap Core Index is a modified equal-dollar weighted index designed by
S&P to objectively identify and select stocks from the S&P 500 Index that may
generate positive alpha relative to traditional passive style indices through
the use of the AlphaDEX(TM) screening methodology. Alpha is an indication of how
much an investment outperforms or underperforms on a risk-adjusted basis
4
relative to its benchmark. The S&P 500 Index includes 500 leading companies in
leading industries of the U.S. economy representing approximately 75% of the
U.S. equities market. The inception date of the Large Cap Core Index was April
9, 2007. The initial divisor was created to set a benchmark value of 100.00 on
January 8, 1996. The Large Cap Core Index was created and trademarked by S&P. As
of October 31, 2007, the S&P 500 consisted of 500 stocks and the Large Cap Core
Index consisted of 371 stocks.
The Large Cap Core Index is constructed by S&P in the following manner:
1. S&P begins with the universe of stocks in the S&P 500 Index.
2a. S&P ranks all stocks in the above universe on the following growth
and value factors: three, six and 12-month price appreciation, sales to
price and one year sales growth (growth factors) and book value to price,
cash flow to price and return on assets (value factors). All stocks are
ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2b. S&P/Citigroup Growth and Value series is a family of indices
wherein each stock is classified in one of three ways: solely growth,
solely value or a blend of growth and value. For stocks that S&P/Citigroup
classified solely as growth or value, the stock receives the rank for that
style from step 2a as its selection score. For stocks that S&P/Citigroup
allocates between growth and value, the stock receives the best rank from
step 2a as its selection score.
3. For the Large Cap Core Index, stocks are then ranked according to
their selection score from step 2b. The bottom 25% of such stocks is then
eliminated and the top 75% of such stocks is selected for the Large Cap
Core Index.
4. The selected stocks are then split into quintiles based on their
score from step 3. The top ranked quintile receives 5/15 (33.3%) of the
portfolio weight with successive quintiles receiving 4/15 (26.7%), 3/15
(20.0%), 2/15 (13.3%) and 1/15 (6.7%), respectively. Stocks are equally
weighted within each quintile.
The Large Cap Core Index is rebalanced and reconstituted on the last business
day of each calendar quarter. Changes will be effective at the open on the sixth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Large Cap Core Index is reallocated pro-rata among the
remaining index constituents. Spin-offs are not included in the Large Cap Core
Index. The value of the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the
Large Cap Core Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Large Cap Core AlphaDEX(TM)
Fund will change in value, and loss of money is a risk of investing in the Large
Cap Core AlphaDEX(TM) Fund. The Large Cap Core AlphaDEX(TM) Fund may not achieve
its objective. An investment in the Large Cap Core AlphaDEX(TM) Fund is not a
deposit with a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. An investment in the Large
Cap Core AlphaDEX(TM) Fund involves risks similar to those of investing in any
fund of equity securities traded on an exchange. The following specific risk
5
factors have been identified as the principal risks of investing in the Large
Cap Core AlphaDEX(TM) Fund.
MARKET RISK
One of the principal risks of investing in the Large Cap Core AlphaDEX(TM) Fund
is market risk. Market risk is the risk that a particular stock owned by the
Large Cap Core AlphaDEX(TM) Fund, Shares of the Large Cap Core AlphaDEX(TM) Fund
or stocks in general may fall in value. Shares are subject to market
fluctuations caused by such factors as economic, political, regulatory or market
developments, changes in interest rates and perceived trends in stock prices.
Overall stock values could decline generally or could underperform other
investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Large Cap Core Index.
NON-CORRELATION RISK
The Large Cap Core AlphaDEX(TM) Fund's return may not match the return of the
Large Cap Core Index for a number of reasons. For example, the Large Cap Core
AlphaDEX(TM) Fund incurs operating expenses not applicable to the Large Cap Core
Index, and may incur costs in buying and selling securities, especially when
rebalancing the Large Cap Core AlphaDEX(TM) Fund's portfolio holdings to reflect
changes in the composition of the Large Cap Core Index. In addition, the Large
Cap Core AlphaDEX(TM) Fund's portfolio holdings may not exactly replicate the
securities included in the Large Cap Core Index or the ratios between the
securities included in the Large Cap Core Index.
The Large Cap Core AlphaDEX(TM) Fund may not be fully invested at times, either
as a result of cash flows into the Large Cap Core AlphaDEX(TM) Fund or reserves
of cash held by the Large Cap Core AlphaDEX(TM) Fund to meet redemptions and
expenses. If the Large Cap Core AlphaDEX(TM) Fund utilizes a sampling approach
or invests in futures or other derivative positions, its return may not
correlate as well with the return of the Large Cap Core Index, as would be the
case if it purchased all of the stocks in the Large Cap Core Index with the same
weightings as the Large Cap Core Index. While First Trust seeks to have a
correlation of 0.95 or better, before fees and expenses, between the Large Cap
Core AlphaDEX(TM) Fund's performance and the performance of the Large Cap Core
Index, there can be no assurance that the Large Cap Core AlphaDEX(TM) Fund will
be able to achieve such a correlation. Accordingly, the Large Cap Core
AlphaDEX(TM) Fund's performance may correlate to a lesser extent and may
possibly vary substantially from the performance of the Large Cap Core Index.
REPLICATION MANAGEMENT RISK
The Large Cap Core AlphaDEX(TM) Fund is also exposed to additional market risk
due to its policy of investing principally in the securities included in the
Large Cap Core Index. As a result of this policy, securities held by the Large
Cap Core AlphaDEX(TM) 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 Large Cap Core AlphaDEX(TM) Fund 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 the Large Cap
Core Index.
INTELLECTUAL PROPERTY RISK.
The Large Cap Core AlphaDEX(TM) Fund relies on a license and related sublicense
that permits the Large Cap Core AlphaDEX(TM) Fund to use its corresponding
equity index in the Defined Index Series and associated trade names and
trademarks ("Intellectual Property") in connection with the name and investment
strategies of the Large Cap Core AlphaDEX(TM) Fund. Such license and related
6
sublicense may be terminated by the Index Provider and, as a result, the Large
Cap Core AlphaDEX(TM) Fund may lose its ability to use the Intellectual
Property. There is also no guarantee that the Index Provider has all rights to
license the Intellectual Property to First Trust Portfolios L.P. ("FTP"), on
behalf of First Trust and the Large Cap Core AlphaDEX(TM) Fund. Accordingly, in
the event the license is terminated or the Index Provider does not have rights
to license the Intellectual Property, it may have a significant effect on the
operation of the Large Cap Core AlphaDEX(TM) Fund.
ISSUER SPECIFIC CHANGES RISK.
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.
CONCENTRATION RISK.
The Large Cap Core AlphaDEX(TM) Fund will be concentrated in the securities of a
given industry if the Large Cap Core Index is concentrated in such industry. A
concentration makes the Large Cap Core AlphaDEX(TM) Fund more susceptible to any
single occurrence affecting the industry and may subject the Large Cap Core
AlphaDEX(TM) Fund to greater market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Large Cap Core AlphaDEX(TM) Fund is classified as "non-diversified" under
the Investment Company Act of 1940, as amended (the "1940 Act"). As a result,
the Large Cap Core AlphaDEX(TM) 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 (the "Internal Revenue Code"). Because the Large Cap Core AlphaDEX(TM)
Fund may invest a relatively high percentage of its assets in a limited number
of issuers, the Large Cap Core AlphaDEX(TM) Fund may be more susceptible to any
single economic, political or regulatory occurrence and to the financial
conditions of the issuers in which it invests.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
7
FIRST TRUST MID CAP CORE ALPHADEX(TM) FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
The First Trust Mid Cap Core AlphaDEX(TM) Fund (the "Mid Cap Core AlphaDEX(TM)
Fund") seeks investment results that correspond generally to the price and yield
(before the Mid Cap Core AlphaDEX(TM) Fund's fees and expenses) of an equity
index called the Defined Mid Cap Core Index (Symbol: DEFIMCCI) (the "Mid Cap
Core Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FNX."
PRINCIPAL INVESTMENT STRATEGIES
The Mid Cap Core AlphaDEX(TM) Fund will normally invest at least 90% of its
total assets in common stocks that comprise the Mid Cap Core Index. The Mid Cap
Core AlphaDEX(TM) Fund's investment objective and the 90% investment strategy
are non-fundamental and require 60 days' prior written notice to shareholders
before they can be changed. As non-fundamental policies, the Board of Trustees
of the Trust can change such policies without receiving shareholder approval.
The Mid Cap Core AlphaDEX(TM) Fund, using an "indexing" investment approach,
attempts to replicate, before expenses, the performance of the Mid Cap Core
Index. First Trust seeks a correlation of 0.95 or better (before fees and
expenses) between the Mid Cap Core AlphaDEX(TM) Fund's performance and the
performance of the Mid Cap Core Index; a figure of 1.00 would represent perfect
correlation. First Trust will regularly monitor the Mid Cap Core AlphaDEX(TM)
Fund's tracking accuracy and will use the investment techniques described below
in seeking to maintain an appropriate correlation.
In seeking to achieve the Mid Cap Core AlphaDEX(TM) Fund's investment objective,
the Mid Cap Core AlphaDEX(TM) Fund generally will invest in all of the stocks
comprising the Mid Cap Core Index in proportion to their weightings in the Mid
Cap Core Index. However, under various circumstances, it may not be possible or
practicable to purchase all of those stocks in those weightings. In those
circumstances, the Mid Cap Core AlphaDEX(TM) Fund may purchase a sample of
stocks in the Mid Cap Core Index. There may also be instances in which First
Trust may choose to overweight certain stocks in the Mid Cap Core Index,
purchase securities not in the Mid Cap Core Index which First Trust believes are
appropriate to substitute for certain securities in the Mid Cap Core Index, use
futures or other derivative instruments, or utilize various combinations of the
above techniques in seeking to track the Mid Cap Core Index. The Mid Cap Core
AlphaDEX(TM) Fund may sell stocks that are represented in the Mid Cap Core Index
in anticipation of their removal from the Mid Cap Core Index or purchase stocks
not represented in the Mid Cap Core Index in anticipation of their addition to
the Mid Cap Core Index.
INDEX CONSTRUCTION
The Mid Cap Core Index is a modified equal-dollar weighted index designed by S&P
to objectively identify and select stocks from the S&P MidCap 400 Index that may
generate positive alpha relative to traditional passive style indices through
the use of the AlphaDEX(TM) screening methodology. Alpha is an indication of how
much an investment outperforms or underperforms on a risk-adjusted basis
8
relative to its benchmark. The S&P MidCap 400 Index includes 400 stocks selected
on market capitalization, liquidity and industry representation covering over 7%
of the U.S. equities market. The inception date of the Mid Cap Core Index was
April 9, 2007. The initial divisor was created to set a benchmark value of
100.00 on January 8, 1996. The Mid Cap Core Index was created and trademarked by
S&P. As of October 31, 2007, the S&P MidCap 400 Index consisted of 400 stocks
and the Mid Cap Core Index consisted of 297 stocks.
The Mid Cap Core Index is constructed by S&P in the following manner:
1. S&P begins with the universe of stocks in the S&P MidCap 400 Index.
2a. S&P ranks all stocks in the above universe on the following growth
and value factors: three, six and 12-month price appreciation, sales to
price and one year sales growth (growth factors) and book value to price,
cash flow to price and return on assets (value factors). All stocks are
ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2b. S&P/Citigroup Growth and Value series is a family of indices
wherein each stock is classified in one of three ways: solely growth,
solely value or a blend of growth and value. For stocks that S&P/Citigroup
classified solely as growth or value, the stock receives the rank for that
style from step 2a as its selection score. For stocks that S&P/Citigroup
allocates between growth and value, the stock receives the best rank from
step 2a as its selection score.
3. For the Mid Cap Core Index, stocks are ranked according to their
selection score from step 2b. The bottom 25% of such stocks is then
eliminated and the top 75% of such stocks is selected for the Mid Cap Core
Index.
4. The selected stocks are then split into quintiles based on their
score from step 3. The top ranked quintile receives 5/15 (33.3%) of the
portfolio weight with successive quintiles receiving 4/15 (26.7%), 3/15
(20.0%), 2/15 (13.3%) and 1/15 (6.7%), respectively. Stocks are equally
weighted within each quintile.
The Mid Cap Core Index is rebalanced and reconstituted on the last business day
of each calendar quarter. Changes will be effective at the open on the sixth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Mid Cap Core Index is reallocated pro-rata among the
remaining index constituents. Spin-offs are not included in the Mid Cap Core
Index. The value of the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the Mid
Cap Core Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Mid Cap Core AlphaDEX(TM)
Fund will change in value, and loss of money is a risk of investing in the Mid
Cap Core AlphaDEX(TM) Fund. The Mid Cap Core AlphaDEX(TM) Fund may not achieve
its objective. An investment in the Mid Cap Core AlphaDEX(TM) Fund is not a
deposit with a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. An investment in the Mid
Cap Core AlphaDEX(TM) Fund involves risks similar to those of investing in any
fund of equity securities traded on an exchange. The following specific risk
9
factors have been identified as the principal risks of investing in the Mid Cap
Core AlphaDEX(TM) Fund.
MARKET RISK
One of the principal risks of investing in the Mid Cap Core AlphaDEX(TM) Fund is
market risk. Market risk is the risk that a particular stock owned by the Mid
Cap Core AlphaDEX(TM) Fund, Shares of the Mid Cap Core AlphaDEX(TM) Fund or
stocks in general may fall in value. Shares are subject to market fluctuations
caused by such factors as economic, political, regulatory or market
developments, changes in interest rates and perceived trends in stock prices.
Overall stock values could decline generally or could underperform other
investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Mid Cap Core Index.
NON-CORRELATION RISK
The Mid Cap Core AlphaDEX(TM) Fund's return may not match the return of the Mid
Cap Core Index for a number of reasons. For example, the Mid Cap Core
AlphaDEX(TM) Fund incurs operating expenses not applicable to the Mid Cap Core
Index, and may incur costs in buying and selling securities, especially when
rebalancing the Mid Cap Core AlphaDEX(TM) Fund's portfolio holdings to reflect
changes in the composition of the Mid Cap Core Index. In addition, the Mid Cap
Core AlphaDEX(TM) Fund's portfolio holdings may not exactly replicate the
securities included in the Mid Cap Core Index or the ratios between the
securities included in the Mid Cap Core Index.
The Mid Cap Core AlphaDEX(TM) Fund may not be fully invested at times, either as
a result of cash flows into the Mid Cap Core AlphaDEX(TM) Fund or reserves of
cash held by the Mid Cap Core AlphaDEX(TM) Fund to meet redemptions and
expenses. If the Mid Cap Core AlphaDEX(TM) Fund utilizes a sampling approach or
invests in futures or other derivative positions, its return may not correlate
as well with the return of the Mid Cap Core Index, as would be the case if it
purchased all of the stocks in the Mid Cap Core Index with the same weightings
as the Mid Cap Core Index. While First Trust seeks to have a correlation of 0.95
or better, before fees and expenses, between the Mid Cap Core AlphaDEX(TM)
Fund's performance and the performance of the Mid Cap Core Index, there can be
no assurance that the Mid Cap Core AlphaDEX(TM) Fund will be able to achieve
such a correlation. Accordingly, the Mid Cap Core AlphaDEX(TM) Fund's
performance may correlate to a lesser extent and may possibly vary substantially
from the performance of the Mid Cap Core Index.
REPLICATION MANAGEMENT RISK
The Mid Cap Core AlphaDEX(TM) Fund is also exposed to additional market risk due
to its policy of investing principally in the securities included in the Mid Cap
Core Index. As a result of this policy, securities held by the Mid Cap Core
AlphaDEX(TM) 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 Mid Cap Core AlphaDEX(TM) Fund 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 the Mid Cap
Core Index.
INTELLECTUAL PROPERTY RISK.
The Mid Cap Core AlphaDEX(TM) Fund relies on a license and related sublicense
that permits the Mid Cap Core AlphaDEX(TM) Fund to use its corresponding equity
index in the Defined Index Series and the Intellectual Property in connection
with the name and investment strategies of the Mid Cap Core AlphaDEX(TM) Fund.
Such license and related sublicense may be terminated by the Index Provider and,
10
as a result, the Mid Cap Core AlphaDEX(TM) Fund may lose its ability to use the
Intellectual Property. There is also no guarantee that the Index Provider has
all rights to license the Intellectual Property to FTP, on behalf of First Trust
and the Mid Cap Core AlphaDEX(TM) Fund. Accordingly, in the event the license is
terminated or the Index Provider does not have rights to license the
Intellectual Property, it may have a significant effect on the operation of the
Mid Cap Core AlphaDEX(TM) Fund.
ISSUER SPECIFIC CHANGES RISK.
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. The value of securities of smaller issuers can be more
volatile than that of larger issuers.
CONCENTRATION RISK.
The Mid Cap Core AlphaDEX(TM) Fund will be concentrated in the securities of a
given industry if the Mid Cap Core Index is concentrated in such industry. A
concentration makes the Mid Cap Core AlphaDEX(TM) Fund more susceptible to any
single occurrence affecting the industry and may subject the Mid Cap Core
AlphaDEX(TM) Fund to greater market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Mid Cap Core AlphaDEX(TM) Fund is classified as "non-diversified" under the
1940 Act. As a result, the Mid Cap Core AlphaDEX(TM) 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.
Because the Mid Cap Core AlphaDEX(TM) Fund may invest a relatively high
percentage of its assets in a limited number of issuers, the Mid Cap Core
AlphaDEX(TM) Fund may be more susceptible to any single economic, political or
regulatory occurrence and to the financial conditions of the issuers in which it
invests.
MID CAP COMPANY RISK
The Mid Cap Core AlphaDEX(TM) Fund invests in mid capitalization companies. Such
companies may be more vulnerable to adverse general market or economic
developments, and their securities may be less liquid and may experience greater
price volatility than larger, more established companies as a result of several
factors, including limited trading volumes, products or financial resources,
management inexperience and less publicly available information. Accordingly,
such companies are generally subject to greater market risk than larger, more
established companies.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
11
FIRST TRUST SMALL CAP CORE ALPHADEX(TM) FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
The First Trust Small Cap Core AlphaDEX(TM) Fund (the "Small Cap Core
AlphaDEX(TM) Fund") seeks investment results that correspond generally to the
price and yield (before the Small Cap Core AlphaDEX(TM) Fund's fees and
expenses) of an equity index called the Defined Small Cap Core Index (Symbol:
DEFISCCI) (the "Small Cap Core Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FYX."
PRINCIPAL INVESTMENT STRATEGIES
The Small Cap Core AlphaDEX(TM) Fund will normally invest at least 90% of its
total assets in common stocks that comprise the Small Cap Core Index. The Small
Cap Core AlphaDEX(TM) Fund's investment objective and the 90% investment
strategy are non-fundamental policies and require 60 days' prior written notice
to shareholders before they can be changed. As non-fundamental policies, the
Board of Trustees of the Trust can change such policies without receiving
shareholder approval.
The Small Cap Core AlphaDEX(TM) Fund, using an "indexing" investment approach,
attempts to replicate, before expenses, the performance of the Small Cap Core
Index. First Trust seeks a correlation of 0.95 or better (before fees and
expenses) between the Small Cap Core AlphaDEX(TM) Fund's performance and the
performance of the Small Cap Core Index; a figure of 1.00 would represent
perfect correlation. First Trust will regularly monitor the Small Cap Core
AlphaDEX(TM) Fund's tracking accuracy and will use the investment techniques
described below in seeking to maintain an appropriate correlation.
In seeking to achieve the Small Cap Core AlphaDEX(TM) Fund's investment
objective, the Small Cap Core AlphaDEX(TM) Fund generally will invest in all of
the stocks comprising the Small Cap Core Index in proportion to their weightings
in the Small Cap Core Index. However, under various circumstances, it may not be
possible or practicable to purchase all of those stocks in those weightings. In
those circumstances, the Small Cap Core AlphaDEX(TM) Fund may purchase a sample
of stocks in the Small Cap Core Index. There may also be instances in which
First Trust may choose to overweight certain stocks in the Small Cap Core Index,
purchase securities not in the Small Cap Core Index which First Trust believes
are appropriate to substitute for certain securities in the Small Cap Core
Index, use futures or other derivative instruments, or utilize various
combinations of the above techniques in seeking to track the Small Cap Core
Index. The Small Cap Core AlphaDEX(TM) Fund may sell stocks that are represented
in the Small Cap Core Index in anticipation of their removal from the Small Cap
Core Index or purchase stocks not represented in the Small Cap Core Index in
anticipation of their addition to the Small Cap Core Index.
INDEX CONSTRUCTION
The Small Cap Core Index is a modified equal-dollar weighted index designed by
S&P to objectively identify and select stocks from the S&P SmallCap 600 Index
that may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
12
risk-adjusted basis relative to its benchmark. The S&P SmallCap 600 Index
includes 600 stocks selected on size, financial viability, liquidity, adequate
float size and other trading requirements covering 3%-4% of the U.S. equities
market. The inception date of the Small Cap Core Index was April 9, 2007. The
initial divisor was created to set a benchmark value of 100.00 on January 8,
1996. The Small Cap Core Index was created and trademarked by S&P. As of October
31, 2007, the S&P SmallCap 600 Index consisted of 600 stocks and the Small Cap
Core Index consisted of 447 stocks.
The Small Cap Core Index is constructed by S&P in the following manner:
1. S&P begins with the universe of stocks in the S&P SmallCap 600
Index.
2a. S&P ranks all stocks in the above universe on the following growth
and value factors: three, six and 12-month price appreciation, sales to
price and one year sales growth (growth factors) and book value to price,
cash flow to price and return on assets (value factors). All stocks are
ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2b. S&P/Citigroup Growth and Value series is a family of indices
wherein each stock is classified in one of three ways: solely growth,
solely value or a blend of growth and value. For stocks that S&P/Citigroup
classified solely as growth or value, the stock receives the rank for that
style from step 2a as its selection score. For stocks that S&P/Citigroup
allocates between growth and value, the stock receives the best rank from
step 2a as its selection score.
3. For the Small Cap Core Index, stocks are then ranked according to
their selection score from step 2b. The bottom 25% of such stocks is then
eliminated and the top 75% of such stocks is selected for the Small Cap
Core Index.
4. The selected stocks are then split into quintiles based on their
score from step 3. The top ranked quintile receives 5/15 (33.3%) of the
portfolio weight with successive quintiles receiving 4/15 (26.7%), 3/15
(20.0%), 2/15 (13.3%) and 1/15 (6.7%), respectively. Stocks are equally
weighted within each quintile.
The Small Cap Core Index is rebalanced and reconstituted on the last business
day of each calendar quarter. Changes will be effective at the open on the sixth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Small Cap Core Index is reallocated pro-rata among the
remaining index constituents. Spin-offs are not included in the Small Cap Core
Index. The value of the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the
Small Cap Core Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Small Cap Core AlphaDEX(TM)
Fund will change in value, and loss of money is a risk of investing in the Small
Cap Core AlphaDEX(TM) Fund. The Small Cap Core AlphaDEX(TM) Fund may not achieve
its objective. An investment in the Small Cap Core AlphaDEX(TM) Fund is not a
deposit with a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. An investment in the Small
13
Cap Core AlphaDEX(TM) Fund involves risks similar to those of investing in any
fund of equity securities traded on an exchange. The following specific risk
factors have been identified as the principal risks of investing in the Small
Cap Core AlphaDEX(TM) Fund.
MARKET RISK
One of the principal risks of investing in the Small Cap Core AlphaDEX(TM) Fund
is market risk. Market risk is the risk that a particular stock owned by the
Small Cap Core AlphaDEX(TM) Fund, Shares of the Small Cap Core AlphaDEX(TM) Fund
or stocks in general may fall in value. Shares are subject to market
fluctuations caused by such factors as economic, political, regulatory or market
developments, changes in interest rates and perceived trends in stock prices.
Overall stock values could decline generally or could underperform other
investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Small Cap Core Index.
NON-CORRELATION RISK
The Small Cap Core AlphaDEX(TM) Fund's return may not match the return of the
Small Cap Core Index for a number of reasons. For example, the Small Cap Core
AlphaDEX(TM) Fund incurs operating expenses not applicable to the Small Cap Core
Index, and may incur costs in buying and selling securities, especially when
rebalancing the Small Cap Core AlphaDEX(TM) Fund's portfolio holdings to reflect
changes in the composition of the Small Cap Core Index. In addition, the Small
Cap Core AlphaDEX(TM) Fund's portfolio holdings may not exactly replicate the
securities included in the Small Cap Core Index or the ratios between the
securities included in the Small Cap Core Index.
The Small Cap Core AlphaDEX(TM) Fund may not be fully invested at times, either
as a result of cash flows into the Small Cap Core AlphaDEX(TM) Fund or reserves
of cash held by the Small Cap Core AlphaDEX(TM) Fund to meet redemptions and
expenses. If the Small Cap Core AlphaDEX(TM) Fund utilizes a sampling approach
or invests in futures or other derivative positions, its return may not
correlate as well with the return of the Small Cap Core Index, as would be the
case if it purchased all of the stocks in the Small Cap Core Index with the same
weightings as the Small Cap Core Index. While First Trust seeks to have a
correlation of 0.95 or better, before fees and expenses, between the Small Cap
Core AlphaDEX(TM) Fund's performance and the performance of the Small Cap Core
Index, there can be no assurance that the Small Cap Core AlphaDEX(TM) Fund will
be able to achieve such a correlation. Accordingly, the Small Cap Core
AlphaDEX(TM) Fund's performance may correlate to a lesser extent and may
possibly vary substantially from the performance of the Small Cap Core Index.
REPLICATION MANAGEMENT RISK
The Small Cap Core AlphaDEX(TM) Fund is also exposed to additional market risk
due to its policy of investing principally in the securities included in the
Small Cap Core Index. As a result of this policy, securities held by the Small
Cap Core AlphaDEX(TM) 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 Small Cap Core AlphaDEX(TM) Fund 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 the Small Cap
Core Index.
INTELLECTUAL PROPERTY RISK.
The Small Cap Core AlphaDEX(TM) Fund relies on a license and related sublicense
that permits the Small Cap Core AlphaDEX(TM) Fund to use its corresponding
equity index in the Defined Index Series and the Intellectual Property in
connection with the name and investment strategies of the Small Cap Core
14
AlphaDEX(TM) Fund. Such license and related sublicense may be terminated by the
Index Provider and, as a result, the Small Cap Core AlphaDEX(TM) Fund may lose
its ability to use the Intellectual Property. There is also no guarantee that
the Index Provider has all rights to license the Intellectual Property to FTP,
on behalf of First Trust and the Small Cap Core AlphaDEX(TM) Fund. Accordingly,
in the event the license is terminated or the Index Provider does not have
rights to license the Intellectual Property, it may have a significant effect on
the operation of the Small Cap Core AlphaDEX(TM) Fund.
ISSUER SPECIFIC CHANGES RISK.
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. The value of securities of smaller issuers can be more
volatile than that of larger issuers.
CONCENTRATION RISK.
The Small Cap Core AlphaDEX(TM) Fund will be concentrated in the securities of a
given industry if the Small Cap Core Index is concentrated in such industry. A
concentration makes the Small Cap Core AlphaDEX(TM) Fund more susceptible to any
single occurrence affecting the industry and may subject the Small Cap Core
AlphaDEX(TM) Fund to greater market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Small Cap Core AlphaDEX(TM) Fund is classified as "non-diversified" under
the 1940 Act. As a result, the Small Cap Core AlphaDEX(TM) 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. Because the Small Cap Core AlphaDEX(TM) Fund may invest a
relatively high percentage of its assets in a limited number of issuers, the
Small Cap Core AlphaDEX(TM) Fund may be more susceptible to any single economic,
political or regulatory occurrence and to the financial conditions of the
issuers in which it invests.
SMALL CAP COMPANY RISK
The Small Cap Core AlphaDEX(TM) Fund invests in small capitalization companies.
Such companies may be more vulnerable to adverse general market or economic
developments, and their securities may be less liquid and may experience greater
price volatility than larger, more established companies as a result of several
factors, including limited trading volumes, products or financial resources,
management inexperience and less publicly available information. Accordingly,
such companies are generally subject to greater market risk than larger, more
established companies.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks
15
FIRST TRUST LARGE CAP VALUE OPPORTUNITIES ALPHADEX(TM) FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
The First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund (the "Large Cap
Value Opportunities AlphaDEX(TM) Fund") seeks investment results that correspond
generally to the price and yield (before the Large Cap Value Opportunities
AlphaDEX(TM) Fund's fees and expenses) of an equity index called the Defined
Large Cap Value Opportunities Index (Symbol: DEFILVOI) (the "Large Cap Value
Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FTA."
PRINCIPAL INVESTMENT STRATEGIES
The Large Cap Value Opportunities AlphaDEX(TM) Fund will normally invest at
least 90% of its total assets in common stocks that comprise the Large Cap Value
Index. The Large Cap Value Opportunities AlphaDEX(TM) Fund's investment
objective and the 90% investment strategy are non-fundamental policies and
require 60 days' prior written notice to shareholders before they can be
changed. As non-fundamental policies, the Board of Trustees of the Trust can
change such policies without receiving shareholder approval.
The Large Cap Value Opportunities AlphaDEX(TM) Fund, using an "indexing"
investment approach, attempts to replicate, before expenses, the performance of
the Large Cap Value Index. First Trust seeks a correlation of 0.95 or better
(before fees and expenses) between the Large Cap Value Opportunities
AlphaDEX(TM) Fund's performance and the performance of the Large Cap Value
Index; a figure of 1.00 would represent perfect correlation. First Trust will
regularly monitor the Large Cap Value Opportunities AlphaDEX(TM) Fund's tracking
accuracy and will use the investment techniques described below in seeking to
maintain an appropriate correlation.
In seeking to achieve the Large Cap Value Opportunities AlphaDEX(TM) Fund's
investment objective, the Large Cap Value Opportunities AlphaDEX(TM) Fund
generally will invest in all of the stocks comprising the Large Cap Value Index
in proportion to their weightings in the Large Cap Value Index. However, under
various circumstances, it may not be possible or practicable to purchase all of
those stocks in those weightings. In those circumstances, the Large Cap Value
Opportunities AlphaDEX(TM) Fund may purchase a sample of stocks in the Large Cap
Value Index. There may also be instances in which First Trust may choose to
overweight certain stocks in the Large Cap Value Index, purchase securities not
in the Large Cap Value Index which First Trust believes are appropriate to
substitute for certain securities in the Large Cap Value Index, use futures or
other derivative instruments, or utilize various combinations of the above
techniques in seeking to track the Large Cap Value Index. The Large Cap Value
Opportunities AlphaDEX(TM) Fund may sell stocks that are represented in the
Large Cap Value Index in anticipation of their removal from the Large Cap Value
Index or purchase stocks not represented in the Large Cap Value Index in
anticipation of their addition to the Large Cap Value Index.
16
INDEX CONSTRUCTION
The Large Cap Value Index is a modified equal-dollar weighted index designed by
S&P to objectively identify and select stocks from the S&P 500/Citigroup Value
Index that may generate positive alpha relative to traditional passive style
indices through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark. The S&P 500/Citigroup Value Index
includes certain stocks within the S&P 500 Index selected on value factors. The
inception date of the Large Cap Value Index was April 9, 2007. The initial
divisor was created to set a benchmark value of 100.00 on January 8, 1996. The
Large Cap Value Index was created and trademarked by S&P. As of October 31,
2007, the S&P 500/Citigroup Value Index consisted of 347 stocks and the Large
Cap Value Index consisted of 193 stocks.
The Large Cap Value Index is constructed by S&P in the following manner:
1. S&P ranks all stocks in the S&P 500/Citigroup Value Index against
all the stocks in the S&P 500 Index on the following growth and value
factors: three, six and 12-month price appreciation, sales to price and one
year sales growth (growth factors) and book value to price, cash flow to
price and return on assets (value factors). All stocks are ranked on the
sum of ranks for the growth factors and, separately, all stocks are ranked
on the sum of ranks for the value factors.
2. S&P/Citigroup Growth and Value series is a family of indices wherein
each stock is classified in one of three ways: solely growth, solely value
or a blend of growth and value. For stocks that S&P/Citigroup classified
solely as growth or value, the stock receives the rank for that style from
step 1 as its selection score. Stocks that S&P/Citigroup classified solely
as growth are not eligible for inclusion in the Large Cap Value Index. For
stocks that S&P/Citigroup allocates between growth and value, the stock
receives the best rank from step 1 as its selection score and is treated as
belonging solely to the style of its best rank henceforth in the selection
process. Stocks that S&P/Citigroup allocates between growth and value are
not eligible for inclusion in the Large Cap Value Index if their growth
scores are better than their value scores.
3. For the Large Cap Value Index, remaining stocks are then ranked
according to their selection score from step 2. The bottom 25% of such
remaining stocks is then eliminated and the top 75% of such stocks is
selected for the Large Cap Value Index.
4. The selected stocks are then split into quintiles based on their
score from step 3. The top ranked quintile receives 5/15 (33.3%) of the
portfolio weight with successive quintiles receiving 4/15 (26.7%), 3/15
(20.0%), 2/15 (13.3%) and 1/15 (6.7%), respectively. Stocks are equally
weighted within each quintile.
The Large Cap Value Index is rebalanced and reconstituted on the last business
day of each calendar quarter. Changes will be effective at the open on the sixth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Large Cap Value Index is reallocated pro-rata among the
remaining index constituents. Spin-offs are not included in the Large Cap Value
Index. The value of the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the
Large Cap Value Index.
17
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Large Cap Value
Opportunities AlphaDEX(TM) Fund will change in value, and loss of money is a
risk of investing in the Large Cap Value Opportunities AlphaDEX(TM) Fund. The
Large Cap Value Opportunities AlphaDEX(TM) Fund may not achieve its objective.
An investment in the Large Cap Value Opportunities AlphaDEX(TM) Fund is not a
deposit with a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. An investment in the Large
Cap Value Opportunities AlphaDEX(TM) Fund involves risks similar to those of
investing in any fund of equity securities traded on an exchange. The following
specific risk factors have been identified as the principal risks of investing
in the Large Cap Value Opportunities AlphaDEX(TM) Fund.
MARKET RISK
One of the principal risks of investing in the Large Cap Value Opportunities
AlphaDEX(TM) Fund is market risk. Market risk is the risk that a particular
stock owned by the Large Cap Value Opportunities AlphaDEX(TM) Fund, Shares of
the Large Cap Value Opportunities AlphaDEX(TM) Fund or stocks in general may
fall in value. Shares are subject to market fluctuations caused by such factors
as economic, political, regulatory or market developments, changes in interest
rates and perceived trends in stock prices. Overall stock values could decline
generally or could underperform other investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Large Cap Value Index.
NON-CORRELATION RISK
The Large Cap Value Opportunities AlphaDEX(TM) Fund's return may not match the
return of the Large Cap Value Index for a number of reasons. For example, the
Large Cap Value Opportunities AlphaDEX(TM) Fund incurs operating expenses not
applicable to the Large Cap Value Index, and may incur costs in buying and
selling securities, especially when rebalancing the Large Cap Value
Opportunities AlphaDEX(TM) Fund's portfolio holdings to reflect changes in the
composition of the Large Cap Value Index. In addition, the Large Cap Value
Opportunities AlphaDEX(TM) Fund's portfolio holdings may not exactly replicate
the securities included in the Large Cap Value Index or the ratios between the
securities included in the Large Cap Value Index.
The Large Cap Value Opportunities AlphaDEX(TM) Fund may not be fully invested at
times, either as a result of cash flows into the Large Cap Value Opportunities
AlphaDEX(TM) Fund or reserves of cash held by the Large Cap Value Opportunities
AlphaDEX(TM) Fund to meet redemptions and expenses. If the Large Cap Value
Opportunities AlphaDEX(TM) Fund utilizes a sampling approach or invests in
futures or other derivative positions, its return may not correlate as well with
the return of the Large Cap Value Index, as would be the case if it purchased
all of the stocks in the Large Cap Value Index with the same weightings as the
Large Cap Value Index. While First Trust seeks to have a correlation of 0.95 or
better, before fees and expenses, between the Large Cap Value Opportunities
AlphaDEX(TM) Fund's performance and the performance of the Large Cap Value
Index, there can be no assurance that the Large Cap Value Opportunities
AlphaDEX(TM) Fund will be able to achieve such a correlation. Accordingly, the
Large Cap Value Opportunities AlphaDEX(TM) Fund's performance may correlate to a
lesser extent and may possibly vary substantially from the performance of the
Large Cap Value Index.
REPLICATION MANAGEMENT RISK
The Large Cap Value Opportunities AlphaDEX(TM) Fund is also exposed to
additional market risk due to its policy of investing principally in the
securities included in the Large Cap Value Index. As a result of this policy,
securities held by the Large Cap Value Opportunities AlphaDEX(TM) Fund will
18
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 Large Cap Value Opportunities AlphaDEX(TM) Fund 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 the Large Cap Value Index.
INTELLECTUAL PROPERTY RISK.
The Large Cap Value Opportunities AlphaDEX(TM) Fund relies on a license and
related sublicense that permits the Large Cap Value Opportunities AlphaDEX(TM)
Fund to use its corresponding equity index in the Defined Index Series and the
Intellectual Property in connection with the name and investment strategies of
the Large Cap Value Opportunities AlphaDEX(TM) Fund. Such license and related
sublicense may be terminated by the Index Provider and, as a result, the Large
Cap Value Opportunities AlphaDEX(TM) Fund may lose its ability to use the
Intellectual Property. There is also no guarantee that the Index Provider has
all rights to license the Intellectual Property to FTP, on behalf of First Trust
and the Large Cap Value Opportunities AlphaDEX(TM) Fund. Accordingly, in the
event the license is terminated or the Index Provider does not have rights to
license the Intellectual Property, it may have a significant effect on the
operation of the Large Cap Value Opportunities AlphaDEX(TM) Fund.
ISSUER SPECIFIC CHANGES RISK.
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.
CONCENTRATION RISK.
The Large Cap Value Opportunities AlphaDEX(TM) Fund will be concentrated in the
securities of a given industry if the Large Cap Value Index is concentrated in
such industry. A concentration makes the Large Cap Value Opportunities
AlphaDEX(TM) Fund more susceptible to any single occurrence affecting the
industry and may subject the Large Cap Value Opportunities AlphaDEX(TM) Fund to
greater market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Large Cap Value Opportunities AlphaDEX(TM) Fund is classified as
"non-diversified" under the 1940 Act. As a result, the Large Cap Value
Opportunities AlphaDEX(TM) 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. Because the
Large Cap Value Opportunities AlphaDEX(TM) Fund may invest a relatively high
percentage of its assets in a limited number of issuers, the Large Cap Value
Opportunities AlphaDEX(TM) Fund may be more susceptible to any single economic,
political or regulatory occurrence and to the financial conditions of the
issuers in which it invests.
VALUE INVESTMENT STYLE RISK.
The Large Cap Value Opportunities AlphaDEX(TM) Fund's value-oriented investment
style may not be successful in realizing the Large Cap Value Opportunities
AlphaDEX(TM) Fund's investment objective. Value companies may have experienced
adverse business developments or may be subject to special risks that cause
their securities to be out of favor, may never reach what may be their full
value or may go down in price.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
19
FIRST TRUST LARGE CAP GROWTH OPPORTUNITIES ALPHADEX(TM) FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
The First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund (the "Large Cap
Growth Opportunities AlphaDEX(TM) Fund") seeks investment results that
correspond generally to the price and yield (before the Large Cap Growth
Opportunities AlphaDEX(TM) Fund's fees and expenses) of an equity index called
the Defined Large Cap Growth Opportunities Index (Symbol: DEFILGOI) (the "Large
Cap Growth Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FTC."
PRINCIPAL INVESTMENT STRATEGIES
The Large Cap Growth Opportunities AlphaDEX(TM) Fund will normally invest at
least 90% of its total assets in common stocks that comprise the Large Cap
Growth Index. The Large Cap Growth Opportunities AlphaDEX(TM) Fund's investment
objective and the 90% investment strategy are non-fundamental policies and
require 60 days' prior written notice to shareholders before they can be
changed. As non-fundamental policies, the Board of Trustees of the Trust can
change such policies without receiving shareholder approval.
The Large Cap Growth Opportunities AlphaDEX(TM) Fund, using an "indexing"
investment approach, attempts to replicate, before expenses, the performance of
the Large Cap Growth Index. First Trust seeks a correlation of 0.95 or better
(before fees and expenses) between the Large Cap Growth Opportunities
AlphaDEX(TM) Fund's performance and the performance of the Large Cap Growth
Index; a figure of 1.00 would represent perfect correlation. First Trust will
regularly monitor the Large Cap Growth Opportunities AlphaDEX(TM) Fund's
tracking accuracy and will use the investment techniques described below in
seeking to maintain an appropriate correlation.
In seeking to achieve the Large Cap Growth Opportunities AlphaDEX(TM) Fund's
investment objective, the Large Cap Growth Opportunities AlphaDEX(TM) Fund
generally will invest in all of the stocks comprising the Large Cap Growth Index
in proportion to their weightings in the Large Cap Growth Index. However, under
various circumstances, it may not be possible or practicable to purchase all of
those stocks in those weightings. In those circumstances, the Large Cap Growth
Opportunities AlphaDEX(TM) Fund may purchase a sample of stocks in the Large Cap
Growth Index. There may also be instances in which First Trust may choose to
overweight certain stocks in the Large Cap Growth Index, purchase securities not
in the Large Cap Growth Index which First Trust believes are appropriate to
substitute for certain securities in the Large Cap Growth Index, use futures or
other derivative instruments, or utilize various combinations of the above
techniques in seeking to track the Large Cap Growth Index. The Large Cap Growth
Opportunities AlphaDEX(TM) Fund may sell stocks that are represented in the
Large Cap Growth Index in anticipation of their removal from the Large Cap
Growth Index or purchase stocks not represented in the Large Cap Growth Index in
anticipation of their addition to the Large Cap Growth Index.
20
INDEX CONSTRUCTION
The Large Cap Growth Index is a modified equal-dollar weighted index designed by
S&P to objectively identify and select stocks from the S&P 500/Citigroup Growth
Index that may generate positive alpha relative to traditional passive style
indices through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark. The S&P 500/Citigroup Growth
Index includes certain stocks within the S&P 500 Index selected on growth
factors. The inception date of the Large Cap Growth Index was April 9, 2007. The
initial divisor was created to set a benchmark value of 100.00 on January 8,
1996. The Large Cap Growth Index was created and trademarked by S&P. As of
October 31, 2007, the S&P 500/Citigroup Growth Index consisted of 318 stocks and
the Large Cap Growth Index consisted of 179 stocks.
The Large Cap Growth Index is constructed by S&P in the following manner:
1. S&P ranks all stocks in the S&P 500/Citigroup Growth Index against
all stocks in the S&P 500 Index on the following growth and value factors:
three, six and 12-month price appreciation, sales to price and one year
sales growth (growth factors) and book value to price, cash flow to price
and return on assets (value factors). All stocks are ranked on the sum of
ranks for the growth factors and, separately, all stocks are ranked on the
sum of ranks for the value factors.
2. S&P/Citigroup Growth and Value series is a family of indices wherein
each stock is classified in one of three ways: solely growth, solely value
or a blend of growth and value. For stocks that S&P/Citigroup classified
solely as growth or value, the stock receives the rank for that style from
step 1 as its selection score. Stocks that S&P/Citigroup classified solely
as value are not eligible for inclusion in the Large Cap Growth Index. For
stocks that S&P/Citigroup allocates between growth and value, the stock
receives the best rank from step 1 as its selection score and is treated as
belonging solely to the style of its best rank henceforth in the selection
process. Stocks that S&P/Citigroup allocates between growth and value are
not eligible for inclusion in the Large Cap Growth Index if their value
scores are better than their growth scores.
3. For the Large Cap Growth Index, remaining stocks are then ranked
according to their selection score from step 2. The bottom 25% of such
remaining stocks is then eliminated and the top 75% of such stocks is
selected for the Large Cap Growth Index.
4. The selected stocks are then split into quintiles based on their
score from step 3. The top ranked quintile receives 5/15 (33.3%) of the
portfolio weight with successive quintiles receiving 4/15 (26.7%), 3/15
(20.0%), 2/15 (13.3%) and 1/15 (6.7%), respectively. Stocks are equally
weighted within each quintile.
The Large Cap Growth Index is rebalanced and reconstituted on the last business
day of each calendar quarter. Changes will be effective at the open on the sixth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Large Cap Growth Index is reallocated pro-rata among the
remaining index constituents. Spin-offs are not included in the Large Cap Growth
Index. The value of the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the
Large Cap Growth Index.
21
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Large Cap Growth
Opportunities AlphaDEX(TM) Fund will change in value, and loss of money is a
risk of investing in the Large Cap Growth Opportunities AlphaDEX(TM) Fund. The
Large Cap Growth Opportunities AlphaDEX(TM) Fund may not achieve its objective.
An investment in the Large Cap Growth Opportunities AlphaDEX(TM) Fund is not a
deposit with a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. An investment in the Large
Cap Growth Opportunities AlphaDEX(TM) Fund involves risks similar to those of
investing in any fund of equity securities traded on an exchange. The following
specific risk factors have been identified as the principal risks of investing
in the Large Cap Growth Opportunities AlphaDEX(TM) Fund.
MARKET RISK
One of the principal risks of investing in the Large Cap Growth Opportunities
AlphaDEX(TM) Fund is market risk. Market risk is the risk that a particular
stock owned by the Large Cap Growth Opportunities AlphaDEX(TM) Fund, Shares of
the Large Cap Growth Opportunities AlphaDEX(TM) Fund or stocks in general may
fall in value. Shares are subject to market fluctuations caused by such factors
as economic, political, regulatory or market developments, changes in interest
rates and perceived trends in stock prices. Overall stock values could decline
generally or could underperform other investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Large Cap Growth Index.
NON-CORRELATION RISK
The Large Cap Growth Opportunities AlphaDEX(TM) Fund's return may not match the
return of the Large Cap Growth Index for a number of reasons. For example, the
Large Cap Growth Opportunities AlphaDEX(TM) Fund incurs operating expenses not
applicable to the Large Cap Growth Index, and may incur costs in buying and
selling securities, especially when rebalancing the Large Cap Growth
Opportunities AlphaDEX(TM) Fund's portfolio holdings to reflect changes in the
composition of the Large Cap Growth Index. In addition, the Large Cap Growth
Opportunities AlphaDEX(TM) Fund's portfolio holdings may not exactly replicate
the securities included in the Large Cap Growth Index or the ratios between the
securities included in the Large Cap Growth Index.
The Large Cap Growth Opportunities AlphaDEX(TM) Fund may not be fully invested
at times, either as a result of cash flows into the Large Cap Growth
Opportunities AlphaDEX(TM) Fund or reserves of cash held by the Large Cap Growth
Opportunities AlphaDEX(TM) Fund to meet redemptions and expenses. If the Large
Cap Growth Opportunities AlphaDEX(TM) Fund utilizes a sampling approach or
invests in futures or other derivative positions, its return may not correlate
as well with the return of the Large Cap Growth Index, as would be the case if
it purchased all of the stocks in the Large Cap Growth Index with the same
weightings as the Large Cap Growth Index. While First Trust seeks to have a
correlation of 0.95 or better, before fees and expenses, between the Large Cap
Growth Opportunities AlphaDEX(TM) Fund's performance and the performance of the
Large Cap Growth Index, there can be no assurance that the Large Cap Growth
Opportunities AlphaDEX(TM) Fund will be able to achieve such a correlation.
Accordingly, the Large Cap Growth Opportunities AlphaDEX(TM) Fund's performance
may correlate to a lesser extent and may possibly vary substantially from the
performance of the Large Cap Growth Index.
REPLICATION MANAGEMENT RISK
The Large Cap Growth Opportunities AlphaDEX(TM) Fund is also exposed to
additional market risk due to its policy of investing principally in the
securities included in the Large Cap Growth Index. As a result of this policy,
22
securities held by the Large Cap Growth Opportunities AlphaDEX(TM) 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 Large Cap Growth Opportunities AlphaDEX(TM) Fund 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 the Large Cap Growth
Index.
INTELLECTUAL PROPERTY RISK.
The Large Cap Growth Opportunities AlphaDEX(TM) Fund relies on a license and
related sublicense that permits the Large Cap Growth Opportunities AlphaDEX(TM)
Fund to use its corresponding equity index in the Defined Index Series and the
Intellectual Property in connection with the name and investment strategies of
the Large Cap Growth Opportunities AlphaDEX(TM) Fund. Such license and related
sublicense may be terminated by the Index Provider and, as a result, the Large
Cap Growth Opportunities AlphaDEX(TM) Fund may lose its ability to use the
Intellectual Property. There is also no guarantee that the Index Provider has
all rights to license the Intellectual Property to FTP, on behalf of First Trust
and the Large Cap Growth Opportunities AlphaDEX(TM) Fund. Accordingly, in the
event the license is terminated or the Index Provider does not have rights to
license the Intellectual Property, it may have a significant effect on the
operation of the Large Cap Growth Opportunities AlphaDEX(TM) Fund.
ISSUER SPECIFIC CHANGES RISK.
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.
CONCENTRATION RISK.
The Large Cap Growth Opportunities AlphaDEX(TM) Fund will be concentrated in the
securities of a given industry if the Large Cap Growth Index is concentrated in
such industry. A concentration makes the Large Cap Growth Opportunities
AlphaDEX(TM) Fund more susceptible to any single occurrence affecting the
industry and may subject the Large Cap Growth Opportunities AlphaDEX(TM) Fund to
greater market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Large Cap Growth Opportunities AlphaDEX(TM) Fund is classified as
"non-diversified" under the 1940 Act. As a result, the Large Cap Growth
Opportunities AlphaDEX(TM) 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. Because the
Large Cap Growth Opportunities AlphaDEX(TM) Fund may invest a relatively high
percentage of its assets in a limited number of issuers, the Large Cap Growth
Opportunities AlphaDEX(TM) Fund may be more susceptible to any single economic,
political or regulatory occurrence and to the financial conditions of the
issuers in which it invests.
GROWTH INVESTMENT STYLE RISK.
The Large Cap Growth Opportunities AlphaDEX(TM) Fund's growth-oriented
investment style may not be successful in realizing the Large Cap Growth
Opportunities AlphaDEX(TM) Fund's investment objective. Securities of growth
companies may experience significant fluctuations in price in response to
economic, political, regulatory, company specific, sector or market
developments, changes in perceptions or interest rate changes.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
23
FIRST TRUST MULTI CAP VALUE ALPHADEX(TM) FUND
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
The First Trust Multi Cap Value AlphaDEX(TM) Fund (the "Multi Cap Value
AlphaDEX(TM) Fund") seeks investment results that correspond generally to the
price and yield (before the Multi Cap Value AlphaDEX(TM) Fund's fees and
expenses) of an equity index called the Defined Multi Cap Value Index (Symbol:
DEFIMCVI) (the "Multi Cap Value Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FAB."
PRINCIPAL INVESTMENT STRATEGIES
The Multi Cap Value AlphaDEX(TM) Fund will normally invest at least 90% of its
total assets in common stocks that comprise the Multi Cap Value Index. The Multi
Cap Value AlphaDEX(TM) Fund's investment objective and the 90% investment
strategy are non-fundamental policies and require 60 days' prior written notice
to shareholders before they can be changed. As non-fundamental policies, the
Board of Trustees of the Trust can change such policies without receiving
shareholder approval.
The Multi Cap Value AlphaDEX(TM) Fund, using an "indexing" investment approach,
attempts to replicate, before expenses, the performance of the Multi Cap Value
Index. First Trust seeks a correlation of 0.95 or better (before fees and
expenses) between the Multi Cap Value AlphaDEX(TM) Fund's performance and the
performance of the Multi Cap Value Index; a figure of 1.00 would represent
perfect correlation. First Trust will regularly monitor the Multi Cap Value
AlphaDEX(TM) Fund's tracking accuracy and will use the investment techniques
described below in seeking to maintain an appropriate correlation.
In seeking to achieve the Multi Cap Value AlphaDEX(TM) Fund's investment
objective, the Multi Cap Value AlphaDEX(TM) Fund generally will invest in all of
the stocks comprising the Multi Cap Value Index in proportion to their
weightings in the Multi Cap Value Index. However, under various circumstances,
it may not be possible or practicable to purchase all of those stocks in those
weightings. In those circumstances, the Multi Cap Value AlphaDEX(TM) Fund may
purchase a sample of stocks in the Multi Cap Value Index. There may also be
instances in which First Trust may choose to overweight certain stocks in the
Multi Cap Value Index, purchase securities not in the Multi Cap Value Index
which First Trust believes are appropriate to substitute for certain securities
in the Multi Cap Value Index, use futures or other derivative instruments, or
utilize various combinations of the above techniques in seeking to track the
Multi Cap Value Index. The Multi Cap Value AlphaDEX(TM) Fund may sell stocks
that are represented in the Multi Cap Value Index in anticipation of their
removal from the Multi Cap Value Index or purchase stocks not represented in the
Multi Cap Value Index in anticipation of their addition to the Multi Cap Value
Index.
INDEX CONSTRUCTION
The Multi Cap Value Index is a modified equal-dollar weighted index designed by
S&P to objectively identify and select stocks from the S&P Composite
1500/Citigroup Value Index that may generate positive alpha relative to
traditional passive style indices through the use of the AlphaDEX(TM) screening
methodology. Alpha is an indication of how much an investment outperforms or
underperforms on a risk-adjusted basis relative to its benchmark. The S&P
24
Composite 1500/Citigroup Value Index includes certain stocks within the S&P
Composite 1500 Index considered to have value characteristics. The inception
date of the Multi Cap Value Index was April 9, 2007. The initial divisor was
created to set a benchmark value of 100.00 on January 8, 1996. The Multi Cap
Value Index was created and trademarked by S&P. As of October 31, 2007, the S&P
Composite 1500/Citigroup Value Index consisted of 1,096 stocks and the Multi Cap
Value Index consisted of 595 stocks.
The stocks of the S&P Composite 1500/Citigroup Value Index (i) that are members
of the S&P 500/Citigroup Value Index will comprise 50% of the Multi Cap Value
Index, (ii) that are members of the S&P MidCap 400/Citigroup Value Index will
comprise 30% of the Multi Cap Value Index and (iii) that are members of the S&P
SmallCap 600/Citigroup Value Index will comprise 20% of the Multi Cap Value
Index. The Multi Cap Value Index is constructed in the following manner:
For the stocks selected from the S&P 500/Citigroup Value Index:
1. S&P ranks all stocks in the S&P 500/Citigroup Value Index against
all the stocks in the S&P 500 Index on the following growth and value
factors: three, six and 12-month price appreciation, sales to price and one
year sales growth (growth factors) and book value to price, cash flow to
price and return on assets (value factors). All stocks are ranked on the
sum of ranks for the growth factors and, separately, all stocks are ranked
on the sum of ranks for the value factors.
2. S&P/Citigroup Growth and Value series is a family of indices wherein
each stock is classified in one of three ways: solely growth, solely value
or a blend of growth and value. For stocks that S&P/Citigroup classified
solely as growth or value, the stock receives the rank for that style from
step 1 as its selection score. Stocks that S&P/Citigroup classified solely
as growth are not eligible for inclusion in the Multi Cap Value Index. For
stocks that S&P/Citigroup allocates between growth and value, the stock
receives the best rank from step 1 as its selection score and is treated as
belonging solely to the style of its best rank henceforth in the selection
process. Stocks that S&P/Citigroup allocates between growth and value are
not eligible for inclusion in the Multi Cap Value Index if their growth
scores are better than their value scores.
3. For the Multi Cap Value Index, remaining stocks are then ranked
according to their selection score from step 2. The bottom 25% of such
remaining stocks is then eliminated and the top 75% of such stocks is
selected for the Multi Cap Value Index.
4. The selected stocks are then split into quintiles based on their
score from step 3. The top ranked quintile receives 5/15 (33.3%) of the
portfolio weight with successive quintiles receiving 4/15 (26.7%), 3/15
(20.0%), 2/15 (13.3%) and 1/15 (6.7%), respectively. Stocks are equally
weighted within each quintile.
For the stocks selected from the S&P MidCap 400/Citigroup Value Index:
1. S&P ranks all stocks in the S&P MidCap 400/Citigroup Value Index
against all the stocks in the S&P MidCap 400 Index on the following growth
and value factors: three, six and 12-month price appreciation, sales to
price and one year sales growth (growth factors) and book value to price,
cash flow to price and return on assets (value factors). All stocks are
ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
25
2. S&P/Citigroup Growth and Value series is a family of indices wherein
each stock is classified in one of three ways: solely growth, solely value
or a blend of growth and value. For stocks that S&P/Citigroup classified
solely as growth or value, the stock receives the rank for that style from
step 1 as its selection score. Stocks that S&P/Citigroup classified solely
as growth are not eligible for inclusion in the Multi Cap Value Index. For
stocks that S&P/Citigroup allocates between growth and value, the stock
receives the best rank from step 1 as its selection score and is treated as
belonging solely to the style of its best rank henceforth in the selection
process. Stocks that S&P/Citigroup allocates between growth and value are
not eligible for inclusion in the Multi Cap Value Index if their growth
scores are better than their value scores.
3. For the Multi Cap Value Index, remaining stocks are then ranked
according to their selection score from step 2. The bottom 25% of such
remaining stocks is then eliminated and the top 75% of such stocks is
selected for the Multi Cap Value Index.
4. The selected stocks are then split into quintiles based on their
score from step 3. The top ranked quintile receives 5/15 (33.3%) of the
portfolio weight with successive quintiles receiving 4/15 (26.7%), 3/15
(20.0%), 2/15 (13.3%) and 1/15 (6.7%), respectively. Stocks are equally
weighted within each quintile.
For the stocks selected from the S&P SmallCap 600/Citigroup Value Index:
1. S&P ranks all stocks in the S&P SmallCap 600/Citigroup Value Index
against all the stocks in the S&P SmallCap 600 Index on the following
growth and value factors: three, six and 12-month price appreciation, sales
to price and one year sales growth (growth factors) and book value to
price, cash flow to price and return on assets (value factors). All stocks
are ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2. S&P/Citigroup Growth and Value series is a family of indices wherein
each stock is classified in one of three ways: solely growth, solely value
or a blend of growth and value. For stocks that S&P/Citigroup classified
solely as growth or value, the stock receives the rank for that style from
step 1 as its selection score. Stocks that S&P/Citigroup classified solely
as growth are not eligible for inclusion in the Multi Cap Value Index. For
stocks that S&P/Citigroup allocates between growth and value, the stock
receives the best rank from step 1 as its selection score and is treated as
belonging solely to the style of its best rank henceforth in the selection
process. Stocks that S&P/Citigroup allocates between growth and value are
not eligible for inclusion in the Multi Cap Value Index if their growth
scores are better than their value scores.
3. For the Multi Cap Value Index, remaining stocks are then ranked
according to their selection score from step 2. The bottom 25% of such
remaining stocks is then eliminated and the top 75% of such stocks is
selected for the Multi Cap Value Index.
4. The selected stocks are then split into quintiles based on their
score from step 3. The top ranked quintile receives 5/15 (33.3%) of the
portfolio weight with successive quintiles receiving 4/15 (26.7%), 3/15
(20.0%), 2/15 (13.3%) and 1/15 (6.7%), respectively. Stocks are equally
weighted within each quintile.
26
The Multi Cap Value Index is rebalanced and reconstituted on the last business
day of each calendar quarter. Changes will be effective at the open on the sixth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Multi Cap Value Index is reallocated pro-rata among the
remaining index constituents. Spin-offs are not included in the Multi Cap Value
Index. The value of the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the
Multi Cap Value Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Multi Cap Value
AlphaDEX(TM) Fund will change in value, and loss of money is a risk of investing
in the Multi Cap Value AlphaDEX(TM) Fund. The Multi Cap Value AlphaDEX(TM) Fund
may not achieve its objective. An investment in the Multi Cap Value AlphaDEX(TM)
Fund is not a deposit with a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. An
investment in the Multi Cap Value AlphaDEX(TM) Fund involves risks similar to
those of investing in any fund of equity securities traded on an exchange. The
following specific risk factors have been identified as the principal risks of
investing in the Multi Cap Value AlphaDEX(TM) Fund.
MARKET RISK
One of the principal risks of investing in the Multi Cap Value AlphaDEX(TM) Fund
is market risk. Market risk is the risk that a particular stock owned by the
Multi Cap Value AlphaDEX(TM) Fund, Shares of the Multi Cap Value AlphaDEX(TM)
Fund or stocks in general may fall in value. Shares are subject to market
fluctuations caused by such factors as economic, political, regulatory or market
developments, changes in interest rates and perceived trends in stock prices.
Overall stock values could decline generally or could underperform other
investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Multi Cap Value Index.
NON-CORRELATION RISK
The Multi Cap Value AlphaDEX(TM) Fund's return may not match the return of the
Multi Cap Value Index for a number of reasons. For example, the Multi Cap Value
AlphaDEX(TM) Fund incurs operating expenses not applicable to the Multi Cap
Value Index, and may incur costs in buying and selling securities, especially
when rebalancing the Multi Cap Value AlphaDEX(TM) Fund's portfolio holdings to
reflect changes in the composition of the Multi Cap Value Index. In addition,
the Multi Cap Value AlphaDEX(TM) Fund's portfolio holdings may not exactly
replicate the securities included in the Multi Cap Value Index or the ratios
between the securities included in the Multi Cap Value Index.
The Multi Cap Value AlphaDEX(TM) Fund may not be fully invested at times, either
as a result of cash flows into the Multi Cap Value AlphaDEX(TM) Fund or reserves
of cash held by the Multi Cap Value AlphaDEX(TM) Fund to meet redemptions and
expenses. If the Multi Cap Value AlphaDEX(TM) Fund utilizes a sampling approach
or invests in futures or other derivative positions, its return may not
correlate as well with the return of the Multi Cap Value Index, as would be the
case if it purchased all of the stocks in the Multi Cap Value Index with the
same weightings as the Multi Cap Value Index. While First Trust seeks to have a
correlation of 0.95 or better, before fees and expenses, between the Multi Cap
Value AlphaDEX(TM) Fund's performance and the performance of the Multi Cap Value
Index, there can be no assurance that the Multi Cap Value AlphaDEX(TM) Fund will
27
be able to achieve such a correlation. Accordingly, the Multi Cap Value
AlphaDEX(TM) Fund's performance may correlate to a lesser extent and may
possibly vary substantially from the performance of the Multi Cap Value Index.
REPLICATION MANAGEMENT RISK
The Multi Cap Value AlphaDEX(TM) Fund is also exposed to additional market risk
due to its policy of investing principally in the securities included in the
Multi Cap Value Index. As a result of this policy, securities held by the Multi
Cap Value AlphaDEX(TM) 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 Multi Cap Value AlphaDEX(TM) Fund 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 the Multi Cap
Value Index.
INTELLECTUAL PROPERTY RISK.
The Multi Cap Value AlphaDEX(TM) Fund relies on a license and related sublicense
that permits the Multi Cap Value AlphaDEX(TM) Fund to use its corresponding
equity index in the Defined Index Series and the Intellectual Property in
connection with the name and investment strategies of the Multi Cap Value
AlphaDEX(TM) Fund. Such license and related sublicense may be terminated by the
Index Provider and, as a result, the Multi Cap Value AlphaDEX(TM) Fund may lose
its ability to use the Intellectual Property. There is also no guarantee that
the Index Provider has all rights to license the Intellectual Property to FTP,
on behalf of First Trust and the Multi Cap Value AlphaDEX(TM) Fund. Accordingly,
in the event the license is terminated or the Index Provider does not have
rights to license the Intellectual Property, it may have a significant effect on
the operation of the Multi Cap Value AlphaDEX(TM) Fund.
ISSUER SPECIFIC CHANGES RISK.
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. The value of securities of smaller issuers can be more
volatile than that of larger issuers.
CONCENTRATION RISK.
The Multi Cap Value AlphaDEX(TM) Fund will be concentrated in the securities of
a given industry if the Multi Cap Value Index is concentrated in such industry.
A concentration makes the Multi Cap Value AlphaDEX(TM) Fund more susceptible to
any single occurrence affecting the industry and may subject the Multi Cap Value
AlphaDEX(TM) Fund to greater market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Multi Cap Value AlphaDEX(TM) Fund is classified as "non-diversified" under
the 1940 Act. As a result, the Multi Cap Value AlphaDEX(TM) 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. Because the Multi Cap Value AlphaDEX(TM) Fund may invest a
relatively high percentage of its assets in a limited number of issuers, the
Multi Cap Value AlphaDEX(TM) Fund may be more susceptible to any single
economic, political or regulatory occurrence and to the financial conditions of
the issuers in which it invests.
SMALL CAP AND MID CAP COMPANY RISK
The Multi Cap Value AlphaDEX(TM) 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 as a result of several factors, including limited trading volumes,
products or financial resources, management inexperience and less publicly
28
available information. Accordingly, such companies are generally subject to
greater market risk than larger, more established companies.
VALUE INVESTMENT STYLE RISK.
The Multi Cap Value AlphaDEX(TM) Fund's value-oriented investment style may not
be successful in realizing the Multi Cap Value AlphaDEX(TM) Fund's investment
objective. Value companies may have experienced adverse business developments or
may be subject to special risks that cause their securities to be out of favor,
may never reach what may be their full value or may go down in price.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
29
First Trust Multi Cap Growth AlphaDEX(TM) Fund
Investment Objective, Strategies and Risks
INVESTMENT OBJECTIVE
The First Trust Multi Cap Growth AlphaDEX(TM) Fund (the "Multi Cap Growth
AlphaDEX(TM) Fund") seeks investment results that correspond generally to the
price and yield (before the Multi Cap Growth AlphaDEX(TM) Fund's fees and
expenses) of an equity index called the Defined Multi Cap Growth Index (Symbol:
DEFIMCGI) (the "Multi Cap Growth Index").
EXCHANGE-LISTED
The Shares are listed and trade on the AMEX under the ticker symbol "FAD."
PRINCIPAL INVESTMENT STRATEGIES
The Multi Cap Growth AlphaDEX(TM) Fund will normally invest at least 90% of its
total assets in common stocks that comprise the Multi Cap Growth Index. The
Multi Cap Growth AlphaDEX(TM) Fund's investment objective and the 90% investment
strategy are non-fundamental policies and require 60 days' prior written notice
to shareholders before they can be changed. As non-fundamental policies, the
Board of Trustees of the Trust can change such policies without receiving
shareholder approval.
The Multi Cap Growth AlphaDEX(TM) Fund, using an "indexing" investment approach,
attempts to replicate, before expenses, the performance of the Multi Cap Growth
Index. First Trust seeks a correlation of 0.95 or better (before fees and
expenses) between the Multi Cap Growth AlphaDEX(TM) Fund's performance and the
performance of the Multi Cap Growth Index; a figure of 1.00 would represent
perfect correlation. First Trust will regularly monitor the Multi Cap Growth
AlphaDEX(TM) Fund's tracking accuracy and will use the investment techniques
described below in seeking to maintain an appropriate correlation.
In seeking to achieve the Multi Cap Growth AlphaDEX(TM) Fund's investment
objective, the Multi Cap Growth AlphaDEX(TM) Fund generally will invest in all
of the stocks comprising the Multi Cap Growth Index in proportion to their
weightings in the Multi Cap Growth Index. However, under various circumstances,
it may not be possible or practicable to purchase all of those stocks in those
weightings. In those circumstances, the Multi Cap Growth AlphaDEX(TM) Fund may
purchase a sample of stocks in the Multi Cap Growth Index. There may also be
instances in which First Trust may choose to overweight certain stocks in the
Multi Cap Growth Index, purchase securities not in the Multi Cap Growth Index
which First Trust believes are appropriate to substitute for certain securities
in the Multi Cap Growth Index, use futures or other derivative instruments, or
utilize various combinations of the above techniques in seeking to track the
Multi Cap Growth Index. The Multi Cap Growth AlphaDEX(TM) Fund may sell stocks
that are represented in the Multi Cap Growth Index in anticipation of their
removal from the Multi Cap Growth Index or purchase stocks not represented in
the Multi Cap Growth Index in anticipation of their addition to the Multi Cap
Growth Index.
30
INDEX CONSTRUCTION
The Multi Cap Growth Index is a modified equal-dollar weighted index designed by
S&P to objectively identify and select stocks from the S&P Composite
1500/Citigroup Growth Index that may generate positive alpha relative to
traditional passive style indices through the use of the AlphaDEX(TM) screening
methodology. Alpha is an indication of how much an investment outperforms or
underperforms on a risk-adjusted basis relative to its benchmark. The S&P
Composite 1500/Citigroup Growth Index includes certain stocks within the S&P
Composite 1500 Index considered to have growth characteristics. The inception
date of the Multi Cap Growth Index was April 9, 2007. The initial divisor was
created to set a benchmark value of 100.00 on January 8, 1996. The Multi Cap
Growth Index was created and trademarked by S&P. As of October 31, 2007, the S&P
Composite 1500/Citigroup Growth Index consisted of 939 stocks and the Multi Cap
Growth Index consisted of 522 stocks.
The stocks of the S&P Composite 1500/Citigroup Growth Index (i) that are members
of the S&P 500/Citigroup Growth Index will comprise 50% of the Multi Cap Growth
Index, (ii) that are members of the S&P MidCap 400/Citigroup Growth Index will
comprise 30% of the Multi Cap Growth Index and (iii) that are members of the S&P
SmallCap 600/Citigroup Growth Index will comprise 20% of the Multi Cap Growth
Index. The Multi Cap Growth Index is constructed in the following manner:
For the stocks selected from the S&P 500/Citigroup Growth Index:
1. S&P ranks all stocks in the S&P 500/Citigroup Growth Index against
all the stocks in the S&P 500 Index on the following growth and value
factors: three, six and 12-month price appreciation, sales to price and one
year sales growth (growth factors) and book value to price, cash flow to
price and return on assets (value factors). All stocks are ranked on the
sum of ranks for the growth factors and, separately, all stocks are ranked
on the sum of ranks for the value factors.
2. S&P/Citigroup Growth and Value series is a family of indices wherein
each stock is classified in one of three ways: solely growth, solely value
or a blend of growth and value. For stocks that S&P/Citigroup classified
solely as growth or value, the stock receives the rank for that style from
step 1 as its selection score. Stocks that S&P/Citigroup classified solely
as value are not eligible for inclusion in the Multi Cap Growth Index. For
stocks that S&P/Citigroup allocates between growth and value, the stock
receives the best rank from step 1 as its selection score and is treated as
belonging solely to the style of its best rank henceforth in the selection
process. Stocks that S&P/Citigroup allocates between growth and value are
not eligible for inclusion in the Multi Cap Growth Index if their value
scores are better than their growth scores.
3. For the Multi Cap Growth Index, remaining stocks are then ranked
according to their selection score from step 2. The bottom 25% of such
remaining stocks is then eliminated and the top 75% of such stocks is
selected for the Multi Cap Growth Index.
4. The selected stocks are then split into quintiles based on their
score from step 3. The top ranked quintile receives 5/15 (33.3%) of the
portfolio weight with successive quintiles receiving 4/15 (26.7%), 3/15
(20.0%), 2/15 (13.3%) and 1/15 (6.7%), respectively. Stocks are equally
weighted within each quintile.
31
For the stocks selected from the S&P MidCap 400/Citigroup Growth Index:
1. S&P ranks all stocks in the S&P MidCap 400/Citigroup Growth Index
against all the stocks in the S&P MidCap 400 Index on the following growth
and value factors: three, six and 12-month price appreciation, sales to
price and one year sales growth (growth factors) and book value to price,
cash flow to price and return on assets (value factors). All stocks are
ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2. S&P/Citigroup Growth and Value series is a family of indices wherein
each stock is classified in one of three ways: solely growth, solely value
or a blend of growth and value. For stocks that S&P/Citigroup classified
solely as growth or value, the stock receives the rank for that style from
step 1 as its selection score. Stocks that S&P/Citigroup classified solely
as value are not eligible for inclusion in the Multi Cap Growth Index. For
stocks that S&P/Citigroup allocates between growth and value, the stock
receives the best rank from step 1 as its selection score and is treated as
belonging solely to the style of its best rank henceforth in the selection
process. Stocks that S&P/Citigroup allocates between growth and value are
not eligible for inclusion in the Multi Cap Growth Index if their value
scores are better than their growth scores.
3. For the Multi Cap Growth Index, remaining stocks are then ranked
according to their selection score from step 2. The bottom 25% of such
remaining stocks is then eliminated and the top 75% of such stocks is
selected for the Multi Cap Growth Index.
4. The selected stocks are then split into quintiles based on their
score from step 3. The top ranked quintile receives 5/15 (33.3%) of the
portfolio weight with successive quintiles receiving 4/15 (26.7%), 3/15
(20.0%), 2/15 (13.3%) and 1/15 (6.7%), respectively. Stocks are equally
weighted within each quintile.
For the stocks selected from the S&P SmallCap 600/Citigroup Growth Index:
1. S&P ranks all stocks in the S&P SmallCap 600/Citigroup Growth Index
against all the stocks in the S&P SmallCap 600 Index on the following
growth and value factors: three, six and 12-month price appreciation, sales
to price and one year sales growth (growth factors) and book value to
price, cash flow to price and return on assets (value factors). All stocks
are ranked on the sum of ranks for the growth factors and, separately, all
stocks are ranked on the sum of ranks for the value factors.
2. S&P/Citigroup Growth and Value series is a family of indices wherein
each stock is classified in one of three ways: solely growth, solely value
or a blend of growth and value. For stocks that S&P/Citigroup classified
solely as growth or value, the stock receives the rank for that style from
step 1 as its selection score. Stocks that S&P/Citigroup classified solely
as value are not eligible for inclusion in the Multi Cap Growth Index. For
stocks that S&P/Citigroup allocates between growth and value, the stock
receives the best rank from step 1 as its selection score and is treated as
belonging solely to the style of its best rank henceforth in the selection
process. Stocks that S&P/Citigroup allocates between growth and value are
not eligible for inclusion in the Multi Cap Growth Index if their value
scores are better than their growth scores.
3. For the Multi Cap Growth Index, remaining stocks are then ranked
according to their selection score from step 2. The bottom 25% of such
remaining stocks is then eliminated and the top 75% of such stocks is
selected for the Multi Cap Growth Index.
32
4. The selected stocks are then split into quintiles based on their
score from step 3. The top ranked quintile receives 5/15 (33.3%) of the
portfolio weight with successive quintiles receiving 4/15 (26.7%), 3/15
(20.0%), 2/15 (13.3%) and 1/15 (6.7%), respectively. Stocks are equally
weighted within each quintile.
The Multi Cap Growth Index is rebalanced and reconstituted on the last business
day of each calendar quarter. Changes will be effective at the open on the sixth
business day of the following month. Acquired companies are deleted at the close
on the day the merger closes for both cash and stock deals. An acquired
company's weight in the Multi Cap Growth Index is reallocated pro-rata among the
remaining index constituents. Spin-offs are not included in the Multi Cap Growth
Index. The value of the spin-off is reallocated to the parent company.
See "Additional Index Information" for additional information regarding the
Multi Cap Growth Index.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Risk is inherent in all investing. The Shares of the Multi Cap Growth
AlphaDEX(TM) Fund will change in value, and loss of money is a risk of investing
in the Multi Cap Growth AlphaDEX(TM) Fund. The Multi Cap Growth AlphaDEX(TM)
Fund may not achieve its objective. An investment in the Multi Cap Growth
AlphaDEX(TM) Fund is not a deposit with a bank and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. An
investment in the Multi Cap Growth AlphaDEX(TM) Fund involves risks similar to
those of investing in any fund of equity securities traded on an exchange. The
following specific risk factors have been identified as the principal risks of
investing in the Multi Cap Growth AlphaDEX(TM) Fund.
MARKET RISK
One of the principal risks of investing in the Multi Cap Growth AlphaDEX(TM)
Fund is market risk. Market risk is the risk that a particular stock owned by
the Multi Cap Growth AlphaDEX(TM) Fund, Shares of the Multi Cap Growth
AlphaDEX(TM) Fund or stocks in general may fall in value. Shares are subject to
market fluctuations caused by such factors as economic, political, regulatory or
market developments, changes in interest rates and perceived trends in stock
prices. Overall stock values could decline generally or could underperform other
investments.
INDEX TRACKING RISK
You should anticipate that the value of the Shares will decline, more or less,
in correlation with any decline in the value of the Multi Cap Growth Index.
NON-CORRELATION RISK
The Multi Cap Growth AlphaDEX(TM) Fund's return may not match the return of the
Multi Cap Growth Index for a number of reasons. For example, the Multi Cap
Growth AlphaDEX(TM) Fund incurs operating expenses not applicable to the Multi
Cap Growth Index, and may incur costs in buying and selling securities,
especially when rebalancing the Multi Cap Growth AlphaDEX(TM) Fund's portfolio
holdings to reflect changes in the composition of the Multi Cap Growth Index. In
addition, the Multi Cap Growth AlphaDEX(TM) Fund's portfolio holdings may not
exactly replicate the securities included in the Multi Cap Growth Index or the
ratios between the securities included in the Multi Cap Growth Index.
The Multi Cap Growth AlphaDEX(TM) Fund may not be fully invested at times,
either as a result of cash flows into the Multi Cap Growth AlphaDEX(TM) Fund or
reserves of cash held by the Multi Cap Growth AlphaDEX(TM) Fund to meet
redemptions and expenses. If the Multi Cap Growth AlphaDEX(TM) Fund utilizes a
33
sampling approach or invests in futures or other derivative positions, its
return may not correlate as well with the return of the Multi Cap Growth Index,
as would be the case if it purchased all of the stocks in the Multi Cap Growth
Index with the same weightings as the Multi Cap Growth Index. While First Trust
seeks to have a correlation of 0.95 or better, before fees and expenses, between
the Multi Cap Growth AlphaDEX(TM) Fund's performance and the performance of the
Multi Cap Growth Index, there can be no assurance that the Multi Cap Growth
AlphaDEX(TM) Fund will be able to achieve such a correlation. Accordingly, the
Multi Cap Growth AlphaDEX(TM) Fund's performance may correlate to a lesser
extent and may possibly vary substantially from the performance of the Multi Cap
Growth Index.
REPLICATION MANAGEMENT RISK
The Multi Cap Growth AlphaDEX(TM) Fund is also exposed to additional market risk
due to its policy of investing principally in the securities included in the
Multi Cap Growth Index. As a result of this policy, securities held by the Multi
Cap Growth AlphaDEX(TM) 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 Multi Cap Growth AlphaDEX(TM) Fund 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 the Multi Cap
Growth Index.
INTELLECTUAL PROPERTY RISK.
The Multi Cap Growth AlphaDEX(TM) Fund relies on a license and related
sublicense that permits Multi Cap Growth AlphaDEX(TM) Fund to use its
corresponding equity index in the Defined Index Series and the Intellectual
Property in connection with the name and investment strategies of the Multi Cap
Growth AlphaDEX(TM) Fund. Such license and related sublicense may be terminated
by the Index Provider and, as a result, the Multi Cap Growth AlphaDEX(TM) Fund
may lose its ability to use the Intellectual Property. There is also no
guarantee that the Index Provider has all rights to license the Intellectual
Property to FTP, on behalf of First Trust and the Multi Cap Growth AlphaDEX(TM)
Fund. Accordingly, in the event the license is terminated or the Index Provider
does not have rights to license the Intellectual Property, it may have a
significant effect on the operation of the Multi Cap Growth AlphaDEX(TM) Fund.
ISSUER SPECIFIC CHANGES RISK.
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. The value of securities of smaller issuers can be more
volatile than that of larger issuers.
CONCENTRATION RISK.
The Multi Cap Growth AlphaDEX(TM) Fund will be concentrated in the securities of
a given industry if the Multi Cap Growth Index is concentrated in such industry.
A concentration makes the Multi Cap Growth AlphaDEX(TM) Fund more susceptible to
any single occurrence affecting the industry and may subject the Multi Cap
Growth AlphaDEX(TM) Fund to greater market risk than more diversified funds.
NON-DIVERSIFICATION RISK.
The Multi Cap Growth AlphaDEX(TM) Fund is classified as "non-diversified" under
the 1940 Act. As a result, the Multi Cap Growth AlphaDEX(TM) 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. Because the Multi Cap Growth AlphaDEX(TM) Fund may invest
a relatively high percentage of its assets in a limited number of issuers, the
Multi Cap Growth AlphaDEX(TM) Fund may be more susceptible to any single
economic, political or regulatory occurrence and to the financial conditions of
the issuers in which it invests.
34
SMALL CAP AND MID CAP COMPANY RISK
The Multi Cap Growth AlphaDEX(TM) 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 as a result of several factors, including limited trading volumes,
products or financial resources, management inexperience and less publicly
available information. Accordingly, such companies are generally subject to
greater market risk than larger, more established companies.
GROWTH INVESTMENT STYLE RISK.
The Multi Cap Growth AlphaDEX(TM) Fund's growth-oriented investment style may
not be successful in realizing the Multi Cap Growth AlphaDEX(TM) Fund's
investment objective. Securities of growth companies may experience significant
fluctuations in price in response to economic, political, regulatory, company
specific, sector or market developments, changes in perceptions or interest rate
changes.
See "Additional Risks of Investing in the Funds" for additional information
regarding risks.
35
HOW THE FUNDS HAVE PERFORMED
The Funds have not yet operated for a full calendar year and therefore,
performance information is not included in this section of the Prospectus.
However, see "Total Return Information" for performance information regarding
the Funds.
WHAT ARE THE COSTS OF INVESTING?
The following table describes the estimated fees and expenses you may pay when
you buy or sell Creation Units of each Fund. Investors purchasing Shares in the
secondary market will not pay the shareholder fees shown below, but may be
subject to costs (including customary brokerage commissions) charged by their
broker.
Large Cap Mid Cap Core Small Cap Large Cap Large Cap
Core AlphaDEX(TM) Core Value Growth
AlphaDEX(TM) Fund AlphaDEX(TM) Opportunities Opportunities
Fund Fund AlphaDEX(TM) AlphaDEX(TM)
Fund Fund
Shareholder Fees None None None None None
(paid directly by
Authorized
Participants)
Sales charges (loads)
Standard $2,000 $1,500 $2,500 $1,000 $1,000
transaction fee
per order(1)
Additional Up to 3 times Up to 3 times Up to 3 times Up to 3 times Up to 3 times
transaction charge the standard the standard the standard the standard the standard
if settled outside transaction fee transaction fee transaction fee transaction fee transaction fee
of the usual
process through the
Continuous Net
Settlement System
of the National
Securities Clearing
Corporation(1)
Annual Fund Operating
Expenses(2)
(Expenses that are
deducted from the
Fund's assets)
Management Fees 0.50% 0.50% 0.50% 0.50% 0.50%
Distribution and 0.00% 0.00% 0.00% 0.00% 0.00%
Service (12b-1)
Fees(3)
Other Expenses(4) 3.28% 2.49% 3.05% 2.91% 2.49%
Total Annual Fund 3.78% 2.99% 3.55% 3.41% 2.99%
Operating Expenses
Fee Waivers 3.08% 2.29% 2.85% 2.71% 2.29%
and Expense
Reimbursement(5)
Total Net Annual Fund
Operating Expenses 0.70% 0.70% 0.70% 0.70% 0.70%
|
Multi Cap Multi Cap
Value Growth
AlphaDEX(TM) AlphaDEX(TM)
Fund Fund
Shareholder Fees None None
(paid directly by
Authorized
Participants)
Sales charges (loads)
Standard $3,500 $3,000
transaction fee
per order(1)
Additional Up to 3 times Up to 3 times
transaction charge the standard the standard
if settled outside transaction fee transaction fee
of the usual
process through the
Continuous Net
Settlement System
of the National
Securities Clearing
Corporation(1)
Annual Fund Operating
Expenses(2)
(Expenses that are
deducted from the
Fund's assets)
Management Fees 0.50% 0.50%
Distribution and 0.00% 0.00%
Service (12b-1)
Fees(3)
Other Expenses(4) 3.31% 2.54%
Total Annual Fund 3.81% 3.04%
Operating Expenses
Fee Waivers 3.11% 2.34%
and Expense
Reimbursement(5)
Total Net Annual Fund
Operating Expenses 0.70% 0.70%
|
36
EXAMPLE
This example is intended to help you compare the cost of investing in each Fund
with the cost of investing in other funds. This example does not take into
account transaction fees on purchases and redemptions of Creation Units of each
of the Funds or customary brokerage commissions that you pay when purchasing or
selling Shares of each of the Funds in the secondary market.
The example assumes that you invest $10,000 in a Fund for the time periods
indicated and then you retain the Shares or sell all of your Shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, your costs, based on these assumptions,
would be as set forth in the table below:
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Large Cap Core AlphaDEX(TM) Fund $ 72 $870 $1,687 $3,821
Mid Cap Core AlphaDEX(TM) Fund 72 708 1,370 3,145
Small Cap Core AlphaDEX(TM) Fund 72 823 1,596 3,629
Large Cap Value Opportunities AlphaDEX(TM) Fund 72 794 1,540 3,511
Large Cap Growth Opportunities AlphaDEX(TM) Fund 72 708 1,370 3,145
Multi Cap Value AlphaDEX(TM) Fund 72 876 1,699 3,845
Multi Cap Growth AlphaDEX(TM) Fund 72 718 1,390 3,190
|
1) Purchasers of Creation Units and parties redeeming Creation Units must pay a
standard creation or redemption transaction fee of $2,000 for the Large Cap
Core AlphaDEX(TM) Fund (assuming 301 to 400 different securities in a
Creation Unit); $1,500 for the Mid Cap Core AlphaDEX(TM) Fund (assuming 201
to 300 different securities in a Creation Unit); $2,500 for the Small Cap
Core AlphaDEX(TM) Fund (assuming 401 to 500 different securities in a
Creation Unit); $1,000 for the Large Cap Value Opportunities AlphaDEX(TM)
Fund (assuming 101 to 200 different securities in a Creation Unit); $1,000
for the Large Cap Growth Opportunities AlphaDEX(TM) Fund (assuming 101 to
200 different securities in a Creation Unit); $3,500 for the Multi Cap Value
AlphaDEX(TM) Fund (assuming 601 to 700 different securities in a Creation
Unit); and $3,000 for the Multi Cap Growth AlphaDEX(TM) Fund (assuming 501
to 600 different securities in a Creation Unit). However, if a Creation Unit
is purchased or redeemed outside the usual process through the National
Securities Clearing Corporation or for cash, an additional variable fee of
up to three times the standard creation or redemption transaction fee may be
charged. See "Creation Transaction Fees and Redemption Transaction Fees"
below.
(2) Expressed as a percentage of average daily net assets.
(3) Each Fund has adopted a distribution and service (12b-1) plan pursuant to
which each Fund may bear a 12b-1 fee not to exceed 0.25% per annum of the
Fund's average daily net assets. However, no such fee is currently paid by a
Fund and pursuant to a contractual arrangement, the Funds will not pay 12b-1
fees any time before April 30, 2009.
(4) Other Expenses are based on estimated expenses for the current fiscal year.
(5) First Trust has agreed to waive fees and/or pay each Fund's expenses to the
extent necessary to prevent the operating expenses of each Fund (excluding
interest expense, brokerage commissions and other trading expenses, taxes,
and extraordinary expenses) from exceeding 0.70% of average net assets per
year, at least until May 10, 2009. Expenses borne by First Trust are subject
to reimbursement by each Fund up to three years from the date the fee or
expense was incurred, but no reimbursement payment will be made by a Fund at
any time if it would result in such Fund's expenses exceeding 0.70% of
average daily net assets per year.
37
CREATION TRANSACTION FEES AND REDEMPTION TRANSACTION FEES
The Funds issue and redeem Shares at NAV only in large blocks of 100,000 Shares
(each block of 100,000 Shares called a "Creation Unit") or multiples thereof. As
a practical matter, only broker-dealers or large institutional investors that
have entered into authorized participant agreements with respect to purchases
and redemptions of Creation Units, called "Authorized Participants" ("APs"), can
purchase or redeem these Creation Units. Purchasers of Creation Units at NAV
must pay a standard Creation Transaction Fee (as defined below) as set forth on
the expense table for each purchase transaction (regardless of the number of
Creation Units involved). The value of a Creation Unit as of the first creation
of such Creation Unit was approximately $3,000,000. An AP who holds Creation
Units and wishes to redeem at NAV would also pay a standard Redemption
Transaction Fee (as defined below) as set forth on the expense table for each
redemption transaction (regardless of the number of Creation Units involved).
See "Creations, Redemptions and Transaction Fees" later in the Prospectus. APs
who hold Creation Units in inventory will also indirectly pay Fund expenses.
Assuming an investment in a Creation Unit of $3,000,000 and a 5% return each
year, assuming that a Fund's operating expenses remain the same, and assuming
brokerage costs are not included, the total costs would be as set forth in the
table below if the Creation Unit is redeemed after the periods indicated:
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Large Cap Core AlphaDEX(TM) Fund $ 11,151 $ 90,966 $172,741 $386,070
Mid Cap Core AlphaDEX(TM) Fund 10,151 73,782 139,997 317,537
Small Cap Core AlphaDEX(TM) Fund 12,151 87,281 164,606 367,946
Large Cap Value Opportunities AlphaDEX(TM) Fund 9,151 81,419 156,003 353,092
Large Cap Growth Opportunities AlphaDEX(TM) Fund 9,151 72,782 138,997 316,537
Multi Cap Value AlphaDEX(TM) Fund 14,151 94,576 176,926 391,532
Multi Cap Growth AlphaDEX(TM) Fund 13,151 77,814 145,037 324,968
|
If a Creation Unit is purchased or redeemed outside the usual process through
the National Securities Clearing Corporation or for cash, an additional variable
fee of up to three times the standard Creation or Redemption Transaction Fee may
be charged to the AP making the transaction.
The Creation Transaction Fee, Redemption Transaction Fee and variable fee are
not expenses of a Fund and do not impact a Fund's expense ratio.
ADDITIONAL INVESTMENT STRATEGIES
Each of the policies described herein is a non-fundamental policy of each Fund
that may be changed by the Board of Trustees of the Trust without shareholder
approval. Certain fundamental policies of the Funds are set forth in the
Statement of Additional Information ("SAI") under "Investment Objective and
Policies."
EQUITY SECURITIES
The Funds invest primarily in equity securities of U.S. issuers. Eligible equity
securities include common stocks and warrants to purchase common stocks. In
addition, the Funds may invest in equity securities of non-U.S. issuers listed
38
on any national exchange if such securities are included in the applicable
equity index in the Defined Index Series, including depositary receipts that
represent non-U.S. common stocks deposited with a custodian.
SHORT-TERM INVESTMENTS
The Funds may invest in cash equivalents or other short-term investments,
including U.S. government securities, commercial paper, repurchase agreements,
money-market funds or similar fixed-income securities with remaining maturities
of one year or less. For more information on short-term investments, see the
SAI.
FUTURES AND OPTIONS
The Funds may use various investment strategies designed to hedge against
changes in the values of securities the Funds own or expect to purchase or to
hedge against interest rate or currency exchange rate changes. The securities
used to implement these strategies include financial futures contracts, options,
forward contracts, options on financial futures and stock index options.
DELAYED DELIVERY SECURITIES
The Funds may buy or sell securities on a when-issued or delayed-delivery basis,
paying for or taking delivery of the securities at a later date, normally within
15 to 45 days of the trade. Such transactions involve an element of risk because
the value of the securities to be purchased may decline before the settlement
date.
DISCLOSURE OF PORTFOLIO HOLDINGS
A description of the policies and procedures with respect to the disclosure of
each Fund's portfolio securities is included in the Fund's SAI.
ADDITIONAL RISKS OF INVESTING IN THE FUNDS
Risk is inherent in all investing. Investing in each Fund involves risk,
including the risk that you may lose all or part of your investment. There can
be no assurance that each Fund will meet its stated objective. Before you
invest, you should consider the following risks.
TRADING ISSUES
Trading in Shares on the AMEX may be halted due to market conditions or for
reasons that, in the view of the AMEX, make trading in Shares inadvisable. In
addition, trading in Shares on the AMEX is subject to trading halts caused by
extraordinary market volatility pursuant to the AMEX "circuit breaker" rules.
There can be no assurance that the requirements of the AMEX necessary to
maintain the listing of the Funds will continue to be met or will remain
unchanged.
FLUCTUATION OF NET ASSET VALUE
The NAV of Shares of each Fund will generally fluctuate with changes in the
market value of each Fund's holdings. The market prices of Shares will generally
fluctuate in accordance with changes in NAV as well as the relative supply of
and demand for Shares on the AMEX. First Trust cannot predict whether Shares
will trade below, at or above their NAV. Price differences may be due, in large
part, to the fact that supply and demand forces at work in the secondary trading
39
market for Shares will be closely related to, but not identical to, the same
forces influencing the prices of the stocks of the Funds trading individually or
in the aggregate at any point in time. However, given that Shares can be
purchased and redeemed in Creation Units (unlike shares of many closed-end
funds, which frequently trade at appreciable discounts from, and sometimes at
premiums to, their NAV), First Trust believes that large discounts or premiums
to the NAV of Shares should not be sustained.
INFLATION
Inflation risk is the risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of a Fund's assets can decline as can the value
of the Fund's distributions. Common stock prices may be particularly sensitive
to rising interest rates, as the cost of capital rises and borrowing costs
increase.
NON-U.S. INVESTMENT
The Funds may invest in non-U.S. securities publicly traded in the United
States. Securities issued by non-U.S. companies present risks beyond those of
securities of U.S. issuers. Risks of investing in non-U.S. securities include:
different accounting standards; expropriation, nationalization or other adverse
political or economic developments; currency devaluation, blockages or transfer
restrictions; changes in non-U.S. currency exchange rates; taxes; restrictions
on non-U.S. investments and exchange of securities; and less government
supervision and regulation of issuers in non-U.S. countries. Prices of non-U.S.
securities also may be more volatile.
INVESTMENT STRATEGY
Each Fund is exposed to additional market risk due to its policy of investing
principally in the securities included in each Fund's corresponding equity index
in the Defined Index Series. As a result of this policy, securities held by a
Fund will generally not be bought or sold in response to market fluctuations.
This policy may subject investors to greater market risk than other mutual
funds.
FUND ORGANIZATION
Each Fund is a series of the Trust, an investment company registered under the
1940 Act. Each Fund is treated as a separate fund with its own investment
objective and policies. The Trust is organized as a Massachusetts business
trust. Its Board of Trustees (the "Board") is responsible for its overall
management and direction. The Board elects the Trust's officers and approves all
significant agreements, including those with the investment adviser, custodian
and fund administrative and accounting agent.
MANAGEMENT OF THE FUNDS
First Trust Advisors L.P. ("First Trust"), 1001 Warrenville Road, Lisle,
Illinois 60532, is the investment adviser to the Funds. In this capacity, 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 portfolios.
40
First Trust is a limited partnership with one limited partner, Grace Partners of
DuPage L.P., and one general partner, The Charger Corporation. Grace Partners of
DuPage L.P. is a limited partnership with one general partner, The Charger
Corporation, and a number of limited partners. The Charger Corporation is an
Illinois corporation controlled by the Robert Donald Van Kampen family. First
Trust discharges its responsibilities subject to the policies of the Board of
Trustees of the Trust.
First Trust serves as adviser or sub-adviser for 25 mutual fund portfolios, 36
exchange-traded fund portfolios and 14 closed-end funds and is also the
portfolio supervisor of certain unit investment trusts sponsored by FTP, 1001
Warrenville Road, Lisle, Illinois 60532. FTP specializes in the underwriting,
trading and distribution of unit investment trusts and other securities. FTP is
the principal underwriter of the Shares of each Fund.
There is no one individual primarily responsible for portfolio management
decisions for the Funds. Investments are made under the direction of a committee
(the "Investment Committee"). The Investment Committee consists of Daniel J.
Lindquist, Robert F. Carey, Jon C. Erickson, David G. McGarel, Roger F. Testin
and Stan Ueland. Mr. Lindquist rejoined First Trust as a Vice President in April
2004 after serving as Chief Operating Officer of Mina Capital Management LLC
from January 2004 to April 2004 and Samaritan Asset Management Services, Inc.
from April 2000 to January 2004 and has been a Senior Vice President of First
Trust and FTP since September 2005. Mr. Lindquist is Chairman of the Investment
Committee and presides over Investment Committee meetings. Mr. Lindquist is
responsible for overseeing the implementation of the Fund's investment
strategies. Mr. Carey is the Chief Investment Officer and Senior Vice President
of First Trust and Senior Vice President of FTP. As First Trust's Chief
Investment Officer, Mr. Carey consults with the Investment Committee on market
conditions and First Trust's general investment philosophy. Mr. Erickson is a
Senior Vice President of First Trust and FTP. As the head of First Trust's
Equity Research Group, Mr. Erickson is responsible for determining the
securities to be purchased and sold by funds that do not utilize quantitative
investment strategies. Mr. McGarel is a Senior Vice President of First Trust and
FTP. As the head of First Trust's Strategy Research Group, Mr. McGarel is
responsible for developing and implementing quantitative investment strategies
for those funds that have investment policies that require them to follow such
strategies. Since November 2003, Mr. Testin has been a Senior Vice President of
First Trust and FTP. From August 2001 to November 2003, Mr. Testin was a Vice
President of First Trust and FTP. Prior to joining First Trust, Mr. Testin was
an analyst for Dolan Capital Management. Mr. Testin is the head of First Trust's
Portfolio Management Group. Mr. Ueland has been a Vice President of First Trust
and FTP since August 2005. At First Trust, he plays an important role in
executing the investment strategies of each portfolio of exchange-traded funds
advised by First Trust. Before joining First Trust, Mr. Ueland was vice
president of sales at BondWave LLC from May 2004 through August 2005, an account
executive for Mina Capital Management LLC and Samaritan Asset Management
Services, Inc. from January 2003 through May 2004, and a sales consultant at
Oracle Corporation from January 1997 through January 2003. For additional
information concerning First Trust, including a description of the services
provided to the Funds, see the Funds' SAI. In addition, the SAI provides
additional information about the compensation of Investment Committee members,
other accounts managed by members of the Investment Committee and ownership by
members of the Investment Committee of Shares of the Funds.
The table below sets forth the annual management fee that First Trust receives
from each Fund. Due to expense reimbursements, none of the Funds paid a
management fee for the period ended July 31, 2007. A discussion regarding the
approval of the Investment Management Agreement is available in the Funds'
Annual Report to Shareholders for the period ended July 31, 2007.
41
FUND ANNUAL MANAGEMENT FEE
Large Cap Core AlphaDEX(TM) Fund 0.50% of average daily net assets
Mid Cap Core AlphaDEX(TM) Fund 0.50% of average daily net assets
Small Cap Core AlphaDEX(TM) Fund 0.50% of average daily net assets
Large Cap Value Opportunities AlphaDEX(TM) Fund 0.50% of average daily net assets
Large Cap Growth Opportunities AlphaDEX(TM) Fund 0.50% of average daily net assets
Multi Cap Value AlphaDEX(TM) Fund 0.50% of average daily net assets
Multi Cap Growth AlphaDEX(TM) Fund 0.50% of average daily net assets
|
Each Fund is responsible for all of its expenses, including the investment
advisory fees, costs of transfer agency, custody, fund administration, legal,
audit and other services, interest, taxes, brokerage commissions and other
expenses connected with the execution of portfolio transactions, paying for its
sublicensing fees related to each Fund's corresponding equity index in the
Defined Index Series, any distribution fees or expenses, and extraordinary
expenses. First Trust has agreed to waive fees and/or pay Fund expenses to the
extent necessary to prevent the operating expenses of each Fund (excluding
interest expense, brokerage commissions and other trading expenses, taxes and
extraordinary expenses) from exceeding 0.70% of average daily net assets per
year, at least until May 10, 2009. Expenses borne by First Trust are subject to
reimbursement by each Fund up to three years from the date the fee or expense
was incurred, but no reimbursement payment will be made by a Fund at any time if
it would result in such Fund's expenses exceeding 0.70% of average daily net
assets per year.
HOW TO BUY AND SELL SHARES
Shares will be issued or redeemed by the Funds at NAV per Share only in Creation
Unit size. See "Creations, Redemptions and Transaction Fees."
Most investors will buy and sell Shares of the Funds in secondary market
transactions through brokers. Shares of the Funds will be listed for trading on
the secondary market on the AMEX. Shares can be bought and sold throughout the
trading day like other publicly traded shares. There is no minimum investment.
Although Shares are generally purchased and sold in "round lots" of 100 Shares,
brokerage firms typically permit investors to purchase or sell Shares in smaller
"odd lots," at no per-Share price differential. When buying or selling Shares
through a broker, you should expect to incur customary brokerage commissions,
you may receive less than the NAV of the Shares, and you may pay some or all of
the spread between the bid and the offer price in the secondary market on each
leg of a round trip (purchase and sale) transaction. Share prices are reported
in dollars and cents per Share.
Investors may acquire Shares directly from a Fund, and shareholders may tender
their Shares for redemption directly to such Fund, only in Creation Units of
100,000 Shares, as discussed in the "Creations, Redemptions and Transaction
Fees" section below.
For the purpose of the 1940 Act, each Fund is treated as a registered investment
company, and the acquisition of Shares by other registered investment companies
is subject to the restrictions of Section 12(d)(1) of the 1940 Act. The Trust,
on behalf of the Funds, has received an exemptive order from the Securities and
Exchange Commission that permites certain registered investment companies to
42
invest in a Fund beyond the limits set forth in Section 12(d)(1), subject to
certain terms and conditions, inlucding that any such investment companies enter
into such agreements with a Fund regarding the terms of any investment.
BOOK ENTRY
Shares are held in book-entry form, which means that no Share certificates are
issued. The Depository Trust Company ("DTC") or its nominee is the record owner
of all outstanding Shares of the Funds and is recognized as the owner of all
Shares for all purposes.
Investors owning Shares are beneficial owners as shown on the records of DTC or
its participants. DTC serves as the securities depository for all Shares.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
Shares, you are not entitled to receive physical delivery of Share certificates
or to have Shares registered in your name, and you are not considered a
registered owner of Shares. Therefore, to exercise any right as an owner of
Shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any other stocks that you hold in
book-entry or "street name" form.
SHARE TRADING PRICES
The trading prices of Shares of a Fund on the AMEX may differ from such Fund's
daily NAV and can be affected by market forces of supply and demand, economic
conditions and other factors.
The AMEX disseminates the approximate value of Shares of the Funds every 15
seconds. This approximate value should not be viewed as a "real-time" update of
the NAV per Share of the Funds because the approximate value may not be
calculated in the same manner as the NAV, which is computed once a day,
generally at the end of the business day. The Funds are not involved in, or
responsible for, the calculation or dissemination of the approximate value and
the Funds do not make any warranty as to its accuracy.
FREQUENT PURCHASES AND REDEMPTIONS OF THE FUNDS' SHARES
Each Fund imposes no restrictions on the frequency of purchases and redemptions
("market timing"). In determining not to approve a written, established policy,
the Board evaluated the risks of market timing activities by each Fund's
shareholders. The Board considered that, unlike traditional mutual funds, the
Funds issue and redeem their Shares at NAV per Share for a basket of securities
intended to mirror a Fund's portfolio, plus a small amount of cash, and the
Shares may be purchased and sold on the AMEX at prevailing market prices The
Board noted that a Fund's Shares can only be purchased and redeemed directly
from the Fund in Creation Units by APs and that the vast majority of trading in
Shares occurs on the secondary market. Because the secondary market trades do
not involve a Fund directly, it is unlikely those trades would cause many of the
harmful effects of market timing, including: dilution, disruption of portfolio
management, increases in a Fund's trading costs and the realization of capital
gains. With respect to trades directly with a Fund, to the extent effected
in-kind (i.e., for securities), those trades do not cause any of the harmful
effects (as noted above) that may result from frequent cash trades. To the
extent trades are effected in whole or in part in cash, the Board noted that
those trades could result in dilution to a Fund and increased transaction costs,
which could negatively impact a Fund's ability to achieve its investment
objective. However, the Board noted that direct trading by APs is critical to
ensuring that the Shares trade at or close to NAV. The Funds also employ fair
valuation pricing to minimize potential dilution from market timing. The Funds
impose transaction fees on in-kind purchases and redemptions of Shares to cover
43
the custodial and other costs incurred by a Fund in executing in-kind trades,
and with respect to the redemption fees, these fees increase if an investor
substitutes cash in part or in whole for securities, reflecting the fact that a
Fund's trading costs increase in those circumstances. Given this structure, the
Board determined that (a) it is unlikely that market timing would be attempted
by the Funds' shareholders and (b) any attempts to market time the Funds by
shareholders would not be expected to negatively impact the Funds or their
shareholders.
CREATIONS, REDEMPTIONS AND TRANSACTION FEES
Investors such as market makers, large investors and institutions who wish to
deal in Creation Units directly with the Funds must have entered into an AP
agreement with the Funds' distributor and transfer agent, or purchase through a
dealer that has entered into such an agreement. Set forth below is a brief
description of the procedures applicable to purchases and redemptions of
Creation Units. For more detailed information, see "Creation and Redemption of
Creation Unit Aggregations" in the SAI.
PURCHASE
In order to purchase Creation Units of the Funds, an investor must generally
deposit a designated portfolio of equity securities constituting a substantial
replication, or a representation, of the stocks included in each Fund's
corresponding equity index in the Defined Index Series (the "Deposit
Securities") and generally make a small cash payment referred to as the "Cash
Component." The list of the names and the numbers of shares of the Deposit
Securities is made available by the Funds' custodian through the facilities of
the National Securities Clearing Corporation ("NSCC"), immediately prior to the
opening of business each day of the AMEX. The Cash Component represents the
difference between the NAV of a Creation Unit and the market value of the
Deposit Securities.
Orders must be placed in proper form by or through an AP which is either (i) a
"Participating Party," i.e., a broker-dealer or other participant in the
Clearing Process of the Continuous Net Settlement System of the NSCC (the
"Clearing Process"), or (ii) a participant of DTC ("DTC Participant") that has
entered into an AP agreement with the Funds' distributor and transfer agent,
with respect to purchases and redemptions of Creation Units of each Fund. All
orders must be placed for one or more whole Creation Units of Shares of the
Funds and must be received by the Funds' transfer agent in proper form no later
than the close of regular trading on the New York Stock Exchange (ordinarily
4:00 p.m., Eastern time) ("Closing Time") in order to receive that day's closing
NAV per Share. In the case of custom orders, as further described in the SAI,
the order must be received by the Funds' transfer agent no later than 3:00 p.m.,
Eastern time. A custom order may be placed by an AP in the event that a Fund
permits or requires the substitution of an amount of cash to be added to the
Cash Component to replace any Deposit Security which may not be available in
sufficient quantity for delivery or which may not be eligible for trading by
such AP or the investor for which it is acting or any other relevant reason. See
"Creation and Redemption of Creation Unit Aggregations" in the SAI.
Purchasers of Creation Units must pay a standard creation transaction fee (the
"Creation Transaction Fee"), which is based on the number of different
securities in a Creation Unit according to the fee schedule set forth below:
44
NUMBER OF SECURITIES CREATION
IN A CREATION UNIT TRANSACTION FEE
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
|
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by a Fund with respect to
transactions effected outside of the Clearing Process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. See "Creation and Redemption of Creation Unit
Aggregations" in the SAI. 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 transfer taxes.
Shares of each Fund may be issued in advance of receipt of all Deposit
Securities subject to various conditions, including a requirement to maintain on
deposit with a Fund cash at least equal to 115% of the market value of the
missing Deposit Securities. See "Creation and Redemption of Creation Unit
Aggregations" in the SAI.
LEGAL RESTRICTIONS ON TRANSACTIONS IN CERTAIN STOCKS
An investor subject to a legal restriction with respect to a particular stock
required to be deposited in connection with the purchase of a Creation Unit may,
at a Fund's discretion, be permitted to deposit an equivalent amount of cash in
substitution for any stock which would otherwise be included in the Deposit
Securities applicable to the purchase of a Creation Unit. For more details, see
"Creation and Redemption of Creation Unit Aggregations" in the SAI.
REDEMPTION
The Funds' custodian makes available immediately prior to the opening of
business each day of the AMEX, through the facilities of the NSCC, the list of
the names and the numbers of shares of each Fund's portfolio securities that
will be applicable that day to redemption requests in proper form ("Fund
Securities"). Fund Securities received on redemption may not be identical to
Deposit Securities, which are applicable to purchases of Creation Units. Unless
cash redemptions are available or specified for a Fund, the redemption proceeds
consist of the Fund Securities, plus cash in an amount equal to the difference
between the NAV of Shares being redeemed as next determined after receipt by the
Funds' transfer agent of a redemption request in proper form, and the value of
the Fund Securities (the "Cash Redemption Amount"), less the applicable
redemption fee and, if applicable, any transfer taxes. Should the Fund
Securities have a value greater than the NAV of Shares being redeemed, a
compensating cash payment to a Fund equal to the differential, plus the
applicable redemption fee and, if applicable, any transfer taxes will be
required to be arranged for by or on behalf of the redeeming AP. Investors
should expect to incur customary brokerage commissions in connection with
assembling a sufficient number of Shares of a Fund to constitute a redeemable
45
Creation Unit. For more details, see "Creation and Redemption of Creation Unit
Aggregations" in the SAI.
An order to redeem Creation Units of a Fund may only be effected by or through
an AP. An order to redeem must be placed for one or more whole Creation Units
and must be received by the Funds' transfer agent in proper form no later than
the Closing Time in order to receive that day's closing NAV per Share. In the
case of custom orders, as further described in the SAI, the order must be
received by the Funds' transfer agent no later than 3:00 p.m., Eastern time.
Parties redeeming Creation Units must pay a standard redemption transaction fee
(the "Redemption Transaction Fee"), which is based on the number of different
securities in a Creation Unit according to the fee schedule set forth below:
NUMBER OF SECURITIES REDEMPTION
IN A CREATION UNIT TRANSACTION FEE
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
|
The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable fee of up to three times the Redemption Transaction Fee may
be charged to approximate additional expenses incurred by a Fund with respect to
redemptions effected outside of the Clearing Process or to the extent that
redemptions are for cash. The Funds reserve the right to effect redemptions in
cash. A shareholder may request a cash redemption in lieu of securities,
however, a Fund may, in its discretion, reject any such request. See "Creation
and Redemption of Creation Unit Aggregations" in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends from net investment income, if any, are declared and paid
semi-annually. Each Fund distributes its net realized capital gains, if any, to
shareholders annually.
Distributions in cash may be reinvested automatically in additional whole Shares
only if the broker through whom you purchased Shares makes such option
available. Such Shares will generally be reinvested by the broker based upon the
market price of those Shares and investors may be subject to customary brokerage
commissions charged by the broker.
46
FEDERAL TAX MATTERS
This section summarizes some of the main U.S. federal income tax consequences of
owning Shares of the Funds. This section is current as of the date of this
Prospectus. Tax laws and interpretations change frequently, and these summaries
do not describe all of the tax consequences to all taxpayers. For example, these
summaries generally do not describe your situation if you are a corporation, a
non-U.S. person, a broker-dealer, or other investor with special circumstances.
In addition, this section does not describe your state, local or non-U.S. tax
consequences.
This federal income tax summary is based in part on the advice of counsel to the
Funds. The Internal Revenue Service could disagree with any conclusions set
forth in this section. In addition, counsel to the Funds was not asked to
review, and has not reached a conclusion with respect to, the federal income tax
treatment of the assets to be included in the Funds. This may not be sufficient
for you to use for the purpose of avoiding penalties under federal tax law.
As with any investment, you should seek advice based on your individual
circumstances from your own tax adviser.
FUND STATUS
Each Fund intends to qualify as a "regulated investment company" under the
federal tax laws. If a Fund qualifies as a regulated investment company and
distributes its income as required by the tax law, the Fund generally will not
pay federal income taxes.
DISTRIBUTIONS
The Funds' distributions are generally taxable. After the end of each year, you
will receive a tax statement that separates the distributions of a Fund into two
categories, ordinary income distributions and capital gains dividends. Ordinary
income distributions are generally taxed at your ordinary tax rate, however, as
further discussed below, certain ordinary income distributions received from the
Fund may be taxed at the capital gains tax rates. Generally, you will treat all
capital gains dividends as long-term capital gains regardless of how long you
have owned your Shares. To determine your actual tax liability for your capital
gains dividends, you must calculate your total net capital gain or loss for the
tax year after considering all of your other taxable transactions, as described
below. In addition, the Fund may make distributions that represent a return of
capital for tax purposes and thus will generally not be taxable to you. The tax
status of your distributions from a Fund is not affected by whether you reinvest
your distributions in additional Shares or receive them in cash. The income from
a Fund that you must take into account for federal income tax purposes is not
reduced by amounts used to pay a deferred sales fee, if any. The tax laws may
require you to treat distributions made to you in January as if you had received
them on December 31 of the previous year.
DIVIDENDS RECEIVED DEDUCTION
A corporation that owns Shares generally will not be entitled to the dividends
received deduction with respect to many dividends received from the Funds
because the dividends received deduction is generally not available for
distributions from regulated investment companies. However, certain ordinary
income dividends on Shares that are attributable to qualifying dividends
received by the Funds from certain corporations may be designated by the Funds
as being eligible for the dividends received deduction.
47
CAPITAL GAINS AND LOSSES AND CERTAIN ORDINARY INCOME DIVIDENDS
If you are an individual, the maximum marginal federal tax rate for net capital
gain is generally 15% (generally 5% for certain taxpayers in the 10% and 15% tax
brackets). These capital gains rates are generally effective for taxable years
beginning before January 1, 2011. For later periods, if you are an individual,
the maximum marginal federal tax rate for net capital gain is generally 20% (10%
for certain taxpayers in the 10% and 15% tax brackets). The 20% rate is reduced
to 18% and the 10% rate is reduced to 8% for long-term capital gains from most
property acquired after December 31, 2000 with a holding period of more than
five years.
Net capital gain equals net long-term capital gain minus net short-term capital
loss for the taxable year. Capital gain or loss is long-term if the holding
period for the asset is more than one year and is short-term if the holding
period for the asset is one year or less. You must exclude the date you purchase
your Shares to determine your holding period. However, if you receive a capital
gain dividend from a Fund and sell your Shares at a loss after holding it for
six months or less, the loss will be recharacterized as long-term capital loss
to the extent of the capital gain dividend received. The tax rates for capital
gains realized from assets held for one year or less are generally the same as
for ordinary income. The Internal Revenue Code treats certain capital gains as
ordinary income in special situations.
Ordinary income dividends received by an individual shareholder from regulated
investment companies such as the Funds are generally taxed at the same rates
that apply to net capital gain (as discussed above), provided certain holding
period requirements are satisfied and provided the dividends are attributable to
qualifying dividends received by the Funds themselves. These special rules
relating to the taxation of ordinary income dividends from regulated investment
companies generally apply to taxable years beginning before January 1, 2011. The
Funds will provide notice to its shareholders of the amount of any distribution
which may be taken into account as a dividend which is eligible for the capital
gains tax rates.
SALE OF SHARES
If you sell your Shares, you will generally recognize a taxable gain or loss. To
determine the amount of this gain or loss, you must subtract your tax basis in
your Shares from the amount you receive in the transaction. Your tax basis in
your Shares is generally equal to the cost of your Shares, generally including
sales charges. In some cases, however, you may have to adjust your tax basis
after you purchase your Shares.
TAXES ON PURCHASE AND REDEMPTION OF CREATION UNITS
If you exchange equity securities for Creation Units you will generally
recognize a gain or a loss. The gain or loss will be equal to the difference
between the market value of the Creation Units at the time and your aggregate
basis in the securities surrendered and the Cash Component paid. If you exchange
Creation Units for equity securities, you will generally recognize a gain or
loss equal to the difference between your basis in the Creation Units and the
aggregate market value of the securities received and the Cash Redemption
Amount. The Internal Revenue Service, however, may assert that a loss realized
upon an exchange of securities for Creation Units cannot be deducted currently
under the rules governing "wash sales," or on the basis that there has been no
significant change in economic position.
48
DEDUCTIBILITY OF FUND EXPENSES
Expenses incurred and deducted by the Funds will generally not be treated as
income taxable to you.
NON-U.S. TAX CREDIT
If a Fund invests in any non-U.S. securities, the tax statement that you receive
may include an item showing non-U.S. taxes a Fund paid to other countries. In
this case, dividends taxed to you will include your share of the taxes a Fund
paid to other countries. You may be able to deduct or receive a tax credit for
your share of these taxes.
NON-U.S. INVESTORS
If you are a non-U.S. investor (i.e., an investor other than a U.S. citizen or
resident or a U.S. corporation, partnership, estate or trust), you should be
aware that, generally, subject to applicable tax treaties, distributions from a
Fund will be characterized as dividends for federal income tax purposes (other
than dividends which the Fund designates as capital gain dividends) and will be
subject to U.S. federal income taxes, including withholding taxes, subject to
certain exceptions described below. However, distributions received by a
non-U.S. investor from the Fund that are properly designated by the Fund as
capital gain dividends may not be subject to U.S. federal income taxes,
including withholding taxes, provided that the Fund makes certain elections and
certain other conditions are met. In the case of dividends with respect to
taxable years of the Fund beginning prior to 2008, distributions from the Fund
that are properly designated by the Fund as an interest-related dividend
attributable to certain interest income received by the Fund or as a short-term
capital gain dividend attributable to certain net short-term capital gain income
received by the Fund may not be subject to U.S. federal income taxes, including
withholding taxes when received by certain non-U.S. investors, provided that the
Funds make certain elections and certain other conditions are met.
DISTRIBUTION PLAN
FTP serves as the distributor of Creation Units for the Funds on an agency
basis. FTP does not maintain a secondary market in Shares.
The Board has adopted a Distribution and Service Plan pursuant to Rule 12b-1
under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse FTP for amounts expended to finance activities primarily
intended to result in the sale of Creation Units or the provision of investor
services. FTP may also use this amount to compensate securities dealers or other
persons that are APs 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.
However, in the event 12b-1 fees are charged in the future, because these fees
are paid out of the Funds' assets, over time these fees will increase the cost
of your investment and may cost you more than certain other types of sales
charges.
49
NET ASSET VALUE
Each Fund's NAV is determined as of the close of trading (normally 4:00 p.m.,
Eastern time) on each day the New York Stock Exchange is open for business. NAV
is calculated for a Fund by taking the market price of the Fund's total assets,
including interest or dividends accrued but not yet collected, less all
liabilities, and dividing such amount by the total number of Shares outstanding.
The result, rounded to the nearest cent, is the NAV per Share. All valuations
are subject to review by the Board of Trustees or its delegate.
In determining NAV, expenses are accrued and applied daily and securities and
other assets are generally valued as set forth below. Common stocks and other
equity securities listed on any national or non-U.S. exchange will be valued at
the last sale price on the exchange or system in which they are principally
traded on the valuation date. If there are no transactions on the valuation
date, securities traded principally on an exchange will be valued at the mean
between the most recent bid and ask prices. Equity securities traded in the
over-the-counter market are valued at their closing bid prices. Fixed income
securities with a remaining maturity of 60 days or more will be valued by the
Fund accounting agent using a pricing service. When price quotes are not
available, fair market value is based on prices of comparable securities. Fixed
income securities maturing within 60 days are valued by the Fund accounting
agent on an amortized cost basis. The value of any portfolio security held by a
Fund for which market quotations are not readily available or securities for
which market quotations are deemed unreliable will be determined by the Board or
its designee in a manner that most fairly reflects the market value of the
security on the valuation date.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board 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) 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 the Fund generally results in the
prices used by the 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. See the SAI for details.
FUND SERVICE PROVIDERS
The Bank of New York is the administrator, custodian and fund accounting and
transfer agent for the Funds. Chapman and Cutler LLP, 111 West Monroe Street,
Chicago, Illinois 60603, serves as legal counsel to the Funds.
50
The Trust, on behalf of the Funds, has entered into an agreement with PFPC, Inc.
("PFPC"), 301 Bellevue Parkway, Wilmington, Delaware 19809, whereby PFPC will
provide certain administrative services to the Trust in connection with the
Board's meetings and other related matters.
INDEX PROVIDER
Each equity index in the Defined Index Series that each respective Fund seeks to
track is compiled by S&P. S&P is not affiliated with the Funds, First Trust or
FTP. The Funds are entitled to use each equity index in the Defined Index Series
pursuant to sublicensing arrangements by and among each Fund, S&P, First Trust
and FTP, which in turn has a licensing agreement with S&P.
DISCLAIMERS
First Trust does not guarantee the accuracy and/or the completeness of the
Defined Index Series or any data included therein, and First Trust shall have no
liability for any errors, omissions or interruptions therein. First Trust makes
no warranty, express or implied, as to results to be obtained by the Funds,
owners of the Shares of the Funds or any other person or entity from the use of
the Defined Index Series or any data included therein. First Trust makes no
express or implied warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
Defined Index Series or any data included therein. Without limiting any of the
foregoing, in no event shall First Trust have any liability for any special,
punitive, direct, indirect or consequential damages (including lost profits)
arising out of matters relating to the use of the Defined Index Series, even if
notified of the possibility of such damages.
FTP has licensed to S&P, free of charge, the right to use certain intellectual
property owned by FTP, including the AlphaDEX(TM) trademark and the AlphaDEX(TM)
stock selection method, in connection with the S&P's creation of the Defined
Index Series. A patent application with respect to the AlphaDEX(TM) stock
selection method is pending at the United States Patent and Trademark Office.
Notwithstanding such license, S&P is solely responsible for the creation,
compilation and administration of the Defined Index Series and has the exclusive
right to determine the stocks included in the indices and the indices'
methodologies.
The Funds are not sponsored, endorsed, sold or promoted by Standard & Poor's, a
division of the McGraw-Hill Companies, Inc. ("S&P"). S&P makes no representation
or warranty, express or implied, to the owners of the Funds or any member of the
public regarding the advisability of investing in securities generally or in the
Funds particularly or the ability of the Defined Index Series to track general
stock market performance or a segment of the same. S&P's publication of the
Defined Index Series in no way suggests or implies an opinion by S&P as to the
advisability of investment in any or all of the securities upon which the
Defined Index Series is based. S&P's only relationship to First Trust Portfolios
L.P. is the licensing of certain trademarks and trade names of S&P and of the
Defined Index Series, which is determined, composed and calculated by S&P
without regard to First Trust Portfolios L.P. or the Funds. S&P is not
responsible for and has not reviewed the Funds nor any associated literature or
publications and S&P makes no representation or warranty express or implied as
to their accuracy or completeness, or otherwise. S&P reserves the right, at any
51
time and without notice, to alter, amend, terminate or in any way change the
Defined Index Series. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Funds.
S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS DO NOT GUARANTEE THE
ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE DEFINED INDEX SERIES OR ANY
DATA INCLUDED THEREIN AND S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS
SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS,
DELAYS OR INTERRUPTIONS THEREIN. S&P, ITS AFFILIATES AND THEIR THIRD PARTY
LICENSORS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
FIRST TRUST PORTFOLIOS L.P., INVESTORS, OWNERS OF THE FUNDS, OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE DEFINED INDEX SERIES OR ANY DATA INCLUDED THEREIN.
S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS MAKE NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE DEFINED INDEX SERIES OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
"AlphaDEX(TM)" is a trademark of FTP. The Funds and First Trust on behalf of the
Funds have been granted the right by FTP to use the name "AlphaDEX(TM)" for
certain purposes.
ADDITIONAL INDEX INFORMATION
The Defined Index Series was created and trademarked by S&P. The Funds will make
changes to their portfolios shortly after changes to the Defined Index Series
are released to the public. Investors are able to access the holdings of each
Fund and the composition and compilation methodology of the Defined Index Series
through the Funds' website at www.ftportfolios.com.
In the event that S&P no longer calculates the Defined Index Series, the Defined
Index Series license is terminated or the identity or character of any equity
index of the Defined Index Series is materially changed, the Board will seek to
engage a replacement index. However, if that proves to be impracticable, the
Board will take whatever action it deems to be in the best interests of the
Funds. The Board will also take whatever actions it deems to be in the best
interests of the Funds if the Funds' Shares are delisted.
PREMIUM/DISCOUNT INFORMATION
The tables that follow present information about the differences between each
Fund's daily market price on the AMEX and its NAV. The "Market Price" of a Fund
generally is determined using the midpoint between the highest bid and lowest
offer on the exchange, as of the time a Fund's NAV is calculated. A Fund's
Market Price may be at, above, or below its NAV. The NAV of a Fund will
fluctuate with changes in the market value of its portfolio holdings. The Market
Price of a Fund will fluctuate in accordance with changes in its NAV, as well as
market supply and demand.
52
Premiums or discounts are the differences (generally expressed as a percentage)
between the NAV and Market Price of a Fund on a given day, generally at the time
NAV is calculated. A premium is the amount that a Fund is trading above the
reported NAV, expressed as a percentage of the NAV. A discount is the amount
that a Fund is trading below the reported NAV, expressed as a percentage of the
NAV.
The following information shows the frequency distribution of premiums and
discounts of the daily bid/ask price of each Fund against each Fund's NAV. The
information shown for each Fund is for the period indicated. All data presented
here represents past performance, which cannot be used to predict future
results.
FIRST TRUST LARGE CAP CORE ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 38 0 0 0
7/31/07* 18 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 27 0 0 0
7/31/07* 38 0 0 0
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FIRST TRUST MID CAP CORE ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 42 7 0 0
7/31/07* 22 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 16 0 0 0
7/31/07* 34 0 0 0
|
53
FIRST TRUST SMALL CAP CORE ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 28 0 0 0
7/31/07* 24 0 1 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 37 0 0 0
7/31/07* 32 0 0 0
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FIRST TRUST LARGE CAP VALUE OPPORTUNITIES ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 39 0 0 0
7/31/07* 40 0 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 26 0 0 0
7/31/07* 17 0 0 0
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FIRST TRUST LARGE CAP GROWTH OPPORTUNITIES ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 41 0 0 0
7/31/07* 37 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 24 0 0 0
7/31/07* 19 0 0 0
|
54
FIRST TRUST MULTI CAP VALUE ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 31 0 0 0
7/31/07* 39 0 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 34 0 0 0
7/31/07* 18 0 0 0
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FIRST TRUST MULTI CAP GROWTH ALPHADEX(TM) FUND
BID/ASK MIDPOINT VS. NAV
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 36 0 0 0
7/31/07* 29 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
QUARTER ENDED 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
10/31/07 29 0 0 0
7/31/07* 27 0 0 0
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* Trading commenced on May 10, 2007
TOTAL RETURN INFORMATION
The tables below compare the total return of each Fund to the total return of
the Index on which it is based. In addition, the total return of each Fund is
compared to the total return of a broad measure of market performance. The
information presented for each Fund is for the periods indicated.
"Cumulative total returns" represent the total change in value of an investment
over the period indicated. The NAV return is based on the NAV per Share of a
Fund, and the market return is based on the market price per Share of a Fund.
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
applicable exchange, as of the time that a Fund's NAV is calculated. Since the
Shares of each Fund typically do not trade in the secondary market until several
days after a Fund's inception, for the period from inception to the first day of
secondary market trading in Shares of a Fund, the NAV of a Fund is used as a
proxy for the secondary market trading price to calculate market returns. Market
and NAV returns assume that dividends and capital gain distributions have been
reinvested in a Fund at Market Price and NAV, respectively. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
each Fund, an index does not actually hold a portfolio of securities and
therefore does not incur the expenses incurred by a Fund. These expenses
55
negatively impact the performance of each Fund. Also, market returns do not
include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The returns shown in the table below do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Shares of a Fund. The investment return and principal value of Shares of
a Fund will vary with changes in market conditions. Shares of a Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. A Fund's past performance is no guarantee of future results.
FIRST TRUST LARGE CAP CORE ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV -4.40% 4.01%
Market Price -4.43% 3.91%
INDEX PERFORMANCE
S&P 500 Index -3.10% 6.97%
Defined Large Cap Core Index -4.21% 4.17%
|
FIRST TRUST MID CAP CORE ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV -4.73% 4.23%
Market Price -4.77% 3.82%
INDEX PERFORMANCE
Defined Mid Cap Core Index -4.60% 4.41%
S&P MidCap 400 Index -3.85% 6.32%
|
FIRST TRUST SMALL CAP CORE ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV -5.67% 2.05%
Market Price -5.77% 2.02%
INDEX PERFORMANCE
Defined Small Cap Core Index -5.46% 2.30%
S&P SmallCap 600 Index -4.65% 5.32%
|
FIRST TRUST LARGE CAP VALUE OPPORTUNITIES ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV -5.50% -0.07%
Market Price -5.30% -0.39%
INDEX PERFORMANCE
S&P 500 Index -3.10% 6.97%
Defined Large Cap Value Opportunities Index -5.38% 0.11%
S&P 500/Citigroup Value Index -4.14% 5.59%
|
56
FIRST TRUST LARGE CAP GROWTH OPPORTUNITIES ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV -2.60% 8.90%
Market Price -2.43% 8.61%
INDEX PERFORMANCE
S&P 500 Index -3.10% 6.97%
Defined Large Cap Growth Opportunities Index -2.43% 9.06%
S&P 500/Citigroup Growth Index -1.98% 8.39%
|
FIRST TRUST MUTI CAP VALUE ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV -6.83% -0.36%
Market Price -6.50% -0.86%
INDEX PERFORMANCE
S&P Composite 1500 Index -3.22% 6.86%
Defined Multi Cap Value Index -6.66% -0.18%
S&P Composite 1500/Citigroup Value Index -4.33% 5.37%
|
FIRST TRUST MULTI CAP GROWTH ALPHADEX(TM) FUND
Cumulative Total Returns
Inception (5/8/07) Quarter Ended
to 7/31/07 10/31/07
FUND PERFORMANCE
NAV -2.03% 8.47%
Market Price -1.90% 8.26%
INDEX PERFORMANCE
S&P Composite 1500 Index -3.22% 6.86%
Defined Multi Cap Growth Index -1.82% 8.68%
S&P Composite 1500/Citigroup Growth Index -2.04% 8.39%
|
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Fund's
financial performance since its inception. Certain information reflects
financial results for a single Share of each Fund. The total returns represent
the rate that an investor would have earned (or lost) on an investment in a Fund
(assuming reinvestment of all dividends and distributions). The information for
the periods indicated has been derived from financial statements audited by
Deloitte & Touche LLP, whose report for the period ended July 31, 2007, along
with each Fund's financial statements, are included in the Annual Report to
Shareholders dated July 31, 2007 and are incorporated by reference in the SAI,
which are available upon request.
57
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST LARGE CAP CORE ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $30.00
-----------
Income from investment operations:
Net investment income (loss) (b) 0.04
Net realized and unrealized gain (loss) (1.36)
-----------
Total from investment operations (1.32)
-----------
Net asset value, end of period $28.68
===========
TOTAL RETURN (c) (4.40)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $2,868
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 7.86% (d)
Ratio of net investment income to average net assets 0.62% (d)
Portfolio turnover rate (e) 1%
FIRST TRUST MID CAP CORE ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $30.00
-----------
Income from investment operations:
Net investment income (loss) (b) 0.01
Net realized and unrealized gain (loss) (1.43)
-----------
Total from investment operations (1.42)
-----------
Net asset value, end of period $28.58
===========
TOTAL RETURN (c) (4.73)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $5,715
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 5.98% (d)
Ratio of net investment income to average net assets 0.19% (d)
Portfolio turnover rate (e) 1%
See "Notes to Financial Highlights" on page 61.
_______________________________________________________________________________
58
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FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST SMALL CAP CORE ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $30.00
-----------
Income from investment operations:
Net investment income (loss) (b) 0.02
Net realized and unrealized gain (loss) (1.72)
-----------
Total from investment operations (1.70)
-----------
Net asset value, end of period $28.30
===========
TOTAL RETURN (c) (5.67)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $5,660
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 7.25% (d)
Ratio of net investment loss to average net assets 0.42% (d)
Portfolio turnover rate (e) 2%
FIRST TRUST LARGE CAP VALUE OPPORTUNITIES ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $30.00
-----------
Income from investment operations:
Net investment income (loss) (b) 0.06
Net realized and unrealized gain (loss) (1.71)
-----------
Total from investment operations (1.65)
-----------
Net asset value, end of period $28.35
===========
TOTAL RETURN (c) (5.50)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $5,669
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 6.95% (d)
Ratio of net investment income to average net assets 0.97% (d)
Portfolio turnover rate (e) 1%
See "Notes to Financial Highlights" on page 61.
_______________________________________________________________________________
59
|
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST LARGE CAP GROWTH OPPORTUNITIES ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $30.00
-----------
Income from investment operations:
Net investment income (loss) (b) (0.00) (f)
Net realized and unrealized gain (loss) (0.78)
-----------
Total from investment operations (0.78)
-----------
Net asset value, end of period $29.22
===========
TOTAL RETURN (c) (2.60)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $5,845
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 5.98% (d)
Ratio of net investment loss to average net assets (0.07)% (d)
Portfolio turnover rate (e) 163
FIRST TRUST MULTI CAP VALUE ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $30.00
-----------
Income from investment operations:
Net investment income (loss) (b) 0.06
Net realized and unrealized gain (loss) (2.11)
-----------
Total from investment operations (2.05)
-----------
Net asset value, end of period $27.95
===========
TOTAL RETURN (c) (6.83)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $2,795
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 7.91% (d)
Ratio of net investment loss to average net assets 0.93% (d)
Portfolio turnover rate (e) 2%
See "Notes to Financial Highlights" on page 61.
_______________________________________________________________________________
60
|
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST MULTI CAP GROWTH ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $30.00
-----------
Income from investment operations:
Net investment income (loss) (b) (0.01)
Net realized and unrealized gain (loss) (0.60)
-----------
Total from investment operations (0.61)
-----------
Net asset value, end of period $29.39
===========
TOTAL RETURN (c) (2.03)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $8,818
Ratios to average net assets:
Ratio of net expenses to average net assets 0.70% (d)
Ratio of total expenses to average net assets 6.01% (d)
Ratio of net investment income to average net assets (0.21)% (d)
Portfolio turnover rate (e) 1%
|
NOTES TO FINANCIAL HIGHLIGHTS
(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 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.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(f) Amount represents less than $0.01 per share.
OTHER INFORMATION
For purposes of the 1940 Act, each Fund is treated as a registered investment
company and the acquisition of Shares by other investment companies is subject
to the restrictions of Section 12(d)(1) of the 1940 Act. The Trust, on behalf of
the Funds, has received an exemptive order from the Securities and Exchange
Commission that permits certain registered investment companies to invest in a
Fund beyond the limits set forth in Section 12(d)(1), subject to certain terms
and conditions, including that any such investment companies enter into
agreements with a Fund regarding the terms of any investment.
61
CONTINUOUS OFFERING
Each Fund will issue, on a continuous offering basis, its Shares in one or more
groups of a fixed number of Fund Shares (each such group of such specified
number of individual Shares of a Fund, a "Creation Unit Aggregation"). The
method by which Creation Unit Aggregations of Fund Shares are created and traded
may raise certain issues under applicable securities laws. Because new Creation
Unit Aggregations of Shares are issued and sold by a Fund on an ongoing basis, a
"distribution," as such term is used in the Securities Act of 1933, as amended
(the "Securities Act"), may occur at any point. Broker-dealers and other persons
are cautioned that some activities on their part may, depending on the
circumstances, result in their being deemed participants in a distribution in a
manner which could render them statutory underwriters and subject them to the
prospectus delivery requirement and liability provisions of the Securities Act.
For example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Unit Aggregations after placing an order with
FTP, breaks them down into constituent Shares and sells such Shares directly to
customers, or if it chooses to couple the creation of a supply of new Shares
with an active selling effort involving solicitation of secondary market demand
for Shares. A determination of whether one is an underwriter for purposes of the
Securities Act must take into account all the facts and circumstances pertaining
to the activities of the broker-dealer or its client in the particular case, and
the examples mentioned above should not be considered a complete description of
all the activities that could lead to a characterization as an underwriter.
Broker-dealer firms should also note that dealers who are not "underwriters" but
are effecting transactions in Shares, whether or not participating in the
distribution of Shares, are generally required to deliver a Prospectus. This is
because the prospectus delivery exemption in Section 4(3) of the Securities Act
is not available in respect of such transactions as a result of Section 24(d) of
the 1940 Act. The Trust, on behalf of each Fund, however, has received from the
Securities and Exchange Commission an exemption from the prospectus delivery
obligation in ordinary secondary market transactions under certain
circumstances, on the condition that purchasers are provided with a product
description of the Shares. As a result, broker-dealer firms should note that
dealers who are not underwriters but are participating in a distribution (as
contrasted with ordinary secondary market transactions) and thus dealing with
the Shares that are part of an overallotment within the meaning of Section
4(3)(a) of the Securities Act would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(3) of the Securities Act.
Firms that incur a prospectus delivery obligation with respect to Shares are
reminded that, under the Securities Act Rule 153, a prospectus delivery
obligation under Section 5(b)(2) of the Securities Act owed to a broker-dealer
in connection with a sale on the AMEX is satisfied by the fact that the
Prospectus is available from the AMEX upon request. The prospectus delivery
mechanism provided in Rule 153 is available with respect to transactions on a
national securities exchange, a trading facility or an alternative trading
system.
62
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63
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64
[BLANK INSIDE BACK COVER]
[LOGO OMITTED] AlphaDEX(TM)
Family of ETFs
_______________________________________________________________________________
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First Trust Large Cap Core AlphaDEX(TM) Fund
First Trust Mid Cap Core AlphaDEX(TM) Fund
First Trust Small Cap Core AlphaDEX(TM) Fund
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund
First Trust Multi Cap Value AlphaDEX(TM) Fund
First Trust Multi Cap Growth AlphaDEX(TM) Fund
FOR MORE INFORMATION
For more detailed information on the Funds, several additional sources of
information are available to you. The SAI, incorporated by reference into this
Prospectus, contains detailed information on the Funds' policies and operation.
Additional information about the Funds' investments is available in the annual
and semi-annual reports to Shareholders. In the Funds' annual reports, you will
find a discussion of the market conditions and investment strategies that
significantly impacted the Funds' performance during the last fiscal year. The
Funds' most recent SAI and certain other information are available free of
charge by calling the Funds at (800) 621-1675, on the Funds' website at
www.ftportfolios.com or through your financial adviser. Shareholders may call
the toll-free number above with any inquiries.
You may obtain this and other information regarding the Funds, including the
Codes of Ethics adopted by First Trust, FTP and the Trust, directly from the
Securities and Exchange Commission (the "SEC"). Information on the SEC's website
is free of charge. Visit the SEC's on-line EDGAR database at http://www.sec.gov
or in person at the SEC's Public Reference Room in Washington, D.C., or call the
SEC at (202) 551-8090 for information on the Public Reference Room. You may also
request information regarding the Funds by sending a request (along with a
duplication fee) to the SEC's Public Reference Section, 100 F Street, N.E.,
Washington, D.C. 20549 or by sending an electronic request to
publicinfo@sec.gov.
1001 Warrenville Road
Suite 300
Lisle, Illinois 60532
(800) 621-1675 SEC File #: 333-140895
www.ftportfolios.com 811-22019
Back Cover
STATEMENT OF ADDITIONAL INFORMATION
INVESTMENT COMPANY ACT FILE NO. 811-22019
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
FIRST TRUST CONSUMER DISCRETIONARY ALPHADEX(TM) FUND
FIRST TRUST CONSUMER STAPLES ALPHADEX(TM) FUND
FIRST TRUST ENERGY ALPHADEX(TM) FUND
FIRST TRUST FINANCIALS ALPHADEX(TM) FUND
FIRST TRUST HEALTH CARE ALPHADEX(TM) FUND
FIRST TRUST INDUSTRIALS/PRODUCER DURABLES ALPHADEX(TM) FUND
FIRST TRUST MATERIALS ALPHADEX(TM) FUND
FIRST TRUST TECHNOLOGY ALPHADEX(TM) FUND
FIRST TRUST UTILITIES ALPHADEX(TM) FUND
DATED NOVEMBER 28, 2007
This Statement of Additional Information is not a Prospectus. It should
be read in conjunction with the Prospectus dated November 28, 2007 (the
"Prospectus") for each of the First Trust Consumer Discretionary AlphaDEX(TM)
Fund, First Trust Consumer Staples AlphaDEX(TM) Fund, First Trust Energy
AlphaDEX(TM) Fund, First Trust Financials AlphaDEX(TM) Fund, First Trust Health
Care AlphaDEX(TM) Fund, First Trust Industrials/Producer Durables AlphaDEX(TM)
Fund, First Trust Materials AlphaDEX(TM) Fund, First Trust Technology
AlphaDEX(TM) Fund and First Trust Utilities AlphaDEX(TM) Fund, each a series of
the First Trust Exchange-Traded AlphaDEX(TM) Fund (the "Trust"), as it may be
revised from time to time. Capitalized terms used herein that are not defined
have the same meaning as in the Prospectus, unless otherwise noted. A copy of
the Prospectus may be obtained without charge by writing to the Trust's
Distributor, First Trust Portfolios L.P., 1001 Warrenville Road, Lisle, Illinois
60532, or by calling toll free at (800) 621-1675.
TABLE OF CONTENTS
GENERAL DESCRIPTION OF THE TRUST AND THE FUNDS.................................1
EXCHANGE LISTING AND TRADING...................................................3
INVESTMENT OBJECTIVE AND POLICIES..............................................4
INVESTMENT STRATEGIES..........................................................5
SUBLICENSE AGREEMENTS.........................................................15
INVESTMENT RISKS..............................................................15
FUNDS MANAGEMENT..............................................................20
ACCOUNTS MANAGED BY INVESTMENT COMMITTEE......................................31
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BROKERAGE ALLOCATIONS.........................................................32
CUSTODIAN, DISTRIBUTOR, TRANSFER AGENT, FUND ACCOUNTING AGENT,
INDEX PROVIDER AND EXCHANGE..............................................35
ADDITIONAL INFORMATION........................................................37
PROXY VOTING POLICIES AND PROCEDURES..........................................39
CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS.........................40
FEDERAL TAX MATTERS...........................................................51
DETERMINATION OF NAV..........................................................56
DIVIDENDS AND DISTRIBUTIONS...................................................58
MISCELLANEOUS INFORMATION.....................................................59
FINANCIAL STATEMENTS..........................................................59
|
The audited financial statements for the Funds' most recent fiscal year
appear in the Funds' Annual Report to Shareholders dated July 31, 2007, which is
attached hereto. The Annual Report was filed with the Securities and Exchange
Commission ("SEC") on September 28, 2007. The financial statements from such
Annual Report are incorporated herein by reference.
GENERAL DESCRIPTION OF THE TRUST AND THE FUNDS
The Trust was organized as a Massachusetts business trust on December
6, 2006 and is authorized to issue an unlimited number of shares in one or more
series or "Funds." The Trust is an open-end management investment company,
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Trust currently offers Shares in 16 series, including the First Trust
Consumer Discretionary AlphaDEX(TM) Fund, First Trust Consumer Staples
AlphaDEX(TM) Fund, First Trust Energy AlphaDEX(TM) Fund, First Trust Financials
AlphaDEX(TM) Fund, First Trust Health Care AlphaDEX(TM) Fund, First Trust
Industrials/Producer Durables AlphaDEX(TM) Fund, First Trust Materials
AlphaDEX(TM) Fund, First Trust Technology AlphaDEX(TM) Fund and First Trust
Utilities AlphaDEX(TM) Fund (each, a "Fund," and collectively, the "Funds"),
each a non-diversified series. This Statement of Additional Information relates
only to the Funds. The shares of the Funds are referred to herein as "Shares" or
"Fund Shares." Each series of the Trust represents a beneficial interest in a
separate portfolio of securities and other assets, with its own objective and
policies.
The Board of Trustees of the Trust (the "Board of Trustees" or the
"Trustees") has the right to establish additional series in the future, to
determine the preferences, voting powers, rights and privileges thereof and to
modify such preferences, voting powers, rights and privileges without
shareholder approval. Shares of any series may also be divided into one or more
classes at the discretion of the Trustees.
Each Share has one vote with respect to matters upon which a
shareholder vote is required consistent with the requirements of the 1940 Act
and the rules promulgated thereunder. Shares of all series of the Trust vote
together as a single class except as otherwise required by the 1940 Act, or if
the matter being voted on affects only a particular series, and, if a matter
affects a particular series differently from other series, the shares of that
series will vote separately on such matter. The Trust's Declaration of Trust
(the "Declaration") requires a shareholder vote only on those matters where the
1940 Act requires a vote of shareholders and otherwise permits the Trustees to
take actions without seeking the consent of shareholders. For example, the
Declaration gives the Trustees broad authority to approve reorganizations
between a Fund and another entity, such as another exchange-traded fund, or the
sale of all or substantially all of a Fund's assets, or the termination of the
Trust or any Fund without shareholder approval if the 1940 Act would not require
such approval.
The Declaration provides that by becoming a shareholder of a Fund, each
shareholder shall be expressly held to have agreed to be bound by the provisions
of the Declaration. The Declaration may be amended or supplemented by the
Trustees in any respect without shareholder vote. The Declaration provides that
the Trustees may establish the number of Trustees and that vacancies on the
Board of Trustees may be filled by the remaining Trustees, except when election
of Trustees by the shareholders is required under the 1940 Act. Trustees are
then elected by a plurality of votes cast by shareholders at a meeting at which
a quorum is present. The Declaration also provides that Trustees may be removed,
with or without cause, by a vote of shareholders holding at least two-thirds of
the voting power of the Trust, or by a vote of two thirds of the remaining
Trustees. The provisions of the Declaration relating to the election and removal
of Trustees may not be amended without the approval of two-thirds of the
Trustees.
The holders of Fund Shares are required to disclose information on
direct or indirect ownership of Fund Shares as may be required to comply with
various laws applicable to the Funds or as the Trustees may determine, and
ownership of Fund Shares may be disclosed by the Funds if so required by law or
regulation. In addition, pursuant to the Declaration, the Trustees may, in their
discretion, require the Trust to redeem Shares held by any shareholder for any
reason under terms set by the Trustees. The Declaration provides a detailed
process for the bringing of derivative actions by shareholders in order to
permit legitimate inquiries and claims while avoiding the time, expense,
distraction and other harm that can be caused to a Fund or its shareholders as a
result of spurious shareholder demands and derivative actions. Prior to bringing
a derivative action, a demand must first be made on the Trustees. The
Declaration details various information, certifications, undertakings and
acknowledgements that must be included in the demand. Following receipt of the
demand, the Trustees have a period of 90 days, which may be extended by an
additional 60 days, to consider the demand. If a majority of the Trustees who
are considered independent for the purposes of considering the demand determine
that maintaining the suit would not be in the best interests of the Fund, the
Trustees are required to reject the demand and the complaining shareholder may
not proceed with the derivative action unless the shareholder is able to sustain
the burden of proof to a court that the decision of the Trustees not to pursue
the requested action was not a good faith exercise of their business judgment on
behalf of a Fund. In making such a determination, a Trustee is not considered to
have a personal financial interest by virtue of being compensated for his or her
services as a Trustee. If a demand is rejected, the complaining shareholder will
be responsible for the costs and expenses (including attorneys' fees) incurred
by a Fund in connection with the consideration of the demand under a number of
circumstances. If a derivative action is brought in violation of the
Declaration, the shareholder bringing the action may be responsible for the
Fund's costs, including attorneys' fee. The Declaration also provides that any
shareholder bringing an action against the Fund waives the right to trial by
jury to the fullest extent permitted by law.
The Trust is not required to and does not intend to hold annual
meetings of shareholders.
Under Massachusetts law applicable to Massachusetts business trusts,
shareholders of such a trust may, under certain circumstances, be held
personally liable as partners for its obligations. However, the Declaration
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or the
Trustees. The Declaration further provides for indemnification out of the assets
and property of the Trust for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust or a Fund itself was unable to meet its obligations.
The Declaration further provides that a Trustee acting in his or her
capacity as Trustee is not personally liable to any person other than the Trust
or its shareholders, for any act, omission, or obligation of the Trust. The
Declaration requires the Trust to indemnify any persons who are or who have been
Trustees, officers or employees of the Trust for any liability for actions or
failure to act except to the extent prohibited by applicable federal law. In
making any determination as to whether any person is entitled to the advancement
of expenses in connection with a claim for which indemnification is sought, such
- 2 -
person is entitled to a rebuttable presumption that he or she did not engage in
conduct for which indemnification is not available. The Declaration provides
that any Trustee who serves as chair of the Board of Trustees or of a committee
of the Board of Trustees, lead independent Trustee, or audit committee financial
expert, or in any other similar capacity will not be subject to any greater
standard of care or liability because of such position.
The Funds are managed by First Trust Advisors L.P. (the "Adviser" or
"First Trust").
Each Fund offers and issues Shares at net asset value ("NAV") only in
aggregations of a specified number of Shares (each a "Creation Unit" or a
"Creation Unit Aggregation"), generally in exchange for a basket of equity
securities (the "Deposit Securities") included in each Fund's corresponding
Index (as hereinafter defined), together with the deposit of a specified cash
payment (the "Cash Component"). The Shares are listed and trade on the American
Stock Exchange LLC (the "AMEX"). The Shares will trade on the AMEX at market
prices that may be below, at or above NAV. Shares are redeemable only in
Creation Unit Aggregations and, generally, in exchange for portfolio securities
and a specified cash payment. Creation Units are aggregations of 50,000 Shares.
The Trust reserves the right to offer a "cash" option for creations and
redemptions of Fund Shares, although it has no current intention of doing so.
Fund Shares may be issued in advance of receipt of Deposit Securities subject to
various conditions including a requirement to maintain on deposit with the Trust
cash at least equal to 115% of the market value of the missing Deposit
Securities. See the "Creation and Redemption of Creation Unit Aggregations"
section. In each instance of such cash creations or redemptions, transaction
fees may be imposed that will be higher than the transaction fees associated
with in-kind creations or redemptions. In all cases, such fees will be limited
in accordance with the requirements of the Securities and Exchange Commission
(the "SEC") applicable to management investment companies offering redeemable
securities.
EXCHANGE LISTING AND TRADING
There can be no assurance that the requirements of the AMEX necessary
to maintain the listing of Shares of a Fund will continue to be met. The AMEX
may, but is not required to, remove the Shares of a Fund from listing if (i)
following the initial 12-month period beginning at the commencement of trading
of a Fund, there are fewer than 50 beneficial owners of the Shares of such Fund
for 30 or more consecutive trading days; (ii) the value of such Fund's Index is
no longer calculated or available; or (iii) such other event shall occur or
condition exist that, in the opinion of the AMEX, makes further dealings on the
AMEX inadvisable. Please note that the AMEX may have a conflict of interest with
respect to the Funds because the Shares are listed on the AMEX and the AMEX is
also the Funds' Index Provider. The AMEX will remove the Shares of a Fund from
listing and trading upon termination of such Fund.
As in the case of other stocks traded on the AMEX, broker's commissions
on transactions will be based on negotiated commission rates at customary
levels.
- 3 -
The Funds reserve the right to adjust the price levels of Shares in the
future to help maintain convenient trading ranges for investors. Any adjustments
would be accomplished through stock splits or reverse stock splits, which would
have no effect on the net assets of each Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus describes the investment objective and policies of the
Funds. The following supplements the information contained in the Prospectus
concerning the investment objective and policies of the Funds.
Each Fund is subject to the following fundamental policies, which may
not be changed without approval of the holders of a majority of the outstanding
voting securities of the Fund:
(1) A Fund may not issue senior securities, except as
permitted under the 1940 Act.
(2) A Fund may not borrow money, except that a Fund may (i)
borrow money from banks for temporary or emergency purposes (but not
for leverage or the purchase of investments) and (ii) engage in other
transactions permissible under the 1940 Act that may involve a
borrowing (such as obtaining short-term credits as are necessary for
the clearance of transactions, engaging in delayed-delivery
transactions, or purchasing certain futures, forward contracts and
options), provided that the combination of (i) and (ii) shall not
exceed 33-1/3% of the value of a Fund's total assets (including the
amount borrowed), less a Fund's liabilities (other than borrowings).
(3) A Fund will not underwrite the securities of other
issuers except to the extent the Fund may be considered an underwriter
under the Securities Act of 1933 (the "1933 Act") in connection with
the purchase and sale of portfolio securities.
(4) A Fund will not purchase or sell real estate or interests
therein, unless acquired as a result of ownership of securities or
other instruments (but this shall not prohibit a Fund from purchasing
or selling securities or other instruments backed by real estate or of
issuers engaged in real estate activities).
(5) A Fund may not make loans to other persons, except
through (i) the purchase of debt securities permissible under a Fund's
investment policies, (ii) repurchase agreements, or (iii) the lending
of portfolio securities, provided that no such loan of portfolio
securities may be made by a Fund if, as a result, the aggregate of such
loans would exceed 33-1/3% of the value of a Fund's total assets.
(6) A Fund may not purchase or sell physical commodities
unless acquired as a result of ownership of securities or other
instruments (but this shall not prevent a Fund from purchasing or
selling options, futures contracts, forward contracts or other
derivative instruments, or from investing in securities or other
instruments backed by physical commodities).
- 4 -
(7) A Fund may not invest 25% or more of the value of its
total assets in securities of issuers in any one industry or group of
industries, except to the extent that the Index that a Fund replicates,
concentrates in an industry or a group of industries. This restriction
does not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Except for restriction (2), if a percentage restriction is adhered to
at the time of investment, a later increase in percentage resulting from a
change in market value of the investment or the total assets will not constitute
a violation of that restriction.
The foregoing fundamental policies of each Fund may not be changed
without the affirmative vote of the majority of the outstanding voting
securities of the respective Fund. The 1940 Act defines a majority vote as the
vote of the lesser of (i) 67% or more of the voting securities represented at a
meeting at which more than 50% of the outstanding securities are represented; or
(ii) more than 50% of the outstanding voting securities. With respect to the
submission of a change in an investment policy to the holders of outstanding
voting securities of a Fund, such matter shall be deemed to have been
effectively acted upon with respect to a Fund if a majority of the outstanding
voting securities of a Fund vote for the approval of such matter,
notwithstanding that (1) such matter has not been approved by the holders of a
majority of the outstanding voting securities of any other series of the Trust
affected by such matter, and (2) such matter has not been approved by the vote
of a majority of the outstanding voting securities.
In addition to the foregoing fundamental policies, the Funds are also
subject to strategies and policies discussed herein which, unless otherwise
noted, are non-fundamental restrictions and policies which may be changed by the
Board of Trustees.
INVESTMENT STRATEGIES
Under normal circumstances, each Fund will invest at least 90% of its
total assets in common stocks that comprise such Fund's respective corresponding
equity index (the "Index") in a family of custom "enhanced" indices created and
administered by the AMEX (the "Index Provider") (the "StrataQuant(TM) Series")
comprised of the StrataQuant(TM) Consumer Discretionary Index, StrataQuant(TM)
Consumer Staples Index, StrataQuant(TM) Energy Index, StrataQuant(TM) Financials
Index, StrataQuant(TM) Health Care Index, StrataQuant(TM) Industrials Index,
StrataQuant(TM) Materials Index, StrataQuant(TM) Technology Index and
StrataQuant(TM) Utilities Index. Fund Shareholders are entitled to 60 days'
notice prior to any change in this non-fundamental investment policy.
TYPES OF INVESTMENTS
Warrants: The Funds may invest in warrants. Warrants acquired by a Fund
entitle it to buy common stock from the issuer at a specified price and time.
They do not represent ownership of the securities but only the right to buy
them. Warrants are subject to the same market risks as stocks, but may be more
volatile in price. A Fund's investment in warrants will not entitle it to
- 5 -
receive dividends or exercise voting rights and will become worthless if the
warrants cannot be profitably exercised before their expiration date.
Delayed-Delivery Transactions: The Funds may from time to time purchase
securities on a "when-issued" or other delayed-delivery basis. The price of
securities purchased in such transactions is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date. Normally, the settlement date occurs within 45 days of the purchase.
During the period between the purchase and settlement, a Fund does not remit
payment to the issuer, no interest is accrued on debt securities and dividend
income is not earned on equity securities. Delayed-delivery commitments involve
a risk of loss if the value of the security to be purchased declines prior to
the settlement date, which risk is in addition to the risk of a decline in value
of a Fund's other assets. While securities purchased in delayed-delivery
transactions may be sold prior to the settlement date, the Funds intend to
purchase such securities with the purpose of actually acquiring them. At the
time a Fund makes the commitment to purchase a security in a delayed-delivery
transaction, it will record the transaction and reflect the value of the
security in determining its NAV. The Funds do not believe that NAV will be
adversely affected by purchases of securities in delayed-delivery transactions.
The Funds will earmark or maintain in a segregated account cash, U.S.
Government securities, and high-grade liquid debt securities equal in value to
commitments for delayed-delivery securities. Such earmarked or segregated
securities will mature or, if necessary, be sold on or before the settlement
date. When the time comes to pay for delayed-delivery securities, a Fund will
meet its obligations from then-available cash flow, sale of the securities
earmarked or held in the segregated account described above, sale of other
securities, or, although it would not normally expect to do so, from the sale of
the delayed-delivery securities themselves (which may have a market value
greater or less than a Fund's payment obligation).
Illiquid Securities: The Funds may invest in illiquid securities (i.e.,
securities that are not readily marketable). For purposes of this restriction,
illiquid securities include, but are not limited to, restricted securities
(securities the disposition of which is restricted under the federal securities
laws), securities that may only be resold pursuant to Rule 144A under the 1933
Act, as amended, but that are deemed to be illiquid; and repurchase agreements
with maturities in excess of seven days. However, a Fund will not acquire
illiquid securities if, as a result, such securities would comprise more than
15% of the value of a Fund's net assets. The Board of Trustees or its delegates
has the ultimate authority to determine, to the extent permissible under the
federal securities laws, which securities are liquid or illiquid for purposes of
this 15% limitation. The Board of Trustees has delegated to First Trust the
day-to-day determination of the illiquidity of any equity or fixed-income
security, although it has retained oversight and ultimate responsibility for
such determinations. Although no definitive liquidity criteria are used, the
Board of Trustees has directed First Trust to look to factors such as (i) the
nature of the market for a security (including the institutional private resale
market; the frequency of trades and quotes for the security; the number of
dealers willing to purchase or sell the security; and the amount of time
normally needed to dispose of the security, the method of soliciting offers and
the mechanics of transfer), (ii) the terms of certain securities or other
instruments allowing for the disposition to a third party or the issuer thereof
- 6 -
(e.g., certain repurchase obligations and demand instruments), and (iii) other
permissible relevant factors.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the 1933 Act. Where registration is required, a
Fund may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time a Fund may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
a Fund might obtain a less favorable price than that which prevailed when it
decided to sell. Illiquid securities will be priced at fair value as determined
in good faith under procedures adopted by the Board of Trustees. If, through the
appreciation of illiquid securities or the depreciation of liquid securities, a
Fund should be in a position where more than 15% of the value of its net assets
are invested in illiquid securities, including restricted securities which are
not readily marketable, a Fund will take such steps as is deemed advisable, if
any, to protect liquidity.
Money Market Funds: The Funds may invest in shares of money market
funds to the extent permitted by the 1940 Act.
Temporary Investments: The Funds may, without limit as to percentage of
assets, purchase U.S. Government securities or short-term debt securities to
keep cash on hand fully invested or for temporary defensive purposes. Short-term
debt securities are securities from issuers having a long-term debt rating of at
least A or higher by Standard & Poor's Ratings Group ("S&P"), Moody's Investors
Service, Inc. ("Moody's") or Fitch, Inc. ("Fitch") and having a maturity of one
year or less.
Short-term debt securities are defined to include, without limitation,
the following:
(1) U.S. Government securities, including bills, notes and
bonds differing as to maturity and rates of interest, which are either
issued or guaranteed by the U.S. Treasury or by U.S. Government
agencies or instrumentalities. U.S. Government agency securities
include securities issued by (a) the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of United States, Small
Business Administration, and the Government National Mortgage
Association, whose securities are supported by the full faith and
credit of the United States; (b) the Federal Home Loan Banks, Federal
Intermediate Credit Banks, and the Tennessee Valley Authority, whose
securities are supported by the right of the agency to borrow from the
U.S. Treasury; (c) Fannie Mae, whose securities are supported by the
discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and (d) the Student Loan
Marketing Association, whose securities are supported only by its
credit. While the U.S. Government provides financial support to such
U.S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it always will do so since it is not so obligated by
law. The U.S. Government, its agencies, and instrumentalities do not
guarantee the market value of their securities, and consequently, the
value of such securities may fluctuate.
- 7 -
(2) Certificates of deposit issued against funds deposited in
a bank or savings and loan association. Such certificates are for a
definite period of time, earn a specified rate of return, and are
normally negotiable. If such certificates of deposit are
non-negotiable, they will be considered illiquid securities and be
subject to a Fund's 15% restriction on investments in illiquid
securities. Pursuant to the certificate of deposit, the issuer agrees
to pay the amount deposited plus interest to the bearer of the
certificate on the date specified thereon. Under current FDIC
regulations, the maximum insurance payable as to any one certificate of
deposit is $100,000; therefore certificates of deposit purchased by the
Funds may not be fully insured.
(3) Bankers' acceptances which are short-term credit
instruments used to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an
importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on
its maturity date. The acceptance may then be held by the accepting
bank as an asset or it may be sold in the secondary market at the going
rate of interest for a specific maturity.
(4) Repurchase agreements, which involve purchases of debt
securities. In such an action, at the time a Fund purchases the
security, it simultaneously agrees to resell and redeliver the security
to the seller, who also simultaneously agrees to buy back the security
at a fixed price and time. This assures a predetermined yield for a
Fund during its holding period since the resale price is always greater
than the purchase price and reflects an agreed upon market rate. The
period of these repurchase agreements will usually be short, from
overnight to one week. Such actions afford an opportunity for a Fund to
invest temporarily available cash. The Funds may enter into repurchase
agreements only with respect to obligations of the U.S. Government, its
agencies or instrumentalities; certificates of deposit; or bankers
acceptances in which the Funds may invest. In addition, the Funds may
only enter into repurchase agreements where the market value of the
purchased securities/collateral equals at least 100% of principal
including accrued interest and is marked-to-market daily. The risk to
the Funds is limited to the ability of the seller to pay the
agreed-upon sum on the repurchase date; in the event of default, the
repurchase agreement provides that the affected Fund is entitled to
sell the underlying collateral. If the value of the collateral declines
after the agreement is entered into, however, and if the seller
defaults under a repurchase agreement when the value of the underlying
collateral is less than the repurchase price, a Fund could incur a loss
of both principal and interest. The Funds, however, intend to enter
into repurchase agreements only with financial institutions and dealers
believed by First Trust to present minimal credit risks in accordance
with criteria established by the Board of Trustees. First Trust will
review and monitor the creditworthiness of such institutions. First
Trust monitors the value of the collateral at the time the action is
entered into and at all times during the term of the repurchase
agreement. First Trust does so in an effort to determine that the value
of the collateral always equals or exceeds the agreed-upon repurchase
price to be paid to a Fund. If the seller were to be subject to a
federal bankruptcy proceeding, the ability of a Fund to liquidate the
collateral could be delayed or impaired because of certain provisions
of the bankruptcy laws.
- 8 -
(5) Bank time deposits, which are monies kept on deposit with
banks or savings and loan associations for a stated period of time at a
fixed rate of interest. There may be penalties for the early withdrawal
of such time deposits, in which case the yields of these investments
will be reduced.
(6) Commercial paper, which are short-term unsecured
promissory notes, including variable rate master demand notes issued by
corporations to finance their current operations. Master demand notes
are direct lending arrangements between the Fund and a corporation.
There is no secondary market for the notes. However, they are
redeemable by a Fund at any time. A Fund's portfolio manager will
consider the financial condition of the corporation (e.g., earning
power, cash flow, and other liquidity ratios) and will continuously
monitor the corporation's ability to meet all of its financial
obligations, because a Fund's liquidity might be impaired if the
corporation were unable to pay principal and interest on demand. The
Funds may only invest in commercial paper rated A-1 or better by S&P,
Prime-1 or higher by Moody's or Fitch 2 or higher by Fitch.
PORTFOLIO TURNOVER
The Funds buy and sell portfolio securities in the normal course of
their investment activities. The proportion of a Fund's investment portfolio
that is sold and replaced with new securities during a year is known as a Fund's
portfolio turnover rate. A turnover rate of 100% would occur, for example, if a
Fund sold and replaced securities valued at 100% of its net assets within one
year. Active trading would result in the payment by a Fund of increased
brokerage costs and expenses.
HEDGING STRATEGIES
General Description of Hedging Strategies
The Funds may engage in hedging activities. First Trust may cause the
Funds to utilize a variety of financial instruments, including options, forward
contracts, futures contracts (hereinafter referred to as "Futures" or "Futures
Contracts"), and options on Futures Contracts to attempt to hedge each Fund's
holdings.
Hedging or derivative instruments on securities generally are used to
hedge against price movements in one or more particular securities positions
that a Fund owns or intends to acquire. Such instruments may also be used to
"lock-in" realized but unrecognized gains in the value of portfolio securities.
Hedging instruments on stock indices, in contrast, generally are used to hedge
against price movements in broad equity market sectors in which a Fund has
invested or expects to invest. Hedging strategies, if successful, can reduce the
risk of loss by wholly or partially offsetting the negative effect of
unfavorable price movements in the investments being hedged. However, hedging
strategies can also reduce the opportunity for gain by offsetting the positive
effect of favorable price movements in the hedged investments. The use of
hedging instruments is subject to applicable regulations of the SEC, the several
options and Futures exchanges upon which they are traded, the Commodity Futures
- 9 -
Trading Commission (the "CFTC") and various state regulatory authorities. In
addition, a Fund's ability to use hedging instruments may be limited by tax
considerations.
General Limitations on Futures and Options Transactions
The Trust has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the National Futures
Association, the Futures industry's self-regulatory organization. A Fund will
not enter into Futures and options transactions if the sum of the initial margin
deposits and premiums paid for unexpired options exceeds 5% of a Fund's total
assets. In addition, a Fund will not enter into Futures Contracts and options
transactions if more than 30% of its net assets would be committed to such
instruments.
The foregoing limitations are not fundamental policies of the Funds and
may be changed without shareholder approval as regulatory agencies permit.
Asset Coverage for Futures and Options Positions
The Funds will comply with the regulatory requirements of the SEC and
the CFTC with respect to coverage of options and Futures positions by registered
investment companies and, if the guidelines so require, will earmark or set
aside cash, U.S. Government securities, high grade liquid debt securities and/or
other liquid assets permitted by the SEC and CFTC in a segregated custodial
account in the amount prescribed. Securities earmarked or held in a segregated
account cannot be sold while the Futures or options position is outstanding,
unless replaced with other permissible assets, and will be marked-to-market
daily.
Stock Index Options
The Funds may purchase stock index options, sell stock index options in
order to close out existing positions and/or write covered options on stock
indices for hedging purposes. Stock index options are put options and call
options on various stock indices. In most respects, they are identical to listed
options on common stocks. The primary difference between stock options and index
options occurs when index options are exercised. In the case of stock options,
the underlying security, common stock, is delivered. However, upon the exercise
of an index option, settlement does not occur by delivery of the securities
comprising the stock index. The option holder who exercises the index option
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. This amount of cash is equal to
the difference between the closing price of the stock index and the exercise
price of the option expressed in dollars times a specified multiple.
A stock index fluctuates with changes in the market values of the
stocks included in the index. For example, some stock index options are based on
a broad market index, such as the Standard & Poor's 500 or the Value Line(R)
Composite Indices or a more narrow market index, such as the Standard & Poor's
100. Indices may also be based on an industry or market segment. Options on
stock indices are currently traded on the following exchanges: the Chicago Board
- 10 -
Options Exchange, the New York Stock Exchange ("NYSE"), the AMEX, the NYSE Arca,
Inc. and the Philadelphia Stock Exchange.
The Funds' use of stock index options is subject to certain risks.
Successful use by a Fund of options on stock indices will be subject to the
ability of First Trust to correctly predict movements in the directions of the
stock market. This requires different skills and techniques than predicting
changes in the prices of individual securities. In addition, a Fund's ability to
effectively hedge all or a portion of the securities in its portfolio, in
anticipation of or during a market decline through transactions in put options
on stock indices, depends on the degree to which price movements in the
underlying index correlate with the price movements of the securities held by
the Fund. Inasmuch as the Funds' securities will not duplicate the components of
an index, the correlation will not be perfect. Consequently, a Fund will bear
the risk that the prices of its securities being hedged will not move in the
same amount as the prices of its put options on the stock indices. It is also
possible that there may be a negative correlation between the index and a Fund's
securities, which would result in a loss on both such securities and the options
on stock indices acquired by the Fund.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the options
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that cannot be
reflected in the options markets. The purchase of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. The
purchase of stock index options involves the risk that the premium and
transaction costs paid by a Fund in purchasing an option will be lost as a
result of unanticipated movements in prices of the securities comprising the
stock index on which the option is based.
Certain Considerations Regarding Options
There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or elsewhere may exist. If a
Fund is unable to close out a call option on securities that it has written
before the option is exercised, a Fund may be required to purchase the optioned
securities in order to satisfy its obligation under the option to deliver such
securities. If a Fund is unable to effect a closing sale transaction with
respect to options on securities that it has purchased, it would have to
exercise the option in order to realize any profit and would incur transaction
costs upon the purchase and sale of the underlying securities.
The writing and purchasing of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. Imperfect correlation between
the options and securities markets may detract from the effectiveness of
attempted hedging. Options transactions may result in significantly higher
transaction costs and portfolio turnover for the Funds.
- 11 -
Futures Contracts
The Funds may enter into Futures Contracts, including index Futures as
a hedge against movements in the equity markets, in order to hedge against
changes on securities held or intended to be acquired by a Fund or for other
purposes permissible under the Commodity Exchange Act (the "CEA"). A Fund's
hedging may include sales of Futures as an offset against the effect of expected
declines in stock prices and purchases of Futures as an offset against the
effect of expected increases in stock prices. The Funds will not enter into
Futures Contracts which are prohibited under the CEA and will, to the extent
required by regulatory authorities, enter only into Futures Contracts that are
traded on national Futures exchanges and are standardized as to maturity date
and underlying financial instrument. The principal interest rate Futures
exchanges in the United States are the Chicago Board of Trade and the Chicago
Mercantile Exchange. Futures exchanges and trading are regulated under the CEA
by the CFTC.
An interest rate Futures Contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (e.g., a debt security) or currency for a specified price
at a designated date, time and place. An index Futures Contract is an agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index Futures
Contract was originally written. Transaction costs are incurred when a Futures
Contract is bought or sold and margin deposits must be maintained. A Futures
Contract may be satisfied by delivery or purchase, as the case may be, of the
instrument or by payment of the change in the cash value of the index. More
commonly, Futures Contracts are closed out prior to delivery by entering into an
offsetting transaction in a matching Futures Contract. Although the value of an
index might be a function of the value of certain specified securities, no
physical delivery of those securities is made. If the offsetting purchase price
is less than the original sale price, a gain will be realized. Conversely, if
the offsetting sale price is more than the original purchase price, a gain will
be realized; if it is less, a loss will be realized. The transaction costs must
also be included in these calculations. There can be no assurance, however, that
a Fund will be able to enter into an offsetting transaction with respect to a
particular Futures Contract at a particular time. If a Fund is not able to enter
into an offsetting transaction, a Fund will continue to be required to maintain
the margin deposits on the Futures Contract.
Margin is the amount of funds that must be deposited by a Fund with its
custodian in a segregated account in the name of the Futures commission merchant
in order to initiate Futures trading and to maintain a Fund's open positions in
Futures Contracts. A margin deposit is intended to ensure a Fund's performance
of the Futures Contract.
The margin required for a particular Futures Contract is set by the
exchange on which the Futures Contract is traded and may be significantly
modified from time to time by the exchange during the term of the Futures
Contract. Futures Contracts are customarily purchased and sold on margins that
may range upward from less than 5% of the value of the Futures Contract being
traded.
- 12 -
If the price of an open Futures Contract changes (by increase in the
case of a sale or by decrease in the case of a purchase) so that the loss on the
Futures Contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
Futures Contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to a Fund. In computing daily NAV, a Fund will mark
to market the current value of its open Futures Contracts. The Funds expect to
earn interest income on their margin deposits.
Because of the low margin deposits required, Futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Future Contracts were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount initially invested in the Futures Contract. However, a Fund would
presumably have sustained comparable losses if, instead of the Futures Contract,
it had invested in the underlying financial instrument and sold it after the
decline.
Most United States Futures exchanges limit the amount of fluctuation
permitted in Futures Contract prices during a single trading day. The day limit
establishes the maximum amount that the price of a Futures Contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
Futures Contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures Contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of Futures positions
and subjecting some investors to substantial losses.
There can be no assurance that a liquid market will exist at a time
when a Fund seeks to close out a Futures position. A Fund would continue to be
required to meet margin requirements until the position is closed, possibly
resulting in a decline in the Fund's NAV. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
will develop or continue to exist.
A public market exists in Futures Contracts covering a number of
indices, including but not limited to, the S&P 500 Index, the S&P 100 Index, the
NASDAQ-100 Index(R), the Value Line(R) Composite Index and the New York Stock
Exchange Composite Index.
- 13 -
Options on Futures
The Funds may also purchase or write put and call options on Futures
Contracts and enter into closing transactions with respect to such options to
terminate an existing position. A Futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a Futures Contract at a specified exercise price prior to the
expiration of the option. Upon exercise of a call option, the holder acquires a
long position in the Futures Contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true. Prior to
exercise or expiration, a Futures option may be closed out by an offsetting
purchase or sale of a Futures option of the same series.
The Funds may use options on Futures Contracts in connection with
hedging strategies. Generally, these strategies would be applied under the same
market and market sector conditions in which the Funds use put and call options
on securities or indices. The purchase of put options on Futures Contracts is
analogous to the purchase of puts on securities or indices so as to hedge a
Fund's securities holdings against the risk of declining market prices. The
writing of a call option or the purchasing of a put option on a Futures Contract
constitutes a partial hedge against declining prices of securities which are
deliverable upon exercise of the Futures Contract. If the price at expiration of
a written call option is below the exercise price, a Fund will retain the full
amount of the option premium which provides a partial hedge against any decline
that may have occurred in a Fund's holdings of securities. If the price when the
option is exercised is above the exercise price, however, a Fund will incur a
loss, which may be offset, in whole or in part, by the increase in the value of
the securities held by a Fund that were being hedged. Writing a put option or
purchasing a call option on a Futures Contract serves as a partial hedge against
an increase in the value of the securities a Fund intends to acquire.
As with investments in Futures Contracts, the Funds are required to
deposit and maintain margin with respect to put and call options on Futures
Contracts written by them. Such margin deposits will vary depending on the
nature of the underlying Futures Contract (and the related initial margin
requirements), the current market value of the option, and other Futures
positions held by a Fund. A Fund will earmark or set aside in a segregated
account at such Fund's custodian, liquid assets, such as cash, U.S. Government
securities or other high-grade liquid debt obligations equal in value to the
amount due on the underlying obligation. Such segregated assets will be
marked-to-market daily, and additional assets will be earmarked or placed in the
segregated account whenever the total value of the earmarked or segregated
assets falls below the amount due on the underlying obligation.
The risks associated with the use of options on Futures Contracts
include the risk that the Funds may close out its position as a writer of an
option only if a liquid secondary market exists for such options, which cannot
be assured. A Fund's successful use of options on Futures Contracts depends on
First Trust's ability to correctly predict the movement in prices of Futures
Contracts and the underlying instruments, which may prove to be incorrect. In
addition, there may be imperfect correlation between the instruments being
hedged and the Futures Contract subject to the option. For additional
information, see "Futures Contracts." Certain characteristics of the Futures
market might increase the risk that movements in the prices of Futures Contracts
- 14 -
or options on Futures Contracts might not correlate perfectly with movements in
the prices of the investments being hedged. For example, all participants in the
Futures and options on Futures Contracts markets are subject to daily variation
margin calls and might be compelled to liquidate Futures or options on Futures
Contracts positions whose prices are moving unfavorably to avoid being subject
to further calls. These liquidations could increase the price volatility of the
instruments and distort the normal price relationship between the Futures or
options and the investments being hedged. Also, because of initial margin
deposit requirements, there might be increased participation by speculators in
the Futures markets. This participation also might cause temporary price
distortions. In addition, activities of large traders in both the Futures and
securities markets involving arbitrage, "program trading," and other investment
strategies might result in temporary price distortions.
SUBLICENSE AGREEMENTS
Each Fund has entered into a sublicense agreement (the "Sublicense
Agreement") with First Trust, First Trust Portfolios L.P. ("First Trust
Portfolios") and the Index Provider that grants each Fund and First Trust a
non-exclusive and non-transferable sublicense to use certain intellectual
property of AMEX in connection with the issuance, distribution, marketing and/or
promotion of each Fund. Pursuant to each Sublicense Agreement, each Fund and
First Trust have agreed to be bound by certain provisions of the product license
agreement by and between the Index Provider and First Trust Portfolios (the
"Product License Agreement"). Pursuant to the Product License Agreement, First
Trust Portfolios will pay the Index Provider an annual license fee of 0.10% of
the average daily net assets of each Fund, provided, that, the minimum annual
payment paid to the Index Provider under the Product License Agreement shall be
$50,000. Each Fund will reimburse First Trust and First Trust will reimburse
First Trust Portfolios for the costs associated with the Product License
Agreement.
INVESTMENT RISKS
Overview
An investment in a Fund should be made with an understanding of the
risks which an investment in common stocks entails, including the risk that the
financial condition of the issuers of the equity securities or the general
condition of the common stock market may worsen and the value of the equity
securities and therefore the value of a Fund may decline. The Funds may not be
an appropriate investment for those who are unable or unwilling to assume the
risks involved generally with an equity investment. The past market and earnings
performance of any of the equity securities included in a Fund is not predictive
of their future performance. Common stocks are especially susceptible to general
stock market movements and to volatile increases and decreases of value as
market confidence in and perceptions of the issuers change. These perceptions
are based on unpredictable factors including expectations regarding government,
economic, monetary and fiscal policies, inflation and interest rates, economic
expansion or contraction, and global or regional political, economic or banking
crises. First Trust cannot predict the direction or scope of any of these
factors. Shareholders of common stocks have rights to receive payments from the
- 15 -
issuers of those common stocks that are generally subordinate to those of
creditors of, or holders of debt obligations or preferred stocks of, such
issuers.
Shareholders of common stocks of the type held by the Funds have a
right to receive dividends only when and if, and in the amounts, declared by the
issuer's board of directors and have a right to participate in amounts available
for distribution by the issuer only after all other claims on the issuer have
been paid. Common stocks do not represent an obligation of the issuer and,
therefore, do not offer any assurance of income or provide the same degree of
protection of capital as do debt securities. The issuance of additional debt
securities or preferred stock will create prior claims for payment of principal,
interest and dividends which could adversely affect the ability and inclination
of the issuer to declare or pay dividends on its common stock or the rights of
holders of common stock with respect to assets of the issuer upon liquidation or
bankruptcy. The value of common stocks is subject to market fluctuations for as
long as the common stocks remain outstanding, and thus the value of the equity
securities in the Funds will fluctuate over the life of the Funds and may be
more or less than the price at which they were purchased by the Funds. The
equity securities held in the Funds may appreciate or depreciate in value (or
pay dividends) depending on the full range of economic and market influences
affecting these securities, including the impact of a Fund's purchase and sale
of the equity securities and other factors.
Holders of common stocks incur more risk than holders of preferred
stocks and debt obligations because common stockholders, as owners of the
entity, have generally inferior rights to receive payments from the issuer in
comparison with the rights of creditors of, or holders of debt obligations or
preferred stocks issued by, the issuer. Cumulative preferred stock dividends
must be paid before common stock dividends and any cumulative preferred stock
dividend omitted is added to future dividends payable to the holders of
cumulative preferred stock. Preferred stockholders are also generally entitled
to rights on liquidation which are senior to those of common stockholders.
ADDITIONAL RISKS OF INVESTING IN THE FUNDS
Liquidity
Whether or not the equity securities in the Funds are listed on a
securities exchange, the principal trading market for the equity securities may
be in the over-the-counter market. As a result, the existence of a liquid
trading market for the equity securities may depend on whether dealers will make
a market in the equity securities. There can be no assurance that a market will
be made for any of the equity securities, that any market for the equity
securities will be maintained or that there will be sufficient liquidity of the
equity securities in any markets made. The price at which the equity securities
are held in the Funds will be adversely affected if trading markets for the
equity securities are limited or absent.
- 16 -
Small Capitalization and Mid Capitalization Companies
The equity securities in certain Funds may include small cap and mid
cap company stocks. Small cap and mid cap company stocks have customarily
involved more investment risk than large capitalization stocks. Small cap and
mid cap companies may have limited product lines, markets or financial
resources; may lack management depth or experience; and may be more vulnerable
to adverse general market or economic developments than large cap companies.
Some of these companies may distribute, sell or produce products that have
recently been brought to market and may be dependent on key personnel.
The prices of small cap and mid cap company securities are often more
volatile than prices associated with large cap company issues, and can display
abrupt or erratic movements at times, due to limited trading volumes and less
publicly available information. Also, because small cap and mid cap companies
normally have fewer shares outstanding and these shares trade less frequently
than large cap companies, it may be more difficult for a Fund which contains
these equity securities to buy and sell significant amounts of such shares
without an unfavorable impact on prevailing market prices. The securities of
small cap and mid cap companies are often traded over-the-counter and may not be
traded in the volumes typical of a national securities exchange.
Non-Diversification
Each Fund is classified as "non-diversified" under the 1940 Act. As a
result, each Fund is 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 each Fund may
invest a relatively high percentage of its assets in a limited number of
issuers, each Fund may be more susceptible to any single economic, political or
regulatory occurrence and to the financial conditions of the issuers in which it
invests.
Intellectual Property Risk
Each Fund relies on a license and related sublicense that permits such
Fund to use its respective Index and associated trade names and trademarks
("Intellectual Property") 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 the Intellectual
Property. There is also no guarantee that the Index Provider has all rights to
license the Intellectual Property to First Trust Portfolios, on behalf of First
Trust and each Fund. Accordingly, in the event the license is terminated or
Index Provider does not have rights to license the Intellectual Property, it may
have a significant effect on the operation of a Fund.
Non-U.S. Securities Risk
A Fund may invest in the securities of issuers domiciled in
jurisdictions other than the United States and such stocks may be denominated in
currencies other than the U.S. dollar. These securities are in the form of
American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") or
are directly listed on a U.S. securities exchange. Investments in securities of
- 17 -
non-U.S. issuers involve special risks not presented by investments in
securities of U.S. issuers, including: (i) there may be less publicly available
information about non-U.S. issuers or markets due to less rigorous disclosure or
accounting standards or regulatory practices; (ii) many non-U.S. markets are
smaller, less liquid and more volatile than the U.S. market; (iii) potential
adverse effects of fluctuations in currency exchange rates or controls on the
value of the Fund's investments; (iv) the economies of non-U.S. countries may
grow at slower rates than expected or may experience a downturn or recession;
(v) the impact of economic, political, social or diplomatic events; (vi) certain
non-U.S. countries may impose restrictions on the ability of non-U.S. issuers to
make payments of principal and interest to investors located in the U.S. due to
blockage of non-U.S. currency exchanges or otherwise; and (vii) withholding and
other non-U.S. taxes may decrease a Fund's return.
Issuer Specific Changes Risk. 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.
RISKS AND SPECIAL CONSIDERATIONS CONCERNING DERIVATIVES
In addition to the foregoing, the use of derivative instruments
involves certain general risks and considerations as described below.
(1) Market Risk. Market risk is the risk that the value of
the underlying assets may go up or down. Adverse movements in the value
of an underlying asset can expose the Funds to losses. Market risk is
the primary risk associated with derivative transactions. Derivative
instruments may include elements of leverage and, accordingly,
fluctuations in the value of the derivative instrument in relation to
the underlying asset may be magnified. The successful use of derivative
instruments depends upon a variety of factors, particularly the
portfolio manager's ability to predict movements of the securities,
currencies, and commodities markets, which may require different skills
than predicting changes in the prices of individual securities. There
can be no assurance that any particular strategy adopted will succeed.
A decision to engage in a derivative transaction will reflect the
portfolio manager's judgment that the derivative transaction will
provide value to a Fund and its shareholders and is consistent with a
Fund's objective, investment limitations, and operating policies. In
making such a judgment, the portfolio manager will analyze the benefits
and risks of the derivative transactions and weigh them in the context
of a Fund's overall investments and investment objective.
(2) Credit Risk. Credit risk is the risk that a loss may be
sustained as a result of the failure of a counterparty to comply with
the terms of a derivative instrument. The counterparty risk for
exchange-traded derivatives is generally less than for
privately-negotiated or over-the-counter ("OTC") derivatives, since
generally a clearing agency, which is the issuer or counterparty to
each exchange-traded instrument, provides a guarantee of performance.
For privately-negotiated instruments, there is no similar clearing
agency guarantee. In all transactions, the Funds will bear the risk
that the counterparty will default, and this could result in a loss of
the expected benefit of the derivative transactions and possibly other
losses to the Funds. The Funds will enter into transactions in
- 18 -
derivative instruments only with counterparties that First Trust
reasonably believes are capable of performing under the contract.
(3) Correlation Risk. Correlation risk is the risk that there
might be an imperfect correlation, or even no correlation, between
price movements of a derivative instrument and price movements of
investments being hedged. When a derivative transaction is used to
completely hedge another position, changes in the market value of the
combined position (the derivative instrument plus the position being
hedged) result from an imperfect correlation between the price
movements of the two instruments. With a perfect hedge, the value of
the combined position remains unchanged with any change in the price of
the underlying asset. With an imperfect hedge, the value of the
derivative instrument and its hedge are not perfectly correlated. For
example, if the value of a derivative instrument used in a short hedge
(such as writing a call option, buying a put option or selling a
Futures Contract) increased by less than the decline in value of the
hedged investments, the hedge would not be perfectly correlated. This
might occur due to factors unrelated to the value of the investments
being hedged, such as speculative or other pressures on the markets in
which these instruments are traded. The effectiveness of hedges using
instruments on indices will depend, in part, on the degree of
correlation between price movements in the index and the price
movements in the investments being hedged.
(4) Liquidity Risk. Liquidity risk is the risk that a
derivative instrument cannot be sold, closed out, or replaced quickly
at or very close to its fundamental value. Generally, exchange
contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out
with the other party to the transaction. The Funds might be required by
applicable regulatory requirements to maintain assets as "cover,"
maintain segregated accounts, and/or make margin payments when they
take positions in derivative instruments involving obligations to third
parties (i.e., instruments other than purchase options). If a Fund is
unable to close out its positions in such instruments, it might be
required to continue to maintain such assets or accounts or make such
payments until the position expires, matures, or is closed out. These
requirements might impair a Fund's ability to sell a security or make
an investment at a time when it would otherwise be favorable to do so,
or require that a Fund sell a portfolio security at a disadvantageous
time. A Fund's ability to sell or close out a position in an instrument
prior to expiration or maturity depends upon the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the counterparty to enter into a transaction closing out
the position. Due to liquidity risk, there is no assurance that any
derivatives position can be sold or closed out at a time and price that
is favorable to a Fund.
(5) Legal Risk. Legal risk is the risk of loss caused by the
unenforceability of a party's obligations under the derivative. While a
party seeking price certainty agrees to surrender the potential upside
in exchange for downside protection, the party taking the risk is
looking for a positive payoff. Despite this voluntary assumption of
- 19 -
risk, a counterparty that has lost money in a derivative transaction
may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.
(6) Systemic or "Interconnection" Risk. Systemic or
interconnection risk is the risk that a disruption in the financial
markets will cause difficulties for all market participants. In other
words, a disruption in one market will spill over into other markets,
perhaps creating a chain reaction. Much of the OTC derivatives market
takes place among the OTC dealers themselves, thus creating a large
interconnected web of financial obligations. This interconnectedness
raises the possibility that a default by one large dealer could create
losses for other dealers and destabilize the entire market for OTC
derivative instruments.
FUNDS MANAGEMENT
The general supervision of the duties performed for the Funds under the
investment management agreement is the responsibility of the Board of Trustees.
There are five Trustees of the Trust, one of whom is an "interested person" (as
the term is defined in the 1940 Act) and four of whom are Trustees who are not
officers or employees of First Trust or any of its affiliates ("Independent
Trustees"). The Trustees set broad policies for the Funds, choose the Trust's
officers and hire the Trust's investment adviser. The officers of the Trust
manage its day to day operations and are responsible to the Trust's Board of
Trustees. The following is a list of the Trustees and officers of the Trust and
a statement of their present positions and principal occupations during the past
five years, the number of portfolios each Trustee oversees and the other
directorships they hold, if applicable.
NUMBER OF
PORTFOLIOS IN
THE FIRST OTHER
TERM OF OFFICE TRUST FUND TRUSTEESHIPS
AND YEAR FIRST COMPLEX OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
Trustee who is an
Interested Person of
the Trust
---------------------
James A. Bowen(1) President, o Indefinite President, First 57 Trustee of
1001 Warrenville Road Chairman of the term Trust Advisors L.P. Portfolios Wheaton
Suite 300 Board, Chief and First Trust College
Lisle, IL 60532 Executive Officer o 2006 Portfolios L.P.;
DOB: 9/55 and Trustee Chairman of the
Board, BondWave LLC
(Software Development
Company/Broker-Dealer)
and Stonebridge
Advisors LLC
(Investment Adviser)
Trustees who are not
Interested Persons of the
Trust
-------------------------
Richard E. Erickson Trustee o Indefinite Physician; President, 57 None
c/o First Trust Advisors term Wheaton Orthopedics; Portfolios
L.P. Co-Owner and
1001 Warrenville Road o 2006 Co-Director (January
Suite 300 1996 to May 2007),
Lisle, IL 60532 Sports Med Center for
DOB: 4/51 Fitness; Limited
Partner, Gundersen
Real Estate
Partnership; Limited
Partner, Sportsmed LLC
- 20 -
|
NUMBER OF
PORTFOLIOS IN
THE FIRST OTHER
TERM OF OFFICE TRUST FUND TRUSTEESHIPS
AND YEAR FIRST COMPLEX OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
Thomas R. Kadlec Trustee o Indefinite Senior Vice President 57 None
c/o First Trust Advisors term (May 2007 to Portfolios
L.P. Present), Vice
1001 Warrenville Road o 2006 President and Chief
Suite 300 Financial Officer
Lisle, IL 60532 (1990 to May 2007),
DOB: 11/57 ADM Investor
Services, Inc.
(Futures Commission
Merchant); Vice
President (May 2005
to Present), ADM
Derivatives, Inc.;
Registered Representative
(2000 to present),
Segerdahl & Company,
Inc., an NASD member
(Broker-Dealer)
Robert F. Keith Trustee o Indefinite President (2003 to 57 None
c/o First Trust Advisors term Present), Hibs Portfolios
L.P. Enterprises
1001 Warrenville Road o 2006 (Financial and
Suite 300 Management
Lisle, IL 60532 Consulting);
DOB: 11/58 President (2001 to
2003), Aramark
Service Master
Management; President
and Chief Operating
Officer (1998 to
2003), Service Master
Management Services
Niel B. Nielson Trustee o Indefinite President (June 2002 57 Director of
c/o First Trust Advisors term to Present), Covenant Portfolios Covenant
L.P. College Transport Inc.
1001 Warrenville Road o 2006
Suite 300
Lisle, IL 60532
DOB: 3/54
Officers of the Trust
---------------------
Mark R. Bradley Treasurer, o Indefinite Chief Financial N/A N/A
1001 Warrenville Road, Controller, Chief term Officer, First Trust
Suite 300 Financial Officer Advisors L.P. and
Lisle, IL 60532 and Chief o 2006 First Trust
D.O.B.: 11/57 Accounting Officer Portfolios L.P.;
Chief Fsinancial
Officer, BondWave LLC
(Software Development
Company/Broker-Dealer)
and Stonebridge
Advisors LLC
(Investment Adviser)
Kelley Christensen Vice President o Indefinite Assistant Vice N/A N/A
1001 Warrenville Road, term President, First
Suite 300 Trust Portfolios L.P.
Lisle, IL 60532 o 2006 and First Trust
D.O.B.: 09/70 Advisors L.P.
Senior Vice President
- 21 -
|
NUMBER OF
PORTFOLIOS IN
THE FIRST OTHER
TERM OF OFFICE TRUST FUND TRUSTEESHIPS
AND YEAR FIRST COMPLEX OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
James M. Dykas Assistant o Indefinite (April 2007 to N/A N/A
1001 Warrenville Road, Treasurer term Present), Vice
Suite 300 President (January
Lisle, IL 60532 o 2006 2005 to April 2007),
D.O.B.: 01/66 First Trust Advisors
L.P. and First Trust
Portfolios L.P.;
Executive Director
(December 2002
to January 2005), Vice
President (December 2000
to December 2002), Van
Kampen Asset
Management and
Morgan Stanley
Investment Management
W. Scott Jardine Secretary and o Indefinite General Counsel, First N/A N/A
1001 Warrenville Road, Chief Compliance term Trust Advisors L.P. and
Suite 300 Officer First Trust Portfolios L.P.;
Lisle, IL 60532 o 2006 Secretary, BondWave
D.O.B.: 05/60 LLC (Software Development
Company/Broker-Dealer)
and Stonebridge
Advisors LLC
(Investment Adviser)
Daniel J. Lindquist Vice President o Indefinite Senior Vice President
1001 Warrenville Road, term (September 2005 to N/A N/A
Suite 300 Present), Vice
Lisle, IL 60532 o 2006 President (April 2004
D.O.B.: 02/70 to September 2005),
First Trust Advisors
L.P. and First Trust
Portfolios L.P.; Chief
Operating Officer
(January 2004 to April
2004), Mina Capital
Management, LLC; Chief
Operating Officer (April
2000 to January 2004),
Samaritan Asset Management
Services, Inc.
Kristi A. Maher Assistant o Indefinite Deputy General
1001 Warrenville Road, Secretary term Counsel (May 2007 to N/A N/A
Suite 300 Present), Assistant
Lisle, IL 60532 o 2006 General Counsel
D.O.B.: 12/66 (March 2004 to May
2007), First Trust
Advisors L.P. and
First Trust Portfolios
Associate (1995-2004),
Chapman and Cutler LLP
Roger Testin Vice President o Indefinite Senior Vice President
1001 Warrenville Road, term (November 2003 to N/A N/A
Suite 300 Present), Vice
Lisle, IL 60532 o 2006 President (August
D.O.B.: 06/66 2001 to November
2003), First Trust
Portfolios L.P. and
First Trust Advisors
L.P.; Analyst (1998
to 2001), Dolan
Capital Management
- 22 -
|
NUMBER OF
PORTFOLIOS IN
THE FIRST OTHER
TERM OF OFFICE TRUST FUND TRUSTEESHIPS
AND YEAR FIRST COMPLEX OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
Stan Ueland Vice President o Indefinite Vice President N/A N/A
1001 Warrenville Road, term (August 2005 to
Suite 300 Present), First
Lisle, IL 60532 o 2006 Trust Advisors L.P.
D.O.B.: 11/70 and First Trust
Portfolios L.P.; Vice
President (May 2004
to August 2005),
BondWave LLC
(Software Development
Company/Broker-Dealer);
Account Executive
(January 2003 to May
2004), Mina Capital
Management, LLC and
Samaritan Asset
Management Services,
Inc.; Sales
Consultant (January
1997 to January
2003), Oracle Corporation
--------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his position
of President of First Trust, investment adviser of the Funds.
|
The Board of Trustees has four standing committees: the Executive
Committee (Pricing and Dividend Committee), the Nominating and Governance
Committee, the Valuation Committee and the Audit Committee. The Executive
Committee, which meets between Board meetings, is authorized to exercise all
powers of and to act in the place of the Board of Trustees to the extent
permitted by the Trust's Declaration of Trust and By-laws. The members of the
Executive Committee shall also serve as a special committee of the Board known
as the Pricing and Dividend Committee, which is authorized to exercise all of
the powers and authority of the Board in respect of the declaration and setting
of dividends. Messrs. Kadlec and Bowen are members of the Executive Committee.
During the last fiscal year, the Executive Committee held one meeting.
The Nominating and Governance Committee is responsible for appointing
and nominating non-interested persons to the Board. Messrs. Erickson, Kadlec,
Keith and Nielson, are members of the Nominating and Governance Committee. If
there is no vacancy on the Board of Trustees, the Board will not actively seek
recommendations from other parties, including Shareholders. When a vacancy on
the Board occurs and nominations are sought to fill such vacancy, the Nominating
and Governance Committee may seek nominations from those sources it deems
appropriate in its discretion, including Shareholders of the Funds. To submit a
recommendation for nomination as a candidate for a position on the Board,
Shareholders of the Funds shall mail such recommendation to W. Scott Jardine at
the Funds' address, 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532.
Such recommendation shall include the following information: (a) evidence of
Fund ownership of the person or entity recommending the candidate (if a Fund
Shareholder); (b) a full description of the proposed candidate's background,
including his or her education, experience, current employment and date of
birth; (c) names and addresses of at least three professional references for the
candidate; (d) information as to whether the candidate is an "interested person"
in relation to the Funds, as such term is defined in the 1940 Act, and such
- 23 -
other information that may be considered to impair the candidate's independence;
and (e) any other information that may be helpful to the Nominating and
Governance Committee in evaluating the candidate. If a recommendation is
received with satisfactorily completed information regarding a candidate during
a time when a vacancy exists on the Board or during such other time as the
Nominating and Governance Committee is accepting recommendations, the
recommendation will be forwarded to the chairman of the Nominating and
Governance Committee and the outside counsel to the Independent Trustees.
Recommendations received at any other time will be kept on file until such time
as the Nominating and Governance Committee is accepting recommendations, at
which point they may be considered for nomination. During the last fiscal year,
the Nominating and Governance Committee held two meetings.
The Valuation Committee is responsible for the oversight of the pricing
procedures of the Funds. Messrs. Erickson, Kadlec, Keith, and Nielson are
members of the Valuation Committee. During the last fiscal year, the Valuation
Committee held two meetings.
The Audit Committee is responsible for overseeing the Funds' accounting
and financial reporting process, the system of internal controls, audit process
and evaluating and appointing independent auditors (subject also to Board
approval). Messrs. Erickson, Kadlec, Keith and Nielson serve on the Audit
Committee. During the last fiscal year, the Audit Committee held two meetings.
Messrs. Erickson, Nielson, Kadlec, Keith and Bowen are trustees of the
First Defined Portfolio Fund, LLC, an open-end fund advised by First Trust with
eight portfolios, as well as First Trust/Four Corners Senior Floating Rate
Income Fund, First Trust/Four Corners Senior Floating Rate Income Fund II,
Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund,
Energy Income and Growth Fund, First Trust Enhanced Equity Income Fund, First
Trust/Aberdeen Global Opportunity Income Fund, First Trust/FIDAC Mortgage Income
Fund, First Trust Strategic High Income Fund, First Trust Strategic High Income
Fund II, First Trust Strategic High Income Fund III, First Trust Tax-Advantaged
Preferred Income Fund, First Trust/Aberdeen Emerging Opportunity Fund, First
Trust/Gallatin Specialty Finance and Financial Opportunities Fund and First
Trust Active Dividend Income Fund, closed-end funds advised by First Trust, and
First Trust Exchange-Traded Fund and First Trust Exchange-Traded Fund II,
exchange-traded funds advised by First Trust with various series. None of the
Trustees who are not "interested persons" of the Trust, nor any of their
immediate family members, has ever been a director, officer or employee of, or
consultant to, First Trust, First Trust Portfolios or their affiliates. In
addition, Mr. Bowen and the other officers of the Trust (other than Stan Ueland
and Roger Testin) hold the same positions with the First Defined Portfolio Fund,
LLC, First Trust/Four Corners Senior Floating Rate Income Fund, First Trust/Four
Corners Senior Floating Rate Income Fund II, Macquarie/First Trust Global
Infrastructure/Utilities Dividend & Income Fund, Energy Income and Growth Fund,
First Trust Enhanced Equity Income Fund, First Trust/Aberdeen Global Opportunity
Income Fund, First Trust/FIDAC Mortgage Income Fund, First Trust Strategic High
Income Fund, First Trust Strategic High Income Fund II, First Trust Strategic
High Income Fund III, First Trust Tax-Advantaged Preferred Income Fund, First
Trust/Aberdeen Emerging Opportunity Fund, First Trust/Gallatin Specialty Finance
and Financial Opportunities Fund, First Trust Active Dividend Income Fund, First
- 24 -
Trust Exchange-Traded Fund and First Trust Exchange-Traded Fund II (collectively
with the Trust, the "First Trust Fund Complex") as they hold with the Trust. Mr.
Ueland, Vice President of the Trust, serves in the same position for the
exchange-traded fund trusts advised by First Trust. Mr. Testin, Vice President
of the Trust, serves in the same position for the exchange-traded fund trusts
advised by First Trust and First Defined Portfolio Fund, LLC.
The Independent Trustees are paid an annual retainer of $10,000 for
each investment company in the First Trust Fund Complex up to a total of 14
investment companies (the "Trustee Compensation I") and an annual retainer of
$7,500 for each subsequent investment company added to the First Trust Fund
Complex (the "Trustee Compensation II," and together with Trustee Compensation
I, the "Aggregate Trustee Compensation"). The Aggregate Trustee Compensation is
divided equally among each of the investment companies in the First Trust Fund
Complex. No additional meeting fees are paid in connection with board or
committee meetings. Trustees are also reimbursed for travel and out-of-pocket
expenses in connection with all meetings.
Additionally, Mr. Kadlec is paid annual compensation of $10,000 to
serve as the Lead Trustee and Mr. Nielson is paid annual compensation of $5,000
to serve as the chairman of the Audit Committee of each of the investment
companies in the First Trust Fund Complex. Such additional compensation to
Messrs. Kadlec and Nielson is paid by the investment companies in the First
Trust Fund Complex and divided among those investment companies.
The following table sets forth the estimated compensation to be paid by
the Trust projected during a full fiscal year to each of the Trustees and the
total compensation paid to each of the Trustees by the First Trust Fund Complex
for the calendar year ended December 31, 2006. The Trust has no retirement or
pension plans. The officers and Trustee who are "interested persons" as
designated above serve without any compensation from the Trust.
TOTAL COMPENSATION FROM TOTAL COMPENSATION FROM
NAME OF TRUSTEE THE TRUST(1) THE FIRST TRUST FUND COMPLEX(2)
James A. Bowen $0 $0
Richard E. Erickson $9,444 $148,538
Thomas R. Kadlec $10,000 $153,538
Robert F. Keith(3) $9,444 $105,000
Niel B. Nielson $9,722 $148,538
--------------------
(1) The compensation estimated to be paid by the Trust to the Trustees for a
full fiscal year for services to the Trust.
(2) The total compensation paid to Messrs. Erickson, Kadlec, Keith and Nielson,
Independent Trustees, from the Funds of the Trust and the other investment
companies in the First Trust Fund Complex for the calendar year ended
December 31, 2006 is based on compensation paid to these Trustees for
services as Trustees to the First Defined Portfolio Fund, LLC, an open-end
fund (with eight portfolios) advised by First Trust, plus compensation paid
to these Trustees by the First Trust Value Line(R) 100 Fund, the First
Trust/Four Corners Senior Floating Rate Income Fund, the First Trust/Four
Corners Senior Floating Rate Income Fund II, the Macquarie/First Trust
Global Infrastructure/Utilities Dividend & Income Fund, the Energy Income
and Growth Fund, the First Trust/Fiduciary Asset Management Covered Call
Fund, the First Trust/Aberdeen Global Opportunity Income Fund, the First
Trust/FIDAC Mortgage Income Fund, the First Trust Strategic High Income
Fund, the First Trust Strategic High Income Fund II, the First Trust
- 25 -
|
Strategic High Income Fund III, the First Trust Tax-Advantaged Preferred
Income Fund, the First Trust/Aberdeen Emerging Opportunity Fund and the
First Trust Exchange-Traded Fund.
(3) Mr. Keith joined the Board of Trustees of certain funds in the First Trust
Fund Complex on June 12, 2006 and First Defined Portfolio Fund on April 30,
(2007.)
|
The Trust has no employees. Its officers are compensated by First
Trust.
The following table sets forth the dollar range of equity securities
beneficially owned by the Trustees in the Funds and in other funds overseen by
the Trustees in the First Trust Fund Complex as of December 31, 2006:
AGGREGATE DOLLAR RANGE OF
DOLLAR RANGE OF EQUITY SECURITIES IN
EQUITY SECURITIES ALL REGISTERED INVESTMENT COMPANIES
IN THE FUNDS OVERSEEN BY TRUSTEE IN THE FIRST TRUST
TRUSTEE (NUMBER OF SHARES HELD) FUND COMPLEX
Mr. Bowen None Over $100,000
Dr. Erickson None $50,001-$100,000
Mr. Kadlec None Over $100,000
Mr. Keith None Over $100,000
Mr. Nielson None $50,001-$100,000
|
As of the date of this Statement of Additional Information, the
Trustees who are not "interested persons" of the Trust and immediate family
members do not own beneficially or of record any class of securities of an
investment adviser or principal underwriter of the Funds or any person directly
or indirectly controlling, controlled by, or under common control with an
investment adviser or principal underwriter of the Funds.
As of the date of this Statement of Additional Information, the
officers and Trustees, in the aggregate, owned less than 1% of the Shares of
each Fund.
As of the date of this Statement of Additional Information, no person
owned of record, or is known by the Trust to own of record, beneficially 5% or
more of the Shares of each Fund.
The Board of Trustees of the Trust, including the Independent Trustees,
approved the Investment Management Agreement (the "Investment Management
Agreement") for each Fund for an initial two-year term at a meeting held on
December 11, 2006. The Board of Trustees determined that the Investment
Management Agreement is in the best interests of each 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.
Investment Adviser. First Trust provides investment tools and
portfolios for advisers and investors. First Trust is committed to theoretically
sound portfolio construction and empirically verifiable investment management
approaches. Its asset management philosophy and investment discipline is deeply
rooted in the application of intuitive factor analysis and model implementation
to enhance investment decisions.
- 26 -
First Trust acts as investment adviser for and manages the investment
and reinvestment of the assets of the Funds. First Trust also administers the
Trust's business affairs, provides office facilities and equipment and certain
clerical, bookkeeping and administrative services, and permits any of its
officers or employees to serve without compensation as Trustees or officers of
the Trust if elected to such positions.
Pursuant to the Investment Management Agreement between First Trust and
the Trust, each Fund has agreed to pay an annual management fee equal to 0.50%
of its average daily net assets.
Each Fund is responsible for all its expenses, including the investment
advisory fees, costs of transfer agency, custody, fund administration, legal,
audit and other services, interest, taxes, sublicensing fees, brokerage
commissions and other expenses connected with executions of portfolio
transactions, any distribution fees or expenses and extraordinary expenses.
First Trust has agreed to waive fees and/or pay Fund expenses to the extent
necessary to prevent the operating expenses of each Fund (excluding interest
expense, brokerage commissions and other trading expenses, taxes and
extraordinary expenses) from exceeding 0.70% of average daily net assets until
May 10, 2009. Expenses borne by First Trust 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 the Funds at any time if it would result
in a Fund's expenses exceeding 0.70% of average daily net assets.
Under the Investment Management Agreement, First Trust shall not be
liable for any loss sustained by reason of the purchase, sale or retention of
any security, whether or not such purchase, sale or retention shall have been
based upon the investigation and research made by any other individual, firm or
corporation, if such recommendation shall have been selected with due care and
in good faith, except loss resulting from willful misfeasance, bad faith, or
gross negligence on the part of First Trust in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties. The Investment Management Agreement continues until two
years after the initial issuance of Fund Shares and thereafter only if approved
annually by the Board of Trustees, including a majority of the Independent
Trustees. The Investment Management Agreement terminates automatically upon
assignment and is terminable at any time without penalty as to the Funds by the
Board of Trustees, including a majority of the Independent Trustees, or by vote
of the holders of a majority of a Fund's outstanding voting securities on 60
days' written notice to First Trust, or by First Trust on 60 days' written
notice to the Funds.
First Trust is located at 1001 Warrenville Road, Lisle, Illinois 60532.
The following table sets forth the management fees (net of fee waivers
and expense reimbursements) paid by each Fund and the fees waived and expenses
reimbursed by First Trust for the specified period.
- 27 -
AMOUNT OF MANAGEMENT FEES (NET OF
FEE WAIVERS AND EXPENSE AMOUNT OF FEES WAIVED AND EXPENSES
REIMBURSEMENTS BY FIRST TRUST) REIMBURSED BY FIRST TRUST
(FOR THE PERIOD (FOR THE PERIOD
FUND ENDED 7/31/07) ENDED 7/31/07)
FIRST TRUST CONSUMER $0 $48,919
DISCRETIONARY ALPHADEX(TM)
FUND
FIRST TRUST CONSUMER $0 $49,097
STAPLES ALPHADEX(TM) FUND
FIRST TRUST ENERGY $0 $49,595
ALPHADEX(TM) FUND
FIRST TRUST FINANCIALS $0 $48,915
ALPHADEX(TM) FUND
FIRST TRUST HEALTH CARE $0 $48,919
ALPHADEX(TM) FUND
FIRST TRUST INDUSTRIALS/ $0 $49,565
PRODUCER DURABLES
ALPHADEX(TM) FUND
FIRST TRUST MATERIALS $0 $49,119
ALPHADEX(TM) FUND
FIRST TRUST TECHNOLOGY $0 $48,964
ALPHADEX(TM) FUND
FIRST TRUST UTILITIES $0 $49,113
ALPHADEX(TM) FUND
|
Investment Committee. The Investment Committee of First Trust is
primarily responsible for the day-to-day management of the Funds. There are
currently six members of the Investment Committee, as follows:
- 28 -
POSITION WITH LENGTH OF SERVICE PRINCIPAL OCCUPATION
NAME FIRST TRUST WITH FIRST TRUST DURING PAST FIVE YEARS
Daniel J. Lindquist Senior Vice President Since 2004 Senior Vice President, First
Trust and First Trust
Portfolios L.P.
(September 2005 to Present);
Vice President, First Trust
and First Trust Portfolios
L.P. (April 2004 to September
2005) Chief Operating Officer,
Mina Capital Management, LLC
(January 2004 to April 2004);
Chief Operating Officer,
Samaritan Asset Management
Services, Inc. (April 2000 to
January 2004)
Robert F. Carey Chief Investment Officer Since 1991 Chief Investment Officer and
and Senior Vice President Senior Vice President, First
Trust; Senior Vice President,
First Trust Portfolios L.P.
Jon C. Erickson Senior Vice President Since 1994 Senior Vice President, First
Trust and First Trust
Portfolios L.P. (August 2002
to Present); Vice President,
First Trust and First Trust
Portfolios L.P. (March 1994 to
August 2002)
David G. McGarel Senior Vice President Since 1997 Senior Vice President, First
Trust and First Trust
Portfolios L.P. (August 2002
to present); Vice President,
First Trust and First Trust
Portfolios L.P. (August 1997
to August 2002)
Roger F. Testin Senior Vice President Since 2001 Senior Vice President, First
Trust and First Trust
Portfolios L.P. (November 2003
to Present); Vice President,
First Trust and First Trust
Portfolios L.P. (August 2001
to November 2003); Analyst,
Dolan Capital Management (1998
to 2001)
- 28 -
|
POSITION WITH LENGTH OF SERVICE PRINCIPAL OCCUPATION
NAME FIRST TRUST WITH FIRST TRUST DURING PAST FIVE YEARS
Stan Ueland Vice President Since 2005 Vice President, First Trust
and First Trust Portfolios
L.P. (August 2005 to Present);
Vice President, BondWave LLC
(May 2004 to August 2005);
Account Executive, Mina
Capital Management, LLC and
Samaritan Asset Management
Services, Inc. (January 2003
to May 2004); Sales
Consultant, Oracle Corporation
(January 1997 to January 2003)
|
Daniel J. Lindquist: Mr. Lindquist is Chairman of the Investment
Committee and presides over Investment Committee meetings. Mr. Lindquist is also
responsible for overseeing the implementation of the Funds' investment
strategies.
David G. McGarel: As the head of First Trust's Strategy Research Group,
Mr. McGarel is responsible for developing and implementing quantitative
investment strategies for those funds that have investment policies that require
them to follow such strategies.
Jon C. Erickson: As the head of First Trust's Equity Research Group,
Mr. Erickson is responsible for determining the securities to be purchased and
sold by funds that do not utilize quantitative investment strategies.
Roger F. Testin: As head of First Trust's Portfolio Management Group,
Mr. Testin is responsible for executing the instructions of the Strategy
Research Group and Equity Research Group in the Funds' portfolios.
Robert F. Carey: As First Trust's Chief Investment Officer, Mr. Carey
consults with the Investment Committee on market conditions and First Trust's
general investment philosophy.
Stan Ueland: Mr. Ueland plays an important role in executing the
investment strategies of each portfolio of exchange-traded funds advised by
First Trust.
No member of the Investment Committee beneficially owns any Shares of a
Fund.
Compensation. The compensation structure for each member of the
Investment Committee is based upon a fixed salary as well as a discretionary
bonus determined by the management of First Trust. Salaries are determined by
management and are based upon an individual's position and overall value to the
firm. Bonuses are also determined by management and are based upon an
individual's overall contribution to the success of the firm and the
profitability of the firm. Salaries and bonuses for members of the Investment
Committee are not based upon criteria such as performance of the Funds or the
- 30 -
value of assets included in the Funds' portfolios. In addition, Mr. Carey, Mr.
Erickson, Mr. Lindquist and Mr. McGarel also have an indirect ownership stake in
the firm and will therefore receive their allocable share of ownership-related
distributions.
The Investment Committee manages the investment vehicles with the
number of accounts and assets, as of December 31, 2006, set forth in the table
below:
ACCOUNTS MANAGED BY INVESTMENT COMMITTEE
REGISTERED INVESTMENT OTHER POOLED
COMPANIES INVESTMENT VEHICLES
NUMBER OF ACCOUNTS NUMBER OF ACCOUNTS OTHER ACCOUNTS NUMBER OF
INVESTMENT COMMITTEE MEMBER ($ ASSETS) ($ ASSETS) ACCOUNTS ($ ASSETS)
Robert F. Carey 37 ($2,680,560,650) 2 ($73,595,630) 0($0)
Roger F. Testin 37 ($2,680,560,650) 2 ($73,595,630) 3,547($816,900,185)
Jon C. Erickson 37 ($2,680,560,650) 2 ($73,595,630) 3,547($816,900,185)
David G. McGarel 37 ($2,680,560,650) 2 ($73,595,630) 3,547($816,900,185)
Daniel J. Lindquist 37 ($2,680,560,650) 2 ($73,595,630) 0($0)
Stan Ueland 10 ($709,673,350) 0 ($0) 0($0)
--------------------
|
None of the accounts managed by the Investment Committee pay an
advisory fee that is based upon the performance of the account. In addition,
First Trust believes that there are no material conflicts of interest that may
arise in connection with the Investment Committee's management of the Funds'
investments and the investments of the other accounts managed by the Investment
Committee. However, because the investment strategy of the Funds and the
investment strategies of many of the other accounts managed by the Investment
Committee are based on fairly mechanical investment processes, the Investment
Committee may recommend that certain clients sell and other clients buy a given
security at the same time. In addition, because the investment strategies of the
Funds and other accounts managed by the Investment Committee generally result in
the clients investing in readily available securities, First Trust believes that
there should not be material conflicts in the allocation of investment
opportunities between the Funds and other accounts managed by the Investment
Committee.
- 31 -
BROKERAGE ALLOCATIONS
First Trust is responsible for decisions to buy and sell securities for
the Funds and for the placement of the Funds' securities business, the
negotiation of the commissions to be paid on brokered transactions, the prices
for principal trades in securities, and the allocation of portfolio brokerage
and principal business. It is the policy of First Trust to seek the best
execution at the best security price available with respect to each transaction,
and with respect to brokered transactions in light of the overall quality of
brokerage and research services provided to First Trust and its clients. The
best price to a Fund means the best net price without regard to the mix between
purchase or sale price and commission, if any. Purchases may be made from
underwriters, dealers, and, on occasion, the issuers. Commissions will be paid
on a Fund's Futures and options transactions, if any. The purchase price of
portfolio securities purchased from an underwriter or dealer may include
underwriting commissions and dealer spreads. The Funds may pay mark-ups on
principal transactions. In selecting broker/dealers and in negotiating
commissions, First Trust considers, among other things, the firm's reliability,
the quality of its execution services on a continuing basis and its financial
condition. Fund portfolio transactions may be effected with broker/dealers who
have assisted investors in the purchase of Shares.
Section 28(e) of the Securities Exchange Act of 1934 permits an
investment adviser, under certain circumstances, to cause an account to pay a
broker or dealer who supplies brokerage and research services a commission for
effecting a transaction in excess of the amount of commission another broker or
dealer would have charged for effecting the transaction. Brokerage and research
services include (a) furnishing advice as to the value of securities, the
advisability of investing, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
In light of the above, in selecting brokers, First Trust may consider
investment and market information and other research, such as economic,
securities and performance measurement research, provided by such brokers, and
the quality and reliability of brokerage services, including execution
capability, performance, and financial responsibility. Accordingly, the
commissions charged by any such broker may be greater than the amount another
firm might charge if First Trust determines in good faith that the amount of
such commissions is reasonable in relation to the value of the research
information and brokerage services provided by such broker to First Trust or the
Trust. First Trust believes that the research information received in this
manner provides the Funds with benefits by supplementing the research otherwise
available to the Funds. The Investment Management Agreement provides that such
higher commissions will not be paid by the Funds unless the adviser determines
in good faith that the amount is reasonable in relation to the services
provided. The investment advisory fees paid by the Funds to First Trust under
the Investment Management Agreement are not reduced as a result of receipt by
First Trust of research services. First Trust has advised the Board of Trustees
that it does not use soft dollars.
- 32 -
First Trust places portfolio transactions for other advisory accounts
advised by it, and research services furnished by firms through which the Funds
effect their securities transactions may be used by First Trust in servicing all
of its accounts; not all of such services may be used by First Trust in
connection with the Funds. First Trust believes it is not possible to measure
separately the benefits from research services to each of the accounts
(including the Funds) advised by it. Because the volume and nature of the
trading activities of the accounts are not uniform, the amount of commissions in
excess of those charged by another broker paid by each account for brokerage and
research services will vary. However, First Trust believes such costs to the
Funds will not be disproportionate to the benefits received by the Funds on a
continuing basis. First Trust seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by the
Funds and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to the Funds.
In making such allocations between the Funds and other advisory accounts, the
main factors considered by First Trust are the respective investment objectives,
the relative size of portfolio holding of the same or comparable securities, the
availability of cash for investment and the size of investment commitments
generally held.
BROKERAGE COMMISSIONS
The following table sets forth the aggregate amount of brokerage
commissions paid by each Fund for the specified period:
AGGREGATE AMOUNT OF
BROKERAGE COMMISSIONS
FUND (FOR THE PERIOD ENDED JULY 31, 2007)
FIRST TRUST CONSUMER DISCRETIONARY $701
ALPHADEX(TM) FUND
FIRST TRUST CONSUMER STAPLES ALPHADEX(TM) FUND $48
FIRST TRUST ENERGY ALPHADEX(TM) FUND $35
FIRST TRUST FINANCIALS ALPHADEX(TM) FUND $471
FIRST TRUST HEALTH CARE ALPHADEX(TM) FUND $554
FIRST TRUST INDUSTRIALS/PRODUCER DURABLES $667
ALPHADEX(TM) FUND
FIRST TRUST MATERIALS ALPHADEX(TM) FUND $89
|
- 33 -
FIRST TRUST TECHNOLOGY ALPHADEX(TM) FUND $283
FIRST TRUST UTILITIES ALPHADEX(TM) FUND $36
Administrator. The Bank of New York ("BONY") serves as Administrator
for the Funds. Its principal address is 101 Barclay St., New York, NY 10286.
The Trust, on behalf of the Funds, has entered into an agreement with
PFPC Inc. ("PFPC"), 301 Bellevue Parkway, Wilmington, Delaware 19809, whereby
PFPC will provide certain board administrative services to the Trust in
connection with the Board's meetings and other related matters.
BONY serves as Administrator for the Trust pursuant to a Fund
Administration and Accounting Agreement. Under such agreement, BONY is obligated
on a continuous basis, to provide such administrative services as the Board
reasonably deems necessary for the proper administration of the Trust and the
Funds. BONY will generally assist in all aspects of the Trust's and the Funds'
operations; supply and maintain office facilities (which may be in BONY's own
offices), statistical and research data, data processing services, clerical,
accounting, bookkeeping and record keeping services (including, without
limitation, the maintenance of such books and records as are required under the
1940 Act and the rules thereunder, except as maintained by other agency agents),
internal auditing, executive and administrative services, and stationery and
office supplies; prepare reports to shareholders or investors; prepare and file
tax returns; supply financial information and supporting data for reports to and
filings with the SEC and various state Blue Sky authorities; supply supporting
documentation for meetings of the Board of Trustees; provide monitoring reports
and assistance regarding compliance with the Declaration of Trust, by-laws,
investment objectives and policies and with federal and state securities laws;
and negotiate arrangements with, and supervise and coordinate the activities of,
agents and others to supply services.
Pursuant to the Fund Administration and Accounting Agreement, the Trust
has agreed to indemnify the Administrator for certain liabilities, including
certain liabilities arising under the federal securities laws, unless such loss
or liability results from negligence or willful misconduct in the performance of
its duties.
Pursuant to the Fund Administration and Accounting Agreement between
BONY and the Trust, the Funds have agreed to pay such compensation as is
mutually agreed from time to time and such out-of-pocket expenses as incurred by
BONY in the performance of its duties. This fee is subject to reduction for
assets over $1 billion. The following table sets forth the aggregate amount paid
to BONY under the Fund Administration and Accounting Agreement.
PERIOD AGGREGATE AMOUNT PAID TO ADMINISTRATOR
Ended July 31, 2007 $2,295
- 33 -
CUSTODIAN, DISTRIBUTOR, TRANSFER AGENT, FUND ACCOUNTING AGENT,
INDEX PROVIDER AND EXCHANGE
Custodian. BONY, as custodian for the Funds pursuant to a Custody
Agreement, holds each Fund's assets. BONY also serves as transfer agent of the
Funds pursuant to a Transfer Agency and Service Agreement. As the Funds'
accounting agent, BONY calculates the NAV of Shares and calculates net income
and realized capital gains or losses. BONY may be reimbursed by the Funds for
its out-of-pocket expenses.
Distributor. First Trust Portfolios is the Distributor and principal
underwriter of the Shares of the Funds. Its principal address is 1001
Warrenville Road, Lisle, Illinois 60532. The Distributor has entered into a
Distribution Agreement with the Trust pursuant to which it distributes Fund
Shares. Shares are continuously offered for sale by the Funds through the
Distributor only in Creation Unit Aggregations, as described in the Prospectus
and below under the heading "Creation and Redemption of Creation Units."
For the fiscal year ended July 31, 2007, there were no underwriting
commissions with respect to the sale of Fund Shares and First Trust Portfolios
L.P. did not receive compensation on redemptions for the Funds for that period.
12b-1 Plan. The Trust has adopted a Plan of Distribution pursuant to
Rule 12b-1 under the 1940 Act (the "Plan") pursuant to which the Funds may
reimburse the Distributor up to a maximum annual rate of 0.25% its average daily
net assets.
Under the Plan and as required by Rule 12b-1, the Trustees will receive
and review after the end of each calendar quarter a written report provided by
the Distributor of the amounts expended under the Plan and the purpose for which
such expenditures were made.
The Plan was adopted in order to permit the implementation of the
Funds' method of distribution. However, no such fee is currently paid by a Fund
and pursuant to a contractual agreement, the Funds will not pay 12b-1 fees any
time before April 30, 2009.
No fees were charged under the Plan in 2007.
Aggregations. Fund Shares in less than Creation Unit Aggregations are
not distributed by the Distributor. The Distributor will deliver the Prospectus
and, upon request, this SAI to persons purchasing Creation Unit Aggregations and
will maintain records of both orders placed with it and confirmations of
acceptance furnished by it. The Distributor is a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a member of the
Financial Industry Regulatory Authority ("FINRA").
The Distribution Agreement provides that it may be terminated as to the
Funds at any time, without the payment of any penalty, on at least 60 days'
written notice by the Trust to the Distributor (i) by vote of a majority of the
Independent Trustees or (ii) by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Funds. The Distribution Agreement
- 35 -
will terminate automatically in the event of its assignment (as defined in the
1940 Act).
The Distributor may also enter into agreements with securities dealers
("Soliciting Dealers") who will solicit purchases of Creation Unit Aggregations
of Fund Shares. Such Soliciting Dealers may also be Participating Parties (as
defined in "Procedures for Creation of Creation Unit Aggregations" below) and
DTC Participants (as defined in "DTC Acts as Securities Depository for Fund
Shares" below).
Index Provider. The Index that each respective Fund seeks to track is
compiled by the AMEX, the Index Provider.
The Index Provider is not affiliated with the Funds, First Trust
Portfolios or First Trust. Each Fund is entitled to use the applicable Index
pursuant to a sublicensing arrangement by and among each Fund, the Index
Provider, First Trust and First Trust Portfolios, which in turn has a license
agreement with the Index Provider.
Each of the StrataQuant(TM) Series indices is a trademark of the
American Stock Exchange LLC and Is licensed for use by First Trust Portfolios.
First Trust Portfolios sublicenses the StrataQuant(TM) Series indicEs to the
Funds and to First Trust.
First Trust Portfolios has licensed to AMEX, free of charge, the right
to use certain intellectual property owned by First Trust Portfolios, including
the AlphaDEX(TM) trademark and the AlphaDEX(TM) stock seleCtion method, in
connection with AMEX's creation of the StrataQuant(TM) Series indices. A patent
application with respeCt to the AlphaDEX(TM) stock selection method is pending
at the United States Patent and Trademark Office.
Notwithstanding such license, AMEX is solely responsible for the
creation, compilation and administration of the StrataQuant(TM) Series indices
and has the exclusive right to determine the stocks included In the indices and
the indices' methodologies.
The Funds are not sponsored, endorsed, sold or promoted by Frank
Russell Company ("Underlying Index Provider") or by the Index Provider. Neither
Underlying Index Provider nor Index Provider makes any representation or
warranty, express or implied, to the owners of the Funds or any member of the
public regarding the advisability of investing in securities generally or in the
Funds particularly or the ability of any of the StrataQuant(TM) Series to track
general stock market performance or a segment of the same. Index Provider's
publication of the StrataQuant(TM) Series in no way suggests or implies an
opinion by the Underlying Index ProvidEr or by Index Provider as to the
advisability of investment in any or all of the securities upon which the
StrataQuant(TM) Series is based. Index Provider's only relationship to First
Trust Portfolios is the licensing Of certain trade marks and trade names of
Index Provider and of the StrataQuant(TM) Series which is determineD, composed
and calculated by Index Provider without regard to First Trust Portfolios, First
Trust or the Funds. Underlying Index Provider and Index Provider are not
responsible for and have not reviewed the Funds nor any associated literature or
publications and make no representation or warranty express or implied as to
their accuracy or completeness, or otherwise. Underlying Index Provider reserves
the right, at any time and without notice, to alter, amend, terminate or in any
way change the StrataQuant(TM) Series. Underlying Index Provider aNd Index
- 36 -
Provider have no obligation or liability in connection with the administration,
marketing or trading of the Funds.
INDEX PROVIDER DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF ANY OF THE STRATAQUANT(TM) SERIES OR ANY DATA INCLUDED THEREIN. INDEX
PROVIDER SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS
THEREIN. INDEX PROVIDER MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO
BE OBTAINED BY FIRST TRUST PORTFOLIO, FIRST TRUST, INVESTORS, OWNERS OF THE
FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE STRATAQUANT(TM) SERIES
OR ANY DATA INCLUDED THEREIN. INDEX PROVIDER MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE STRATAQUANT(TM) SERIES OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL INDEX PROVIDER HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
"AlphaDEX(TM)" is a trademark of First Trust Portfolios. The Funds and
First Trust on behalf of the FunDs have been granted the right by First Trust
Portfolios to use the name "AlphaDEX(TM)" for certain purposes.
Exchange. The only relationship that the AMEX has with First Trust or
the Distributor of the Funds in connection with the Funds is that the AMEX is
the Index Provider and lists the Shares of the Funds pursuant to its Listing
Agreement with the Trust. The AMEX is not responsible for and has not
participated in the determination of pricing or the timing of the issuance or
sale of the Shares of the Funds or in the determination or calculation of the
asset value of the Funds. The AMEX has no obligation or liability in connection
with the administration, marketing or trading of the Funds.
ADDITIONAL INFORMATION
Book Entry Only System. The following information supplements and
should be read in conjunction with the section in the Prospectus entitled "Book
Entry."
DTC Acts as Securities Depository for Fund Shares. Shares of the Funds
are represented by securities registered in the name of DTC or its nominee, Cede
& Co., and deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold securities of
its participants (the "DTC Participants") and to facilitate the clearance and
settlement of securities transactions among the DTC Participants in such
securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities,
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
- 37 -
whom (and/or their representatives) own DTC. More specifically, DTC is owned by
a number of its DTC Participants and by the NYSE, the AMEX and FINRA. Access to
the DTC system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
DTC Participant, either directly or indirectly (the "Indirect Participants").
Beneficial ownership of Shares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect
Participants. Ownership of beneficial interests in Shares (owners of such
beneficial interests are referred to herein as "Beneficial Owners") is shown on,
and the transfer of ownership is effected only through, records maintained by
DTC (with respect to DTC Participants) and on the records of DTC Participants
(with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC
Participant a written confirmation relating to their purchase and sale of
Shares.
Conveyance of all notices, statements and other communications to
Beneficial Owners is effected as follows. Pursuant to a letter agreement between
DTC and the Trust, DTC is required to make available to the Trust upon request
and for a fee to be charged to the Trust a listing of the Shares of the Funds
held by each DTC Participant. The Trust shall inquire of each such DTC
Participant as to the number of Beneficial Owners holding Shares, directly or
indirectly, through such DTC Participant. The Trust shall provide each such DTC
Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Trust shall pay to each such DTC Participants a fair
and reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
Fund distributions shall be made to DTC or its nominee, as the
registered holder of all Fund Shares. DTC or its nominee, upon receipt of any
such distributions, shall immediately credit DTC Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
Shares of the Funds as shown on the records of DTC or its nominee. Payments by
DTC Participants to Indirect Participants and Beneficial owners of Shares held
through such DTC Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in a "street name," and will be the
responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspect of the
records relating to or notices to Beneficial Owners, or payments made on account
of beneficial ownership interests in such Shares, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests, or for any other aspect of the relationship between DTC and the DTC
Participants or the relationship between such DTC Participants and the Indirect
Participants and Beneficial Owners owning through such DTC Participants.
- 38 -
DTC may decide to discontinue providing its service with respect to
Shares at any time by giving reasonable notice to the Trust and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action to find a replacement for DTC to
perform its functions at a comparable cost.
PROXY VOTING POLICIES AND PROCEDURES
The Trust has adopted a proxy voting policy that seeks to ensure that
proxies for securities held by the Funds are voted consistently and solely in
the best economic interests of the Funds.
A senior member of First Trust is responsible for oversight of the
Funds' proxy voting process. First Trust has engaged the services of RiskMetrics
Group, Inc. ("RMG"), to make recommendations to First Trust on the voting of
proxies relating to securities held by the Funds. RMG provides voting
recommendations based upon established guidelines and practices. First Trust
reviews RMG recommendations and frequently follows the RMG recommendations.
However, on selected issues, First Trust may not vote in accordance with the RMG
recommendations when First Trust believes that specific RMG recommendations are
not in the best interests of the Funds. If First Trust manages the assets of a
company or its pension plan and any of First Trust's clients hold any securities
of that company, First Trust will vote proxies relating to such company's
securities in accordance with the RMG recommendations to avoid any conflict of
interest. If a client requests First Trust to follow specific voting guidelines
or additional guidelines, First Trust will review the request and inform the
client only if First Trust is not able to follow the client's request.
First Trust has adopted the RMG Proxy Voting Guidelines. While these
guidelines are not intended to be all-inclusive, they do provide guidance on
First Trust's general voting policies.
Information regarding how the Funds vote future proxies relating to
portfolio securities during the most recent 12-month period ended June 30, will
be available upon request and without charge on the Funds' website at
www.ftportfolios.com, by calling (800) 621-1675 or by accessing the SEC's
website at http://www.sec.gov.
Quarterly Portfolio Schedule. The Trust is required to disclose, after
its first and third fiscal quarters, the complete schedule of the Funds'
portfolio holdings with the SEC on Form N-Q. Form N-Q for the Trust is available
on the SEC's website at http://www.sec.gov. Each Fund's Form N-Q may also be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C. and
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. The Trust's Form N-Q is available without charge, upon
request, by calling (800) 621-1675 or (800) 983-0903 or by writing to First
Trust Portfolios L.P., 1001 Warrenville Road, Lisle, Illinois 60532.
Policy Regarding Disclosure of Portfolio Holdings. The Trust has
adopted a policy regarding the disclosure of information about each Fund's
portfolio holdings. Each Fund's portfolio holdings are publicly disseminated
each day the Fund is open for business through financial reporting and news
- 39 -
services, including publicly accessible Internet web sites. In addition, a
basket composition file, which includes the security names and share quantities
to deliver in exchange for Fund Shares, together with estimates and actual cash
components, is publicly disseminated daily prior to the opening of the AMEX via
the National Securities Clearing Corporation ("NSCC"). The basket represents one
Creation Unit of a Fund. The Trust, First Trust and BONY will not disseminate
non-public information concerning the Trust.
Code of Ethics. In order to mitigate the possibility that the Funds
will be adversely affected by personal trading, the Trust, First Trust and the
Distributor have adopted Codes of Ethics under Rule 17j-1 of the 1940 Act. These
Codes contain policies restricting securities trading in personal accounts of
the officers, Trustees and others who normally come into possession of
information on portfolio transactions. These Codes are on public file with, and
are available from, the SEC.
CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS
Creation. The Trust issues and sells Shares of the Funds only in
Creation Unit Aggregations on a continuous basis through the Distributor,
without a sales load, at their NAVs next determined after receipt, on any
Business Day (as defined below), of an order in proper form.
A "Business Day" is any day on which the NYSE is open for business. As
of the date of this SAI, the NYSE observes the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Deposit of Securities and Deposit or Delivery of Cash. The
consideration for purchase of Creation Unit Aggregations of a Fund generally
consists of the in-kind deposit of a designated portfolio of equity
securities--the "Deposit Securities"--per each Creation Unit Aggregation
constituting a substantial replication oF the stocks included in the underlying
index ("Fund Securities") and an amount of cash--the "Cash Component"--computed
as described below. Together, the Deposit Securities and the Cash Component
constitute the "Fund Deposit," which represents the minimum initial and
subsequent investment amount for a Creation Unit Aggregation of a Fund.
The Cash Component is sometimes also referred to as the Balancing
Amount. The Cash Component serves the function of compensating for any
differences between the NAV per Creation Unit Aggregation and the Deposit Amount
(as defined below). The Cash Component is an amount equal to the difference
between the NAV of Fund Shares (per Creation Unit Aggregation) and the "Deposit
Amount"--an amount equal to the market value of the Deposit Securities. If the
Cash Component is a positive number (i.e., the NAV per Creation Unit Aggregation
exceeds the Deposit Amount), the creator will deliver the Cash Component. If the
Cash Component is a negative number (i.e., the NAV per Creation Unit Aggregation
is less than the Deposit Amount), the creator will receive the Cash Component.
- 40 -
The Custodian, through the National Securities Clearing Corporation
("NSCC") (discussed below), makes available on each Business Day, prior to the
opening of business on the NYSE (currently 9:30 a.m., Eastern time), the list of
the names and the required number of shares of each Deposit Security to be
included in the current Fund Deposit (based on information at the end of the
previous Business Day) for a Fund.
Such Fund Deposit is applicable, subject to any adjustments as
described below, in order to effect creations of Creation Unit Aggregations of a
Fund until such time as the next-announced composition of the Deposit Securities
is made available.
The identity and number of shares of the Deposit Securities required
for a Fund Deposit for a Fund changes as rebalancing adjustments and corporate
action events are reflected within a Fund from time to time by First Trust with
a view to the investment objective of the Fund. The composition of the Deposit
Securities may also change in response to adjustments to the weighting or
composition of the Component Stocks of the underlying index. In addition, the
Trust reserves the right to permit or require the substitution of an amount of
cash--i.e., a "cash in lieu" amount--to be added to the Cash Component to
replace any Deposit Security that may noT be available in sufficient quantity
for delivery or that may not be eligible for transfer through the systems of DTC
or the Clearing Process (discussed below), or which might not be eligible for
trading by an Authorized Participant (as defined below) or the investor for
which it is acting or other relevant reason. Brokerage commissions incurred in
connection with the acquisition of Deposit Securities not eligible for transfer
through the systems of DTC and hence not eligible for transfer through the
Clearing Process (discussed below) will at the expense of the Fund and will
affect the value of all Shares; but First Trust, subject to the approval of the
Board of Trustees, may adjust the transaction fee within the parameters
described above to protect ongoing shareholders. The adjustments described above
will reflect changes known to First Trust on the date of announcement to be in
effect by the time of delivery of the Fund Deposit, in the composition of the
underlying index or resulting from certain corporate actions.
In addition to the list of names and numbers of securities constituting
the current Deposit Securities of a Fund Deposit, the Custodian, through the
NSCC, also makes available on each Business Day, the estimated Cash Component,
effective through and including the previous Business Day, per outstanding
Creation Unit Aggregation of a Fund.
Procedures for Creation of Creation Unit Aggregations. In order to be
eligible to place orders with the Distributor and to create a Creation Unit
Aggregation of a Fund, an entity must be (i) a "Participating Party," i.e., a
broker-dealer or other participant in the clearing process through the
Continuous Net Settlement System of the NSCC (the "Clearing Process"), a
clearing agency that is registered with the SEC; or (ii) a DTC Participant (see
the Book Entry Only System section), and, in each case, must have executed an
agreement with the Distributor and transfer agent, with respect to creations and
redemptions of Creation Unit Aggregations ("Participant Agreement") (discussed
below). A Participating Party and DTC Participant are collectively referred to
as an "Authorized Participant." Investors should contact the Distributor for the
names of Authorized Participants that have signed a Participant Agreement. All
Fund Shares, however created, will be entered on the records of DTC in the name
of Cede & Co. for the account of a DTC Participant.
- 41 -
All orders to create Creation Unit Aggregations, whether through the
Clearing Process (through a Participating Party) or outside the Clearing Process
(through a DTC Participant), must be received by the transfer agent no later
than the closing time of the regular trading session on The New York Stock
Exchange ("Closing Time") (ordinarily 4:00 p.m., Eastern time) in each case on
the date such order is placed in order for creation of Creation Unit
Aggregations to be effected based on the NAV of Shares of the Funds as next
determined on such date after receipt of the order in proper form. In the case
of custom orders, the order must be received by the transfer agent no later than
3:00 p.m. Eastern time on the trade date. A custom order may be placed by an
Authorized Participant in the event that the Trust permits or requires the
substitution of an amount of cash to be added to the Cash Component to replace
any Deposit Security which may not be available in sufficient quantity for
delivery or which may not be eligible for trading by such Authorized Participant
or the investor for which it is acting or other relevant reason. The date on
which an order to create Creation Unit Aggregations (or an order to redeem
Creation Unit Aggregations, as discussed below) is placed is referred to as the
"Transmittal Date." Orders must be transmitted by an Authorized Participant by
telephone or other transmission method acceptable to the transfer agent pursuant
to procedures set forth in the Participant Agreement, as described below (see
the Placement of Creation Orders Using Clearing Process and the Placement of
Creation Orders Outside Clearing Process sections). Severe economic or market
disruptions or changes, or telephone or other communication failure may impede
the ability to reach the transfer agent or an Authorized Participant.
All orders from investors who are not Authorized Participants to create
Creation Unit Aggregations shall be placed with an Authorized Participant, as
applicable, in the form required by such Authorized Participant. In addition,
the Authorized Participant may request the investor to make certain
representations or enter into agreements with respect to the order, e.g., to
provide for payments of cash, when required. Investors should be aware that
their particular broker may not have executed a Participant Agreement and that,
therefore, orders to create Creation Unit Aggregations of a Fund have to be
placed by the investor's broker through an Authorized Participant that has
executed a Participant Agreement. In such cases there may be additional charges
to such investor. At any given time, there may be only a limited number of
broker-dealers that have executed a Participant Agreement. Those placing orders
for Creation Unit Aggregations through the Clearing Process should afford
sufficient time in order to permit proper submission of the order to the
transfer agent prior to the Closing Time on the Transmittal Date. Orders for
Creation Unit Aggregations that are effected outside the Clearing Process are
likely to require transmittal by the DTC Participant earlier on the Transmittal
Date than orders effected using the Clearing Process. Those persons placing
orders outside the Clearing Process should ascertain the deadlines applicable to
DTC and the Federal Reserve Bank wire system by contacting the operations
department of the broker or depository institution effectuating such transfer of
Deposit Securities and Cash Component.
Placement of Creation Orders Using Clearing Process. The Clearing
Process is the process of creating or redeeming Creation Unit Aggregations
through the Continuous Net Settlement System of the NSCC. Fund Deposits made
through the Clearing Process must be delivered through a Participating Party
that has executed a Participant Agreement. The Participant Agreement authorizes
the Distributor to transmit through the Custodian to NSCC, on behalf of the
Participating Party, such trade instructions as are necessary to effect the
- 42 -
Participating Party's creation order. Pursuant to such trade instructions to
NSCC, the Participating Party agrees to deliver the requisite Deposit Securities
and the Cash Component to the Trust, together with such additional information
as may be required by the Distributor. An order to create Creation Unit
Aggregations through the Clearing Process is deemed received by the Distributor
on the Transmittal Date if (i) such order is received by the Distributor not
later than the Closing Time on such Transmittal Date and (ii) all other
procedures set forth in the Participant Agreement are properly followed.
Placement of Creation Orders Outside Clearing Process. Fund Deposits
made outside the Clearing Process must be delivered through a DTC Participant
that has executed a Participant Agreement pre-approved by First Trust and the
Distributor. A DTC Participant who wishes to place an order creating Creation
Unit Aggregations to be effected outside the Clearing Process does not need to
be a Participating Party, but such orders must state that the DTC Participant is
not using the Clearing Process and that the creation of Creation Unit
Aggregations will instead be effected through a transfer of securities and cash
directly through DTC. The Fund Deposit transfer must be ordered by the DTC
Participant on the Transmittal Date in a timely fashion so as to ensure the
delivery of the requisite number of Deposit Securities through DTC to the
account of a Fund by no later than 11:00 a.m., Eastern time, of the next
Business Day immediately following the Transmittal Date.
All questions as to the number of Deposit Securities to be delivered,
and the validity, form and eligibility (including time of receipt) for the
deposit of any tendered securities, will be determined by the Trust, whose
determination shall be final and binding. The amount of cash equal to the Cash
Component must be transferred directly to the Custodian through the Federal
Reserve Bank wire transfer system in a timely manner so as to be received by the
Custodian no later than 2:00 p.m., Eastern time, on the next Business Day
immediately following such Transmittal Date. An order to create Creation Unit
Aggregations outside the Clearing Process is deemed received by the Distributor
on the Transmittal Date if (i) such order is received by the Distributor not
later than the Closing Time on such Transmittal Date; and (ii) all other
procedures set forth in the Participant Agreement are properly followed.
However, if the Custodian does not receive both the required Deposit Securities
and the Cash Component by 11:00 a.m. and 2:00 p.m., respectively on the next
Business Day immediately following the Transmittal Date, such order will be
canceled. Upon written notice to the Distributor, such canceled order may be
resubmitted the following Business Day using a Fund Deposit as newly constituted
in order to reflect the then current Deposit Securities and Cash Component. The
delivery of Creation Unit Aggregations so created will occur no later than the
third (3rd) Business Day following the day on which the purchase order is deemed
received by the Distributor.
Additional transaction fees may be imposed with respect to transactions
effected outside the Clearing Process (through a DTC participant) and in the
limited circumstances in which any cash can be used in lieu of Deposit
Securities to create Creation Units. (See "Creation Transaction Fee" section
below.)
Creation Unit Aggregations may be created in advance of receipt by the
Trust of all or a portion of the applicable Deposit Securities as described
below. In these circumstances, the initial deposit will have a value greater
- 43 -
than the NAV of the Fund Shares on the date the order is placed in proper form
since, in addition to available Deposit Securities, cash must be deposited in an
amount equal to the sum of (i) the Cash Component, plus (ii) 115% of the market
value of the undelivered Deposit Securities (the "Additional Cash Deposit"). The
order shall be deemed to be received on the Business Day on which the order is
placed provided that the order is placed in proper form prior to 4:00 p.m.,
Eastern time, on such date, and federal funds in the appropriate amount are
deposited with the Custodian by 11:00 a.m., Eastern time, the following Business
Day. If the order is not placed in proper form by 4:00 p.m. or federal funds in
the appropriate amount are not received by 11:00 a.m. the next Business Day,
then the order may be deemed to be canceled and the Authorized Participant shall
be liable to the Funds for losses, if any, resulting therefrom. An additional
amount of cash shall be required to be deposited with the Trust, pending
delivery of the missing Deposit Securities to the extent necessary to maintain
the Additional Cash Deposit with the Trust in an amount at least equal to 115%
of the daily marked-to-market value of the missing Deposit Securities. To the
extent that missing Deposit Securities are not received by 1:00 p.m., Eastern
time, on the third Business Day following the day on which the purchase order is
deemed received by the Distributor or in the event a marked-to-market payment is
not made within one Business Day following notification by the Distributor that
such a payment is required, the Trust may use the cash on deposit to purchase
the missing Deposit Securities. Authorized Participants will be liable to the
Trust and the Funds for the costs incurred by the Trust in connection with any
such purchases. These costs will be deemed to include the amount by which the
actual purchase price of the Deposit Securities exceeds the market value of such
Deposit Securities on the day the purchase order was deemed received by the
Distributor plus the brokerage and related transaction costs associated with
such purchases. The Trust will return any unused portion of the Additional Cash
Deposit once all of the missing Deposit Securities have been properly received
by the Custodian or purchased by the Trust and deposited into the Trust. In
addition, a transaction fee, as listed below, will be charged in all cases. The
delivery of Creation Unit Aggregations so created will occur no later than the
third Business Day following the day on which the purchase order is deemed
received by the Distributor.
Acceptance of Orders for Creation Unit Aggregations. The Trust reserves
the absolute right to reject a creation order transmitted to it by the
Distributor with respect to a Fund if: (i) the order is not in proper form; (ii)
the investor(s), upon obtaining the Fund Shares ordered, would own 80% or more
of the currently outstanding shares of the Fund; (iii) the Deposit Securities
delivered are not as disseminated for that date by the Custodian, as described
above; (iv) acceptance of the Deposit Securities would have certain adverse tax
consequences to the Fund; (v) acceptance of the Fund Deposit would, in the
opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit would
otherwise, in the discretion of the Trust or First Trust, have an adverse effect
on the Trust or the rights of beneficial owners; or (vii) in the event that
circumstances outside the control of the Trust, the Custodian, the Distributor
and First Trust make it for all practical purposes impossible to process
creation orders. Examples of such circumstances include acts of God; public
service or utility problems such as fires, floods, extreme weather conditions
and power outages resulting in telephone, telecopy and computer failures; market
conditions or activities causing trading halts; systems failures involving
computer or other information systems affecting the Trust, First Trust, the
Distributor, DTC, NSCC, the Custodian or sub-custodian or any other participant
- 44 -
in the creation process, and similar extraordinary events. The Distributor shall
notify a prospective creator of a Creation Unit and/or the Authorized
Participant acting on behalf of such prospective creator of its rejection of the
order of such person. The Trust, the Custodian, any sub-custodian and the
Distributor are under no duty, however, to give notification of any defects or
irregularities in the delivery of Fund Deposits, nor shall any of them incur any
liability for the failure to give any such notification.
All questions as to the number of shares of each security in the
Deposit Securities and the validity, form, eligibility, and acceptance for
deposit of any securities to be delivered shall be determined by the Trust, and
the Trust's determination shall be final and binding.
Creation Transaction Fee. Purchasers of Creation Units will be required
to pay a standard creation transaction fee (the "Creation Transaction Fee"),
described below, payable to BONY regardless of the number of Creation Units. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by a Fund with respect to
transactions effected outside of the Clearing Process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. Investors are responsible for the costs of transferring
the securities constituting the Deposit Securities to the account of the Trust.
The standard creation transaction fee is based on the number of different
securities in a Creation Unit according to the fee schedule set forth below:
NUMBER OF SECURITIES CREATION
IN A CREATION UNIT TRANSACTION FEE
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
|
Redemption of Fund Shares In Creation Units Aggregations. Fund Shares
may be redeemed only in Creation Unit Aggregations at their NAV next determined
after receipt of a redemption request in proper form by the Fund through the
Transfer Agent and only on a Business Day. A Fund will not redeem Shares in
amounts less than Creation Unit Aggregations. Beneficial owners must accumulate
enough Shares in the secondary market to constitute a Creation Unit Aggregation
in order to have such Shares redeemed by the Trust. There can be no assurance,
however, that there will be sufficient liquidity in the public trading market at
any time to permit assembly of a Creation Unit Aggregation. Investors should
expect to incur brokerage and other costs in connection with assembling a
sufficient number of Fund Shares to constitute a redeemable Creation Unit
Aggregation.
With respect to the Funds, the Custodian, through the NSCC, makes
available prior to the opening of business on the NYSE (currently 9:30 a.m.,
Eastern time) on each Business Day, the identity of the Fund Securities that
- 45 -
will be applicable (subject to possible amendment or correction) to redemption
requests received in proper form (as described below) on that day. Fund
Securities received on redemption may not be identical to Deposit Securities
that are applicable to creations of Creation Unit Aggregations.
Unless cash redemptions are available or specified for a Fund, the
redemption proceeds for a Creation Unit Aggregation generally consist of Fund
Securities--as announced on the Business Day of the request for redemption
received in proper form--plus or minus cash in an amount equal to the difference
between the NAV of the Fund Shares being redeemed, as next determined after a
receipt of a request in proper form, and the value of the Fund Securities (the
"Cash Redemption Amount"), less a redemption transaction fee as listed below. In
the event that the Fund Securities have a value greater than the NAV of the Fund
Shares, a compensating cash payment equal to the difference is required to be
made by or through an Authorized Participant by the redeeming shareholder.
The right of redemption may be suspended or the date of payment
postponed (i) for any period during which the NYSE is closed (other than
customary weekend and holiday closings); (ii) for any period during which
trading on the NYSE is suspended or restricted; (iii) for any period during
which an emergency exists as a result of which disposal of the Shares of a Fund
or determination of the Fund's NAV is not reasonably practicable; or (iv) in
such other circumstances as is permitted by the SEC.
Redemption Transaction Fee. A redemption transaction fee (the
"Redemption Transaction Fee") is imposed to offset transfer and other
transaction costs that may be incurred by a Fund. An additional variable fee of
up to three times the Redemption Transaction Fee may be charged to approximate
additional expenses incurred by a Fund with respect to redemptions effected
outside of the Clearing Process or to the extent that redemptions are for cash.
A Fund reserves the right to effect redemptions in cash. A shareholder may
request a cash redemption in lieu of securities; however, a Fund may, in its
discretion, reject any such request. Investors will also bear the costs of
transferring the Fund Securities from the Trust to their account or on their
order. Investors who use the services of a broker or other such intermediary in
addition to an Authorized Participant to effect a redemption of a Creation Unit
Aggregation may be charged an additional fee for such services.
- 46 -
The standard redemption transaction fee is based on the number of
different securities in a Creation Unit according to the fee schedule set forth
below:
NUMBER OF SECURITIES REDEMPTION
IN A CREATION UNIT TRANSACTION FEE
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
|
Placement of Redemption Orders Using Clearing Process. Orders to redeem
Creation Unit Aggregations through the Clearing Process must be delivered
through a Participating Party that has executed the Participant Agreement. An
order to redeem Creation Unit Aggregations using the Clearing Process is deemed
received by the Trust on the Transmittal Date if (i) such order is received by
the Transfer Agent not later than 4:00 p.m., Eastern time, on such Transmittal
Date, and (ii) all other procedures set forth in the Participant Agreement are
properly followed; such order will be effected based on the NAV of the Fund as
next determined. An order to redeem Creation Unit Aggregations using the
Clearing Process made in proper form but received by the Trust after 4:00 p.m.,
Eastern time, will be deemed received on the next Business Day immediately
following the Transmittal Date and will be effected at the NAV next determined
on such next Business Day. The requisite Fund Securities and the Cash Redemption
Amount will be transferred by the third NSCC Business Day following the date on
which such request for redemption is deemed received.
Placement of Redemption Orders Outside Clearing Process. Orders to
redeem Creation Unit Aggregations outside the Clearing Process must be delivered
through a DTC Participant that has executed the Participant Agreement. A DTC
Participant who wishes to place an order for redemption of Creation Unit
Aggregations to be effected outside the Clearing Process does not need to be a
Participating Party, but such orders must state that the DTC Participant is not
using the Clearing Process and that redemption of Creation Unit Aggregations
will instead be effected through transfer of Fund Shares directly through DTC.
An order to redeem Creation Unit Aggregations outside the Clearing Process is
deemed received by the Trust on the Transmittal Date if (i) such order is
received by the Transfer Agent not later than 4:00 p.m., Eastern time on such
Transmittal Date; (ii) such order is accompanied or followed by the requisite
number of Shares of the Fund, which delivery must be made through DTC to the
Custodian no later than 11:00 a.m., Eastern time, (for the Fund Shares) on the
next Business Day immediately following such Transmittal Date (the "DTC
Cut-Off-Time") and 2:00 p.m., Eastern Time for any Cash Component, if any owed
to a Fund; and (iii) all other procedures set forth in the Participant Agreement
are properly followed. After the Trust has deemed an order for redemption
outside the Clearing Process received, the Trust will initiate procedures to
transfer the requisite Fund Securities which are expected to be delivered within
three Business Days and the Cash Redemption Amount, if any owed to the redeeming
- 47 -
Beneficial Owner to the Authorized Participant on behalf of the redeeming
Beneficial Owner by the third Business Day following the Transmittal Date on
which such redemption order is deemed received by the Trust.
The calculation of the value of the Fund Securities and the Cash
Redemption Amount to be delivered/received upon redemption will be made by the
Custodian according to the procedures set forth in this SAI under "Determination
of NAV" computed on the Business Day on which a redemption order is deemed
received by the Trust. Therefore, if a redemption order in proper form is
submitted to the Transfer Agent by a DTC Participant not later than Closing Time
on the Transmittal Date, and the requisite number of Shares of the Fund are
delivered to the Custodian prior to the DTC Cut-Off-Time, then the value of the
Fund Securities and the Cash Redemption Amount to be delivered/received will be
determined by the Custodian on such Transmittal Date. If, however, either (i)
the requisite number of Shares of the Fund are not delivered by the DTC
Cut-Off-Time, as described above, or (ii) the redemption order is not submitted
in proper form, then the redemption order will not be deemed received as of the
Transmittal Date. In such case, the value of the Fund Securities and the Cash
Redemption Amount to be delivered/received will be computed on the Business Day
following the Transmittal Date provided that the Fund Shares of the Fund are
delivered through DTC to the Custodian by 11:00 a.m. the following Business Day
pursuant to a properly submitted redemption order.
If it is not possible to effect deliveries of the Fund Securities, the
Trust may in its discretion exercise its option to redeem such Fund Shares in
cash, and the redeeming Beneficial Owner will be required to receive its
redemption proceeds in cash. In addition, an investor may request a redemption
in cash that a Fund may, in its sole discretion, permit. In either case, the
investor will receive a cash payment equal to the NAV of its Fund Shares based
on the NAV of Shares of the Fund next determined after the redemption request is
received in proper form (minus a redemption transaction fee and additional
charge for requested cash redemptions specified above, to offset the Fund's
brokerage and other transaction costs associated with the disposition of Fund
Securities). The Funds may also, in their sole discretion, upon request of a
shareholder, provide such redeemer a portfolio of securities that differs from
the exact composition of the Fund Securities, or cash lieu of some securities
added to the Cash Component, but in no event will the total value of the
securities delivered and the cash transmitted differ from the NAV. Redemptions
of Fund Shares for Fund Securities will be subject to compliance with applicable
federal and state securities laws and each Fund (whether or not it otherwise
permits cash redemptions) reserves the right to redeem Creation Unit
Aggregations for cash to the extent that the Trust could not lawfully deliver
specific Fund Securities upon redemptions or could not do so without first
registering the Fund Securities under such laws. An Authorized Participant or an
investor for which it is acting subject to a legal restriction with respect to a
particular stock included in the Fund Securities applicable to the redemption of
a Creation Unit Aggregation may be paid an equivalent amount of cash. The
Authorized Participant may request the redeeming Beneficial Owner of the Fund
Shares to complete an order form or to enter into agreements with respect to
such matters as compensating cash payment, beneficial ownership of shares or
delivery instructions.
The chart below describes in further detail the placement of redemption
orders outside the clearing process.
- 48 -
TRANSMITTAL NEXT BUSINESS SECOND BUSINESS THIRD BUSINESS
DATE (T) DAY (T+1) DAY (T+2) DAY (T+3)
CREATION THROUGH NSCC
STANDARD ORDERS 4:00 p.m. No action. No action. Creation Unit
Aggregations will be
Order must be delivered.
received by the
Distributor.
CUSTOM ORDERS 3:00 p.m. No action. No action. Creation Unit
Aggregations will be
Order must be delivered.
received by the
Distributor.
Orders received
after 3:00 p.m.
will be treated as
standard orders.
CREATION OUTSIDE NSCC
STANDARD ORDERS 4:00 p.m. (ET) 11:00 a.m. (ET) No action. Creation Unit
Aggregations will be
Order in proper Deposit Securities must delivered.
form must be be received by a Fund's
received by the account through DTC.
Distributor.
2:00 p.m. (ET)
Cash Component must be
received by the Custodian.
STANDARD ORDERS CREATED 4:00 p.m. (ET) 11:00 a.m. (ET) No action. 1:00 p.m.
IN ADVANCE OF RECEIPT
BY THE TRUST OF ALL OR Order in proper Available Deposit Missing Deposit
A PORTION OF THE form must be Securities. Securities are due to
DEPOSIT SECURITIES received by the the Trust or the Trust
Distributor. Cash in an amount equal may use cash on deposit
to the sum of (i) the to purchase missing
Cash Component, plus Deposit Securities.
(ii) 115% of the market
value of the Creation Unit
undelivered Deposit Aggregations will be
Securities. delivered.
CUSTOM ORDERS 3:00 p.m. 11:00 a.m. (ET) No action. Creation Unit
Aggregations will be
Order in proper Deposit Securities must delivered.
form must be be received by a Fund's
received by the account through DTC.
Distributor.
Order received 2:00 p.m. (ET)
after 3:00 p.m.
will be treated as Cash Component must be
standard orders. received by the Orders
Custodian.
- 49 -
|
TRANSMITTAL NEXT BUSINESS SECOND BUSINESS THIRD BUSINESS
DATE (T) DAY (T+1) DAY (T+2) DAY (T+3)
REDEMPTION THROUGH NSCC
STANDARD ORDERS 4:00 p.m. (ET) No action. No action. Fund Securities and Cash
Redemption Amount will
Order must be be transferred.
received by the
Transfer Agent.
Orders received
after 4:00 p.m.
(ET) will be deemed
received on the
next business day
(T+1)
CUSTOM ORDERS 3:00 p.m. (ET) No action. No action. Fund Securities and Cash
Redemption Amount will
Order must be be transferred.
received by the
Transfer Agent
Order received
after 3:00 p.m.
will be treated as
standard orders.
REDEMPTION OUTSIDE NSCC
STANDARD ORDERS 4:00 p.m. (ET) 11:00 a.m. (ET) No action. Fund Securities and Cash
Redemption Amount is
Order must be Fund Shares must be delivered to the
received by the delivered through DTC redeeming beneficial
Transfer Agent. to the Custodian. owner.
Order received 2:00 p.m.
after 4:00 p.m.
(ET) will be deemed Cash Component, if any,
received on the is due.
next business day
(T+1).
*If the order is not in proper
form or the Fund Shares are
not delivered, then the order
will not be deemed received as
of T.
CUSTOM ORDERS 3:00 p.m. (ET) 11:00 a.m. (ET) No action. Fund Securities and Cash
Redemption Amount is
Order must be Fund Shares must be delivered to the
received by the delivered through DTC redeeming beneficial
Transfer Agent. to the Custodian. owner.
Order received 2:00 p.m.
after 3:00 p.m.
will be treated as Cash Component, if any,
standard orders. is due.
*If the order is not in proper
form or the Fund Shares are
not delivered, then the order
will not be deemed received as
of T.
|
- 50 -
FEDERAL TAX MATTERS
This section summarizes some of the main U.S. federal income tax
consequences of owning Shares of a Fund. This section is current as of the date
of the Prospectus. Tax laws and interpretations change frequently, and these
summaries do not describe all of the tax consequences to all taxpayers. For
example, these summaries generally do not describe your situation if you are a
corporation, a non-U.S. person, a broker-dealer, or other investor with special
circumstances. In addition, this section does not describe your state, local or
foreign tax consequences.
This federal income tax summary is based in part on the advice of
counsel to the Funds. The Internal Revenue Service could disagree with any
conclusions set forth in this section. In addition, our counsel was not asked to
review, and has not reached a conclusion with respect to the federal income tax
treatment of the assets to be deposited in the Funds. This may not be sufficient
for prospective investors to use for the purpose of avoiding penalties under
federal tax law.
As with any investment, prospective investors should seek advice based
on their individual circumstances from their own tax advisor.
Each Fund intends to qualify annually and to elect to be treated as a
regulated investment company under the Internal Revenue Code (the "Code").
To qualify for the favorable U.S. federal income tax treatment
generally accorded to regulated investment companies, each Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies, or no income derived from interests in certain
publicly traded partnerships; (b) diversify its holdings so that, at the end of
each quarter of the taxable year, (i) at least 50% of the market value of each
Fund's assets is represented by cash and cash items (including receivables),
U.S. Government securities, the securities of other regulated investment
companies and other securities, with such other securities of any one issuer
generally limited for the purposes of this calculation to an amount not greater
than 5% of the value of each Fund's total assets and not greater than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities (other than U.S.
Government securities or the securities of other regulated investment companies)
of any one issuer, or two or more issuers which a Fund controls which are
engaged in the same, similar or related trades or businesses, or the securities
of one or more of certain publicly traded partnerships; and (c) distribute at
least 90% of its investment company taxable income (which includes, among other
items, dividends, interest and net short-term capital gains in excess of net
long-term capital losses) and at least 90% of its net tax-exempt interest income
each taxable year.
As regulated investment companies, the Funds generally will not be
subject to U.S. federal income tax on their investment company taxable income
(as that term is defined in the Code, but without regard to the deduction for
dividends paid) and net capital gain (the excess of net long-term capital gain
- 51 -
over net short-term capital loss), if any, that they distribute to shareholders.
The Funds intend to distribute to its shareholders, at least annually,
substantially all of its investment company taxable income and net capital gain.
If a Fund retains any net capital gain or investment company taxable income, it
will generally be subject to federal income tax at regular corporate rates on
the amount retained. In addition, amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax unless, generally, each Fund distributes during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for the one-year period ending October 31
of the calendar year, and (3) any ordinary income and capital gains for previous
years that were not distributed during those years. In order to prevent
application of the excise tax, the Funds intend to make its distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of the current calendar year if it is declared
by a Fund in October, November or December with a record date in such a month
and paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received.
If a Fund failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the Fund would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income.
DISTRIBUTIONS
Dividends paid out of the Funds' investment company taxable income are
generally taxable to a shareholder as ordinary income to the extent of the
Fund's earnings and profits, whether paid in cash or reinvested in additional
shares. However, certain ordinary income distributions received from a Fund may
be taxed at capital gains tax rates. In particular, ordinary income dividends
received by an individual shareholder from regulated investment companies such
as the Funds are generally taxed at the same rates that apply to net capital
gain, provided that certain holding period requirements are satisfied and
provided the dividends are attributable to qualifying dividends received by the
Fund itself. Dividends received by the Funds from REITs and foreign corporations
are qualifying dividends eligible for this lower tax rate only in certain
circumstances.
These special rules relating to the taxation of ordinary income
dividends from regulated investment companies generally apply to taxable years
beginning before January 1, 2011. The Funds will provide notice to its
shareholders of the amount of any distributions which may be taken into account
as a dividend which is eligible for the capital gains tax rates. The Funds can
not make any guarantees as to the amount of any distribution which will be
regarded as a qualifying dividend.
A corporation that owns Shares generally will not be entitled to the
dividends received deduction with respect to many dividends received from the
Funds because the dividends received deduction is generally not available for
- 52 -
distributions from regulated investment companies. However, certain ordinary
income dividends on Shares that are attributable to qualifying dividends
received by the Funds from certain domestic corporations may be designated by
the Funds as being eligible for the dividends received deduction.
Distributions of net capital gain (the excess of net long-term capital
gain over net short-term capital loss), if any, properly designated as capital
gain dividends are taxable to a shareholder as long-term capital gains,
regardless of how long the shareholder has held Fund Shares. Shareholders
receiving distributions in the form of additional Shares, rather than cash,
generally will have a cost basis in each such Share equal to the value of a
Share of the Fund on the reinvestment date. A distribution of an amount in
excess of a Fund's current and accumulated earnings and profits will be treated
by a shareholder as a return of capital which is applied against and reduces the
shareholder's basis in his or her Shares. To the extent that the amount of any
such distribution exceeds the shareholder's basis in his or her Shares, the
excess will be treated by the shareholder as gain from a sale or exchange of the
Shares.
Shareholders will be notified annually as to the U.S. federal income
tax status of distributions, and shareholders receiving distributions in the
form of additional Shares will receive a report as to the value of those Shares.
SALE OR EXCHANGE OF FUND SHARES
Upon the sale or other disposition of Shares of the Funds, which a
shareholder holds as a capital asset, such a shareholder may realize a capital
gain or loss which will be long-term or short-term, depending upon the
shareholder's holding period for the Shares. Generally, a shareholder's gain or
loss will be a long-term gain or loss if the Shares have been held for more than
one year.
Any loss realized on a sale or exchange will be disallowed to the
extent that Shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after disposition of Shares or to the extent that the shareholder, during
such period, acquires or enters into an option or contract to acquire,
substantially identical stock or securities. In such a case, the basis of the
Shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund Shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of long-term capital gain received by the
shareholder with respect to such Shares.
TAXES ON PURCHASE AND REDEMPTION OF CREATION UNITS
If a shareholder exchanges equity securities for Creation Units the
shareholder will generally recognize a gain or a loss. The gain or loss will be
equal to the difference between the market value of the Creation Units at the
time and the shareholder's aggregate basis in the securities surrendered and the
Cash Component paid. If a shareholder exchanges Creation Units for equity
securities, then the shareholder will generally recognize a gain or loss equal
to the difference between the shareholder's basis in the Creation Units and the
- 53 -
aggregate market value of the securities received and the Cash Redemption
Amount. The Internal Revenue Service, however, may assert that a loss realized
upon an exchange of securities for Creation Units or Creation Units for
securities cannot be deducted currently under the rules governing "wash sales,"
or on the basis that there has been no significant change in economic position.
NATURE OF FUND INVESTMENTS
Certain of the Funds' investment practices are subject to special and
complex federal income tax provisions that may, among other things, (i)
disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (ii) convert lower taxed long-term capital gain into higher taxed
short-term capital gain or ordinary income, (iii) convert an ordinary loss or a
deduction into a capital loss (the deductibility of which is more limited), (iv)
cause the Funds to recognize income or gain without a corresponding receipt of
cash, (v) adversely affect the time as to when a purchase or sale of stock or
securities is deemed to occur and (vi) adversely alter the characterization of
certain complex financial transactions.
FUTURES CONTRACTS AND OPTIONS
The Funds' transactions in Futures Contracts and options will be
subject to special provisions of the Code that, among other things, may affect
the character of gains and losses realized by the Funds (i.e., may affect
whether gains or losses are ordinary or capital, or short-term or long-term),
may accelerate recognition of income to the Funds and may defer Fund losses.
These rules could, therefore, affect the character, amount and timing of
distributions to shareholders. These provisions also (a) will require the Funds
to mark-to-market certain types of the positions in its portfolio (i.e., treat
them as if they were closed out), and (b) may cause the Funds to recognize
income without receiving cash with which to make distributions in amounts
necessary to satisfy the 90% distribution requirement for qualifying to be taxed
as a regulated investment company and the 98% distribution requirement for
avoiding excise taxes.
INVESTMENTS IN CERTAIN FOREIGN CORPORATIONS
If the Fund holds an equity interest in any "passive foreign investment
companies" ("PFICs"), which are generally certain foreign corporations that
receive at least 75% of their annual gross income from passive sources (such as
interest, dividends, certain rents and royalties or capital gains) or that hold
at least 50% of their assets in investments producing such passive income, the
Fund could be subject to U.S. federal income tax and additional interest charges
on gains and certain distributions with respect to those equity interests, even
if all the income or gain is timely distributed to its Unitholders. The Fund
will not be able to pass through to its Unitholders any credit or deduction for
such taxes. The Fund may be able to make an election that could ameliorate these
adverse tax consequences. In this case, the Fund would recognize as ordinary
income any increase in the value of such PFIC shares, and as ordinary loss any
decrease in such value to the extent it did not exceed prior increases included
in income. Under this election, the Fund might be required to recognize in a
year income in excess of its distributions from PFICs and its proceeds from
dispositions of PFIC stock during that year, and such income would nevertheless
be subject to the distribution requirement and would be taken into account for
- 54 -
purposes of the 4% excise tax (described above). Dividends paid by PFICs will
not be treated as qualified dividend income.
BACKUP WITHHOLDING
The Funds may be required to withhold U.S. federal income tax from all
taxable distributions and sale proceeds payable to shareholders who fail to
provide the Funds with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. The withholding percentage
is 28% until 2011, when the percentage will revert to 31% unless amended by
Congress. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from such backup withholding. This withholding is not
an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
U.S. taxation of a shareholder who, as to the United States, is a
nonresident alien individual, a foreign trust or estate, a foreign corporation
or foreign partnership ("non-U.S. shareholder") depends on whether the income of
the Fund is "effectively connected" with a U.S. trade or business carried on by
the shareholder.
Income Not Effectively Connected. If the income from a Fund is not
"effectively connected" with a U.S. trade or business carried on by the non-U.S.
shareholder, distributions of investment company taxable income will generally
be subject to a U.S. tax of 30% (or lower treaty rate), which tax is generally
withheld from such distributions.
Distributions of capital gain dividends and any amounts retained by a
Fund which are designated as undistributed capital gains will not be subject to
U.S. tax at the rate of 30% (or lower treaty rate) unless the non-U.S.
shareholder is a nonresident alien individual and is physically present in the
United States for more than 182 days during the taxable year and meets certain
other requirements. However, this 30% tax on capital gains of nonresident alien
individuals who are physically present in the United States for more than the
182 day period only applies in exceptional cases because any individual present
in the United States for more than 182 days during the taxable year is generally
treated as a resident for U.S. income tax purposes; in that case, he or she
would be subject to U.S. income tax on his or her worldwide income at the,
graduated rates applicable to U.S. citizens, rather than the 30% U.S. tax. In
the case of a non-U.S. shareholder who is a nonresident alien individual, the
Funds may be required to withhold U.S. income tax from distributions of net
capital gain unless the non-U.S. shareholder certifies his or her non-U.S.
status under penalties of perjury or otherwise establishes an exemption. If a
non-U.S. shareholder is a nonresident alien individual, any gain such
shareholder realizes upon the sale or exchange of such shareholder's shares of
the Funds in the United States will ordinarily be exempt from U.S. tax unless
the gain is U.S. source income and such shareholder is physically present in the
United States for more than 182 days during the taxable year and meets certain
other requirements.
- 55 -
Under the provisions of the American Jobs Creation Act of 2004 (the
"2004 Tax Act"), dividends paid by the Funds to shareholders who are nonresident
aliens or foreign entities and that are derived from short-term capital gains
and qualifying net interest income (including income from original issue
discount and market discount), and that are properly designated by the Funds as
"interest-related dividends" or "short-term capital gain dividends," will
generally not be subject to United States withholding tax, provided that the
income would not be subject to federal income tax if earned directly by the
foreign shareholder. In addition, pursuant to the 2004 Tax Act, capital gains
distributions attributable to gains from U.S. real property interests (including
certain U.S. real property holding corporations) will generally be subject to
United States withholding tax and will give rise to an obligation on the part of
the foreign shareholder to file a United States tax return. The provisions
contained in the legislation relating to distributions to shareholders who are
nonresident aliens or foreign entities generally would apply to distributions
with respect to taxable years of the Funds beginning after December 31, 2004 and
before January 1, 2008.
Income Effectively Connected. If the income from a Fund is "effectively
connected" with a U.S. trade or business carried on by a non-U.S. shareholder,
then distributions of investment company taxable income and capital gain
dividends, any amounts retained by the Funds which are designated as
undistributed capital gains and any gains realized upon the sale or exchange of
shares of the Funds will be subject to U.S. income tax at the graduated rates
applicable to U.S. citizens, residents and domestic corporations. Non-U.S.
corporate shareholders may also be subject to the branch profits tax imposed by
the Code. The tax consequences to a non-U.S. shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described herein.
Non-U.S. shareholders are advised to consult their own tax advisors with respect
to the particular tax consequences to them of an investment in the Funds.
OTHER TAXATION
Fund shareholders may be subject to state, local and foreign taxes on
their Fund distributions. Shareholders are advised to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Funds.
DETERMINATION OF NAV
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Net Asset Value."
The per share NAV of a Fund is determined by dividing the total value
of the securities and other assets, less liabilities, by the total number of
Shares outstanding. A Fund's NAV may not be calculated on days during which a
Fund receives no orders to purchase shares and no shares are tendered for
redemption. In determining NAV, portfolio securities for a Fund for which
accurate market quotations are readily available will be valued by the Fund
accounting agent as follows:
- 56 -
(1) Common stocks and other equity securities listed on any
national or foreign exchange will be valued at the last sale price on
the exchange or system in which they are principally traded on the
valuation date and at the official closing price for securities listed
on NASDAQ. If there are no transactions on the valuation day,
securities traded principally on an exchange will be valued at the mean
between the most recent bid and ask prices.
(2) Securities traded in the over-the-counter market are
valued at their closing bid prices.
(3) Exchange traded options and Futures Contracts will be
valued at the closing price in the market where such contracts are
principally traded. Over-the-counter options and Futures Contracts will
be valued at their closing bid prices.
(4) Forward foreign currency exchange contracts which are
traded in the United States on regulated exchanges will be valued by
calculating the mean between the last bid and asked quotations supplied
to a pricing service by certain independent dealers in such contracts.
In addition, the following types of securities will be valued as
follows:
(1) Fixed income securities with a remaining maturity of 60
days or more will be valued by the fund accounting agent using a
pricing service. When price quotes are not available, fair market value
is based on prices of comparable securities.
(2) Fixed income securities maturing within 60 days are
valued by the fund accounting agent on an amortized cost basis.
(3) Repurchase agreements will be valued as follows.
Overnight repurchase agreements will be valued at cost. Term purchase
agreements (i.e., those whose maturity exceeds seven days) will be
valued by First Trust at the average of the bid quotations obtained
daily from at least two recognized dealers.
(4) Structured Products, including currency-linked notes,
credit-linked notes and other similar instruments, will be valued by
the Fund Accounting Agent using a pricing service or quotes provided by
the selling dealer or financial institution. When price quotes are not
available, fair market value is based on prices of comparable
securities. Absent a material difference between the exit price for a
particular structured product and the market rates for similar
transactions, the structured product will be valued at its exit price.
(5) Interest rate swaps and credit default swaps will be
valued by the Fund Accounting Agent using a pricing service or quotes
provided by the selling dealer or financial institution. When price
quotes are not available, fair market value is based on prices of
comparable securities. Absent a material difference between the exit
- 57 -
price for a particular swap and the market rates for similar
transactions, the swap will be valued at its exit price.
The value of any portfolio security held by a Fund for which market
quotations are not readily available will be determined by First Trust in a
manner that most fairly reflects fair market value of the security on the
valuation date, based on a consideration of all available information.
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) 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 Fund NAV (as may be the case in foreign
markets on which the security is primarily traded) 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 an issue of securities would
appear to be the amount which the owner might reasonably expect to receive for
them upon their current sale. A variety of factors may be considered in
determining the fair value of such securities.
A Fund may suspend the right of redemption for the Fund only under the
following unusual circumstances: (a) when the NYSE is closed (other than
weekends and holidays) or trading is restricted; (b) when trading in the markets
normally utilized is restricted, or when an emergency exists as determined by
the SEC so that disposal of a Fund's investments or determination of its net
assets is not reasonably practicable; or (c) during any period when the SEC may
permit.
DIVIDENDS AND DISTRIBUTIONS
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Dividends, Distributions and
Taxes."
General Policies. Dividends from net investment income, if any, are
declared and paid semi-annually. Distributions of net realized securities gains,
if any, generally are declared and paid once a year, but the Trust may make
distributions on a more frequent basis. The Trust reserves the right to declare
special distributions if, in its reasonable discretion, such action is necessary
or advisable to preserve the status of the Funds as a RIC or to avoid imposition
of income or excise taxes on undistributed income.
Dividends and other distributions of Fund Shares are distributed, as
described below, on a pro rata basis to Beneficial Owners of such Shares.
Dividend payments are made through DTC Participants and Indirect Participants to
Beneficial Owners then of record with proceeds received from the Funds.
- 58 -
Dividend Reinvestment Service. No reinvestment service is provided by
the Trust. Broker-dealers may make available the DTC book-entry Dividend
Reinvestment Service for use by Beneficial Owners of the Funds for reinvestment
of their dividend distributions. Beneficial Owners should contact their brokers
in order to determine the availability and costs of the service and the details
of participation therein. Brokers may require Beneficial Owners to adhere to
specific procedures and timetables. If this service is available and used,
dividend distributions of both income and realized gains will be automatically
reinvested in additional whole Shares of each Fund purchased in the secondary
market.
MISCELLANEOUS INFORMATION
Counsel. Chapman and Cutler LLP, 111 West Monroe Street, Chicago,
Illinois 60603, is counsel to the Trust.
Independent Registered Public Accounting Firm. Deloitte & Touche LLP,
111 South Wacker Drive, Chicago, Illinois 60601, serves as the Funds'
independent registered public accounting firm. The firm audits each Fund's
financial statements and performs other related audit services.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto for the Funds, contained in
the Annual Report to Shareholders dated July 31, 2007, are incorporated by
reference into this Statement of Additional Information and have been audited by
Deloitte & Touche LLP, independent registered public accounting firm, whose
report also appears in the Annual Report and is also incorporated by reference
herein. No other parts of the Annual Report are incorporated by reference
herein. The Annual Report is attached to this Statement of Additional
Information.
- 59 -
STATEMENT OF ADDITIONAL INFORMATION
INVESTMENT COMPANY ACT FILE NO. 811-22019
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
FIRST TRUST LARGE CAP CORE ALPHADEX(TM) FUND
FIRST TRUST MID CAP CORE ALPHADEX(TM) FUND
FIRST TRUST SMALL CAP CORE ALPHADEX(TM) FUND
FIRST TRUST LARGE CAP VALUE OPPORTUNITIES ALPHADEX(TM) FUND
FIRST TRUST LARGE CAP GROWTH OPPORTUNITIES ALPHDEX(TM) FUND
FIRST TRUST MULTI CAP VALUE ALPHADEX(TM) FUND
FIRST TRUST MULTI CAP GROWTH ALPHADEX(TM) FUND
DATED NOVEMBER 28, 2007
This Statement of Additional Information is not a Prospectus. It should
be read in conjunction with the Prospectus dated November 28, 2007 (the
"Prospectus") for the First Trust Large Cap Core AlphaDEX(TM) Fund, First Trust
Mid Cap Core AlphaDEX(TM) Fund, First Trust Small Cap Core AlphaDEX(TM) Fund,
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund, First Trust Large
Cap Growth Opportunities AlphDEX(TM) Fund, First Trust Multi Cap Value
AlphaDEX(TM) Fund and First Trust Multi Cap Growth AlphaDEX(TM) Fund, each a
series of the First Trust Exchange-Traded AlphaDEX(TM) Fund (the "Trust"), as it
may be revised from time to time. Capitalized terms used herein that are not
defined have the same meaning as in the Prospectus, unless otherwise noted. A
copy of the Prospectus may be obtained without charge by writing to the Trust's
Distributor, First Trust Portfolios L.P., 1001 Warrenville Road, Lisle, Illinois
60532, or by calling toll free at (800) 621-1675.
TABLE OF CONTENTS
GENERAL DESCRIPTION OF THE TRUST AND THE FUNDS................................1
EXCHANGE LISTING AND TRADING..................................................3
INVESTMENT OBJECTIVE AND POLICIES.............................................4
INVESTMENT STRATEGIES.........................................................5
SUBLICENSE AGREEMENTS........................................................15
INVESTMENT RISKS.............................................................15
FUNDS MANAGEMENT.............................................................20
ACCOUNTS MANAGED BY INVESTMENT COMMITTEE.....................................31
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BROKERAGE ALLOCATIONS........................................................32
CUSTODIAN, DISTRIBUTOR, TRANSFER AGENT, FUND ACCOUNTING AGENT,
INDEX PROVIDER AND EXCHANGE...............................................35
ADDITIONAL INFORMATION.......................................................37
PROXY VOTING POLICIES AND PROCEDURES.........................................39
CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS........................40
FEDERAL TAX MATTERS..........................................................50
DETERMINATION OF NAV.........................................................56
DIVIDENDS AND DISTRIBUTIONS..................................................58
MISCELLANEOUS INFORMATION....................................................59
FINANCIAL STATEMENTS.........................................................59
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The audited financial statements for the Funds' most recent fiscal year
appear in the Funds' Annual Report to Shareholders dated July 31, 2007, which is
attached hereto. The Annual Report was filed with the Securities and Exchange
Commission ("SEC") on September 28, 2007. The financial statements from such
Annual Report are incorporated herein by reference.
- ii -
GENERAL DESCRIPTION OF THE TRUST AND THE FUNDS
The Trust was organized as a Massachusetts business trust on December
6, 2006 and is authorized to issue an unlimited number of shares in one or more
series or "Funds." The Trust is an open-end management investment company,
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Trust currently offers Shares in 16 series, including the First Trust
Large Cap Core AlphaDEX(TM) Fund, First Trust Mid Cap Core AlphaDEX(TM) Fund,
First Trust Small Cap Core AlphaDEX(TM) Fund, First Trust Large Cap Value
Opportunities AlphaDEX(TM) Fund, First Trust Large Cap Growth Opportunities
AlphDEX(TM) Fund, First Trust Multi Cap Value AlphaDEX(TM) Fund and First Trust
Multi Cap Growth AlphaDEX(TM) Fund (each, a "Fund," and collectively, the
"Funds"), each a non-diversified series. This Statement of Additional
Information relates only to the Funds. The shares of the Funds are referred to
herein as "Shares" or "Fund Shares." Each series of the Trust represents a
beneficial interest in a separate portfolio of securities and other assets, with
its own objective and policies.
The Board of Trustees of the Trust (the "Board of Trustees" or the
"Trustees") has the right to establish additional series in the future, to
determine the preferences, voting powers, rights and privileges thereof and to
modify such preferences, voting powers, rights and privileges without
shareholder approval. Shares of any series may also be divided into one or more
classes at the discretion of the Trustees.
Each Share has one vote with respect to matters upon which a
shareholder vote is required consistent with the requirements of the 1940 Act
and the rules promulgated thereunder. Shares of all series of the Trust vote
together as a single class except as otherwise required by the 1940 Act, or if
the matter being voted on affects only a particular series, and, if a matter
affects a particular series differently from other series, the shares of that
series will vote separately on such matter. The Trust's Declaration of Trust
(the "Declaration") requires a shareholder vote only on those matters where the
1940 Act requires a vote of shareholders and otherwise permits the Trustees to
take actions without seeking the consent of shareholders. For example, the
Declaration gives the Trustees broad authority to approve reorganizations
between a Fund and another entity, such as another exchange-traded fund, or the
sale of all or substantially all of a Fund's assets, or the termination of the
Trust or any Fund without shareholder approval if the 1940 Act would not require
such approval.
The Declaration provides that by becoming a shareholder of a Fund, each
shareholder shall be expressly held to have agreed to be bound by the provisions
of the Declaration. The Declaration may be amended or supplemented by the
Trustees in any respect without shareholder vote. The Declaration provides that
the Trustees may establish the number of Trustees and that vacancies on the
Board of Trustees may be filled by the remaining Trustees, except when election
of Trustees by the shareholders is required under the 1940 Act. Trustees are
then elected by a plurality of votes cast by shareholders at a meeting at which
a quorum is present. The Declaration also provides that Trustees may be removed,
with or without cause, by a vote of shareholders holding at least two-thirds of
the voting power of the Trust, or by a vote of two thirds of the remaining
Trustees. The provisions of the Declaration relating to the election and removal
of Trustees may not be amended without the approval of two-thirds of the
Trustees.
The holders of Fund Shares are required to disclose information on
direct or indirect ownership of Fund Shares as may be required to comply with
various laws applicable to the Funds or as the Trustees may determine, and
ownership of Fund Shares may be disclosed by the Funds if so required by law or
regulation. In addition, pursuant to the Declaration, the Trustees may, in their
discretion, require the Trust to redeem Shares held by any shareholder for any
reason under terms set by the Trustees. The Declaration provides a detailed
process for the bringing of derivative actions by shareholders in order to
permit legitimate inquiries and claims while avoiding the time, expense,
distraction and other harm that can be caused to a Fund or its shareholders as a
result of spurious shareholder demands and derivative actions. Prior to bringing
a derivative action, a demand must first be made on the Trustees. The
Declaration details various information, certifications, undertakings and
acknowledgements that must be included in the demand. Following receipt of the
demand, the Trustees have a period of 90 days, which may be extended by an
additional 60 days, to consider the demand. If a majority of the Trustees who
are considered independent for the purposes of considering the demand determine
that maintaining the suit would not be in the best interests of the Fund, the
Trustees are required to reject the demand and the complaining shareholder may
not proceed with the derivative action unless the shareholder is able to sustain
the burden of proof to a court that the decision of the Trustees not to pursue
the requested action was not a good faith exercise of their business judgment on
behalf of a Fund. In making such a determination, a Trustee is not considered to
have a personal financial interest by virtue of being compensated for his or her
services as a Trustee. If a demand is rejected, the complaining shareholder will
be responsible for the costs and expenses (including attorneys' fees) incurred
by a Fund in connection with the consideration of the demand under a number of
circumstances. If a derivative action is brought in violation of the
Declaration, the shareholder bringing the action may be responsible for the
Fund's costs, including attorneys' fee. The Declaration also provides that any
shareholder bringing an action against the Fund waives the right to trial by
jury to the fullest extent permitted by law.
The Trust is not required to and does not intend to hold annual
meetings of shareholders.
Under Massachusetts law applicable to Massachusetts business trusts,
shareholders of such a trust may, under certain circumstances, be held
personally liable as partners for its obligations. However, the Declaration
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or the
Trustees. The Declaration further provides for indemnification out of the assets
and property of the Trust for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust or a Fund itself was unable to meet its obligations.
The Declaration further provides that a Trustee acting in his or her
capacity as Trustee is not personally liable to any person other than the Trust
or its shareholders, for any act, omission, or obligation of the Trust. The
Declaration requires the Trust to indemnify any persons who are or who have been
Trustees, officers or employees of the Trust for any liability for actions or
failure to act except to the extent prohibited by applicable federal law. In
making any determination as to whether any person is entitled to the advancement
of expenses in connection with a claim for which indemnification is sought, such
- 2 -
person is entitled to a rebuttable presumption that he or she did not engage in
conduct for which indemnification is not available. The Declaration provides
that any Trustee who serves as chair of the Board of Trustees or of a committee
of the Board of Trustees, lead independent Trustee, or audit committee financial
expert, or in any other similar capacity will not be subject to any greater
standard of care or liability because of such position.
The Funds are managed by First Trust Advisors L.P. (the "Adviser" or
"First Trust").
Each Fund offers and issues Shares at net asset value ("NAV") only in
aggregations of a specified number of Shares (each a "Creation Unit" or a
"Creation Unit Aggregation"), generally in exchange for a basket of equity
securities (the "Deposit Securities") included in each Fund's corresponding
Index (as hereinafter defined), together with the deposit of a specified cash
payment (the "Cash Component"). The Shares are listed and trade on the American
Stock Exchange LLC (the "AMEX"). The Shares will trade on the AMEX at market
prices that may be below, at or above NAV. Shares are redeemable only in
Creation Unit Aggregations and, generally, in exchange for portfolio securities
and a specified cash payment. Creation Units are aggregations of 100,000 Shares.
The Trust reserves the right to offer a "cash" option for creations and
redemptions of Fund Shares, although it has no current intention of doing so.
Fund Shares may be issued in advance of receipt of Deposit Securities subject to
various conditions including a requirement to maintain on deposit with the Trust
cash at least equal to 115% of the market value of the missing Deposit
Securities. See the "Creation and Redemption of Creation Unit Aggregations"
section. In each instance of such cash creations or redemptions, transaction
fees may be imposed that will be higher than the transaction fees associated
with in-kind creations or redemptions. In all cases, such fees will be limited
in accordance with the requirements of the Securities and Exchange Commission
(the "SEC") applicable to management investment companies offering redeemable
securities.
EXCHANGE LISTING AND TRADING
There can be no assurance that the requirements of the AMEX necessary
to maintain the listing of Shares of a Fund will continue to be met. The AMEX
may, but is not required to, remove the Shares of a Fund from listing if (i)
following the initial 12-month period beginning at the commencement of trading
of a Fund, there are fewer than 50 beneficial owners of the Shares of such Fund
for 30 or more consecutive trading days; (ii) the value of such Fund's Index is
no longer calculated or available; or (iii) such other event shall occur or
condition exist that, in the opinion of the AMEX, makes further dealings on the
AMEX inadvisable. The AMEX will remove the Shares of a Fund from listing and
trading upon termination of such Fund.
As in the case of other stocks traded on the AMEX, broker's commissions
on transactions will be based on negotiated commission rates at customary
levels.
The Funds reserve the right to adjust the price levels of Shares in the
future to help maintain convenient trading ranges for investors. Any adjustments
- 3 -
would be accomplished through stock splits or reverse stock splits, which would
have no effect on the net assets of each Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus describes the investment objective and policies of the
Funds. The following supplements the information contained in the Prospectus
concerning the investment objective and policies of the Funds.
Each Fund is subject to the following fundamental policies, which may
not be changed without approval of the holders of a majority of the outstanding
voting securities of the Fund:
(1) A Fund may not issue senior securities, except as
permitted under the 1940 Act.
(2) A Fund may not borrow money, except that a Fund may (i)
borrow money from banks for temporary or emergency purposes (but not
for leverage or the purchase of investments) and (ii) engage in other
transactions permissible under the 1940 Act that may involve a
borrowing (such as obtaining short-term credits as are necessary for
the clearance of transactions, engaging in delayed-delivery
transactions, or purchasing certain futures, forward contracts and
options), provided that the combination of (i) and (ii) shall not
exceed 33-1/3% of the value of a Fund's total assets (including the
amount borrowed), less a Fund's liabilities (other than borrowings).
(3) A Fund will not underwrite the securities of other
issuers except to the extent the Fund may be considered an underwriter
under the Securities Act of 1933 (the "1933 Act") in connection with
the purchase and sale of portfolio securities.
(4) A Fund will not purchase or sell real estate or interests
therein, unless acquired as a result of ownership of securities or
other instruments (but this shall not prohibit a Fund from purchasing
or selling securities or other instruments backed by real estate or of
issuers engaged in real estate activities).
(5) A Fund may not make loans to other persons, except
through (i) the purchase of debt securities permissible under a Fund's
investment policies, (ii) repurchase agreements, or (iii) the lending
of portfolio securities, provided that no such loan of portfolio
securities may be made by a Fund if, as a result, the aggregate of such
loans would exceed 33-1/3% of the value of a Fund's total assets.
(6) A Fund may not purchase or sell physical commodities
unless acquired as a result of ownership of securities or other
instruments (but this shall not prevent a Fund from purchasing or
selling options, futures contracts, forward contracts or other
derivative instruments, or from investing in securities or other
instruments backed by physical commodities).
- 4 -
(7) A Fund may not invest 25% or more of the value of its
total assets in securities of issuers in any one industry or group of
industries, except to the extent that the Index that a Fund replicates,
concentrates in an industry or a group of industries. This restriction
does not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Except for restriction (2), if a percentage restriction is adhered to
at the time of investment, a later increase in percentage resulting from a
change in market value of the investment or the total assets will not constitute
a violation of that restriction.
The foregoing fundamental policies of each Fund may not be changed
without the affirmative vote of the majority of the outstanding voting
securities of the respective Fund. The 1940 Act defines a majority vote as the
vote of the lesser of (i) 67% or more of the voting securities represented at a
meeting at which more than 50% of the outstanding securities are represented; or
(ii) more than 50% of the outstanding voting securities. With respect to the
submission of a change in an investment policy to the holders of outstanding
voting securities of a Fund, such matter shall be deemed to have been
effectively acted upon with respect to a Fund if a majority of the outstanding
voting securities of a Fund vote for the approval of such matter,
notwithstanding that (1) such matter has not been approved by the holders of a
majority of the outstanding voting securities of any other series of the Trust
affected by such matter, and (2) such matter has not been approved by the vote
of a majority of the outstanding voting securities.
In addition to the foregoing fundamental policies, the Funds are also
subject to strategies and policies discussed herein which, unless otherwise
noted, are non-fundamental restrictions and policies which may be changed by the
Board of Trustees.
INVESTMENT STRATEGIES
Under normal circumstances, each Fund will invest at least 90% of its
total assets in common stocks that comprise such Fund's respective corresponding
equity index (the "Index") in a family of custom enhanced indices created and
administered by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P"or the "Index Provider") (the "Defined Index Series"), which is comprised
of the Defined Large Cap Core Index, the Defined Mid Cap Core Index, the Defined
Small Cap Core Index, the Defined Large Cap Value Opportunities Index, the
Defined Large Cap Growth Opportunities Index, the Defined Multi Cap Value Index
and the Defined Multi Cap Growth Index. Fund Shareholders are entitled to 60
days' notice prior to any change in this non-fundamental investment policy.
TYPES OF INVESTMENTS
Warrants: The Funds may invest in warrants. Warrants acquired by a Fund
entitle it to buy common stock from the issuer at a specified price and time.
They do not represent ownership of the securities but only the right to buy
them. Warrants are subject to the same market risks as stocks, but may be more
volatile in price. A Fund's investment in warrants will not entitle it to
- 5 -
receive dividends or exercise voting rights and will become worthless if the
warrants cannot be profitably exercised before their expiration date.
Delayed-Delivery Transactions: The Funds may from time to time purchase
securities on a "when-issued" or other delayed-delivery basis. The price of
securities purchased in such transactions is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date. Normally, the settlement date occurs within 45 days of the purchase.
During the period between the purchase and settlement, a Fund does not remit
payment to the issuer, no interest is accrued on debt securities and dividend
income is not earned on equity securities. Delayed-delivery commitments involve
a risk of loss if the value of the security to be purchased declines prior to
the settlement date, which risk is in addition to the risk of a decline in value
of a Fund's other assets. While securities purchased in delayed-delivery
transactions may be sold prior to the settlement date, the Funds intend to
purchase such securities with the purpose of actually acquiring them. At the
time a Fund makes the commitment to purchase a security in a delayed-delivery
transaction, it will record the transaction and reflect the value of the
security in determining its NAV. The Funds do not believe that NAV will be
adversely affected by purchases of securities in delayed-delivery transactions.
The Funds will earmark or maintain in a segregated account cash, U.S.
Government securities, and high-grade liquid debt securities equal in value to
commitments for delayed-delivery securities. Such earmarked or segregated
securities will mature or, if necessary, be sold on or before the settlement
date. When the time comes to pay for delayed-delivery securities, a Fund will
meet its obligations from then-available cash flow, sale of the securities
earmarked or held in the segregated account described above, sale of other
securities, or, although it would not normally expect to do so, from the sale of
the delayed-delivery securities themselves (which may have a market value
greater or less than a Fund's payment obligation).
Illiquid Securities: The Funds may invest in illiquid securities (i.e.,
securities that are not readily marketable). For purposes of this restriction,
illiquid securities include, but are not limited to, restricted securities
(securities the disposition of which is restricted under the federal securities
laws), securities that may only be resold pursuant to Rule 144A under the 1933
Act, as amended, but that are deemed to be illiquid; and repurchase agreements
with maturities in excess of seven days. However, a Fund will not acquire
illiquid securities if, as a result, such securities would comprise more than
15% of the value of a Fund's net assets. The Board of Trustees or its delegates
has the ultimate authority to determine, to the extent permissible under the
federal securities laws, which securities are liquid or illiquid for purposes of
this 15% limitation. The Board of Trustees has delegated to First Trust the
day-to-day determination of the illiquidity of any equity or fixed-income
security, although it has retained oversight and ultimate responsibility for
such determinations. Although no definitive liquidity criteria are used, the
Board of Trustees has directed First Trust to look to factors such as (i) the
nature of the market for a security (including the institutional private resale
market; the frequency of trades and quotes for the security; the number of
dealers willing to purchase or sell the security; and the amount of time
normally needed to dispose of the security, the method of soliciting offers and
the mechanics of transfer), (ii) the terms of certain securities or other
instruments allowing for the disposition to a third party or the issuer thereof
(e.g., certain repurchase obligations and demand instruments), and (iii) other
permissible relevant factors.
- 6 -
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the 1933 Act. Where registration is required, a
Fund may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time a Fund may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
a Fund might obtain a less favorable price than that which prevailed when it
decided to sell. Illiquid securities will be priced at fair value as determined
in good faith under procedures adopted by the Board of Trustees. If, through the
appreciation of illiquid securities or the depreciation of liquid securities, a
Fund should be in a position where more than 15% of the value of its net assets
are invested in illiquid securities, including restricted securities which are
not readily marketable, a Fund will take such steps as is deemed advisable, if
any, to protect liquidity.
Money Market Funds: The Funds may invest in shares of money market
funds to the extent permitted by the 1940 Act.
Temporary Investments: The Funds may, without limit as to percentage of
assets, purchase U.S. Government securities or short-term debt securities to
keep cash on hand fully invested or for temporary defensive purposes. Short-term
debt securities are securities from issuers having a long-term debt rating of at
least A or higher by Standard & Poor's Ratings Group ("S&P"), Moody's Investors
Service, Inc. ("Moody's") or Fitch, Inc. ("Fitch") and having a maturity of one
year or less.
Short-term debt securities are defined to include, without limitation,
the following:
(1) U.S. Government securities, including bills, notes and
bonds differing as to maturity and rates of interest, which are either
issued or guaranteed by the U.S. Treasury or by U.S. Government
agencies or instrumentalities. U.S. Government agency securities
include securities issued by (a) the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of United States, Small
Business Administration, and the Government National Mortgage
Association, whose securities are supported by the full faith and
credit of the United States; (b) the Federal Home Loan Banks, Federal
Intermediate Credit Banks, and the Tennessee Valley Authority, whose
securities are supported by the right of the agency to borrow from the
U.S. Treasury; (c) Fannie Mae, whose securities are supported by the
discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and (d) the Student Loan
Marketing Association, whose securities are supported only by its
credit. While the U.S. Government provides financial support to such
U.S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it always will do so since it is not so obligated by
law. The U.S. Government, its agencies, and instrumentalities do not
guarantee the market value of their securities, and consequently, the
value of such securities may fluctuate.
(2) Certificates of deposit issued against funds deposited in
a bank or savings and loan association. Such certificates are for a
definite period of time, earn a specified rate of return, and are
normally negotiable. If such certificates of deposit are
- 7 -
non-negotiable, they will be considered illiquid securities and be
subject to a Fund's 15% restriction on investments in illiquid
securities. Pursuant to the certificate of deposit, the issuer agrees
to pay the amount deposited plus interest to the bearer of the
certificate on the date specified thereon. Under current FDIC
regulations, the maximum insurance payable as to any one certificate of
deposit is $100,000; therefore certificates of deposit purchased by the
Funds may not be fully insured.
(3) Bankers' acceptances which are short-term credit
instruments used to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an
importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on
its maturity date. The acceptance may then be held by the accepting
bank as an asset or it may be sold in the secondary market at the going
rate of interest for a specific maturity.
(4) Repurchase agreements, which involve purchases of debt
securities. In such an action, at the time a Fund purchases the
security, it simultaneously agrees to resell and redeliver the security
to the seller, who also simultaneously agrees to buy back the security
at a fixed price and time. This assures a predetermined yield for a
Fund during its holding period since the resale price is always greater
than the purchase price and reflects an agreed upon market rate. The
period of these repurchase agreements will usually be short, from
overnight to one week. Such actions afford an opportunity for a Fund to
invest temporarily available cash. The Funds may enter into repurchase
agreements only with respect to obligations of the U.S. Government, its
agencies or instrumentalities; certificates of deposit; or bankers
acceptances in which the Funds may invest. In addition, the Funds may
only enter into repurchase agreements where the market value of the
purchased securities/collateral equals at least 100% of principal
including accrued interest and is marked-to-market daily. The risk to
the Funds is limited to the ability of the seller to pay the
agreed-upon sum on the repurchase date; in the event of default, the
repurchase agreement provides that the affected Fund is entitled to
sell the underlying collateral. If the value of the collateral declines
after the agreement is entered into, however, and if the seller
defaults under a repurchase agreement when the value of the underlying
collateral is less than the repurchase price, a Fund could incur a loss
of both principal and interest. The Funds, however, intend to enter
into repurchase agreements only with financial institutions and dealers
believed by First Trust to present minimal credit risks in accordance
with criteria established by the Board of Trustees. First Trust will
review and monitor the creditworthiness of such institutions. First
Trust monitors the value of the collateral at the time the action is
entered into and at all times during the term of the repurchase
agreement. First Trust does so in an effort to determine that the value
of the collateral always equals or exceeds the agreed-upon repurchase
price to be paid to a Fund. If the seller were to be subject to a
federal bankruptcy proceeding, the ability of a Fund to liquidate the
collateral could be delayed or impaired because of certain provisions
of the bankruptcy laws.
(5) Bank time deposits, which are monies kept on deposit with
banks or savings and loan associations for a stated period of time at a
- 8 -
fixed rate of interest. There may be penalties for the early withdrawal
of such time deposits, in which case the yields of these investments
will be reduced.
(6) Commercial paper, which are short-term unsecured
promissory notes, including variable rate master demand notes issued by
corporations to finance their current operations. Master demand notes
are direct lending arrangements between the Fund and a corporation.
There is no secondary market for the notes. However, they are
redeemable by a Fund at any time. A Fund's portfolio manager will
consider the financial condition of the corporation (e.g., earning
power, cash flow, and other liquidity ratios) and will continuously
monitor the corporation's ability to meet all of its financial
obligations, because a Fund's liquidity might be impaired if the
corporation were unable to pay principal and interest on demand. The
Funds may only invest in commercial paper rated A-1 or better by S&P,
Prime-1 or higher by Moody's or Fitch 2 or higher by Fitch.
PORTFOLIO TURNOVER
The Funds buy and sell portfolio securities in the normal course of
their investment activities. The proportion of a Fund's investment portfolio
that is sold and replaced with new securities during a year is known as a Fund's
portfolio turnover rate. A turnover rate of 100% would occur, for example, if a
Fund sold and replaced securities valued at 100% of its net assets within one
year. Active trading would result in the payment by a Fund of increased
brokerage costs and expenses.
HEDGING STRATEGIES
General Description of Hedging Strategies
The Funds may engage in hedging activities. First Trust may cause the
Funds to utilize a variety of financial instruments, including options, forward
contracts, futures contracts (hereinafter referred to as "Futures" or "Futures
Contracts"), and options on Futures Contracts to attempt to hedge each Fund's
holdings.
Hedging or derivative instruments on securities generally are used to
hedge against price movements in one or more particular securities positions
that a Fund owns or intends to acquire. Such instruments may also be used to
"lock-in" realized but unrecognized gains in the value of portfolio securities.
Hedging instruments on stock indices, in contrast, generally are used to hedge
against price movements in broad equity market sectors in which a Fund has
invested or expects to invest. Hedging strategies, if successful, can reduce the
risk of loss by wholly or partially offsetting the negative effect of
unfavorable price movements in the investments being hedged. However, hedging
strategies can also reduce the opportunity for gain by offsetting the positive
effect of favorable price movements in the hedged investments. The use of
hedging instruments is subject to applicable regulations of the SEC, the several
options and Futures exchanges upon which they are traded, the Commodity Futures
Trading Commission (the "CFTC") and various state regulatory authorities. In
addition, a Fund's ability to use hedging instruments may be limited by tax
considerations.
- 9 -
General Limitations on Futures and Options Transactions
The Trust has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the National Futures
Association, the Futures industry's self-regulatory organization. A Fund will
not enter into Futures and options transactions if the sum of the initial margin
deposits and premiums paid for unexpired options exceeds 5% of a Fund's total
assets. In addition, a Fund will not enter into Futures Contracts and options
transactions if more than 30% of its net assets would be committed to such
instruments.
The foregoing limitations are not fundamental policies of the Funds and
may be changed without shareholder approval as regulatory agencies permit.
Asset Coverage for Futures and Options Positions
The Funds will comply with the regulatory requirements of the SEC and
the CFTC with respect to coverage of options and Futures positions by registered
investment companies and, if the guidelines so require, will earmark or set
aside cash, U.S. Government securities, high grade liquid debt securities and/or
other liquid assets permitted by the SEC and CFTC in a segregated custodial
account in the amount prescribed. Securities earmarked or held in a segregated
account cannot be sold while the Futures or options position is outstanding,
unless replaced with other permissible assets, and will be marked-to-market
daily.
Stock Index Options
The Funds may purchase stock index options, sell stock index options in
order to close out existing positions and/or write covered options on stock
indices for hedging purposes. Stock index options are put options and call
options on various stock indices. In most respects, they are identical to listed
options on common stocks. The primary difference between stock options and index
options occurs when index options are exercised. In the case of stock options,
the underlying security, common stock, is delivered. However, upon the exercise
of an index option, settlement does not occur by delivery of the securities
comprising the stock index. The option holder who exercises the index option
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. This amount of cash is equal to
the difference between the closing price of the stock index and the exercise
price of the option expressed in dollars times a specified multiple.
A stock index fluctuates with changes in the market values of the
stocks included in the index. For example, some stock index options are based on
a broad market index, such as the Standard & Poor's 500 or the Value Line(R)
Composite Indices or a more narrow market index, such as the Standard & Poor's
100. Indices may also be based on an industry or market segment. Options on
stock indices are currently traded on the following exchanges: the Chicago Board
Options Exchange, the New York Stock Exchange ("NYSE"), the AMEX, the NYSE Arca,
Inc. and the Philadelphia Stock Exchange.
- 10 -
The Funds' use of stock index options is subject to certain risks.
Successful use by a Fund of options on stock indices will be subject to the
ability of First Trust to correctly predict movements in the directions of the
stock market. This requires different skills and techniques than predicting
changes in the prices of individual securities. In addition, a Fund's ability to
effectively hedge all or a portion of the securities in its portfolio, in
anticipation of or during a market decline through transactions in put options
on stock indices, depends on the degree to which price movements in the
underlying index correlate with the price movements of the securities held by
the Fund. Inasmuch as the Funds' securities will not duplicate the components of
an index, the correlation will not be perfect. Consequently, a Fund will bear
the risk that the prices of its securities being hedged will not move in the
same amount as the prices of its put options on the stock indices. It is also
possible that there may be a negative correlation between the index and a Fund's
securities, which would result in a loss on both such securities and the options
on stock indices acquired by the Fund.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the options
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that cannot be
reflected in the options markets. The purchase of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. The
purchase of stock index options involves the risk that the premium and
transaction costs paid by a Fund in purchasing an option will be lost as a
result of unanticipated movements in prices of the securities comprising the
stock index on which the option is based.
Certain Considerations Regarding Options
There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or elsewhere may exist. If a
Fund is unable to close out a call option on securities that it has written
before the option is exercised, a Fund may be required to purchase the optioned
securities in order to satisfy its obligation under the option to deliver such
securities. If a Fund is unable to effect a closing sale transaction with
respect to options on securities that it has purchased, it would have to
exercise the option in order to realize any profit and would incur transaction
costs upon the purchase and sale of the underlying securities.
The writing and purchasing of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. Imperfect correlation between
the options and securities markets may detract from the effectiveness of
attempted hedging. Options transactions may result in significantly higher
transaction costs and portfolio turnover for the Funds.
Futures Contracts
The Funds may enter into Futures Contracts, including index Futures as
a hedge against movements in the equity markets, in order to hedge against
changes on securities held or intended to be acquired by a Fund or for other
purposes permissible under the Commodity Exchange Act (the "CEA"). A Fund's
- 11 -
hedging may include sales of Futures as an offset against the effect of expected
declines in stock prices and purchases of Futures as an offset against the
effect of expected increases in stock prices. The Funds will not enter into
Futures Contracts which are prohibited under the CEA and will, to the extent
required by regulatory authorities, enter only into Futures Contracts that are
traded on national Futures exchanges and are standardized as to maturity date
and underlying financial instrument. The principal interest rate Futures
exchanges in the United States are the Chicago Board of Trade and the Chicago
Mercantile Exchange. Futures exchanges and trading are regulated under the CEA
by the CFTC.
An interest rate Futures Contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (e.g., a debt security) or currency for a specified price
at a designated date, time and place. An index Futures Contract is an agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index Futures
Contract was originally written. Transaction costs are incurred when a Futures
Contract is bought or sold and margin deposits must be maintained. A Futures
Contract may be satisfied by delivery or purchase, as the case may be, of the
instrument or by payment of the change in the cash value of the index. More
commonly, Futures Contracts are closed out prior to delivery by entering into an
offsetting transaction in a matching Futures Contract. Although the value of an
index might be a function of the value of certain specified securities, no
physical delivery of those securities is made. If the offsetting purchase price
is less than the original sale price, a gain will be realized. Conversely, if
the offsetting sale price is more than the original purchase price, a gain will
be realized; if it is less, a loss will be realized. The transaction costs must
also be included in these calculations. There can be no assurance, however, that
a Fund will be able to enter into an offsetting transaction with respect to a
particular Futures Contract at a particular time. If a Fund is not able to enter
into an offsetting transaction, a Fund will continue to be required to maintain
the margin deposits on the Futures Contract.
Margin is the amount of funds that must be deposited by a Fund with its
custodian in a segregated account in the name of the Futures commission merchant
in order to initiate Futures trading and to maintain a Fund's open positions in
Futures Contracts. A margin deposit is intended to ensure a Fund's performance
of the Futures Contract.
The margin required for a particular Futures Contract is set by the
exchange on which the Futures Contract is traded and may be significantly
modified from time to time by the exchange during the term of the Futures
Contract. Futures Contracts are customarily purchased and sold on margins that
may range upward from less than 5% of the value of the Futures Contract being
traded.
If the price of an open Futures Contract changes (by increase in the
case of a sale or by decrease in the case of a purchase) so that the loss on the
Futures Contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
Futures Contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to a Fund. In computing daily NAV, a Fund will mark
- 12 -
to market the current value of its open Futures Contracts. The Funds expect to
earn interest income on their margin deposits.
Because of the low margin deposits required, Futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Future Contracts were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount initially invested in the Futures Contract. However, a Fund would
presumably have sustained comparable losses if, instead of the Futures Contract,
it had invested in the underlying financial instrument and sold it after the
decline.
Most United States Futures exchanges limit the amount of fluctuation
permitted in Futures Contract prices during a single trading day. The day limit
establishes the maximum amount that the price of a Futures Contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
Futures Contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures Contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of Futures positions
and subjecting some investors to substantial losses.
There can be no assurance that a liquid market will exist at a time
when a Fund seeks to close out a Futures position. A Fund would continue to be
required to meet margin requirements until the position is closed, possibly
resulting in a decline in the Fund's NAV. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
will develop or continue to exist.
A public market exists in Futures Contracts covering a number of
indices, including but not limited to, the S&P 500 Index, the S&P 100 Index, the
NASDAQ-100 Index(R), the Value Line(R) Composite Index and the New York Stock
Exchange Composite Index.
Options on Futures
The Funds may also purchase or write put and call options on Futures
Contracts and enter into closing transactions with respect to such options to
terminate an existing position. A Futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a Futures Contract at a specified exercise price prior to the
expiration of the option. Upon exercise of a call option, the holder acquires a
long position in the Futures Contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true. Prior to
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exercise or expiration, a Futures option may be closed out by an offsetting
purchase or sale of a Futures option of the same series.
The Funds may use options on Futures Contracts in connection with
hedging strategies. Generally, these strategies would be applied under the same
market and market sector conditions in which the Funds use put and call options
on securities or indices. The purchase of put options on Futures Contracts is
analogous to the purchase of puts on securities or indices so as to hedge a
Fund's securities holdings against the risk of declining market prices. The
writing of a call option or the purchasing of a put option on a Futures Contract
constitutes a partial hedge against declining prices of securities which are
deliverable upon exercise of the Futures Contract. If the price at expiration of
a written call option is below the exercise price, a Fund will retain the full
amount of the option premium which provides a partial hedge against any decline
that may have occurred in a Fund's holdings of securities. If the price when the
option is exercised is above the exercise price, however, a Fund will incur a
loss, which may be offset, in whole or in part, by the increase in the value of
the securities held by a Fund that were being hedged. Writing a put option or
purchasing a call option on a Futures Contract serves as a partial hedge against
an increase in the value of the securities a Fund intends to acquire.
As with investments in Futures Contracts, the Funds are required to
deposit and maintain margin with respect to put and call options on Futures
Contracts written by them. Such margin deposits will vary depending on the
nature of the underlying Futures Contract (and the related initial margin
requirements), the current market value of the option, and other Futures
positions held by a Fund. A Fund will earmark or set aside in a segregated
account at such Fund's custodian, liquid assets, such as cash, U.S. Government
securities or other high-grade liquid debt obligations equal in value to the
amount due on the underlying obligation. Such segregated assets will be
marked-to-market daily, and additional assets will be earmarked or placed in the
segregated account whenever the total value of the earmarked or segregated
assets falls below the amount due on the underlying obligation.
The risks associated with the use of options on Futures Contracts
include the risk that the Funds may close out its position as a writer of an
option only if a liquid secondary market exists for such options, which cannot
be assured. A Fund's successful use of options on Futures Contracts depends on
First Trust's ability to correctly predict the movement in prices of Futures
Contracts and the underlying instruments, which may prove to be incorrect. In
addition, there may be imperfect correlation between the instruments being
hedged and the Futures Contract subject to the option. For additional
information, see "Futures Contracts." Certain characteristics of the Futures
market might increase the risk that movements in the prices of Futures Contracts
or options on Futures Contracts might not correlate perfectly with movements in
the prices of the investments being hedged. For example, all participants in the
Futures and options on Futures Contracts markets are subject to daily variation
margin calls and might be compelled to liquidate Futures or options on Futures
Contracts positions whose prices are moving unfavorably to avoid being subject
to further calls. These liquidations could increase the price volatility of the
instruments and distort the normal price relationship between the Futures or
options and the investments being hedged. Also, because of initial margin
deposit requirements, there might be increased participation by speculators in
the Futures markets. This participation also might cause temporary price
distortions. In addition, activities of large traders in both the Futures and
- 14 -
securities markets involving arbitrage, "program trading," and other investment
strategies might result in temporary price distortions.
SUBLICENSE AGREEMENTS
Each Fund has entered into a sublicense agreement (the "Sublicense
Agreement") with First Trust, First Trust Portfolios L.P. ("First Trust
Portfolios") and the Index Provider that grants each Fund and First Trust a
non-exclusive and non-transferable sublicense to use certain intellectual
property of S&P in connection with the issuance, distribution, marketing and/or
promotion of each Fund. Pursuant to each Sublicense Agreement, each Fund and
First Trust have agreed to be bound by certain provisions of the product license
agreement by and between the Index Provider and First Trust Portfolios (the
"Product License Agreement"). Pursuant to the Product License Agreement, First
Trust Portfolios will pay the Index Provider an annual fee of $55,000 for each
Fund for the initial two years of the Product License Agreement and $30,000 for
each Fund for each subsequent year. In addition, First Trust Portfolios shall
pay the Index Provider .05% of the average daily net assets of each Fund. Each
Fund will reimburse First Trust and First Trust will reimburse First Trust
Portfolios for the costs associated with the Product License Agreement.
INVESTMENT RISKS
Overview
An investment in a Fund should be made with an understanding of the
risks which an investment in common stocks entails, including the risk that the
financial condition of the issuers of the equity securities or the general
condition of the common stock market may worsen and the value of the equity
securities and therefore the value of a Fund may decline. The Funds may not be
an appropriate investment for those who are unable or unwilling to assume the
risks involved generally with an equity investment. The past market and earnings
performance of any of the equity securities included in a Fund is not predictive
of their future performance. Common stocks are especially susceptible to general
stock market movements and to volatile increases and decreases of value as
market confidence in and perceptions of the issuers change. These perceptions
are based on unpredictable factors including expectations regarding government,
economic, monetary and fiscal policies, inflation and interest rates, economic
expansion or contraction, and global or regional political, economic or banking
crises. First Trust cannot predict the direction or scope of any of these
factors. Shareholders of common stocks have rights to receive payments from the
issuers of those common stocks that are generally subordinate to those of
creditors of, or holders of debt obligations or preferred stocks of, such
issuers.
Shareholders of common stocks of the type held by the Funds have a
right to receive dividends only when and if, and in the amounts, declared by the
issuer's board of directors and have a right to participate in amounts available
for distribution by the issuer only after all other claims on the issuer have
been paid. Common stocks do not represent an obligation of the issuer and,
therefore, do not offer any assurance of income or provide the same degree of
- 15 -
protection of capital as do debt securities. The issuance of additional debt
securities or preferred stock will create prior claims for payment of principal,
interest and dividends which could adversely affect the ability and inclination
of the issuer to declare or pay dividends on its common stock or the rights of
holders of common stock with respect to assets of the issuer upon liquidation or
bankruptcy. The value of common stocks is subject to market fluctuations for as
long as the common stocks remain outstanding, and thus the value of the equity
securities in the Funds will fluctuate over the life of the Funds and may be
more or less than the price at which they were purchased by the Funds. The
equity securities held in the Funds may appreciate or depreciate in value (or
pay dividends) depending on the full range of economic and market influences
affecting these securities, including the impact of a Fund's purchase and sale
of the equity securities and other factors.
Holders of common stocks incur more risk than holders of preferred
stocks and debt obligations because common stockholders, as owners of the
entity, have generally inferior rights to receive payments from the issuer in
comparison with the rights of creditors of, or holders of debt obligations or
preferred stocks issued by, the issuer. Cumulative preferred stock dividends
must be paid before common stock dividends and any cumulative preferred stock
dividend omitted is added to future dividends payable to the holders of
cumulative preferred stock. Preferred stockholders are also generally entitled
to rights on liquidation which are senior to those of common stockholders.
ADDITIONAL RISKS OF INVESTING IN THE FUNDS
Liquidity
Whether or not the equity securities in the Funds are listed on a
securities exchange, the principal trading market for the equity securities may
be in the over-the-counter market. As a result, the existence of a liquid
trading market for the equity securities may depend on whether dealers will make
a market in the equity securities. There can be no assurance that a market will
be made for any of the equity securities, that any market for the equity
securities will be maintained or that there will be sufficient liquidity of the
equity securities in any markets made. The price at which the equity securities
are held in the Funds will be adversely affected if trading markets for the
equity securities are limited or absent.
Small Capitalization and Mid Capitalization Companies
The equity securities in certain Funds may include small cap and mid
cap company stocks. Small cap and mid cap company stocks have customarily
involved more investment risk than large capitalization stocks. Small cap and
mid cap companies may have limited product lines, markets or financial
resources; may lack management depth or experience; and may be more vulnerable
to adverse general market or economic developments than large cap companies.
Some of these companies may distribute, sell or produce products that have
recently been brought to market and may be dependent on key personnel.
- 16 -
The prices of small cap and mid cap company securities are often more
volatile than prices associated with large cap company issues, and can display
abrupt or erratic movements at times, due to limited trading volumes and less
publicly available information. Also, because small cap and mid cap companies
normally have fewer shares outstanding and these shares trade less frequently
than large cap companies, it may be more difficult for a Fund which contains
these equity securities to buy and sell significant amounts of such shares
without an unfavorable impact on prevailing market prices. The securities of
small cap and mid cap companies are often traded over-the-counter and may not be
traded in the volumes typical of a national securities exchange.
Non-Diversification
Each Fund is classified as "non-diversified" under the 1940 Act. As a
result, each Fund is 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 each Fund may
invest a relatively high percentage of its assets in a limited number of
issuers, each Fund may be more susceptible to any single economic, political or
regulatory occurrence and to the financial conditions of the issuers in which it
invests.
Intellectual Property Risk
Each Fund relies on a license and a related sublicense that permits
such Fund Fund to use its respective Index and associated trade names and
trademarks ("Intellectual Property") 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 the
Intellectual Property. There is also no guarantee that the Index Provider has
all rights to license the Intellectual Property to First Trust Portfolios, on
behalf of First Trust and each Fund. Accordingly, in the event the license is
terminated or Index Provider does not have rights to license the Intellectual
Property, it may have a significant effect on the operation of a Fund.
Non-U.S. Securities Risk
A Fund may invest in the securities of issuers domiciled in
jurisdictions other than the United States and such stocks may be denominated in
currencies other than the U.S. dollar. These securities are in the form of
American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") or
are directly listed on a U.S. securities exchange. Investments in securities of
non-U.S. issuers involve special risks not presented by investments in
securities of U.S. issuers, including: (i) there may be less publicly available
information about non-U.S. issuers or markets due to less rigorous disclosure or
accounting standards or regulatory practices; (ii) many non-U.S. markets are
smaller, less liquid and more volatile than the U.S. market; (iii) potential
adverse effects of fluctuations in currency exchange rates or controls on the
value of the Fund's investments; (iv) the economies of non-U.S. countries may
grow at slower rates than expected or may experience a downturn or recession;
(v) the impact of economic, political, social or diplomatic events; (vi) certain
- 17 -
non-U.S. countries may impose restrictions on the ability of non-U.S. issuers to
make payments of principal and interest to investors located in the U.S. due to
blockage of non-U.S. currency exchanges or otherwise; and (vii) withholding and
other non-U.S. taxes may decrease a Fund's return.
Issuer Specific Changes Risk. 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.
RISKS AND SPECIAL CONSIDERATIONS CONCERNING DERIVATIVES
In addition to the foregoing, the use of derivative instruments
involves certain general risks and considerations as described below.
(1) Market Risk. Market risk is the risk that the value of
the underlying assets may go up or down. Adverse movements in the value
of an underlying asset can expose the Funds to losses. Market risk is
the primary risk associated with derivative transactions. Derivative
instruments may include elements of leverage and, accordingly,
fluctuations in the value of the derivative instrument in relation to
the underlying asset may be magnified. The successful use of derivative
instruments depends upon a variety of factors, particularly the
portfolio manager's ability to predict movements of the securities,
currencies, and commodities markets, which may require different skills
than predicting changes in the prices of individual securities. There
can be no assurance that any particular strategy adopted will succeed.
A decision to engage in a derivative transaction will reflect the
portfolio manager's judgment that the derivative transaction will
provide value to a Fund and its shareholders and is consistent with a
Fund's objective, investment limitations, and operating policies. In
making such a judgment, the portfolio manager will analyze the benefits
and risks of the derivative transactions and weigh them in the context
of a Fund's overall investments and investment objective.
(2) Credit Risk. Credit risk is the risk that a loss may be
sustained as a result of the failure of a counterparty to comply with
the terms of a derivative instrument. The counterparty risk for
exchange-traded derivatives is generally less than for
privately-negotiated or over-the-counter ("OTC") derivatives, since
generally a clearing agency, which is the issuer or counterparty to
each exchange-traded instrument, provides a guarantee of performance.
For privately-negotiated instruments, there is no similar clearing
agency guarantee. In all transactions, the Funds will bear the risk
that the counterparty will default, and this could result in a loss of
the expected benefit of the derivative transactions and possibly other
losses to the Funds. The Funds will enter into transactions in
derivative instruments only with counterparties that First Trust
reasonably believes are capable of performing under the contract.
(3) Correlation Risk. Correlation risk is the risk that there
might be an imperfect correlation, or even no correlation, between
price movements of a derivative instrument and price movements of
investments being hedged. When a derivative transaction is used to
completely hedge another position, changes in the market value of the
combined position (the derivative instrument plus the position being
- 18 -
hedged) result from an imperfect correlation between the price
movements of the two instruments. With a perfect hedge, the value of
the combined position remains unchanged with any change in the price of
the underlying asset. With an imperfect hedge, the value of the
derivative instrument and its hedge are not perfectly correlated. For
example, if the value of a derivative instrument used in a short hedge
(such as writing a call option, buying a put option or selling a
Futures Contract) increased by less than the decline in value of the
hedged investments, the hedge would not be perfectly correlated. This
might occur due to factors unrelated to the value of the investments
being hedged, such as speculative or other pressures on the markets in
which these instruments are traded. The effectiveness of hedges using
instruments on indices will depend, in part, on the degree of
correlation between price movements in the index and the price
movements in the investments being hedged.
(4) Liquidity Risk. Liquidity risk is the risk that a
derivative instrument cannot be sold, closed out, or replaced quickly
at or very close to its fundamental value. Generally, exchange
contracts are very liquid because the exchange clearinghouse is the
counterparty of every contract. OTC transactions are less liquid than
exchange-traded derivatives since they often can only be closed out
with the other party to the transaction. The Funds might be required by
applicable regulatory requirements to maintain assets as "cover,"
maintain segregated accounts, and/or make margin payments when they
take positions in derivative instruments involving obligations to third
parties (i.e., instruments other than purchase options). If a Fund is
unable to close out its positions in such instruments, it might be
required to continue to maintain such assets or accounts or make such
payments until the position expires, matures, or is closed out. These
requirements might impair a Fund's ability to sell a security or make
an investment at a time when it would otherwise be favorable to do so,
or require that a Fund sell a portfolio security at a disadvantageous
time. A Fund's ability to sell or close out a position in an instrument
prior to expiration or maturity depends upon the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the counterparty to enter into a transaction closing out
the position. Due to liquidity risk, there is no assurance that any
derivatives position can be sold or closed out at a time and price that
is favorable to a Fund.
(5) Legal Risk. Legal risk is the risk of loss caused by the
unenforceability of a party's obligations under the derivative. While a
party seeking price certainty agrees to surrender the potential upside
in exchange for downside protection, the party taking the risk is
looking for a positive payoff. Despite this voluntary assumption of
risk, a counterparty that has lost money in a derivative transaction
may try to avoid payment by exploiting various legal uncertainties
about certain derivative products.
(6) Systemic or "Interconnection" Risk. Systemic or
interconnection risk is the risk that a disruption in the financial
markets will cause difficulties for all market participants. In other
words, a disruption in one market will spill over into other markets,
perhaps creating a chain reaction. Much of the OTC derivatives market
takes place among the OTC dealers themselves, thus creating a large
interconnected web of financial obligations. This interconnectedness
- 19 -
raises the possibility that a default by one large dealer could create
losses for other dealers and destabilize the entire market for OTC
derivative instruments.
FUNDS MANAGEMENT
The general supervision of the duties performed for the Funds under the
investment management agreement is the responsibility of the Board of Trustees.
There are five Trustees of the Trust, one of whom is an "interested person" (as
the term is defined in the 1940 Act) and four of whom are Trustees who are not
officers or employees of First Trust or any of its affiliates ("Independent
Trustees"). The Trustees set broad policies for the Funds, choose the Trust's
officers and hire the Trust's investment adviser. The officers of the Trust
manage its day to day operations and are responsible to the Trust's Board of
Trustees. The following is a list of the Trustees and officers of the Trust and
a statement of their present positions and principal occupations during the past
five years, the number of portfolios each Trustee oversees and the other
directorships they hold, if applicable.
NUMBER OF
PORTFOLIOS IN
THE FIRST OTHER
TERM OF OFFICE TRUST FUND TRUSTEESHIPS
AND YEAR FIRST COMPLEX OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
Trustee who is an
Interested Person of
the Trust
---------------------
James A. Bowen(1) President, o Indefinite President, First 57 Trustee of
1001 Warrenville Road Chairman of the term Trust Advisors L.P. Portfolios Wheaton
Suite 300 Board, Chief and First Trust College
Lisle, IL 60532 Executive Officer o 2006 Portfolios L.P.;
DOB: 9/55 and Trustee Chairman of the
Board, BondWave LLC
(Software Development
Company/Broker-Dealer)
and Stonebridge
Advisors LLC
(Investment Adviser)
Trustees who are not
Interested Persons of the
Trust
-------------------------
Richard E. Erickson Trustee o Indefinite Physician; President, 57 None
c/o First Trust Advisors term Wheaton Orthopedics; Portfolios
L.P. Co-Owner and
1001 Warrenville Road o 2006 Co-Director (January
Suite 300 1996 to May 2007),
Lisle, IL 60532 Sports Med Center for
DOB: 4/51 Fitness; Limited
Partner, Gundersen
Real Estate
Partnership; Limited
Partner, Sportsmed LLC
- 20 -
|
NUMBER OF
PORTFOLIOS IN
THE FIRST OTHER
TERM OF OFFICE TRUST FUND TRUSTEESHIPS
AND YEAR FIRST COMPLEX OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
Thomas R. Kadlec Trustee o Indefinite Senior Vice President 57 None
c/o First Trust Advisors term (May 2007 to Portfolios
L.P. Present), Vice
1001 Warrenville Road o 2006 President and Chief
Suite 300 Financial Officer
Lisle, IL 60532 (1990 to May 2007),
DOB: 11/57 ADM Investor
Services, Inc.
(Futures Commission
Merchant); Vice
President (May 2005
to Present), ADM
Derivatives, Inc.;
Registered Representative
(2000 to present),
Segerdahl & Company,
Inc., an NASD member
(Broker-Dealer)
Robert F. Keith Trustee o Indefinite President (2003 to 57 None
c/o First Trust Advisors term Present), Hibs Portfolios
L.P. Enterprises
1001 Warrenville Road o 2006 (Financial and
Suite 300 Management
Lisle, IL 60532 Consulting);
DOB: 11/58 President (2001 to
2003), Aramark
Service Master
Management; President
and Chief Operating
Officer (1998 to
2003), Service Master
Management Services
Niel B. Nielson Trustee o Indefinite President (June 2002 57 Director of
c/o First Trust Advisors term to Present), Covenant Portfolios Covenant
L.P. College Transport Inc.
1001 Warrenville Road o 2006
Suite 300
Lisle, IL 60532
DOB: 3/54
Officers of the Trust
---------------------
Mark R. Bradley Treasurer, o Indefinite Chief Financial N/A N/A
1001 Warrenville Road, Controller, Chief term Officer, First Trust
Suite 300 Financial Officer Advisors L.P. and
Lisle, IL 60532 and Chief o 2006 First Trust
D.O.B.: 11/57 Accounting Officer Portfolios L.P.;
Chief Fsinancial
Officer, BondWave LLC
(Software Development
Company/Broker-Dealer)
and Stonebridge
Advisors LLC
(Investment Adviser)
Kelley Christensen Vice President o Indefinite Assistant Vice N/A N/A
1001 Warrenville Road, term President, First
Suite 300 Trust Portfolios L.P.
Lisle, IL 60532 o 2006 and First Trust
D.O.B.: 09/70 Advisors L.P.
Senior Vice President
- 21 -
|
NUMBER OF
PORTFOLIOS IN
THE FIRST OTHER
TERM OF OFFICE TRUST FUND TRUSTEESHIPS
AND YEAR FIRST COMPLEX OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
James M. Dykas Assistant o Indefinite (April 2007 to N/A N/A
1001 Warrenville Road, Treasurer term Present), Vice
Suite 300 President (January
Lisle, IL 60532 o 2006 2005 to April 2007),
D.O.B.: 01/66 First Trust Advisors
L.P. and First Trust
Portfolios L.P.;
Executive Director
(December 2002
to January 2005), Vice
President (December 2000
to December 2002), Van
Kampen Asset
Management and
Morgan Stanley
Investment Management
W. Scott Jardine Secretary and o Indefinite General Counsel, First N/A N/A
1001 Warrenville Road, Chief Compliance term Trust Advisors L.P. and
Suite 300 Officer First Trust Portfolios L.P.;
Lisle, IL 60532 o 2006 Secretary, BondWave
D.O.B.: 05/60 LLC (Software Development
Company/Broker-Dealer)
and Stonebridge
Advisors LLC
(Investment Adviser)
Daniel J. Lindquist Vice President o Indefinite Senior Vice President
1001 Warrenville Road, term (September 2005 to N/A N/A
Suite 300 Present), Vice
Lisle, IL 60532 o 2006 President (April 2004
D.O.B.: 02/70 to September 2005),
First Trust Advisors
L.P. and First Trust
Portfolios L.P.; Chief
Operating Officer
(January 2004 to April
2004), Mina Capital
Management, LLC; Chief
Operating Officer (April
2000 to January 2004),
Samaritan Asset Management
Services, Inc.
Kristi A. Maher Assistant o Indefinite Deputy General
1001 Warrenville Road, Secretary term Counsel (May 2007 to N/A N/A
Suite 300 Present), Assistant
Lisle, IL 60532 o 2006 General Counsel
D.O.B.: 12/66 (March 2004 to May
2007), First Trust
Advisors L.P. and
First Trust Portfolios
Associate (1995-2004),
Chapman and Cutler LLP
Roger Testin Vice President o Indefinite Senior Vice President
1001 Warrenville Road, term (November 2003 to N/A N/A
Suite 300 Present), Vice
Lisle, IL 60532 o 2006 President (August
D.O.B.: 06/66 2001 to November
2003), First Trust
Portfolios L.P. and
First Trust Advisors
L.P.; Analyst (1998
to 2001), Dolan
Capital Management
- 22 -
|
NUMBER OF
PORTFOLIOS IN
THE FIRST OTHER
TERM OF OFFICE TRUST FUND TRUSTEESHIPS
AND YEAR FIRST COMPLEX OR
NAME, ADDRESS POSITION AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH OFFICES WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
Stan Ueland Vice President o Indefinite Vice President N/A N/A
1001 Warrenville Road, term (August 2005 to
Suite 300 Present), First
Lisle, IL 60532 o 2006 Trust Advisors L.P.
D.O.B.: 11/70 and First Trust
Portfolios L.P.; Vice
President (May 2004
to August 2005),
BondWave LLC
(Software Development
Company/Broker-Dealer);
Account Executive
(January 2003 to May
2004), Mina Capital
Management, LLC and
Samaritan Asset
Management Services,
Inc.; Sales
Consultant (January
1997 to January
2003), Oracle Corporation
--------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his position
of President of First Trust, investment adviser of the Funds.
|
The Board of Trustees has four standing committees: the Executive
Committee (Pricing and Dividend Committee), the Nominating and Governance
Committee, the Valuation Committee and the Audit Committee. The Executive
Committee, which meets between Board meetings, is authorized to exercise all
powers of and to act in the place of the Board of Trustees to the extent
permitted by the Trust's Declaration of Trust and By-laws. The members of the
Executive Committee shall also serve as a special committee of the Board known
as the Pricing and Dividend Committee, which is authorized to exercise all of
the powers and authority of the Board in respect of the declaration and setting
of dividends. Messrs. Kadlec and Bowen are members of the Executive Committee.
During the last fiscal year, the Executive Committee held one meeting.
The Nominating and Governance Committee is responsible for appointing
and nominating non-interested persons to the Board. Messrs. Erickson, Kadlec,
Keith and Nielson, are members of the Nominating and Governance Committee. If
there is no vacancy on the Board of Trustees, the Board will not actively seek
recommendations from other parties, including Shareholders. When a vacancy on
the Board occurs and nominations are sought to fill such vacancy, the Nominating
and Governance Committee may seek nominations from those sources it deems
appropriate in its discretion, including Shareholders of the Funds. To submit a
recommendation for nomination as a candidate for a position on the Board,
Shareholders of the Funds shall mail such recommendation to W. Scott Jardine at
the Funds' address, 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532.
Such recommendation shall include the following information: (a) evidence of
Fund ownership of the person or entity recommending the candidate (if a Fund
Shareholder); (b) a full description of the proposed candidate's background,
including his or her education, experience, current employment and date of
birth; (c) names and addresses of at least three professional references for the
candidate; (d) information as to whether the candidate is an "interested person"
in relation to the Funds, as such term is defined in the 1940 Act, and such
- 23 -
other information that may be considered to impair the candidate's independence;
and (e) any other information that may be helpful to the Nominating and
Governance Committee in evaluating the candidate. If a recommendation is
received with satisfactorily completed information regarding a candidate during
a time when a vacancy exists on the Board or during such other time as the
Nominating and Governance Committee is accepting recommendations, the
recommendation will be forwarded to the chairman of the Nominating and
Governance Committee and the outside counsel to the Independent Trustees.
Recommendations received at any other time will be kept on file until such time
as the Nominating and Governance Committee is accepting recommendations, at
which point they may be considered for nomination. During the last fiscal year,
the Nominating and Governance Committee held two meetings.
The Valuation Committee is responsible for the oversight of the pricing
procedures of the Funds. Messrs. Erickson, Kadlec, Keith, and Nielson are
members of the Valuation Committee. During the last fiscal year, the Valuation
Committee held two meetings.
The Audit Committee is responsible for overseeing the Funds' accounting
and financial reporting process, the system of internal controls, audit process
and evaluating and appointing independent auditors (subject also to Board
approval). Messrs. Erickson, Kadlec, Keith and Nielson serve on the Audit
Committee. During the last fiscal year, the Audit Committee held two meetings.
Messrs. Erickson, Nielson, Kadlec, Keith and Bowen are trustees of the
First Defined Portfolio Fund, LLC, an open-end fund advised by First Trust with
eight portfolios, as well as First Trust/Four Corners Senior Floating Rate
Income Fund, First Trust/Four Corners Senior Floating Rate Income Fund II,
Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund,
Energy Income and Growth Fund, First Trust Enhanced Equity Income Fund, First
Trust/Aberdeen Global Opportunity Income Fund, First Trust/FIDAC Mortgage Income
Fund, First Trust Strategic High Income Fund, First Trust Strategic High Income
Fund II, First Trust Strategic High Income Fund III, First Trust Tax-Advantaged
Preferred Income Fund, First Trust/Aberdeen Emerging Opportunity Fund, First
Trust/Gallatin Specialty Finance and Financial Opportunities Fund and First
Trust Active Dividend Income Fund, closed-end funds advised by First Trust, and
First Trust Exchange-Traded Fund and First Trust Exchange-Traded Fund II,
exchange-traded funds advised by First Trust with various series. None of the
Trustees who are not "interested persons" of the Trust, nor any of their
immediate family members, has ever been a director, officer or employee of, or
consultant to, First Trust, First Trust Portfolios or their affiliates. In
addition, Mr. Bowen and the other officers of the Trust (other than Stan Ueland
and Roger Testin) hold the same positions with the First Defined Portfolio Fund,
LLC, First Trust/Four Corners Senior Floating Rate Income Fund, First Trust/Four
Corners Senior Floating Rate Income Fund II, Macquarie/First Trust Global
Infrastructure/Utilities Dividend & Income Fund, Energy Income and Growth Fund,
First Trust Enhanced Equity Income Fund, First Trust/Aberdeen Global Opportunity
Income Fund, First Trust/FIDAC Mortgage Income Fund, First Trust Strategic High
Income Fund, First Trust Strategic High Income Fund II, First Trust Strategic
High Income Fund III, First Trust Tax-Advantaged Preferred Income Fund, First
Trust/Aberdeen Emerging Opportunity Fund, First Trust/Gallatin Specialty Finance
and Financial Opportunities Fund, First Trust Active Dividend Income Fund, First
- 24 -
Trust Exchange-Traded Fund and First Trust Exchange-Traded Fund II (collectively
with the Trust, the "First Trust Fund Complex") as they hold with the Trust. Mr.
Ueland, Vice President of the Trust, serves in the same position for the
exchange-traded fund trusts advised by First Trust. Mr. Testin, Vice President
of the Trust, serves in the same position for the exchange-traded fund trusts
advised by First Trust and First Defined Portfolio Fund, LLC.
The Independent Trustees are paid an annual retainer of $10,000 for
each investment company in the First Trust Fund Complex up to a total of 14
investment companies (the "Trustee Compensation I") and an annual retainer of
$7,500 for each subsequent investment company added to the First Trust Fund
Complex (the "Trustee Compensation II," and together with Trustee Compensation
I, the "Aggregate Trustee Compensation"). The Aggregate Trustee Compensation is
divided equally among each of the investment companies in the First Trust Fund
Complex. No additional meeting fees are paid in connection with board or
committee meetings. Trustees are also reimbursed for travel and out-of-pocket
expenses in connection with all meetings.
Additionally, Mr. Kadlec is paid annual compensation of $10,000 to
serve as the Lead Trustee and Mr. Nielson is paid annual compensation of $5,000
to serve as the chairman of the Audit Committee of each of the investment
companies in the First Trust Fund Complex. Such additional compensation to
Messrs. Kadlec and Nielson is paid by the investment companies in the First
Trust Fund Complex and divided among those investment companies.
The following table sets forth the estimated compensation to be paid by
the Trust projected during a full fiscal year to each of the Trustees and the
total compensation paid to each of the Trustees by the First Trust Fund Complex
for the calendar year ended December 31, 2006. The Trust has no retirement or
pension plans. The officers and Trustee who are "interested persons" as
designated above serve without any compensation from the Trust.
- 25 -
TOTAL COMPENSATION FROM TOTAL COMPENSATION FROM
NAME OF TRUSTEE THE TRUST(1) THE FIRST TRUST FUND COMPLEX(2)
James A. Bowen $0 $0
Richard E. Erickson $9,444 $148,538
Thomas R. Kadlec $10,000 $153,538
Robert F. Keith(3) $9,444 $105,000
Niel B. Nielson $9,722 $148,538
--------------------
(1) The compensation estimated to be paid by the Trust to the Trustees for a
full fiscal year for services to the Trust.
(2) The total compensation paid to Messrs. Erickson, Kadlec, Keith and Nielson,
Independent Trustees, from the Funds of the Trust and the other investment
companies in the First Trust Fund Complex for the calendar year ended
December 31, 2006 is based on compensation paid to these Trustees for
services as Trustees to the First Defined Portfolio Fund, LLC, an open-end
fund (with eight portfolios) advised by First Trust, plus compensation paid
to these Trustees by the First Trust Value Line(R) 100 Fund, the First
Trust/Four Corners Senior Floating Rate Income Fund, the First Trust/Four
Corners Senior Floating Rate Income Fund II, the Macquarie/First Trust
Global Infrastructure/Utilities Dividend & Income Fund, the Energy Income
and Growth Fund, the First Trust/Fiduciary Asset Management Covered Call
Fund, the First Trust/Aberdeen Global Opportunity Income Fund, the First
Trust/FIDAC Mortgage Income Fund, the First Trust Strategic High Income
Fund, the First Trust Strategic High Income Fund II, the First Trust
Strategic High Income Fund III, the First Trust Tax-Advantaged Preferred
Income Fund, the First Trust/Aberdeen Emerging Opportunity Fund and the
First Trust Exchange-Traded Fund.
(3) Mr. Keith joined the Board of Trustees of certain funds in the First Trust
Fund Complex on June 12, 2006 and First Defined Portfolio Fund on April 30,
(2007.)
|
The Trust has no employees. Its officers are compensated by First
Trust.
The following table sets forth the dollar range of equity securities
beneficially owned by the Trustees in the Funds and in other funds overseen by
the Trustees in the First Trust Fund Complex as of December 31, 2006:
AGGREGATE DOLLAR RANGE OF
DOLLAR RANGE OF EQUITY SECURITIES IN
EQUITY SECURITIES ALL REGISTERED INVESTMENT COMPANIES
IN THE FUNDS OVERSEEN BY TRUSTEE IN THE FIRST TRUST
TRUSTEE (NUMBER OF SHARES HELD) FUND COMPLEX
Mr. Bowen None Over $100,000
Dr. Erickson None $50,001-$100,000
Mr. Kadlec None Over $100,000
Mr. Keith None Over $100,000
Mr. Nielson None $50,001-$100,000
|
As of the date of this Statement of Additional Information, the
Trustees who are not "interested persons" of the Trust and immediate family
members do not own beneficially or of record any class of securities of an
investment adviser or principal underwriter of the Funds or any person directly
or indirectly controlling, controlled by, or under common control with an
investment adviser or principal underwriter of the Funds.
As of the date of this Statement of Additional Information, the
officers and Trustees, in the aggregate, owned less than 1% of the Shares of
each Fund.
As of the date of this Statement of Additional Information, no person
owned of record, or is known by the Trust to own of record, beneficially 5% or
more of the Shares of each Fund.
- 26 -
The Board of Trustees of the Trust, including the Independent Trustees,
approved the Investment Management Agreement (the "Investment Management
Agreement") for each Fund for an initial two-year term at a meeting held on
December 11, 2006. The Board of Trustees determined that the Investment
Management Agreement is in the best interests of each 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.
Investment Adviser. First Trust provides investment tools and
portfolios for advisers and investors. First Trust is committed to theoretically
sound portfolio construction and empirically verifiable investment management
approaches. Its asset management philosophy and investment discipline is deeply
rooted in the application of intuitive factor analysis and model implementation
to enhance investment decisions.
First Trust acts as investment adviser for and manages the investment
and reinvestment of the assets of the Funds. First Trust also administers the
Trust's business affairs, provides office facilities and equipment and certain
clerical, bookkeeping and administrative services, and permits any of its
officers or employees to serve without compensation as Trustees or officers of
the Trust if elected to such positions.
Pursuant to the Investment Management Agreement between First Trust and
the Trust, each Fund has agreed to pay an annual management fee equal to 0.50%
of its average daily net assets.
Each Fund is responsible for all its expenses, including the investment
advisory fees, costs of transfer agency, custody, fund administration, legal,
audit and other services, interest, taxes, sublicensing fees, brokerage
commissions and other expenses connected with executions of portfolio
transactions, any distribution fees or expenses and extraordinary expenses.
First Trust has agreed to waive fees and/or pay Fund expenses to the extent
necessary to prevent the operating expenses of each Fund (excluding interest
expense, brokerage commissions and other trading expenses, taxes and
extraordinary expenses) from exceeding 0.70% of average daily net assets until
May 10, 2009. Expenses borne by First Trust 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 the Funds at any time if it would result
in a Fund's expenses exceeding 0.70% of average daily net assets.
Under the Investment Management Agreement, First Trust shall not be
liable for any loss sustained by reason of the purchase, sale or retention of
any security, whether or not such purchase, sale or retention shall have been
based upon the investigation and research made by any other individual, firm or
corporation, if such recommendation shall have been selected with due care and
in good faith, except loss resulting from willful misfeasance, bad faith, or
gross negligence on the part of First Trust in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties. The Investment Management Agreement continues until two
years after the initial issuance of Fund Shares and thereafter only if approved
annually by the Board of Trustees, including a majority of the Independent
Trustees. The Investment Management Agreement terminates automatically upon
assignment and is terminable at any time without penalty as to the Funds by the
Board of Trustees, including a majority of the Independent Trustees, or by vote
- 27 -
of the holders of a majority of a Fund's outstanding voting securities on 60
days' written notice to First Trust, or by First Trust on 60 days' written
notice to the Funds.
First Trust is located at 1001 Warrenville Road, Lisle, Illinois 60532.
The following table sets forth the management fees (net of fee waivers
and expense reimbursements) paid by each Fund and the fees waived and expenses
reimbursed by First Trust for the specified period.
AMOUNT OF MANAGEMENT FEES (NET OF
FEE WAIVERS AND EXPENSE AMOUNT OF FEES WAIVED AND EXPENSES
REIMBURSEMENTS BY FIRST TRUST) REIMBURSED BY FIRST TRUST
(FOR THE PERIOD (FOR THE PERIOD
FUND ENDED 7/31/07) ENDED 7/31/07)
FIRST TRUST LARGE CAP $0 $49,175
CORE ALPHADEX(TM) FUND
FIRST TRUST MID CAP CORE $0 $49,625
ALPHADEX(TM) FUND
FIRST TRUST SMALL CAP $0 $49,675
CORE ALPHADEX(TM) FUND
FIRST TRUST LARGE CAP $0 $49,517
VALUE OPPORTUNITIES
ALPHADEX(TM) FUND
FIRST TRUST LARGE CAP $0 $49,614
GROWTH OPPORTUNITIES
ALPHADEX(TM) FUND
FIRST TRUST MULTI CAP $0 $49,334
VALUE ALPHADEX(TM) FUND
FIRST TRUST MULTI CAP $0 $50,158
GROWTH ALPHADEX(TM) FUND
|
Investment Committee. The Investment Committee of First Trust is
primarily responsible for the day-to-day management of the Funds. There are
currently six members of the Investment Committee, as follows:
- 28 -
POSITION WITH LENGTH OF SERVICE PRINCIPAL OCCUPATION
NAME FIRST TRUST WITH FIRST TRUST DURING PAST FIVE YEARS
Daniel J. Lindquist Senior Vice President Since 2004 Senior Vice President, First
Trust and First Trust
Portfolios L.P.
(September 2005 to Present);
Vice President, First Trust
and First Trust Portfolios
L.P. (April 2004 to September
2005) Chief Operating Officer,
Mina Capital Management, LLC
(January 2004 to April 2004);
Chief Operating Officer,
Samaritan Asset Management
Services, Inc. (April 2000 to
January 2004)
Robert F. Carey Chief Investment Officer Since 1991 Chief Investment Officer and
and Senior Vice President Senior Vice President, First
Trust; Senior Vice President,
First Trust Portfolios L.P.
Jon C. Erickson Senior Vice President Since 1994 Senior Vice President, First
Trust and First Trust
Portfolios L.P. (August 2002
to Present); Vice President,
First Trust and First Trust
Portfolios L.P. (March 1994 to
August 2002)
David G. McGarel Senior Vice President Since 1997 Senior Vice President, First
Trust and First Trust
Portfolios L.P. (August 2002
to present); Vice President,
First Trust and First Trust
Portfolios L.P. (August 1997
to August 2002)
Roger F. Testin Senior Vice President Since 2001 Senior Vice President, First
Trust and First Trust
Portfolios L.P. (November 2003
to Present); Vice President,
First Trust and First Trust
Portfolios L.P. (August 2001
to November 2003); Analyst,
Dolan Capital Management (1998
to 2001)
- 29 -
|
POSITION WITH LENGTH OF SERVICE PRINCIPAL OCCUPATION
NAME FIRST TRUST WITH FIRST TRUST DURING PAST FIVE YEARS
Stan Ueland Vice President Since 2005 Vice President, First Trust
and First Trust Portfolios
L.P. (August 2005 to Present);
Vice President, BondWave LLC
(May 2004 to August 2005);
Account Executive, Mina
Capital Management, LLC and
Samaritan Asset Management
Services, Inc. (January 2003
to May 2004); Sales
Consultant, Oracle Corporation
(January 1997 to January 2003)
|
Daniel J. Lindquist: Mr. Lindquist is Chairman of the Investment
Committee and presides over Investment Committee meetings. Mr. Lindquist is also
responsible for overseeing the implementation of the Funds' investment
strategies.
David G. McGarel: As the head of First Trust's Strategy Research Group,
Mr. McGarel is responsible for developing and implementing quantitative
investment strategies for those funds that have investment policies that require
them to follow such strategies.
Jon C. Erickson: As the head of First Trust's Equity Research Group,
Mr. Erickson is responsible for determining the securities to be purchased and
sold by funds that do not utilize quantitative investment strategies.
Roger F. Testin: As head of First Trust's Portfolio Management Group,
Mr. Testin is responsible for executing the instructions of the Strategy
Research Group and Equity Research Group in the Funds' portfolios.
Robert F. Carey: As First Trust's Chief Investment Officer, Mr. Carey
consults with the Investment Committee on market conditions and First Trust's
general investment philosophy.
Stan Ueland: Mr. Ueland plays an important role in executing the
investment strategies of each portfolio of exchange-traded funds advised by
First Trust.
No member of the Investment Committee beneficially owns any Shares of a
Fund.
Compensation. The compensation structure for each member of the
Investment Committee is based upon a fixed salary as well as a discretionary
bonus determined by the management of First Trust. Salaries are determined by
management and are based upon an individual's position and overall value to the
firm. Bonuses are also determined by management and are based upon an
individual's overall contribution to the success of the firm and the
profitability of the firm. Salaries and bonuses for members of the Investment
Committee are not based upon criteria such as performance of the Funds or the
value of assets included in the Funds' portfolios. In addition, Mr. Carey, Mr.
- 30 -
Erickson, Mr. Lindquist and Mr. McGarel also have an indirect ownership stake in
the firm and will therefore receive their allocable share of ownership-related
distributions.
The Investment Committee manages the investment vehicles with the
number of accounts and assets, as of December 31, 2006, set forth in the table
below:
ACCOUNTS MANAGED BY INVESTMENT COMMITTEE
REGISTERED INVESTMENT OTHER POOLED
COMPANIES INVESTMENT VEHICLES
NUMBER OF ACCOUNTS NUMBER OF ACCOUNTS OTHER ACCOUNTS NUMBER OF
INVESTMENT COMMITTEE MEMBER ($ ASSETS) ($ ASSETS) ACCOUNTS ($ ASSETS)
Robert F. Carey 37 ($2,680,560,650) 2 ($73,595,630) 0($0)
Roger F. Testin 37 ($2,680,560,650) 2 ($73,595,630) 3,547($816,900,185)
Jon C. Erickson 37 ($2,680,560,650) 2 ($73,595,630) 3,547($816,900,185)
David G. McGarel 37 ($2,680,560,650) 2 ($73,595,630) 3,547($816,900,185)
Daniel J. Lindquist 37 ($2,680,560,650) 2 ($73,595,630) 0($0)
Stan Ueland 10 ($709,673,350) 0 ($0) 0($0)
--------------------
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None of the accounts managed by the Investment Committee pay an
advisory fee that is based upon the performance of the account. In addition,
First Trust believes that there are no material conflicts of interest that may
arise in connection with the Investment Committee's management of the Funds'
investments and the investments of the other accounts managed by the Investment
Committee. However, because the investment strategy of the Funds and the
investment strategies of many of the other accounts managed by the Investment
Committee are based on fairly mechanical investment processes, the Investment
Committee may recommend that certain clients sell and other clients buy a given
security at the same time. In addition, because the investment strategies of the
Funds and other accounts managed by the Investment Committee generally result in
the clients investing in readily available securities, First Trust believes that
there should not be material conflicts in the allocation of investment
opportunities between the Funds and other accounts managed by the Investment
Committee.
- 31 -
BROKERAGE ALLOCATIONS
First Trust is responsible for decisions to buy and sell securities for
the Funds and for the placement of the Funds' securities business, the
negotiation of the commissions to be paid on brokered transactions, the prices
for principal trades in securities, and the allocation of portfolio brokerage
and principal business. It is the policy of First Trust to seek the best
execution at the best security price available with respect to each transaction,
and with respect to brokered transactions in light of the overall quality of
brokerage and research services provided to First Trust and its clients. The
best price to a Fund means the best net price without regard to the mix between
purchase or sale price and commission, if any. Purchases may be made from
underwriters, dealers, and, on occasion, the issuers. Commissions will be paid
on a Fund's Futures and options transactions, if any. The purchase price of
portfolio securities purchased from an underwriter or dealer may include
underwriting commissions and dealer spreads. The Funds may pay mark-ups on
principal transactions. In selecting broker/dealers and in negotiating
commissions, First Trust considers, among other things, the firm's reliability,
the quality of its execution services on a continuing basis and its financial
condition. Fund portfolio transactions may be effected with broker/dealers who
have assisted investors in the purchase of Shares.
Section 28(e) of the Securities Exchange Act of 1934 permits an
investment adviser, under certain circumstances, to cause an account to pay a
broker or dealer who supplies brokerage and research services a commission for
effecting a transaction in excess of the amount of commission another broker or
dealer would have charged for effecting the transaction. Brokerage and research
services include (a) furnishing advice as to the value of securities, the
advisability of investing, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (b)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
In light of the above, in selecting brokers, First Trust may consider
investment and market information and other research, such as economic,
securities and performance measurement research, provided by such brokers, and
the quality and reliability of brokerage services, including execution
capability, performance, and financial responsibility. Accordingly, the
commissions charged by any such broker may be greater than the amount another
firm might charge if First Trust determines in good faith that the amount of
such commissions is reasonable in relation to the value of the research
information and brokerage services provided by such broker to First Trust or the
Trust. First Trust believes that the research information received in this
manner provides the Funds with benefits by supplementing the research otherwise
available to the Funds. The Investment Management Agreement provides that such
higher commissions will not be paid by the Funds unless the adviser determines
in good faith that the amount is reasonable in relation to the services
provided. The investment advisory fees paid by the Funds to First Trust under
the Investment Management Agreement are not reduced as a result of receipt by
First Trust of research services. First Trust has advised the Board of Trustees
that it does not use soft dollars.
- 32 -
First Trust places portfolio transactions for other advisory accounts
advised by it, and research services furnished by firms through which the Funds
effect their securities transactions may be used by First Trust in servicing all
of its accounts; not all of such services may be used by First Trust in
connection with the Funds. First Trust believes it is not possible to measure
separately the benefits from research services to each of the accounts
(including the Funds) advised by it. Because the volume and nature of the
trading activities of the accounts are not uniform, the amount of commissions in
excess of those charged by another broker paid by each account for brokerage and
research services will vary. However, First Trust believes such costs to the
Funds will not be disproportionate to the benefits received by the Funds on a
continuing basis. First Trust seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by the
Funds and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to the Funds.
In making such allocations between the Funds and other advisory accounts, the
main factors considered by First Trust are the respective investment objectives,
the relative size of portfolio holding of the same or comparable securities, the
availability of cash for investment and the size of investment commitments
generally held.
BROKERAGE COMMISSIONS
The following table sets forth the aggregate amount of brokerage
commissions paid by each Fund for the specified period:
AGGREGATE AMOUNT OF
BROKERAGE COMMISSIONS
FUND (FOR THE PERIOD ENDED JULY 31, 2007)
FIRST TRUST LARGE CAP CORE ALPHADEX(TM) FUND $127
FIRST TRUST MID CAP CORE ALPHADEX(TM) FUND $348
FIRST TRUST SMALL CAP CORE ALPHADEX(TM) FUND $247
FIRST TRUST LARGE CAP VALUE OPPORTUNITIES $64
ALPHADEX(TM) FUND
FIRST TRUST LARGE CAP GROWTH OPPORTUNITIES $13
ALPHADEX(TM) FUND
FIRST TRUST MULTI CAP VALUE ALPHADEX(TM) FUND $129
FIRST TRUST MULTI CAP GROWTH ALPHADEX(TM) FUND $293
|
- 33 -
Administrator. The Bank of New York ("BONY") serves as Administrator
for the Funds. Its principal address is 101 Barclay St., New York, NY 10286.
The Trust, on behalf of the Funds, has entered into an agreement with
PFPC Inc. ("PFPC"), 301 Bellevue Parkway, Wilmington, Delaware 19809, whereby
PFPC will provide certain board administrative services to the Trust in
connection with the Board's meetings and other related matters.
BONY serves as Administrator for the Trust pursuant to a Fund
Administration and Accounting Agreement. Under such agreement, BONY is obligated
on a continuous basis, to provide such administrative services as the Board
reasonably deems necessary for the proper administration of the Trust and the
Funds. BONY will generally assist in all aspects of the Trust's and the Funds'
operations; supply and maintain office facilities (which may be in BONY's own
offices), statistical and research data, data processing services, clerical,
accounting, bookkeeping and record keeping services (including, without
limitation, the maintenance of such books and records as are required under the
1940 Act and the rules thereunder, except as maintained by other agency agents),
internal auditing, executive and administrative services, and stationery and
office supplies; prepare reports to shareholders or investors; prepare and file
tax returns; supply financial information and supporting data for reports to and
filings with the SEC and various state Blue Sky authorities; supply supporting
documentation for meetings of the Board of Trustees; provide monitoring reports
and assistance regarding compliance with the Declaration of Trust, by-laws,
investment objectives and policies and with federal and state securities laws;
and negotiate arrangements with, and supervise and coordinate the activities of,
agents and others to supply services.
Pursuant to the Fund Administration and Accounting Agreement, the Trust
has agreed to indemnify the Administrator for certain liabilities, including
certain liabilities arising under the federal securities laws, unless such loss
or liability results from negligence or willful misconduct in the performance of
its duties.
Pursuant to the Fund Administration and Accounting Agreement between
BONY and the Trust, the Funds have agreed to pay such compensation as is
mutually agreed from time to time and such out-of-pocket expenses as incurred by
BONY in the performance of its duties. This fee is subject to reduction for
assets over $1 billion. The following table sets forth the aggregate amount paid
to BONY under the Fund Administration and Accounting Agreement.
PERIOD AGGREGATE AMOUNT PAID TO ADMINISTRATOR
Ended July 31, 2007 $2,873
- 34 -
CUSTODIAN, DISTRIBUTOR, TRANSFER AGENT, FUND ACCOUNTING AGENT,
INDEX PROVIDER AND EXCHANGE
Custodian. BONY, as custodian for the Funds pursuant to a Custody
Agreement, holds each Fund's assets. BONY also serves as transfer agent of the
Funds pursuant to a Transfer Agency and Service Agreement. As the Funds'
accounting agent, BONY calculates the NAV of Shares and calculates net income
and realized capital gains or losses. BONY may be reimbursed by the Funds for
its out-of-pocket expenses.
Distributor. First Trust Portfolios is the Distributor and principal
underwriter of the Shares of the Funds. Its principal address is 1001
Warrenville Road, Lisle, Illinois 60532. The Distributor has entered into a
Distribution Agreement with the Trust pursuant to which it distributes Fund
Shares. Shares are continuously offered for sale by the Funds through the
Distributor only in Creation Unit Aggregations, as described in the Prospectus
and below under the heading "Creation and Redemption of Creation Units."
For the fiscal year ended July 31, 2007, there were no underwriting
commissions with respect to the sale of Fund Shares and First Trust Portfolios
L.P. did not receive compensation on redemptions for the Funds for that period.
12b-1 Plan. The Trust has adopted a Plan of Distribution pursuant to
Rule 12b-1 under the 1940 Act (the "Plan") pursuant to which the Funds may
reimburse the Distributor up to a maximum annual rate of 0.25% its average daily
net assets.
Under the Plan and as required by Rule 12b-1, the Trustees will receive
and review after the end of each calendar quarter a written report provided by
the Distributor of the amounts expended under the Plan and the purpose for which
such expenditures were made.
The Plan was adopted in order to permit the implementation of the
Funds' method of distribution. However, no such fee is currently paid by a Fund
and pursuant to a contractual agreement, the Funds will not pay 12b-1 fees any
time before April 30, 2009.
No fees were charged under the Plan in 2007.
Aggregations. Fund Shares in less than Creation Unit Aggregations are
not distributed by the Distributor. The Distributor will deliver the Prospectus
and, upon request, this SAI to persons purchasing Creation Unit Aggregations and
will maintain records of both orders placed with it and confirmations of
acceptance furnished by it. The Distributor is a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a member of the
Financial Industry Regulatory Authority ("FINRA").
The Distribution Agreement provides that it may be terminated as to the
Funds at any time, without the payment of any penalty, on at least 60 days'
written notice by the Trust to the Distributor (i) by vote of a majority of the
Independent Trustees or (ii) by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Funds. The Distribution Agreement
- 35 -
will terminate automatically in the event of its assignment (as defined in the
1940 Act).
The Distributor may also enter into agreements with securities dealers
("Soliciting Dealers") who will solicit purchases of Creation Unit Aggregations
of Fund Shares. Such Soliciting Dealers may also be Participating Parties (as
defined in "Procedures for Creation of Creation Unit Aggregations" below) and
DTC Participants (as defined in "DTC Acts as Securities Depository for Fund
Shares" below).
Index Provider. The Index that each respective Fund seeks to track is
compiled by S&P, the Index Provider.
The Index Provider is not affiliated with the Funds, First Trust
Portfolios or First Trust. Each Fund is entitled to use the applicable Index
pursuant to a sublicensing arrangement by and among each Fund, the Index
Provider, First Trust and First Trust Portfolios, which in turn has a license
agreement with the Index Provider.
Each of the Defined Index Series indices is a trademark of S&P and is
licensed for use by First Trust Portfolios. First Trust Portfolios sublicenses
the Defined Index Series indices to the Funds and to First Trust.
First Trust Portfolios has licensed to S&P, free of charge, the right
to use certain intellectual property owned by First Trust Portfolios, including
the AlphaDEX(TM) trademark and the AlphaDEX(TM) stock seleCtion method, in
connection with AMEX's creation of the Defined Index Series indices. A patent
application with respect to the AlphaDEX(TM) stock selection method is pending
at the United States Patent and Trademark Office.
Notwithstanding such license, S&P is solely responsible for the
creation, compilation and administration of the Defined Index Series indices and
has the exclusive right to determine the stocks included in the indices and the
indices' methodologies.
The Funds are not sponsored, endorsed, sold or promoted by Standard &
Poor's, a division of the McGraw-Hill Companies, Inc. ("S&P"). S&P makes no
representation or warranty, express or implied, to the owners of the Funds or
any member of the public regarding the advisability of investing in securities
generally or in the Funds particularly or the ability of the Defined Index
Series to track general stock market performance or a segment of the same. S&P's
publication of the Defined Index Series in no way suggests or implies an opinion
by S&P as to the advisability of investment in any or all of the securities upon
which the Defined Index Series is based. S&P's only relationship to First Trust
Portfolios is the licensing of certain trademarks and trade names of S&P and of
the Defined Index Series, which is determined, composed and calculated by S&P
without regard to First Trust Portfolios or the Funds. S&P is not responsible
for and has not reviewed the Funds nor any associated literature or publications
and S&P makes no representation or warranty express or implied as to their
accuracy or completeness, or otherwise. S&P reserves the right, at any time and
without notice, to alter, amend, terminate or in any way change the Defined
Index Series. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Funds.
- 36 -
S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS DO NOT GUARANTEE
THE ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE DEFINED INDEX SERIES OR
ANY DATA INCLUDED THEREIN AND S&P, ITS AFFILIATES AND THEIR THIRD PARTY
LICENSORS SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS,
OMISSIONS, DELAYS OR INTERRUPTIONS THEREIN. S&P, ITS AFFILIATES AND THEIR THIRD
PARTY LICENSORS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY FIRST TRUST PORTFOLIOS, INVESTORS, OWNERS OF THE FUNDS, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE DEFINED INDEX SERIES OR ANY DATA INCLUDED
THEREIN, S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSOR MAKE NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE DEFINED INDEX SERIES
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS HAVE ANY LIABILITY FOR
ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
"AlphaDEX(TM)" is a trademark of First Trust Portfolios. The Funds and
First Trust on behalf of the FunDs have been granted the right by First Trust
Portfolios to use the name "AlphaDEX(TM)" for certain purposes.
Exchange. The only relationship that the AMEX has with First Trust or
the Distributor of the Funds in connection with the Funds is that the AMEX lists
the Shares of the Funds pursuant to its Listing Agreement with the Trust. The
AMEX is not responsible for and has not participated in the determination of
pricing or the timing of the issuance or sale of the Shares of the Funds or in
the determination or calculation of the asset value of the Funds. The AMEX has
no obligation or liability in connection with the administration, marketing or
trading of the Funds.
ADDITIONAL INFORMATION
Book Entry Only System. The following information supplements and
should be read in conjunction with the section in the Prospectus entitled "Book
Entry."
DTC Acts as Securities Depository for Fund Shares. Shares of the Funds
are represented by securities registered in the name of DTC or its nominee, Cede
& Co., and deposited with, or on behalf of, DTC.
DTC, a limited-purpose trust company, was created to hold securities of
its participants (the "DTC Participants") and to facilitate the clearance and
settlement of securities transactions among the DTC Participants in such
securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement of securities,
certificates. DTC Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own DTC. More specifically, DTC is owned by
- 37 -
a number of its DTC Participants and by the NYSE, the AMEX and FINRA. Access to
the DTC system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
DTC Participant, either directly or indirectly (the "Indirect Participants").
Beneficial ownership of Shares is limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect
Participants. Ownership of beneficial interests in Shares (owners of such
beneficial interests are referred to herein as "Beneficial Owners") is shown on,
and the transfer of ownership is effected only through, records maintained by
DTC (with respect to DTC Participants) and on the records of DTC Participants
(with respect to Indirect Participants and Beneficial Owners that are not DTC
Participants). Beneficial Owners will receive from or through the DTC
Participant a written confirmation relating to their purchase and sale of
Shares.
Conveyance of all notices, statements and other communications to
Beneficial Owners is effected as follows. Pursuant to a letter agreement between
DTC and the Trust, DTC is required to make available to the Trust upon request
and for a fee to be charged to the Trust a listing of the Shares of the Funds
held by each DTC Participant. The Trust shall inquire of each such DTC
Participant as to the number of Beneficial Owners holding Shares, directly or
indirectly, through such DTC Participant. The Trust shall provide each such DTC
Participant with copies of such notice, statement or other communication, in
such form, number and at such place as such DTC Participant may reasonably
request, in order that such notice, statement or communication may be
transmitted by such DTC Participant, directly or indirectly, to such Beneficial
Owners. In addition, the Trust shall pay to each such DTC Participants a fair
and reasonable amount as reimbursement for the expenses attendant to such
transmittal, all subject to applicable statutory and regulatory requirements.
Fund distributions shall be made to DTC or its nominee, as the
registered holder of all Fund Shares. DTC or its nominee, upon receipt of any
such distributions, shall immediately credit DTC Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
Shares of the Funds as shown on the records of DTC or its nominee. Payments by
DTC Participants to Indirect Participants and Beneficial owners of Shares held
through such DTC Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in a "street name," and will be the
responsibility of such DTC Participants.
The Trust has no responsibility or liability for any aspect of the
records relating to or notices to Beneficial Owners, or payments made on account
of beneficial ownership interests in such Shares, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests, or for any other aspect of the relationship between DTC and the DTC
Participants or the relationship between such DTC Participants and the Indirect
Participants and Beneficial Owners owning through such DTC Participants.
DTC may decide to discontinue providing its service with respect to
Shares at any time by giving reasonable notice to the Trust and discharging its
- 38 -
responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action to find a replacement for DTC to
perform its functions at a comparable cost.
PROXY VOTING POLICIES AND PROCEDURES
The Trust has adopted a proxy voting policy that seeks to ensure that
proxies for securities held by the Funds are voted consistently and solely in
the best economic interests of the Funds.
A senior member of First Trust is responsible for oversight of the
Funds' proxy voting process. First Trust has engaged the services of RiskMetrics
Group, Inc. ("RMG"), to make recommendations to First Trust on the voting of
proxies relating to securities held by the Funds. RMG provides voting
recommendations based upon established guidelines and practices. First Trust
reviews RMG recommendations and frequently follows the RMG recommendations.
However, on selected issues, First Trust may not vote in accordance with the RMG
recommendations when First Trust believes that specific RMG recommendations are
not in the best interests of the Funds. If First Trust manages the assets of a
company or its pension plan and any of First Trust's clients hold any securities
of that company, First Trust will vote proxies relating to such company's
securities in accordance with the RMG recommendations to avoid any conflict of
interest. If a client requests First Trust to follow specific voting guidelines
or additional guidelines, First Trust will review the request and inform the
client only if First Trust is not able to follow the client's request.
First Trust has adopted the RMG Proxy Voting Guidelines. While these
guidelines are not intended to be all-inclusive, they do provide guidance on
First Trust's general voting policies.
Information regarding how the Funds vote future proxies relating to
portfolio securities during the most recent 12-month period ended June 30, will
be available upon request and without charge on the Funds' website at
www.ftportfolios.com, by calling (800) 621-1675 or by accessing the SEC's
website at http://www.sec.gov.
Quarterly Portfolio Schedule. The Trust is required to disclose, after
its first and third fiscal quarters, the complete schedule of the Funds'
portfolio holdings with the SEC on Form N-Q. Form N-Q for the Trust is available
on the SEC's website at http://www.sec.gov. Each Fund's Form N-Q may also be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C. and
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. The Trust's Form N-Q is available without charge, upon
request, by calling (800) 621-1675 or (800) 983-0903 or by writing to First
Trust Portfolios L.P., 1001 Warrenville Road, Lisle, Illinois 60532.
Policy Regarding Disclosure of Portfolio Holdings. The Trust has
adopted a policy regarding the disclosure of information about each Fund's
portfolio holdings. Each Fund's portfolio holdings are publicly disseminated
each day the Fund is open for business through financial reporting and news
services, including publicly accessible Internet web sites. In addition, a
basket composition file, which includes the security names and share quantities
- 39 -
to deliver in exchange for Fund Shares, together with estimates and actual cash
components, is publicly disseminated daily prior to the opening of the AMEX via
the National Securities Clearing Corporation ("NSCC"). The basket represents one
Creation Unit of a Fund. The Trust, First Trust and BONY will not disseminate
non-public information concerning the Trust.
Code of Ethics. In order to mitigate the possibility that the Funds
will be adversely affected by personal trading, the Trust, First Trust and the
Distributor have adopted Codes of Ethics under Rule 17j-1 of the 1940 Act. These
Codes contain policies restricting securities trading in personal accounts of
the officers, Trustees and others who normally come into possession of
information on portfolio transactions. These Codes are on public file with, and
are available from, the SEC.
CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS
Creation. The Trust issues and sells Shares of the Funds only in
Creation Unit Aggregations on a continuous basis through the Distributor,
without a sales load, at their NAVs next determined after receipt, on any
Business Day (as defined below), of an order in proper form.
A "Business Day" is any day on which the NYSE is open for business. As
of the date of this SAI, the NYSE observes the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Deposit of Securities and Deposit or Delivery of Cash. The
consideration for purchase of Creation Unit Aggregations of a Fund generally
consists of the in-kind deposit of a designated portfolio of equity
securities--the "Deposit Securities"--per each Creation Unit Aggregation
constituting a substantial replication oF the stocks included in the underlying
index ("Fund Securities") and an amount of cash--the "Cash Component"--computed
as described below. Together, the Deposit Securities and the Cash Component
constitute the "Fund Deposit," which represents the minimum initial and
subsequent investment amount for a Creation Unit Aggregation of a Fund.
The Cash Component is sometimes also referred to as the Balancing
Amount. The Cash Component serves the function of compensating for any
differences between the NAV per Creation Unit Aggregation and the Deposit Amount
(as defined below). The Cash Component is an amount equal to the difference
between the NAV of Fund Shares (per Creation Unit Aggregation) and the "Deposit
Amount"--an amount equal to the market value of the Deposit Securities. If the
Cash Component is a positive number (i.e., the NAV per Creation Unit Aggregation
exceeds the Deposit Amount), the creator will deliver the Cash Component. If the
Cash Component is a negative number (i.e., the NAV per Creation Unit Aggregation
is less than the Deposit Amount), the creator will receive the Cash Component.
The Custodian, through the National Securities Clearing Corporation
("NSCC") (discussed below), makes available on each Business Day, prior to the
opening of business on the NYSE (currently 9:30 a.m., Eastern time), the list of
the names and the required number of shares of each Deposit Security to be
- 40 -
included in the current Fund Deposit (based on information at the end of the
previous Business Day) for a Fund.
Such Fund Deposit is applicable, subject to any adjustments as
described below, in order to effect creations of Creation Unit Aggregations of a
Fund until such time as the next-announced composition of the Deposit Securities
is made available.
The identity and number of shares of the Deposit Securities required
for a Fund Deposit for a Fund changes as rebalancing adjustments and corporate
action events are reflected within a Fund from time to time by First Trust with
a view to the investment objective of the Fund. The composition of the Deposit
Securities may also change in response to adjustments to the weighting or
composition of the Component Stocks of the underlying index. In addition, the
Trust reserves the right to permit or require the substitution of an amount of
cash--i.e., a "cash in lieu" amount--to be added to the Cash Component to
replace any Deposit Security that may noT be available in sufficient quantity
for delivery or that may not be eligible for transfer through the systems of DTC
or the Clearing Process (discussed below), or which might not be eligible for
trading by an Authorized Participant (as defined below) or the investor for
which it is acting or other relevant reason. Brokerage commissions incurred in
connection with the acquisition of Deposit Securities not eligible for transfer
through the systems of DTC and hence not eligible for transfer through the
Clearing Process (discussed below) will at the expense of the Fund and will
affect the value of all Shares; but First Trust, subject to the approval of the
Board of Trustees, may adjust the transaction fee within the parameters
described above to protect ongoing shareholders. The adjustments described above
will reflect changes known to First Trust on the date of announcement to be in
effect by the time of delivery of the Fund Deposit, in the composition of the
underlying index or resulting from certain corporate actions.
In addition to the list of names and numbers of securities constituting
the current Deposit Securities of a Fund Deposit, the Custodian, through the
NSCC, also makes available on each Business Day, the estimated Cash Component,
effective through and including the previous Business Day, per outstanding
Creation Unit Aggregation of a Fund.
Procedures for Creation of Creation Unit Aggregations. In order to be
eligible to place orders with the Distributor and to create a Creation Unit
Aggregation of a Fund, an entity must be (i) a "Participating Party," i.e., a
broker-dealer or other participant in the clearing process through the
Continuous Net Settlement System of the NSCC (the "Clearing Process"), a
clearing agency that is registered with the SEC; or (ii) a DTC Participant (see
the Book Entry Only System section), and, in each case, must have executed an
agreement with the Distributor and transfer agent, with respect to creations and
redemptions of Creation Unit Aggregations ("Participant Agreement") (discussed
below). A Participating Party and DTC Participant are collectively referred to
as an "Authorized Participant." Investors should contact the Distributor for the
names of Authorized Participants that have signed a Participant Agreement. All
Fund Shares, however created, will be entered on the records of DTC in the name
of Cede & Co. for the account of a DTC Participant.
All orders to create Creation Unit Aggregations, whether through the
Clearing Process (through a Participating Party) or outside the Clearing Process
(through a DTC Participant), must be received by the transfer agent no later
- 41 -
than the closing time of the regular trading session on the New York Stock
Exchange ("Closing Time") (ordinarily 4:00 p.m., Eastern time) in each case on
the date such order is placed in order for creation of Creation Unit
Aggregations to be effected based on the NAV of Shares of the Funds as next
determined on such date after receipt of the order in proper form. In the case
of custom orders, the order must be received by the transfer agent no later than
3:00 p.m. Eastern time on the trade date. A custom order may be placed by an
Authorized Participant in the event that the Trust permits or requires the
substitution of an amount of cash to be added to the Cash Component to replace
any Deposit Security which may not be available in sufficient quantity for
delivery or which may not be eligible for trading by such Authorized Participant
or the investor for which it is acting or other relevant reason. The date on
which an order to create Creation Unit Aggregations (or an order to redeem
Creation Unit Aggregations, as discussed below) is placed is referred to as the
"Transmittal Date." Orders must be transmitted by an Authorized Participant by
telephone or other transmission method acceptable to the transfer agent pursuant
to procedures set forth in the Participant Agreement, as described below (see
the Placement of Creation Orders Using Clearing Process and the Placement of
Creation Orders Outside Clearing Process sections). Severe economic or market
disruptions or changes, or telephone or other communication failure may impede
the ability to reach the transfer agent or an Authorized Participant.
All orders from investors who are not Authorized Participants to create
Creation Unit Aggregations shall be placed with an Authorized Participant, as
applicable, in the form required by such Authorized Participant. In addition,
the Authorized Participant may request the investor to make certain
representations or enter into agreements with respect to the order, e.g., to
provide for payments of cash, when required. Investors should be aware that
their particular broker may not have executed a Participant Agreement and that,
therefore, orders to create Creation Unit Aggregations of a Fund have to be
placed by the investor's broker through an Authorized Participant that has
executed a Participant Agreement. In such cases there may be additional charges
to such investor. At any given time, there may be only a limited number of
broker-dealers that have executed a Participant Agreement. Those placing orders
for Creation Unit Aggregations through the Clearing Process should afford
sufficient time in order to permit proper submission of the order to the
transfer agent prior to the Closing Time on the Transmittal Date. Orders for
Creation Unit Aggregations that are effected outside the Clearing Process are
likely to require transmittal by the DTC Participant earlier on the Transmittal
Date than orders effected using the Clearing Process. Those persons placing
orders outside the Clearing Process should ascertain the deadlines applicable to
DTC and the Federal Reserve Bank wire system by contacting the operations
department of the broker or depository institution effectuating such transfer of
Deposit Securities and Cash Component.
Placement of Creation Orders Using Clearing Process. The Clearing
Process is the process of creating or redeeming Creation Unit Aggregations
through the Continuous Net Settlement System of the NSCC. Fund Deposits made
through the Clearing Process must be delivered through a Participating Party
that has executed a Participant Agreement. The Participant Agreement authorizes
the Distributor to transmit through the Custodian to NSCC, on behalf of the
Participating Party, such trade instructions as are necessary to effect the
Participating Party's creation order. Pursuant to such trade instructions to
NSCC, the Participating Party agrees to deliver the requisite Deposit Securities
and the Cash Component to the Trust, together with such additional information
- 42 -
as may be required by the Distributor. An order to create Creation Unit
Aggregations through the Clearing Process is deemed received by the Distributor
on the Transmittal Date if (i) such order is received by the Distributor not
later than the Closing Time on such Transmittal Date and (ii) all other
procedures set forth in the Participant Agreement are properly followed.
Placement of Creation Orders Outside Clearing Process. Fund Deposits
made outside the Clearing Process must be delivered through a DTC Participant
that has executed a Participant Agreement pre-approved by First Trust and the
Distributor. A DTC Participant who wishes to place an order creating Creation
Unit Aggregations to be effected outside the Clearing Process does not need to
be a Participating Party, but such orders must state that the DTC Participant is
not using the Clearing Process and that the creation of Creation Unit
Aggregations will instead be effected through a transfer of securities and cash
directly through DTC. The Fund Deposit transfer must be ordered by the DTC
Participant on the Transmittal Date in a timely fashion so as to ensure the
delivery of the requisite number of Deposit Securities through DTC to the
account of a Fund by no later than 11:00 a.m., Eastern time, of the next
Business Day immediately following the Transmittal Date.
All questions as to the number of Deposit Securities to be delivered,
and the validity, form and eligibility (including time of receipt) for the
deposit of any tendered securities, will be determined by the Trust, whose
determination shall be final and binding. The amount of cash equal to the Cash
Component must be transferred directly to the Custodian through the Federal
Reserve Bank wire transfer system in a timely manner so as to be received by the
Custodian no later than 2:00 p.m., Eastern time, on the next Business Day
immediately following such Transmittal Date. An order to create Creation Unit
Aggregations outside the Clearing Process is deemed received by the Distributor
on the Transmittal Date if (i) such order is received by the Distributor not
later than the Closing Time on such Transmittal Date; and (ii) all other
procedures set forth in the Participant Agreement are properly followed.
However, if the Custodian does not receive both the required Deposit Securities
and the Cash Component by 11:00 a.m. and 2:00 p.m., respectively on the next
Business Day immediately following the Transmittal Date, such order will be
canceled. Upon written notice to the Distributor, such canceled order may be
resubmitted the following Business Day using a Fund Deposit as newly constituted
in order to reflect the then current Deposit Securities and Cash Component. The
delivery of Creation Unit Aggregations so created will occur no later than the
third (3rd) Business Day following the day on which the purchase order is deemed
received by the Distributor.
Additional transaction fees may be imposed with respect to transactions
effected outside the Clearing Process (through a DTC participant) and in the
limited circumstances in which any cash can be used in lieu of Deposit
Securities to create Creation Units. (See "Creation Transaction Fee" section
below.)
Creation Unit Aggregations may be created in advance of receipt by the
Trust of all or a portion of the applicable Deposit Securities as described
below. In these circumstances, the initial deposit will have a value greater
than the NAV of the Fund Shares on the date the order is placed in proper form
since, in addition to available Deposit Securities, cash must be deposited in an
- 43 -
amount equal to the sum of (i) the Cash Component, plus (ii) 115% of the market
value of the undelivered Deposit Securities (the "Additional Cash Deposit"). The
order shall be deemed to be received on the Business Day on which the order is
placed provided that the order is placed in proper form prior to 4:00 p.m.,
Eastern time, on such date, and federal funds in the appropriate amount are
deposited with the Custodian by 11:00 a.m., Eastern time, the following Business
Day. If the order is not placed in proper form by 4:00 p.m. or federal funds in
the appropriate amount are not received by 11:00 a.m. the next Business Day,
then the order may be deemed to be canceled and the Authorized Participant shall
be liable to the Funds for losses, if any, resulting therefrom. An additional
amount of cash shall be required to be deposited with the Trust, pending
delivery of the missing Deposit Securities to the extent necessary to maintain
the Additional Cash Deposit with the Trust in an amount at least equal to 115%
of the daily marked-to-market value of the missing Deposit Securities. To the
extent that missing Deposit Securities are not received by 1:00 p.m., Eastern
time, on the third Business Day following the day on which the purchase order is
deemed received by the Distributor or in the event a marked-to-market payment is
not made within one Business Day following notification by the Distributor that
such a payment is required, the Trust may use the cash on deposit to purchase
the missing Deposit Securities. Authorized Participants will be liable to the
Trust and the Funds for the costs incurred by the Trust in connection with any
such purchases. These costs will be deemed to include the amount by which the
actual purchase price of the Deposit Securities exceeds the market value of such
Deposit Securities on the day the purchase order was deemed received by the
Distributor plus the brokerage and related transaction costs associated with
such purchases. The Trust will return any unused portion of the Additional Cash
Deposit once all of the missing Deposit Securities have been properly received
by the Custodian or purchased by the Trust and deposited into the Trust. In
addition, a transaction fee, as listed below, will be charged in all cases. The
delivery of Creation Unit Aggregations so created will occur no later than the
third Business Day following the day on which the purchase order is deemed
received by the Distributor.
Acceptance of Orders for Creation Unit Aggregations. The Trust reserves
the absolute right to reject a creation order transmitted to it by the
Distributor with respect to a Fund if: (i) the order is not in proper form; (ii)
the investor(s), upon obtaining the Fund Shares ordered, would own 80% or more
of the currently outstanding shares of the Fund; (iii) the Deposit Securities
delivered are not as disseminated for that date by the Custodian, as described
above; (iv) acceptance of the Deposit Securities would have certain adverse tax
consequences to the Fund; (v) acceptance of the Fund Deposit would, in the
opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit would
otherwise, in the discretion of the Trust or First Trust, have an adverse effect
on the Trust or the rights of beneficial owners; or (vii) in the event that
circumstances outside the control of the Trust, the Custodian, the Distributor
and First Trust make it for all practical purposes impossible to process
creation orders. Examples of such circumstances include acts of God; public
service or utility problems such as fires, floods, extreme weather conditions
and power outages resulting in telephone, telecopy and computer failures; market
conditions or activities causing trading halts; systems failures involving
computer or other information systems affecting the Trust, First Trust, the
Distributor, DTC, NSCC, the Custodian or sub-custodian or any other participant
in the creation process, and similar extraordinary events. The Distributor shall
notify a prospective creator of a Creation Unit and/or the Authorized
- 44 -
Participant acting on behalf of such prospective creator of its rejection of the
order of such person. The Trust, the Custodian, any sub-custodian and the
Distributor are under no duty, however, to give notification of any defects or
irregularities in the delivery of Fund Deposits, nor shall any of them incur any
liability for the failure to give any such notification.
All questions as to the number of shares of each security in the
Deposit Securities and the validity, form, eligibility, and acceptance for
deposit of any securities to be delivered shall be determined by the Trust, and
the Trust's determination shall be final and binding.
Creation Transaction Fee. Purchasers of Creation Units will be required
to pay a standard creation transaction fee (the "Creation Transaction Fee"),
described below, payable to BONY regardless of the number of Creation Units. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by a Fund with respect to
transactions effected outside of the Clearing Process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. Investors are responsible for the costs of transferring
the securities constituting the Deposit Securities to the account of the Trust.
The standard creation transaction fee is based on the number of
different securities in a Creation Unit according to the fee schedule set forth
below:
NUMBER OF SECURITIES CREATION
IN A CREATION UNIT TRANSACTION FEE
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
|
Redemption of Fund Shares In Creation Units Aggregations. Fund Shares
may be redeemed only in Creation Unit Aggregations at their NAV next determined
after receipt of a redemption request in proper form by the Fund through the
Transfer Agent and only on a Business Day. A Fund will not redeem Shares in
amounts less than Creation Unit Aggregations. Beneficial owners must accumulate
enough Shares in the secondary market to constitute a Creation Unit Aggregation
in order to have such Shares redeemed by the Trust. There can be no assurance,
however, that there will be sufficient liquidity in the public trading market at
any time to permit assembly of a Creation Unit Aggregation. Investors should
expect to incur brokerage and other costs in connection with assembling a
sufficient number of Fund Shares to constitute a redeemable Creation Unit
Aggregation.
With respect to the Funds, the Custodian, through the NSCC, makes
available prior to the opening of business on the NYSE (currently 9:30 a.m.,
Eastern time) on each Business Day, the identity of the Fund Securities that
will be applicable (subject to possible amendment or correction) to redemption
requests received in proper form (as described below) on that day. Fund
- 45 -
Securities received on redemption may not be identical to Deposit Securities
that are applicable to creations of Creation Unit Aggregations.
Unless cash redemptions are available or specified for a Fund, the
redemption proceeds for a Creation Unit Aggregation generally consist of Fund
Securities--as announced on the Business Day of the request for redemption
received in proper form--plus or minus cash in an amount equal to the difference
between the NAV of the Fund Shares being redeemed, as next determined after a
receipt of a request in proper form, and the value of the Fund Securities (the
"Cash Redemption Amount"), less a redemption transaction fee as listed below. In
the event that the Fund Securities have a value greater than the NAV of the Fund
Shares, a compensating cash payment equal to the difference is required to be
made by or through an Authorized Participant by the redeeming shareholder.
The right of redemption may be suspended or the date of payment
postponed (i) for any period during which the NYSE is closed (other than
customary weekend and holiday closings); (ii) for any period during which
trading on the NYSE is suspended or restricted; (iii) for any period during
which an emergency exists as a result of which disposal of the Shares of a Fund
or determination of the Fund's NAV is not reasonably practicable; or (iv) in
such other circumstances as is permitted by the SEC.
Redemption Transaction Fee. A redemption transaction fee (the
"Redemption Transaction Fee") is imposed to offset transfer and other
transaction costs that may be incurred by a Fund. An additional variable fee of
up to three times the Redemption Transaction Fee may be charged to approximate
additional expenses incurred by a Fund with respect to redemptions effected
outside of the Clearing Process or to the extent that redemptions are for cash.
A Fund reserves the right to effect redemptions in cash. A shareholder may
request a cash redemption in lieu of securities; however, a Fund may, in its
discretion, reject any such request. Investors will also bear the costs of
transferring the Fund Securities from the Trust to their account or on their
order. Investors who use the services of a broker or other such intermediary in
addition to an Authorized Participant to effect a redemption of a Creation Unit
Aggregation may be charged an additional fee for such services.
The standard redemption transaction fee is based on the number of
different securities in a Creation Unit according to the fee schedule set forth
below:
NUMBER OF SECURITIES REDEMPTION
IN A CREATION UNIT TRANSACTION FEE
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
|
- 46 -
Placement of Redemption Orders Using Clearing Process. Orders to redeem
Creation Unit Aggregations through the Clearing Process must be delivered
through a Participating Party that has executed the Participant Agreement. An
order to redeem Creation Unit Aggregations using the Clearing Process is deemed
received by the Trust on the Transmittal Date if (i) such order is received by
the Transfer Agent not later than 4:00 p.m., Eastern time, on such Transmittal
Date, and (ii) all other procedures set forth in the Participant Agreement are
properly followed; such order will be effected based on the NAV of the Fund as
next determined. An order to redeem Creation Unit Aggregations using the
Clearing Process made in proper form but received by the Trust after 4:00 p.m.,
Eastern time, will be deemed received on the next Business Day immediately
following the Transmittal Date and will be effected at the NAV next determined
on such next Business Day. The requisite Fund Securities and the Cash Redemption
Amount will be transferred by the third NSCC Business Day following the date on
which such request for redemption is deemed received.
Placement of Redemption Orders Outside Clearing Process. Orders to
redeem Creation Unit Aggregations outside the Clearing Process must be delivered
through a DTC Participant that has executed the Participant Agreement. A DTC
Participant who wishes to place an order for redemption of Creation Unit
Aggregations to be effected outside the Clearing Process does not need to be a
Participating Party, but such orders must state that the DTC Participant is not
using the Clearing Process and that redemption of Creation Unit Aggregations
will instead be effected through transfer of Fund Shares directly through DTC.
An order to redeem Creation Unit Aggregations outside the Clearing Process is
deemed received by the Trust on the Transmittal Date if (i) such order is
received by the Transfer Agent not later than 4:00 p.m., Eastern time on such
Transmittal Date; (ii) such order is accompanied or followed by the requisite
number of Shares of the Fund, which delivery must be made through DTC to the
Custodian no later than 11:00 a.m., Eastern time, (for the Fund Shares) on the
next Business Day immediately following such Transmittal Date (the "DTC
Cut-Off-Time") and 2:00 p.m., Eastern Time for any Cash Component, if any owed
to a Fund; and (iii) all other procedures set forth in the Participant Agreement
are properly followed. After the Trust has deemed an order for redemption
outside the Clearing Process received, the Trust will initiate procedures to
transfer the requisite Fund Securities which are expected to be delivered within
three Business Days and the Cash Redemption Amount, if any owed to the redeeming
Beneficial Owner to the Authorized Participant on behalf of the redeeming
Beneficial Owner by the third Business Day following the Transmittal Date on
which such redemption order is deemed received by the Trust.
The calculation of the value of the Fund Securities and the Cash
Redemption Amount to be delivered/received upon redemption will be made by the
Custodian according to the procedures set forth in this SAI under "Determination
of NAV" computed on the Business Day on which a redemption order is deemed
received by the Trust. Therefore, if a redemption order in proper form is
submitted to the Transfer Agent by a DTC Participant not later than Closing Time
on the Transmittal Date, and the requisite number of Shares of the Fund are
delivered to the Custodian prior to the DTC Cut-Off-Time, then the value of the
Fund Securities and the Cash Redemption Amount to be delivered/received will be
determined by the Custodian on such Transmittal Date. If, however, either (i)
the requisite number of Shares of the Fund are not delivered by the DTC
Cut-Off-Time, as described above, or (ii) the redemption order is not submitted
in proper form, then the redemption order will not be deemed received as of the
- 47 -
Transmittal Date. In such case, the value of the Fund Securities and the Cash
Redemption Amount to be delivered/received will be computed on the Business Day
following the Transmittal Date provided that the Fund Shares of the Fund are
delivered through DTC to the Custodian by 11:00 a.m. the following Business Day
pursuant to a properly submitted redemption order.
If it is not possible to effect deliveries of the Fund Securities, the
Trust may in its discretion exercise its option to redeem such Fund Shares in
cash, and the redeeming Beneficial Owner will be required to receive its
redemption proceeds in cash. In addition, an investor may request a redemption
in cash that a Fund may, in its sole discretion, permit. In either case, the
investor will receive a cash payment equal to the NAV of its Fund Shares based
on the NAV of Shares of the Fund next determined after the redemption request is
received in proper form (minus a redemption transaction fee and additional
charge for requested cash redemptions specified above, to offset the Fund's
brokerage and other transaction costs associated with the disposition of Fund
Securities). The Funds may also, in their sole discretion, upon request of a
shareholder, provide such redeemer a portfolio of securities that differs from
the exact composition of the Fund Securities, or cash lieu of some securities
added to the Cash Component, but in no event will the total value of the
securities delivered and the cash transmitted differ from the NAV. Redemptions
of Fund Shares for Fund Securities will be subject to compliance with applicable
federal and state securities laws and each Fund (whether or not it otherwise
permits cash redemptions) reserves the right to redeem Creation Unit
Aggregations for cash to the extent that the Trust could not lawfully deliver
specific Fund Securities upon redemptions or could not do so without first
registering the Fund Securities under such laws. An Authorized Participant or an
investor for which it is acting subject to a legal restriction with respect to a
particular stock included in the Fund Securities applicable to the redemption of
a Creation Unit Aggregation may be paid an equivalent amount of cash. The
Authorized Participant may request the redeeming Beneficial Owner of the Fund
Shares to complete an order form or to enter into agreements with respect to
such matters as compensating cash payment, beneficial ownership of shares or
delivery instructions.
The chart below describes in further detail the placement of redemption
orders outside the clearing process.
TRANSMITTAL NEXT BUSINESS SECOND BUSINESS THIRD BUSINESS
DATE (T) DAY (T+1) DAY (T+2) DAY (T+3)
CREATION THROUGH NSCC
STANDARD ORDERS 4:00 p.m. No action. No action. Creation Unit
Aggregations will be
Order must be delivered.
received by the
Distributor.
- 48 -
|
TRANSMITTAL NEXT BUSINESS SECOND BUSINESS THIRD BUSINESS
DATE (T) DAY (T+1) DAY (T+2) DAY (T+3)
CUSTOM ORDERS 3:00 p.m. No action. No action. Creation Unit
Aggregations will be
Order must be delivered.
received by the
Distributor.
Orders received
after 3:00 p.m.
will be treated as
standard orders.
CREATION OUTSIDE NSCC
STANDARD ORDERS 4:00 p.m. (ET) 11:00 a.m. (ET) No action. Creation Unit
Aggregations will be
Order in proper Deposit Securities must delivered.
form must be be received by a Fund's
received by the account through DTC.
Distributor.
2:00 p.m. (ET)
Cash Component must be
received by the Custodian.
STANDARD ORDERS CREATED 4:00 p.m. (ET) 11:00 a.m. (ET) No action. 1:00 p.m.
IN ADVANCE OF RECEIPT
BY THE TRUST OF ALL OR Order in proper Available Deposit Missing Deposit
A PORTION OF THE form must be Securities. Securities are due to
DEPOSIT SECURITIES received by the the Trust or the Trust
Distributor. Cash in an amount equal may use cash on deposit
to the sum of (i) the to purchase missing
Cash Component, plus Deposit Securities.
(ii) 115% of the market
value of the Creation Unit
undelivered Deposit Aggregations will be
Securities. delivered.
CUSTOM ORDERS 3:00 p.m. 11:00 a.m. (ET) No action. Creation Unit
Aggregations will be
Order in proper Deposit Securities must delivered.
form must be be received by a Fund's
received by the account through DTC.
Distributor.
Order received 2:00 p.m. (ET)
after 3:00 p.m.
will be treated as Cash Component must be
standard orders. received by the Orders
Custodian.
REDEMPTION THROUGH NSCC
STANDARD ORDERS 4:00 p.m. (ET) No action. No action. Fund Securities and Cash
Redemption Amount will
Order must be be transferred.
received by the
Transfer Agent.
Orders received
after 4:00 p.m.
(ET) will be deemed
received on the
next business day
(T+1)
- 49 -
|
TRANSMITTAL NEXT BUSINESS SECOND BUSINESS THIRD BUSINESS
DATE (T) DAY (T+1) DAY (T+2) DAY (T+3)
CUSTOM ORDERS 3:00 p.m. (ET) No action. No action. Fund Securities and Cash
Redemption Amount will
Order must be be transferred.
received by the
Transfer Agent
Order received
after 3:00 p.m.
will be treated as
standard orders.
REDEMPTION OUTSIDE NSCC
STANDARD ORDERS 4:00 p.m. (ET) 11:00 a.m. (ET) No action. Fund Securities and Cash
Redemption Amount is
Order must be Fund Shares must be delivered to the
received by the delivered through DTC redeeming beneficial
Transfer Agent. to the Custodian. owner.
Order received 2:00 p.m.
after 4:00 p.m.
(ET) will be deemed Cash Component, if any,
received on the is due.
next business day
(T+1).
*If the order is not in proper
form or the Fund Shares are
not delivered, then the order
will not be deemed received as
of T.
CUSTOM ORDERS 3:00 p.m. (ET) 11:00 a.m. (ET) No action. Fund Securities and Cash
Redemption Amount is
Order must be Fund Shares must be delivered to the
received by the delivered through DTC redeeming beneficial
Transfer Agent. to the Custodian. owner.
Order received 2:00 p.m.
after 3:00 p.m.
will be treated as Cash Component, if any,
standard orders. is due.
*If the order is not in proper
form or the Fund Shares are
not delivered, then the order
will not be deemed received as
of T.
|
FEDERAL TAX MATTERS
This section summarizes some of the main U.S. federal income tax
consequences of owning Shares of a Fund. This section is current as of the date
of the Prospectus. Tax laws and interpretations change frequently, and these
summaries do not describe all of the tax consequences to all taxpayers. For
example, these summaries generally do not describe your situation if you are a
corporation, a non-U.S. person, a broker-dealer, or other investor with special
circumstances. In addition, this section does not describe your state, local or
foreign tax consequences.
- 50 -
This federal income tax summary is based in part on the advice of
counsel to the Funds. The Internal Revenue Service could disagree with any
conclusions set forth in this section. In addition, our counsel was not asked to
review, and has not reached a conclusion with respect to the federal income tax
treatment of the assets to be deposited in the Funds. This may not be sufficient
for prospective investors to use for the purpose of avoiding penalties under
federal tax law.
As with any investment, prospective investors should seek advice based
on their individual circumstances from their own tax advisor.
Each Fund intends to qualify annually and to elect to be treated as a
regulated investment company under the Internal Revenue Code (the "Code").
To qualify for the favorable U.S. federal income tax treatment
generally accorded to regulated investment companies, each Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies, or no income derived from interests in certain
publicly traded partnerships; (b) diversify its holdings so that, at the end of
each quarter of the taxable year, (i) at least 50% of the market value of each
Fund's assets is represented by cash and cash items (including receivables),
U.S. Government securities, the securities of other regulated investment
companies and other securities, with such other securities of any one issuer
generally limited for the purposes of this calculation to an amount not greater
than 5% of the value of each Fund's total assets and not greater than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities (other than U.S.
Government securities or the securities of other regulated investment companies)
of any one issuer, or two or more issuers which a Fund controls which are
engaged in the same, similar or related trades or businesses, or the securities
of one or more of certain publicly traded partnerships; and (c) distribute at
least 90% of its investment company taxable income (which includes, among other
items, dividends, interest and net short-term capital gains in excess of net
long-term capital losses) and at least 90% of its net tax-exempt interest income
each taxable year.
As regulated investment companies, the Funds generally will not be
subject to U.S. federal income tax on their investment company taxable income
(as that term is defined in the Code, but without regard to the deduction for
dividends paid) and net capital gain (the excess of net long-term capital gain
over net short-term capital loss), if any, that they distribute to shareholders.
The Funds intend to distribute to its shareholders, at least annually,
substantially all of its investment company taxable income and net capital gain.
If a Fund retains any net capital gain or investment company taxable income, it
will generally be subject to federal income tax at regular corporate rates on
the amount retained. In addition, amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax unless, generally, each Fund distributes during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for the one-year period ending October 31
- 51 -
of the calendar year, and (3) any ordinary income and capital gains for previous
years that were not distributed during those years. In order to prevent
application of the excise tax, the Funds intend to make its distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as paid on December 31 of the current calendar year if it is declared
by a Fund in October, November or December with a record date in such a month
and paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received.
If a Fund failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the Fund would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income.
DISTRIBUTIONS
Dividends paid out of the Funds' investment company taxable income are
generally taxable to a shareholder as ordinary income to the extent of the
Fund's earnings and profits, whether paid in cash or reinvested in additional
shares. However, certain ordinary income distributions received from a Fund may
be taxed at capital gains tax rates. In particular, ordinary income dividends
received by an individual shareholder from regulated investment companies such
as the Funds are generally taxed at the same rates that apply to net capital
gain, provided that certain holding period requirements are satisfied and
provided the dividends are attributable to qualifying dividends received by the
Fund itself. Dividends received by the Funds from REITs and foreign corporations
are qualifying dividends eligible for this lower tax rate only in certain
circumstances.
These special rules relating to the taxation of ordinary income
dividends from regulated investment companies generally apply to taxable years
beginning before January 1, 2011. The Funds will provide notice to its
shareholders of the amount of any distributions which may be taken into account
as a dividend which is eligible for the capital gains tax rates. The Funds can
not make any guarantees as to the amount of any distribution which will be
regarded as a qualifying dividend.
A corporation that owns Shares generally will not be entitled to the
dividends received deduction with respect to many dividends received from the
Funds because the dividends received deduction is generally not available for
distributions from regulated investment companies. However, certain ordinary
income dividends on Shares that are attributable to qualifying dividends
received by the Funds from certain domestic corporations may be designated by
the Funds as being eligible for the dividends received deduction.
Distributions of net capital gain (the excess of net long-term capital
gain over net short-term capital loss), if any, properly designated as capital
gain dividends are taxable to a shareholder as long-term capital gains,
regardless of how long the shareholder has held Fund Shares. Shareholders
receiving distributions in the form of additional Shares, rather than cash,
generally will have a cost basis in each such Share equal to the value of a
- 52 -
Share of the Fund on the reinvestment date. A distribution of an amount in
excess of a Fund's current and accumulated earnings and profits will be treated
by a shareholder as a return of capital which is applied against and reduces the
shareholder's basis in his or her Shares. To the extent that the amount of any
such distribution exceeds the shareholder's basis in his or her Shares, the
excess will be treated by the shareholder as gain from a sale or exchange of the
Shares.
Shareholders will be notified annually as to the U.S. federal income
tax status of distributions, and shareholders receiving distributions in the
form of additional Shares will receive a report as to the value of those Shares.
SALE OR EXCHANGE OF FUND SHARES
Upon the sale or other disposition of Shares of the Funds, which a
shareholder holds as a capital asset, such a shareholder may realize a capital
gain or loss which will be long-term or short-term, depending upon the
shareholder's holding period for the Shares. Generally, a shareholder's gain or
loss will be a long-term gain or loss if the Shares have been held for more than
one year.
Any loss realized on a sale or exchange will be disallowed to the
extent that Shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after disposition of Shares or to the extent that the shareholder, during
such period, acquires or enters into an option or contract to acquire,
substantially identical stock or securities. In such a case, the basis of the
Shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund Shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of long-term capital gain received by the
shareholder with respect to such Shares.
TAXES ON PURCHASE AND REDEMPTION OF CREATION UNITS
If a shareholder exchanges equity securities for Creation Units the
shareholder will generally recognize a gain or a loss. The gain or loss will be
equal to the difference between the market value of the Creation Units at the
time and the shareholder's aggregate basis in the securities surrendered and the
Cash Component paid. If a shareholder exchanges Creation Units for equity
securities, then the shareholder will generally recognize a gain or loss equal
to the difference between the shareholder's basis in the Creation Units and the
aggregate market value of the securities received and the Cash Redemption
Amount. The Internal Revenue Service, however, may assert that a loss realized
upon an exchange of securities for Creation Units or Creation Units for
securities cannot be deducted currently under the rules governing "wash sales,"
or on the basis that there has been no significant change in economic position.
NATURE OF FUND INVESTMENTS
Certain of the Funds' investment practices are subject to special and
complex federal income tax provisions that may, among other things, (i)
disallow, suspend or otherwise limit the allowance of certain losses or
- 53 -
deductions, (ii) convert lower taxed long-term capital gain into higher taxed
short-term capital gain or ordinary income, (iii) convert an ordinary loss or a
deduction into a capital loss (the deductibility of which is more limited), (iv)
cause the Funds to recognize income or gain without a corresponding receipt of
cash, (v) adversely affect the time as to when a purchase or sale of stock or
securities is deemed to occur and (vi) adversely alter the characterization of
certain complex financial transactions.
FUTURES CONTRACTS AND OPTIONS
The Funds' transactions in Futures Contracts and options will be
subject to special provisions of the Code that, among other things, may affect
the character of gains and losses realized by the Funds (i.e., may affect
whether gains or losses are ordinary or capital, or short-term or long-term),
may accelerate recognition of income to the Funds and may defer Fund losses.
These rules could, therefore, affect the character, amount and timing of
distributions to shareholders. These provisions also (a) will require the Funds
to mark-to-market certain types of the positions in its portfolio (i.e., treat
them as if they were closed out), and (b) may cause the Funds to recognize
income without receiving cash with which to make distributions in amounts
necessary to satisfy the 90% distribution requirement for qualifying to be taxed
as a regulated investment company and the 98% distribution requirement for
avoiding excise taxes.
INVESTMENTS IN CERTAIN FOREIGN CORPORATIONS
If the Fund holds an equity interest in any "passive foreign investment
companies" ("PFICs"), which are generally certain foreign corporations that
receive at least 75% of their annual gross income from passive sources (such as
interest, dividends, certain rents and royalties or capital gains) or that hold
at least 50% of their assets in investments producing such passive income, the
Fund could be subject to U.S. federal income tax and additional interest charges
on gains and certain distributions with respect to those equity interests, even
if all the income or gain is timely distributed to its Unitholders. The Fund
will not be able to pass through to its Unitholders any credit or deduction for
such taxes. The Fund may be able to make an election that could ameliorate these
adverse tax consequences. In this case, the Fund would recognize as ordinary
income any increase in the value of such PFIC shares, and as ordinary loss any
decrease in such value to the extent it did not exceed prior increases included
in income. Under this election, the Fund might be required to recognize in a
year income in excess of its distributions from PFICs and its proceeds from
dispositions of PFIC stock during that year, and such income would nevertheless
be subject to the distribution requirement and would be taken into account for
purposes of the 4% excise tax (described above). Dividends paid by PFICs will
not be treated as qualified dividend income.
BACKUP WITHHOLDING
The Funds may be required to withhold U.S. federal income tax from all
taxable distributions and sale proceeds payable to shareholders who fail to
provide the Funds with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. The withholding percentage
- 54 -
is 28% until 2011, when the percentage will revert to 31% unless amended by
Congress. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from such backup withholding. This withholding is not
an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
U.S. taxation of a shareholder who, as to the United States, is a
nonresident alien individual, a foreign trust or estate, a foreign corporation
or foreign partnership ("non-U.S. shareholder") depends on whether the income of
the Fund is "effectively connected" with a U.S. trade or business carried on by
the shareholder.
Income Not Effectively Connected. If the income from a Fund is not
"effectively connected" with a U.S. trade or business carried on by the non-U.S.
shareholder, distributions of investment company taxable income will generally
be subject to a U.S. tax of 30% (or lower treaty rate), which tax is generally
withheld from such distributions.
Distributions of capital gain dividends and any amounts retained by a
Fund which are designated as undistributed capital gains will not be subject to
U.S. tax at the rate of 30% (or lower treaty rate) unless the non-U.S.
shareholder is a nonresident alien individual and is physically present in the
United States for more than 182 days during the taxable year and meets certain
other requirements. However, this 30% tax on capital gains of nonresident alien
individuals who are physically present in the United States for more than the
182 day period only applies in exceptional cases because any individual present
in the United States for more than 182 days during the taxable year is generally
treated as a resident for U.S. income tax purposes; in that case, he or she
would be subject to U.S. income tax on his or her worldwide income at the,
graduated rates applicable to U.S. citizens, rather than the 30% U.S. tax. In
the case of a non-U.S. shareholder who is a nonresident alien individual, the
Funds may be required to withhold U.S. income tax from distributions of net
capital gain unless the non-U.S. shareholder certifies his or her non-U.S.
status under penalties of perjury or otherwise establishes an exemption. If a
non-U.S. shareholder is a nonresident alien individual, any gain such
shareholder realizes upon the sale or exchange of such shareholder's shares of
the Funds in the United States will ordinarily be exempt from U.S. tax unless
the gain is U.S. source income and such shareholder is physically present in the
United States for more than 182 days during the taxable year and meets certain
other requirements.
Under the provisions of the American Jobs Creation Act of 2004 (the
"2004 Tax Act"), dividends paid by the Funds to shareholders who are nonresident
aliens or foreign entities and that are derived from short-term capital gains
and qualifying net interest income (including income from original issue
discount and market discount), and that are properly designated by the Funds as
"interest-related dividends" or "short-term capital gain dividends," will
generally not be subject to United States withholding tax, provided that the
income would not be subject to federal income tax if earned directly by the
foreign shareholder. In addition, pursuant to the 2004 Tax Act, capital gains
distributions attributable to gains from U.S. real property interests (including
certain U.S. real property holding corporations) will generally be subject to
- 55 -
United States withholding tax and will give rise to an obligation on the part of
the foreign shareholder to file a United States tax return. The provisions
contained in the legislation relating to distributions to shareholders who are
nonresident aliens or foreign entities generally would apply to distributions
with respect to taxable years of the Funds beginning after December 31, 2004 and
before January 1, 2008.
Income Effectively Connected. If the income from a Fund is "effectively
connected" with a U.S. trade or business carried on by a non-U.S. shareholder,
then distributions of investment company taxable income and capital gain
dividends, any amounts retained by the Funds which are designated as
undistributed capital gains and any gains realized upon the sale or exchange of
shares of the Funds will be subject to U.S. income tax at the graduated rates
applicable to U.S. citizens, residents and domestic corporations. Non-U.S.
corporate shareholders may also be subject to the branch profits tax imposed by
the Code. The tax consequences to a non-U.S. shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described herein.
Non-U.S. shareholders are advised to consult their own tax advisors with respect
to the particular tax consequences to them of an investment in the Funds.
OTHER TAXATION
Fund shareholders may be subject to state, local and foreign taxes on
their Fund distributions. Shareholders are advised to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in the Funds.
DETERMINATION OF NAV
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Net Asset Value."
The per share NAV of a Fund is determined by dividing the total value
of the securities and other assets, less liabilities, by the total number of
Shares outstanding. A Fund's NAV may not be calculated on days during which a
Fund receives no orders to purchase shares and no shares are tendered for
redemption. In determining NAV, portfolio securities for a Fund for which
accurate market quotations are readily available will be valued by the Fund
accounting agent as follows:
(1) Common stocks and other equity securities listed on any
national or foreign exchange will be valued at the last sale price on
the exchange or system in which they are principally traded on the
valuation date and at the official closing price for securities listed
on NASDAQ. If there are no transactions on the valuation day,
securities traded principally on an exchange will be valued at the mean
between the most recent bid and ask prices.
(2) Securities traded in the over-the-counter market are
valued at their closing bid prices.
- 56 -
(3) Exchange traded options and Futures Contracts will be
valued at the closing price in the market where such contracts are
principally traded. Over-the-counter options and Futures Contracts will
be valued at their closing bid prices.
(4) Forward foreign currency exchange contracts which are
traded in the United States on regulated exchanges will be valued by
calculating the mean between the last bid and asked quotations supplied
to a pricing service by certain independent dealers in such contracts.
In addition, the following types of securities will be valued as
follows:
(1) Fixed income securities with a remaining maturity of 60
days or more will be valued by the fund accounting agent using a
pricing service. When price quotes are not available, fair market value
is based on prices of comparable securities.
(2) Fixed income securities maturing within 60 days are
valued by the fund accounting agent on an amortized cost basis.
(3) Repurchase agreements will be valued as follows.
Overnight repurchase agreements will be valued at cost. Term purchase
agreements (i.e., those whose maturity exceeds seven days) will be
valued by First Trust at the average of the bid quotations obtained
daily from at least two recognized dealers.
(4) Structured Products, including currency-linked notes,
credit-linked notes and other similar instruments, will be valued by
the Fund Accounting Agent using a pricing service or quotes provided by
the selling dealer or financial institution. When price quotes are not
available, fair market value is based on prices of comparable
securities. Absent a material difference between the exit price for a
particular structured product and the market rates for similar
transactions, the structured product will be valued at its exit price.
(5) Interest rate swaps and credit default swaps will be
valued by the Fund Accounting Agent using a pricing service or quotes
provided by the selling dealer or financial institution. When price
quotes are not available, fair market value is based on prices of
comparable securities. Absent a material difference between the exit
price for a particular swap and the market rates for similar
transactions, the swap will be valued at its exit price.
The value of any portfolio security held by a Fund for which market
quotations are not readily available will be determined by First Trust in a
manner that most fairly reflects fair market value of the security on the
valuation date, based on a consideration of all available information.
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
- 57 -
registration under the Securities Act of 1933) 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 Fund NAV (as may be the case in foreign
markets on which the security is primarily traded) 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 an issue of securities would
appear to be the amount which the owner might reasonably expect to receive for
them upon their current sale. A variety of factors may be considered in
determining the fair value of such securities.
A Fund may suspend the right of redemption for the Fund only under the
following unusual circumstances: (a) when the NYSE is closed (other than
weekends and holidays) or trading is restricted; (b) when trading in the markets
normally utilized is restricted, or when an emergency exists as determined by
the SEC so that disposal of a Fund's investments or determination of its net
assets is not reasonably practicable; or (c) during any period when the SEC may
permit.
DIVIDENDS AND DISTRIBUTIONS
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Dividends, Distributions and
Taxes."
General Policies. Dividends from net investment income, if any, are
declared and paid semi-annually. Distributions of net realized securities gains,
if any, generally are declared and paid once a year, but the Trust may make
distributions on a more frequent basis. The Trust reserves the right to declare
special distributions if, in its reasonable discretion, such action is necessary
or advisable to preserve the status of the Funds as a RIC or to avoid imposition
of income or excise taxes on undistributed income.
Dividends and other distributions of Fund Shares are distributed, as
described below, on a pro rata basis to Beneficial Owners of such Shares.
Dividend payments are made through DTC Participants and Indirect Participants to
Beneficial Owners then of record with proceeds received from the Funds.
Dividend Reinvestment Service. No reinvestment service is provided by
the Trust. Broker-dealers may make available the DTC book-entry Dividend
Reinvestment Service for use by Beneficial Owners of the Funds for reinvestment
of their dividend distributions. Beneficial Owners should contact their brokers
in order to determine the availability and costs of the service and the details
of participation therein. Brokers may require Beneficial Owners to adhere to
specific procedures and timetables. If this service is available and used,
dividend distributions of both income and realized gains will be automatically
reinvested in additional whole Shares of each Fund purchased in the secondary
market.
- 58 -
MISCELLANEOUS INFORMATION
Counsel. Chapman and Cutler LLP, 111 West Monroe Street, Chicago,
Illinois 60603, is counsel to the Trust.
Independent Registered Public Accounting Firm. Deloitte & Touche LLP,
111 South Wacker Drive, Chicago, Illinois 60601, serves as the Funds'
independent registered public accounting firm. The firm audits each Fund's
financial statements and performs other related audit services.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto for the Funds,
contained in the Annual Report to Shareholders dated July 31, 2007, are
incorporated by reference into this Statement of Additional Information and have
been audited by Deloitte & Touche LLP, independent registered public accounting
firm, whose report also appears in the Annual Report and is also incorporated by
reference herein. No other parts of the Annual Report are incorporated by
reference herein. The Annual Report is attached to this Statement of Additional
Information.
- 59 -
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
ANNUAL REPORT JULY 31, 2007
SECTOR SERIES
First Trust Consumer Discretionary AlphaDEX(TM) Fund
First Trust Consumer Staples AlphaDEX(TM) Fund
First Trust Energy AlphaDEX(TM) Fund
First Trust Financials AlphaDEX(TM) Fund
First Trust Health Care AlphaDEX(TM) Fund
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund
First Trust Materials AlphaDEX(TM)
Fund First Trust Technology AlphaDEX(TM)
Fund First Trust Utilities AlphaDEX(TM) Fund
CORE SERIES
First Trust Large Cap Core AlphaDEX(TM) Fund
First Trust Mid Cap Core AlphaDEX(TM) Fund
First Trust Small Cap Core AlphaDEX(TM)Fund
STYLE SERIES
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund
MULTI CAP SERIES
First Trust Multi Cap Value AlphaDEX(TM) Fund
First Trust Multi Cap Growth AlphaDEX(TM) Fund
[LOGO OMITTED] AlphaDEX (TM)
Family of ETFs
AlphaDEX(TM) is a trademartk of First Trust Portfolios L.P.
Front Cover
Table of Contents
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
Shareholder Letter...................................................... 2
Market Overview......................................................... 3
Fund Performance Overview
First Trust Consumer Discretionary AlphaDEX(TM) Fund.............. 4
First Trust Consumer Staples AlphaDEX(TM) Fund.................... 6
First Trust Energy AlphaDEX(TM) Fund.............................. 8
First Trust Financials AlphaDEX(TM) Fund.......................... 10
First Trust Health Care AlphaDEX(TM) Fund......................... 12
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund....... 14
First Trust Materials AlphaDEX(TM) Fund........................... 16
First Trust Technology AlphaDEX(TM) Fund.......................... 18
First Trust Utilities AlphaDEX(TM) Fund........................... 20
First Trust Large Cap Core AlphaDEX(TM) Fund...................... 22
First Trust Mid Cap Core AlphaDEX(TM) Fund........................ 24
First Trust Small Cap Core AlphaDEX(TM) Fund...................... 26
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund....... 28
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund...... 30
First Trust Multi Cap Value AlphaDEX(TM) Fund..................... 32
First Trust Multi Cap Growth AlphaDEX(TM) Fund.................... 34
Notes to Fund Performance Overview...................................... 36
Understanding Your Fund Expenses........................................ 37
Portfolio of Investments
First Trust Consumer Discretionary AlphaDEX(TM) Fund.............. 39
First Trust Consumer Staples AlphaDEX(TM) Fund.................... 41
First Trust Energy AlphaDEX(TM) Fund.............................. 42
First Trust Financials AlphaDEX(TM) Fund.......................... 43
First Trust Health Care AlphaDEX(TM) Fund......................... 46
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund....... 47
First Trust Materials AlphaDEX(TM) Fund........................... 48
First Trust Technology AlphaDEX(TM) Fund.......................... 49
First Trust Utilities AlphaDEX(TM) Fund........................... 51
First Trust Large Cap Core AlphaDEX(TM) Fund...................... 52
First Trust Mid Cap Core AlphaDEX(TM) Fund........................ 58
First Trust Small Cap Core AlphaDEX(TM) Fund...................... 63
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund....... 70
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund...... 74
First Trust Multi Cap Value AlphaDEX(TM) Fund..................... 78
First Trust Multi Cap Growth AlphaDEX(TM) Fund.................... 86
Statements of Assets and Liabilities.................................... 94
Statements of Operations................................................ 98
Statements of Changes in Net Assets..................................... 102
Financial Highlights.................................................... 106
Notes to Financial Statements........................................... 114
Report of Independent Registered Public Accounting Firm................. 121
Additional Information.................................................. 122
Board of Trustees and Officers.......................................... 125
Risk Considerations..................................................... 127
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CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933. 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 AlphaDEX(TM) Fund (the "Trust") to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. When evaluating the information
included in this report, you are cautioned not to place undue reliance on these
forward-looking statements, which reflect the judgment of the Advisor and its
representatives only as of the date hereof. We undertake no obligation to
publicly revise or update these forward-looking statements to reflect events and
circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any 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.
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 market 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 letter from the President of the Trust, James A. Bowen, together
with 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 Mr. Bowen and Mr.
Carey 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. Of course, the risks of investing in each
Fund are spelled out in its prospectus.
Page 1
Shareholder Letter
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
ANNUAL REPORT
FOR THE PERIOD MAY 8, 2007 (INCEPTION DATE) TO JULY 31, 2007
Dear Shareholders:
We believe investment opportunities abound, both here and abroad, affording the
potential for exceptional returns for investors. At First Trust Advisors L.P.
("First Trust"), we realize that we must be mindful of the complexities of the
global economy and at the same time address the needs of our customers through
the types of investments we bring to market.
First Trust is single-minded about providing a range of investment products,
including our family of exchange-traded funds ("ETFs"), to help us meet the
challenge of maximizing our customers' financial opportunities. Translating
investment ideas into products which can deliver performance over the long-term
while continuing to support our current product line remains a focus for First
Trust as we head into the future.
Over the past 12 months, we have added 25 ETFs to our family of funds, including
16 AlphaDEX(TM) exchange-traded funds, one or more of which you have purchased.
The AlphaDEX(TM) exchange-traded funds are designed to track the performance of
a group of custom "enhanced" indices created by Standard & Poor's or the
American Stock Exchange LLC. We are proud to bring these unique investments to
our customers, and are pleased you have chosen the AlphaDEX(TM) exchange-traded
fund(s) for a portion of your investment portfolio.
The report you hold will give you detailed information about each fund in the
First Trust Exchange-Traded AlphaDEX(TM) Fund for the period from May 8, 2007
(inception date) to July 31, 2007. I encourage you to read this report and
discuss it with your financial advisor. First Trust will continue to offer you
current information about your investment, as well as new opportunities in the
financial marketplace, through your financial advisor. We value our relationship
with you and appreciate the opportunity to assist you in achieving your
financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
President of First Trust Exchange-Traded AlphaDEX(TM) Fund
September 14, 2007
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Page 2
Market Overview
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
ANNUAL REPORT
FOR THE PERIOD MAY 8, 2007 TO JULY 31, 2007
[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. The equities markets were mixed in the first seven months of
2007. The S&P 500 Index posted a total return of 3.64%, while the S&P MidCap 400
Index and Russell 2000 Index of small-caps returned 7.15% and -0.83%,
respectively. According to Ibbotson Associates, the S&P 500 Index averaged
10.42% a year from 1926 through 2006, while small-cap stocks averaged 12.69%.
Both large- and small-caps are lagging their historical pace as of July. Mid-cap
issues continue to be the sweet spot of the market. We believe mid-caps are
outperforming their two counterparts because their size makes them attractive to
private equity firms and others looking to make acquisitions. Private equity
firms, in particular, are well-capitalized so small companies are not big enough
to meet the needs of such firms, while most large companies are out of reach.
With interest rates still at relatively low levels, we believe merger and
acquisition activity will remain strong through at least the end of this year.
With respect to fixed-income securities, the Lehman Brothers U.S. Treasury:
Intermediate Index posted a total return of 4.48% in the first seven months of
2007. From 1926 through 2006, Treasury bonds returned 5.42%, on average,
according to Ibbotson Associates. At this juncture they are on pace to achieve
or top their average. Treasury securities, in our opinion, have benefited from a
flight to quality inspired by heavy selling in speculative-grade debt in July.
The Federal Reserve Board (the "Fed") has held the federal funds rate at 5.25%
over the past 12 months. The Fed has been monitoring the weakness in the housing
market and weighing its influence against the overall strength of the economy.
Its primary concern is curbing inflation, which is still tracking above its 2.0%
ceiling. The Fed also has a new concern on its hands: sub-prime mortgages. A
high percentage of sub-prime mortgages written in recent years were
adjustable-rate. Unfortunately, some of these homeowners will not be able to
afford their homes once these mortgages reset higher over the next 6-12 months.
In fact, foreclosures were already 93% higher in July 2007 versus the same
period a year ago, according to RealtyTrac. As of June, the Fed did not believe
the sub-prime fallout would derail the current economic expansion, according to
Fed Chairman Ben Bernanke. Despite the good showing by government bonds in 2007,
we still favor equities over debt in the current climate.
The outlook for large-cap stocks is more optimistic than for mid- and small-cap
stocks at this stage of the economic cycle, in our opinion. Mid- and small-caps
have dominated their larger counterparts since the start of this decade. From
December 31, 1999 through July 31, 2007, the S&P 500 Index posted a cumulative
total return of 12.07%, which paled in comparison to the 109.80% gain posted by
the S&P Midcap 400 Index and the 69.82% gain posted by the Russell 2000 Index.
The primary reason for the anticipated shift in sentiment is the tempering of
economic growth due to weakness in the housing market and fallout from sub-prime
mortgages. The Blue Chip Economic Consensus Forecast out in July called for 2.1%
GDP growth in 2007, well below last year's 3.3% growth rate and the 3.9% growth
registered in 2004.
Page 3
Fund Performance Overview
FXD - FIRST TRUST CONSUMER DISCRETIONARY ALPHADEX(TM) FUND
The First Trust Consumer Discretionary AlphaDEX(TM) 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 StrataQuant(TM) Consumer
Discretionary Index (the "Consumer Discretionary Index"). The Fund will normally
invest at least 90% of its total assets in common stocks that comprise the
Consumer Discretionary Index. The Shares of the Fund are listed and trade on the
American Stock Exchange LLC (the "AMEX") under the ticker symbol "FXD." The Fund
began trading on May 10, 2007.
The Consumer Discretionary Index is a modified equal-dollar weighted index
designed by the AMEX to objectively identify and select stocks from the Russell
1000(R) Index that may generate positive alpha relative to traditional passive
style indices through the use of the AlphaDEX(TM) screening methodology. Alpha
is an indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark (Russell 1000(R) Consumer
Discretionary and Services Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV -5.85%
Market Price -5.80%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26%
StrataQuant(TM) Consumer Discretionary Index -5.61%
Russell 1000(R) Consumer Discretionary and Services Index -4.94%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Since Fund inception (May 8, 2007), the Fund has posted an NAV total
return of -5.85%, slightly underperforming the Russell 1000(R) Consumer
Discretionary and Services Index return of -4.94%. Fund performance was hurt by
retail stocks which came under pressure during the period as questions about the
sustainability of economic growth were raised.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were Crocs, Inc., Hilton Hotels Corp. and Amazon.com,
Inc. The worst-performing stocks, by percentage loss, were Foot Locker, Inc.,
Convergys Corp. and RadioShack Corp.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Consumer Discretionary 79.76%
Industrials 10.25
Information Technology 6.98
Consumer Staples 3.85
Materials 0.50
Net Other Assets and Liabilities (1.34)
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
Crocs, Inc. 1.81%
Amazon.com, Inc. 1.50
aQuantive, Inc. 1.36
GameStop Corp., Class A 1.35
Liberty Global, Inc., Class A 1.34
CDW Corp. 1.30
Guess?, Inc. 1.29
McClatchy (The) Co., Class A 1.26
Penn National Gaming Inc. 1.25
Liz Claiborne, Inc. 1.23
-----
Total 13.69%
=====
----------
|
The StrataQuant(TM) Consumer Discretionary Index is a trademark of the AMEX and
has been licensed for use by First Trust Portfolios L.P. The First Trust
Consumer Discretionary AlphaDEX(TM) Fund is not sponsored, endorsed, sold or
promoted by the AMEX and the AMEX makes no representation or warranty regarding
the advisability of investing in the Fund or as to the result to be obtained by
any person from use of the StrataQuant(TM) Consumer Discretionary Index in
connection with the trading of the Fund.
Page 4
Fund Performance Overview (Continued)
FXD - FIRST TRUST CONSUMER DISCRETIONARY ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
---------------------------------------------------------------------------------------------------------------------
First Trust StrataQuant(TM)
Consumer Discretionary Consumer Russell 1000(R) Russell 1000(R) Consumer
AlphaDEX(TM) Fund Discretionary Index Index Discretionary and Services Index
---------------------------------------------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000 $10,000
7/31/2007 $ 9,415 $ 9,439 $ 9,674 $ 9,506
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 15 0 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 42 0 0 0
|
Page 5
Fund Performance Overview (Continued)
FXG - FIRST TRUST CONSUMER STAPLES ALPHADEX(TM) FUND
The First Trust Consumer Staples AlphaDEX(TM) 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 StrataQuant(TM) Consumer Staples
Index (the "Consumer Staples Index"). The Fund will normally invest at least 90%
of its total assets in common stocks that comprise the Consumer Staples Index.
The Shares of the Fund are listed and trade on the AMEX under the ticker symbol
"FXG." The Fund began trading on May 10, 2007.
The Consumer Staples Index is a modified equal-dollar weighted index designed by
the AMEX to objectively identify and select stocks from the Russell 1000(R)
Index that may generate positive alpha relative to traditional passive style
indices through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark (Russell 1000(R) Consumer Staples
Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV -4.45%
Market Price -4.45%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26%
StrataQuant(TM) Consumer Staples Index -4.26%
Russell 1000(R) Consumer Staples Index -2.20%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Since Fund inception (May 8, 2007), the Fund has posted an NAV total
return of -4.45%, underperforming the Russell 1000(R) Consumer Staples Index
return of -2.20%. Beverage companies performed well over the period, leading
Fund performance. Performance was hurt by the Fund's grocery and drug retailers
whose performance trailed the benchmark.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were PepsiAmericas, Inc., Hansen Natural Corp. and
Wm. Wrigley Jr. Co. The worst-performing stocks, by percentage loss, were Rite
Aid Corp., Dean Foods Co. and SUPERVALU, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Consumer Staples 100.81%
Net Other Assets and Liabilities (0.81)
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
PepsiAmericas, Inc. 6.60%
Molson Coors Brewing Co., Class B 5.64
Safeway, Inc. 5.49
Dean Foods Co. 5.29
SUPERVALU, Inc. 5.27
Rite Aid Corp. 5.06
Smithfield Foods, Inc. 4.73
Loews Corp. - Carolina Group 4.60
Del Monte Foods Co. 4.47
Kroger (The) Co. 4.33
-----
Total 51.48%
=====
----------
|
The StrataQuant(TM) Consumer Staples Index is a trademark of the AMEX and has
been licensed for use by First Trust Portfolios L.P. The First Trust Consumer
Staples AlphaDEX(TM) Fund is not sponsored, endorsed, sold or promoted by the
AMEX and the AMEX makes no representation or warranty regarding the advisability
of investing in the Fund or as to the result to be obtained by any person from
use of the StrataQuant(TM) Consumer Staples Index in connection with the trading
of the Fund.
Page 6
Fund Performance Overview (Continued)
FXG - FIRST TRUST CONSUMER STAPLES ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
-------------------------------------------------------------------------------------------------------------------
First Trust StrataQuant(TM)
Consumer Staples Consumer Russell 1000(R) Russell 1000(R) Consumer
AlphaDEX(TM) Fund Staples Index Index Staples Index
-------------------------------------------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000 $10,000
7/31/2007 $ 9,555 $ 9,574 $ 9,674 $ 9,780
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 27 0 1 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 29 0 0 0
|
Page 7
Fund Performance Overview (Continued)
FXN - FIRST TRUST ENERGY ALPHADEX(TM) FUND
The First Trust Energy AlphaDEX(TM) 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 StrataQuant(TM) Energy Index (the
"Energy Index"). The Fund will normally invest at least 90% of its total assets
in common stocks that comprise the Energy Index. The Shares of the Fund are
listed and trade on the AMEX under the ticker symbol "FXN." The Fund began
trading on May 10, 2007.
The Energy Index is a modified equal-dollar weighted index designed by the AMEX
to objectively identify and select stocks from the Russell 1000(R) Index that
may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark (Russell 1000(R) Integrated Oils
Index and Russell 1000(R) Other Energy Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV 3.70%
Market Price 3.75%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26%
StrataQuant(TM) Energy Index 3.87%
Russell 1000(R) Integrated Oils Index 7.37%
Russell 1000(R) Other Energy Index 4.00%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Since Fund inception (May 8, 2007), the Fund has posted an NAV total
return of 3.70%, trailing both the Russell 1000(R) Integrated Oils Index (7.37%
return) and the Russell 1000(R) Other Energy Index (4.00% return). Strong
performance of the Fund's energy services components was unable to make up for
the relative underperformance of the Fund's energy production components.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were National Oilwell Varco, Inc., Global Industries
Ltd. and ConocoPhillips. The worst-performing stocks, by percentage loss, were
Plains Exploration & Production Co., Western Refining, Inc. and Patterson-UTI
Energy, Inc.
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Energy 98.12%
Utilities 2.37
Net Other Assets and Liabilities (0.49)
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
ConocoPhillips 3.29%
Continental Resources, Inc. 3.14
Global Industries Ltd. 3.08
Cimarex Energy Co. 3.06
Western Refining, Inc. 3.06
National Oilwell Varco, Inc. 2.94
Helmerich & Payne, Inc. 2.92
Holly Corp. 2.90
Valero Energy Corp. 2.90
Plains Exploration & Production Co. 2.88
-----
Total 30.17%
=====
----------
|
The StrataQuant(TM) Energy Index is a trademark of the AMEX and has been
licensed for use by First Trust Portfolios L.P. The First Trust Energy
AlphaDEX(TM) Fund is not sponsored, endorsed, sold or promoted by the AMEX and
the AMEX makes no representation or warranty regarding the advisability of
investing in the Fund or as to the result to be obtained by any person from use
of the StrataQuant(TM) Energy Index in connection with the trading of the Fund.
Page 8
Fund Performance Overview (Continued)
FXN - FIRST TRUST ENERGY ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
---------------------------------------------------------------------------------------------------------------
First Trust StrataQuant(TM) Russell 1000(R) Russell 1000(R)
Energy Energy Russell 1000(R) Integrated Oils Other Energy
AlphaDEX(TM) Fund Index Index Index Index
---------------------------------------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000 $10,000 $10,000
7/31/2007 $10,370 $10,387 $ 9,674 $10,737 $10,400
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 27 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 29 0 0 0
|
Page 9
Fund Performance Overview (Continued)
FXO - FIRST TRUST FINANCIALS ALPHADEX(TM) FUND
The First Trust Financials AlphaDEX(TM) 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 StrataQuant(TM) Financials Index
(the "Financials Index"). The Fund will normally invest at least 90% of its
total assets in common stocks that comprise the Financials Index. The Shares of
the Fund are listed and trade on the AMEX under the ticker symbol "FXO." The
Fund began trading on May 10, 2007.
The Financials Index is a modified equal-dollar weighted index designed by the
AMEX to objectively identify and select stocks from the Russell 1000(R) Index
that may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark (Russell 1000(R) Financial
Services Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV -10.45%
Market Price -10.35%
INDEX PERFORMANCE
StrataQuant(TM) Financials Index -10.14%
Russell 1000(R) Index -3.26%
Russell 1000(R) Financial Services Index -10.82%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Since Fund inception (May 8, 2007), the Fund has posted an NAV total
return of -10.45%, outperforming the Russell 1000(R) Financial Services Index
return of -10.82%. Fund performance, relative to the broader market (Russell
1000(R) Index), was hurt by sub-prime mortgage concerns which roiled global
credit markets toward the end of the period.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were Alliance Data Systems Corp., CBOT Holdings,
Class A and Alleghany Corp. The worst-performing stocks, by percentage loss,
were Radian Group, Inc., MGIC Investment Corp. and PMI Group (The), Inc.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Financials 88.65%
Information Technology 6.56
Industrials 4.10
Consumer Discretionary 1.13
Health Care 0.87
Net Other Assets and Liabilities (1.31)
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
IntercontinentalExchange, Inc. 1.16%
Ryder System, Inc. 1.14
Dow Jones & Co., Inc. 1.13
Alliance Data Systems Corp. 1.12
United Rental, Inc. 1.12
TFS Financial Corp. 1.11
Jones Lang LaSalle, Inc. 1.10
MasterCard, Inc., Class A 1.10
Arch Capital Group Ltd. 1.09
A.G. Edwards, Inc. 1.08
-----
Total 11.15%
=====
----------
|
The StrataQuant(TM) Financials Index is a trademark of the AMEX and has been
licensed for use by First Trust Portfolios L.P. The First Trust Financials
AlphaDEX(TM) Fund is not sponsored, endorsed, sold or promoted by the AMEX and
the AMEX makes no representation or warranty regarding the advisability of
investing in the Fund or as to the result to be obtained by any person from use
of the StrataQuant(TM) Financials Index in connection with the trading of the
Fund.
Page 10
Fund Performance Overview (Continued)
FXO - FIRST TRUST FINANCIALS ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
-------------------------------------------------------------------------------------------------------------------
First Trust StrataQuant(TM)
Financials Financials Russell 1000(R) Russell 1000(R)
AlphaDEX(TM) Fund Index Index Financial Services Index
-------------------------------------------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000 $10,000
7/31/2007 $ 8,955 $ 8,986 $ 9,674 $ 8,918
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 19 0 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 38 0 0 0
|
Page 11
Fund Performance Overview (Continued)
FXH - FIRST TRUST HEALTH CARE ALPHADEX(TM) FUND
The First Trust Health Care AlphaDEX(TM) 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 StrataQuant(TM) Health Care Index
(the "Health Care Index"). The Fund will normally invest at least 90% of its
total assets in common stocks that comprise the Health Care Index. The Shares of
the Fund are listed and trade on the AMEX under the ticker symbol "FXH." The
Fund began trading on May 10, 2007.
The Health Care Index is a modified equal-dollar weighted index designed by AMEX
to objectively identify and select stocks from the Russell 1000(R) Index that
may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark (Russell 1000(R) Health Care
Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV -2.60%
Market Price -2.50%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26%
StrataQuant(TM) Health Care Index -2.36%
Russell 1000(R) Health Care Index -7.09%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Since Fund inception (May 8, 2007), the Fund has posted an NAV total
return of -2.60%, outperforming the Russell 1000(R) Health Care Index return of
-7.09%. Fund performance was led by health care equipment and services firms,
while performance was hurt by the Fund's pharmaceuticals and biotechnology
holdings.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were Intuitive Surgical, Inc., Dade Behring Holdings,
Inc. and Cytyc Corp. The worst-performing stocks, by percentage loss, were
LifePoint Hospitals, Inc., ImClone Systems, Inc. and King Pharmaceuticals, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Health Care 94.57%
Industrials 1.95
Consumer Staples 1.74
Net Other Assets and Liabilities 1.74
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
Intuitive Surgical, Inc. 2.77%
WellCare Health Plans, Inc. 2.71
Humana, Inc. 2.55
Dade Behring Holdings, Inc. 2.54
Medco Health Solutions, Inc. 2.52
Express Scripts, Inc. 2.42
Cytyc Corp. 2.36
Manor Care, Inc. 2.35
Schering-Plough Corp. 2.27
Watson Pharmaceuticals, Inc. 2.26
-----
Total 24.75%
=====
----------
|
The StrataQuant(TM) Health Care Index is a trademark of the AMEX and has been
licensed for use by First Trust Portfolios L.P. The First Trust Health Care
AlphaDEX(TM) Fund is not sponsored, endorsed, sold or promoted by the AMEX and
the AMEX makes no representation or warranty regarding the advisability of
investing in the Fund or as to the result to be obtained by any person from use
of the StrataQuant(TM) Health Care Index in connection with the trading of the
Fund.
Page 12
Fund Performance Overview (Continued)
FXH - FIRST TRUST HEALTH CARE ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
-------------------------------------------------------------------------------------------------------------------
First Trust StrataQuant(TM)
Health Care Health Care Russell 1000(R) Russell 1000(R)
AlphaDEX(TM) Fund Index Index Health Care Index
-------------------------------------------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000 $10,000
7/31/2007 $ 9,740 $ 9,764 $ 9,674 $ 9,291
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 27 0 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 30 0 0 0
|
Page 13
Fund Performance Overview (Continued)
FXR - FIRST TRUST INDUSTRIALS/PRODUCER DURABLES ALPHADEX(TM) FUND
The First Trust Industrials/Producer Durables AlphaDEX(TM) 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
StrataQuant(TM) Industrials Index (the "Industrials Index"). The Fund will
normally invest at least 90% of its total assets in common stocks that comprise
the Industrials Index. The Shares of the Fund are listed and trade on the AMEX
under the ticker symbol "FXR." The Fund began trading on May 10, 2007.
The Industrials Index is a modified equal-dollar weighted index designed by the
AMEX to objectively identify and select stocks from the Russell 1000(R) Index
that may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark (Russell 1000(R) Producer Durables
Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV -5.65%
Market Price -5.40%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26%
StrataQuant(TM) Industrials Index -5.43%
Russell 1000(R) Producer Durables Index 2.91%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Since Fund inception (May 8, 2007), the Fund has posted an NAV total
return of -5.65%, trailing the Russell 1000(R) Producer Durables Index return of
2.91%. Machinery and aerospace and defense companies were among the stronger
performers in the Fund. Fund performance was hurt by an overweight position
(relative to the benchmark) in homebuilders, which declined significantly over
the period.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were Cummins, Inc., Varian Semiconductor Equipment
Associates, Inc. and Flowserve Corp. The worst-performing stocks, by percentage
loss, were Beazer Homes USA, Inc., D.R. Horton, Inc. and Toll Brothers, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Industrials 66.51%
Information Technology 15.94
Consumer Discretionary 15.83
Telecommunication Services 2.00
Net Other Assets and Liabilities (0.28)
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
Cummins, Inc. 4.06%
Terex Corp. 3.67
General Cable Corp. 3.63
BE Aerospace, Inc. 3.40
Manitowoc (The) Co., Inc. 3.34
Varian Semiconductor Equipment Associates, Inc. 3.25
Kennametal, Inc. 3.23
Ryland Group (The), Inc. 3.08
Toll Brothers, Inc. 3.04
NVR, Inc. 2.94
-----
Total 33.64%
=====
----------
|
The StrataQuant(TM) Industrials Index is a trademark of the AMEX and has been
licensed for use by First Trust Portfolios L.P. The First Trust
Industrials/Producer Durables AlphaDEX(TM) Fund is not sponsored, endorsed, sold
or promoted by the AMEX and the AMEX makes no representation or warranty
regarding the advisability of investing in the Fund or as to the result to be
obtained by any person from use of the StrataQuant(TM) Industrials Index in
connection with the trading of the Fund.
Page 14
Fund Performance Overview (Continued)
FXR - FIRST TRUST INDUSTRIALS/PRODUCER DURABLES ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
-------------------------------------------------------------------------------------------------------------------
First Trust
Industrials/Producer StrataQuant(TM)
Durables Industrials Russell 1000(R) Russell 1000(R)
AlphaDEX(TM) Fund Index Index Producer Durables Index
-------------------------------------------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000 $10,000
7/31/2007 $ 9,435 $ 9,457 $ 9,674 $10,291
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 40 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 16 0 0 0
|
Page 15
Fund Performance Overview (Continued)
FXZ - FIRST TRUST MATERIALS ALPHADEX(TM) FUND
The First Trust Materials AlphaDEX(TM) 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 StrataQuant(TM) Materials Index (the
"Materials Index"). The Fund will normally invest at least 90% of its total
assets in common stocks that comprise the Materials Index. The Shares of the
Fund are listed and trade on the AMEX under the ticker symbol "FXZ." The Fund
began trading on May 10, 2007.
The Materials Index is a modified equal-dollar weighted index designed by the
AMEX to objectively identify and select stocks from the Russell 1000(R) Index
that may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark (Russell 1000(R) Materials and
Processing Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV 0.85%
Market Price 0.85%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26%
StrataQuant(TM) Materials Index 1.04%
Russell 1000(R) Materials and Processing Index 1.21%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Since Fund inception (May 8, 2007), the Fund has posted an NAV total
return of 0.85%, trailing the Russell 1000(R) Materials and Processing Index
return of 1.21%. Construction, engineering, chemicals and containers and
packaging were among the portfolio leaders. Building products and materials and
paper related stocks weighed on Fund performance.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were Southern Copper Corp., Owens-Illinois, Inc. and
Freeport-McMoRan Copper & Gold, Inc. The worst-performing stocks, by percentage
loss, were Reliance Steel & Aluminum Co., Nucor Corp. and American Standard
Cos., Inc.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Materials 65.98%
Industrials 27.70
Consumer Staples 4.26
Net Other Assets and Liabilities 2.06
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
Shaw Group (The), Inc. 3.26%
Owens-Illinois, Inc. 3.24
Jacobs Engineering Group, Inc. 3.04
AK Steel Holding Corp. 3.03
McDermott International, Inc. 2.83
Celanese Corp., Series A 2.74
International Paper Co. 2.69
Reliance Steel & Aluminum Co. 2.65
Owens Corning, Inc. 2.57
Westlake Chemical Corp. 2.52
-----
Total 28.57%
=====
----------
|
The StrataQuant(TM) Materials Index is a trademark of the AMEX and has been
licensed for use by First Trust Portfolios L.P. The First Trust Materials
AlphaDEX(TM) Fund is not sponsored, endorsed, sold or promoted by the AMEX and
the AMEX makes no representation or warranty regarding the advisability of
investing in the Fund or as to the result to be obtained by any person from use
of the StrataQuant(TM) Materials Index in connection with the trading of the
Fund.
Page 16
Fund Performance Overview (Continued)
FXZ - FIRST TRUST MATERIALS ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
-------------------------------------------------------------------------------------------------------------------
First Trust StrataQuant(TM)
Materials Materials Russell 1000(R) Russell 1000(R) Materials
AlphaDEX(TM) Fund Index Index and Processing Index
-------------------------------------------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000 $10,000
7/31/2007 $10,085 $10,104 $ 9,674 $10,121
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 27 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 29 0 0 0
|
Page 17
Fund Performance Overview (Continued)
FXL - FIRST TRUST TECHNOLOGY ALPHADEX(TM) FUND
The First Trust Technology AlphaDEX(TM) 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 StrataQuant(TM) Technology Index
(the "Technology Index"). The Fund will normally invest at least 90% of its
total assets in common stocks that comprise the Technology Index. The Shares of
the Fund are listed and trade on the AMEX under the ticker symbol "FXL." The
Fund began trading on May 10, 2007.
The Technology Index is a modified equal-dollar weighted index designed by the
AMEX to objectively identify and select stocks from the Russell 1000(R) Index
that may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark (Russell 1000(R) Technology
Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV 2.35%
Market Price 2.25%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26%
StrataQuant(TM) Technology Index 2.52%
Russell 1000(R) Technology Index 2.26%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Since Fund inception (May 8, 2007), the Fund has posted an NAV total
return of 2.35%, slightly outperforming the Russell 1000(R) Technology Index
return of 2.26%. Performance was led by computer and semiconductor related
shares. Software and electronics held back Fund performance.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were Cree, Inc., Apple, Inc. and Avaya, Inc. The
worst-performing stocks, by percentage loss, were Avnet, Inc., AVX Corp. and
Vishay Intertechnology, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Information Technology 89.43%
Industrials 8.23
Consumer Discretionary 2.55
Health Care 0.96
Net Other Assets and Liabilities (1.17)
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
Garmin Ltd. 2.55%
SunPower Corp., Class A 2.52
NVIDIA Corp. 2.49
Western Digital Corp. 2.48
Apple, Inc. 2.43
Cypress Semiconductor Corp. 2.42
Trimble Navigation Ltd. 2.31
EMC Corp. 2.30
ADC Telecommunications, Inc. 2.30
L-3 Communications Holdings, Inc. 2.26
-----
Total 24.06%
=====
----------
|
The StrataQuant(TM) Technology Index is a trademark of the AMEX and has been
licensed for use by First Trust Portfolios L.P. The First Trust Technology
AlphaDEX(TM) Fund is not sponsored, endorsed, sold or promoted by the AMEX and
the AMEX makes no representation or warranty regarding the advisability of
investing in the Fund or as to the result to be obtained by any person from use
of the StrataQuant(TM) Technology Index in connection with the trading of the
Fund.
Page 18
Fund Performance Overview (Continued)
FXL - FIRST TRUST TECHNOLOGY ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
-------------------------------------------------------------------------------------------------------------------
First Trust StrataQuant(TM)
Technology Technology Russell 1000(R) Russell 1000(R)
AlphaDEX(TM) Fund Index Index Technology Index
-------------------------------------------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000 $10,000
7/31/2007 $10,235 $10,252 $ 9,674 $10,226
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 23 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 33 0 0 0
|
Page 19
Fund Performance Overview (Continued)
FXU - FIRST TRUST UTILITIES ALPHADEX(TM) FUND
The First Trust Utilities AlphaDEX(TM) 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 StrataQuant(TM) Utilities Index (the
"Utilities Index"). The Fund will normally invest at least 90% of its total
assets in common stocks that comprise the Utilities Index. The Shares of the
Fund are listed and trade on the AMEX under the ticker symbol "FXU." The Fund
began trading on May 10, 2007.
The Utilities Index is a modified equal-dollar weighted index designed by the
AMEX to objectively identify and select stocks from the Russell 1000(R) Index
that may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark (Russell 1000(R) Utilities Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV -8.15%
Market Price -8.15%
INDEX PERFORMANCE
Russell 1000(R) Index -3.26%
StrataQuant(TM) Utilities Index -7.95%
Russell 1000(R) Utilities Index -4.22%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Since Fund inception (May 8, 2007), the Fund has posted an NAV total
return of -8.15%, underperforming the Russell 1000(R) Utilities Index retrun of
-4.22%. Telecommunications stocks led Fund performance while electric and gas
utilities hurt Fund performance.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were United States Cellular Corp., Leap Wireless
International, Inc. and Telephone and Data Systems, Inc. The worst-performing
stocks, by percentage loss, were Pinnacle West Capital Corp., NiSource, Inc. and
Mirant Corp.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Utilities 80.16%
Telecommunication Services 17.38
Consumer Discretionary 3.11
Net Other Assets and Liabilities (0.65)
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
United States Cellular Corp. 3.39%
Leap Wireless International, Inc. 3.31
Cablevision Systems Corp., Class A 3.11
Puget Energy, Inc. 3.03
Alliant Energy Corp. 3.01
Pinnacle West Capital Corp. 2.98
CenturyTel, Inc. 2.96
Atmos Energy Corp. 2.96
Duke Energy Corp. 2.95
NiSource, Inc. 2.92
-----
Total 30.62%
=====
----------
|
The StrataQuant(TM) Utilities Index is a trademark of the AMEX and has been
licensed for use by First Trust Portfolios L.P. The First Trust Utilities
AlphaDEX(TM) Fund is not sponsored, endorsed, sold or promoted by the AMEX and
the AMEX makes no representation or warranty regarding the advisability of
investing in the Fund or as to the result to be obtained by any person from use
of the StrataQuant(TM) Utilities Index in connection with the trading of the
Fund.
Page 20
Fund Performance Overview (Continued)
FXU - FIRST TRUST UTILITIES ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
-------------------------------------------------------------------------------------------------------------------
First Trust StrataQuant(TM)
Utilities Utilities Russell 1000(R) Russell 1000(R)
AlphaDEX(TM) Fund Index Index Utilities Index
-------------------------------------------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000 $10,000
7/31/2007 $ 9,185 $ 9,205 $ 9,674 $ 9,578
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 27 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 29 0 0 0
|
Page 21
Fund Performance Overview (Continued)
FEX - FIRST TRUST LARGE CAP CORE ALPHADEX(TM) FUND
The First Trust Large Cap Core AlphaDEX(TM) 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 Defined Large Cap Core Index (the
"Large Cap Core Index"). The Fund will normally invest at least 90% of its total
assets in common stocks that comprise the Large Cap Core Index. The Shares of
the Fund are listed and trade on the AMEX under the ticker symbol "FEX." The
Fund began trading on May 10, 2007.
The Large Cap Core Index is a modified equal-dollar weighted index designed by
Standard & Poor's, a division of the McGraw-Hill Companies, Inc. ("S&P"), to
objectively identify and select stocks from the S&P 500 Index that may generate
positive alpha relative to traditional passive style indices through the use of
the AlphaDEX(TM) screening methodology. Alpha is an indication of how much an
investment outperforms or underperforms on a risk-adjusted basis relative to its
benchmark (S&P 500 Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV -4.40%
Market Price -4.43%
INDEX PERFORMANCE
S&P 500 Index -3.10%
Defined Large Cap Core Index -4.21%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Energy, industrials, and information technology, together comprising
about 39% of the Fund's net assets, were the only sectors to post positive
returns for the period ended July 31, 2007. Consumer discretionary and utility
stocks had the most negative impact on the Fund's total return relative to its
benchmark.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were Cummins, Inc., National Oilwell Varco, Inc. and
Amazon.com, Inc. The worst-performing stocks, by percentage loss, were MGIC
Investment Corp., American Standard Cos., Inc. and KB Home.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Consumer Discretionary 16.32%
Financials 14.54
Industrials 14.27
Information Technology 14.21
Energy 10.62
Utilities 9.20
Health Care 7.56
Materials 7.07
Consumer Staples 4.47
Telecommunication Services 2.09
Net Other Assets and Liabilities (0.35)
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
National Oilwell Varco, Inc. 0.54%
Amazon.com, Inc. 0.54
Precision Castparts Corp. 0.53
Tyco International Ltd. 0.52
Schlumberger Ltd. 0.52
NVIDIA Corp. 0.52
Apple, Inc. 0.51
Terex Corp. 0.50
Noble Corp. 0.49
Smith International, Inc. 0.49
----
Total 5.16%
====
----------
|
The Defined Large Cap Core Index is the exclusive property of S&P. First Trust
Portfolios L.P. has contracted with S&P to calculate and maintain the Defined
Large Cap Core Index. STANDARD & POOR'S and S&P are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by First Trust
Portfolios L.P. The First Trust Large Cap Core AlphaDEX(TM) Fund is not
sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's
does not make any representation regarding the advisability of investing in the
Fund.
Page 22
Fund Performance Overview (Continued)
FEX - FIRST TRUST LARGE CAP CORE ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
-------------------------------------------------------------------------------
First Trust
Large Cap Core Defined Large S&P 500
AlphaDEX(TM) Fund Cap Core Index Index
-------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000
7/31/2007 $ 9,560 $ 9,579 $ 9,690
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 18 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 38 0 0 0
|
Page 23
Fund Performance Overview (Continued)
FNX - FIRST TRUST MID CAP CORE ALPHADEX(TM) FUND
The First Trust Mid Cap Core AlphaDEX(TM) 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 Defined Mid Cap Core Index (the "Mid
Cap Core Index"). The Fund will normally invest at least 90% of its total assets
in common stocks that comprise the Mid Cap Core Index. The Shares of the Fund
are listed and trade on the AMEX under the ticker symbol "FNX." The Fund began
trading on May 10, 2007.
The Mid Cap Core Index is a modified equal-dollar weighted index designed by S&P
to objectively identify and select stocks from the S&P MidCap 400 Index that may
generate positive alpha relative to traditional passive style indices through
the use of the AlphaDEX(TM) screening methodology. Alpha is an indication of how
much an investment outperforms or underperforms on a risk-adjusted basis
relative to its benchmark (S&P MidCap 400 Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV -4.73%
Market Price -4.77%
INDEX PERFORMANCE
Defined Mid Cap Core Index -4.60%
S&P MidCap 400 Index -3.85%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Energy and industrials were the only sectors to have positive
performance over the period. An underweight position in financials, relative to
its benchmark also benefited the Fund as it was the worst-performing sector for
the period ended July 31, 2007. Consumer discretionary was the biggest detractor
from Fund performance, relative to its benchmark, due to an overweight position
in that sector.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were Intuitive Surgical, Inc., FMC Technologies, Inc.
and GameStop Corp., Class A. The worst-performing stocks, by percentage loss,
were Beazer Homes USA, Inc., Radian Group, Inc. and Kindred Healthcare, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Industrials 17.60%
Consumer Discretionary 17.11
Information Technology 15.15
Financials 10.08
Health Care 9.43
Utilities 9.19
Energy 8.79
Materials 7.29
Consumer Staples 3.80
Telecommunication Services 0.92
Net Other Assets and Liabilities 0.64
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
Intuitive Surgical, Inc. 0.72%
Modine Manufacturing Co. 0.67
WellCare Health Plans, Inc. 0.66
RF Micro Devices, Inc. 0.66
Cameron International Corp. 0.64
Ventana Medical Systems, Inc. 0.64
Cypress Semiconductor Corp. 0.63
Jacobs Engineering Group, Inc. 0.63
SPX Corp. 0.63
GameStop Corp., Class A 0.61
----
Total 6.49%
====
----------
|
The Defined Mid Cap Core Index is the exclusive property of S&P. First Trust
Portfolios L.P. has contracted with S&P to calculate and maintain the Defined
Mid Cap Core Index. STANDARD & POOR'S and S&P are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by First Trust Portfolios L.P.
The First Trust Mid Cap Core AlphaDEX(TM) Fund is not sponsored, endorsed, sold
or promoted by Standard & Poor's and Standard & Poor's does not make any
representation regarding the advisability of investing in the Fund.
Page 24
Fund Performance Overview (Continued)
FNX - FIRST TRUST MID CAP CORE ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
-------------------------------------------------------------------------------
First Trust Defined
Mid Cap Core Mid Cap Core S&P Mid Cap
AlphaDEX(TM) Fund Index 400 Index
-------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000
7/31/2007 $ 9,527 $ 9,540 $ 9,615
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 22 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 34 0 0 0
|
Page 25
Fund Performance Overview (Continued)
FYX - FIRST TRUST SMALL CAP CORE ALPHADEX(TM) FUND
The First Trust Small Cap Core AlphaDEX(TM) 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 Defined Small Cap Core Index (the
"Small Cap Core Index"). The Fund will normally invest at least 90% of its total
assets in common stocks that comprise the Small Cap Core Index. The Shares of
the Fund are listed and trade on the AMEX under the ticker symbol "FYX." The
Fund began trading on May 10, 2007.
The Small Cap Core Index is a modified equal-dollar weighted index designed by
S&P to objectively identify and select stocks from the S&P SmallCap 600 Index
that may generate positive alpha relative to traditional passive style indices
through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark (S&P SmallCap 600 Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV -5.67%
Market Price -5.77%
INDEX PERFORMANCE
Defined Small Cap Core Index -5.46%
S&P SmallCap 600 Index -4.65%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Telecommunication services and energy were the only two sectors to
have positive returns over the period ended July 31, 2007. An underweight
position in financials, relative to its benchmark, also benefited the Fund as it
was the worst-performing sector for the period ended July 31, 2007. Consumer
discretionary and industrials were the biggest detractors from Fund performance,
relative to its benchmark, due to underperformance of the Fund's holdings in
those sectors.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were Crocs, Inc., Penford Corp. and Blue Nile, Inc.
The worst-performing stocks, by percentage loss, were Standard Motor Products,
Inc., Finish Line (The), Inc., Class A and Advanced Energy Industries, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Industrials 20.28%
Information Technology 19.07
Consumer Discretionary 18.59
Financials 10.55
Health Care 9.69
Materials 7.71
Utilities 5.56
Energy 4.91
Consumer Staples 2.89
Telecommunication Services 0.32
Net Other Assets and Liabilities 0.43
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
Crocs, Inc. 0.55%
Penford Corp. 0.52
Option Care, Inc. 0.50
Blue Nile, Inc. 0.50
Chaparral Steel Co. 0.46
Triumph Group, Inc. 0.46
Keystone Automotive Industries, Inc. 0.45
Woodward Governor Co. 0.43
Hutchinson Technology, Inc. 0.42
Oceaneering International, Inc. 0.42
----
Total 4.71%
====
----------
|
The Defined Small Cap Core Index is the exclusive property of S&P. First Trust
Portfolios L.P. has contracted with S&P to calculate and maintain the Defined
Small Cap Core Index. STANDARD & POOR'S and S&P are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by First Trust
Portfolios L.P. The First Trust Small Cap Core AlphaDEX(TM) Fund is not
sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's
does not make any representation regarding the advisability of investing in the
Fund.
Page 26
Fund Performance Overview (Continued)
FYX - FIRST TRUST SMALL CAP CORE ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
--------------------------------------------------------------------------------
First Trust Small Defined Small S&P SmallCap
Cap Core Cap Core 600
AlphaDEX(TM) Fund Index Index
--------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000
7/31/2007 $ 9,433 $ 9,454 $ 9,535
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 24 0 1 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 32 0 0 0
|
Page 27
Fund Performance Overview (Continued)
FTA - FIRST TRUST LARGE CAP VALUE OPPORTUNITIES ALPHADEX(TM) FUND
The First Trust Large Cap Value Opportunities AlphaDEX(TM) 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 Defined
Large Cap Value Opportunities Index (the "Large Cap Value Index"). The Fund will
normally invest at least 90% of its total assets in common stocks that comprise
the Large Cap Value Index. The Shares of the Fund are listed and trade on the
AMEX under the ticker symbol "FTA." The Fund began trading on May 10, 2007.
The Large Cap Value Index is a modified equal-dollar weighted index designed by
S&P to objectively identify and select stocks from the S&P 500/Citigroup Value
Index that may generate positive alpha relative to traditional passive style
indices through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark (S&P 500/Citigroup Value Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV -5.50%
Market Price -5.30%
INDEX PERFORMANCE
S&P 500 Index -3.10%
Defined Large Cap Value Opportunities Index -5.38%
S&P 500/Citigroup Value Index -4.14%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Energy and industrials were the two best-performing sectors over the
period ended July 31, 2007 and biggest contributors to the Fund's return. A
significantly underweight position in financials benefited the Fund as it was
the worst-performing sector over the period ended July 31, 2007. Consumer
discretionary was the biggest detractor to performance due to an overweight
position and underperformance relative to its benchmark. An overweight position
in utilities also hurt Fund performance.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were Cummins, Inc., Freeport-McMoRan Copper & Gold,
Inc. and VeriSign, Inc. The worst-performing stocks, by percentage loss, were
MGIC Investment Corp., KB Home and CIT Group, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Financials 17.91%
Consumer Discretionary 16.39
Utilities 14.28
Industrials 13.00
Information Technology 9.90
Materials 8.59
Energy 8.39
Consumer Staples 5.45
Telecommunication Services 3.67
Health Care 2.45
Net Other Assets and Liabilities (0.03)
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
Tyco International Ltd. 1.01%
Hess Corp. 0.94
ConocoPhillips 0.93
Rowan Cos., Inc. 0.93
ADC Telecommunications, Inc. 0.92
Archer-Daniels-Midland Co. 0.92
Chevron Corp. 0.91
Ryder System, Inc. 0.91
Parker Hannifin Corp. 0.91
Novellus Systems, Inc. 0.91
----
Total 9.29%
====
----------
|
The Defined Large Cap Value Opportunities Index is the exclusive property of
S&P. First Trust Portfolios L.P. has contracted with S&P to calculate and
maintain the Defined Large Cap Value Opportunities Index. STANDARD & POOR'S and
S&P are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for
use by First Trust Portfolios L.P. The First Trust Large Cap Value Opportunities
AlphaDEX(TM) Fund is not sponsored, endorsed, sold or promoted by Standard &
Poor's and Standard & Poor's does not make any representation regarding the
advisability of investing in the Fund.
Page 28
Fund Performance Overview (Continued)
FTA - FIRST TRUST LARGE CAP VALUE OPPORTUNITIES ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
-------------------------------------------------------------------------------------------------------------------
First Trust Large Cap Defined Large Cap
Value Opportunities Value Opportunities S&P 500 S&P 500/Citigroup
AlphaDEX(TM) Fund Index Index Value Index
-------------------------------------------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000 $10,000
7/31/2007 $ 9,450 $ 9,462 $ 9,690 $ 9,586
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 40 0 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 17 0 0 0
|
Page 29
Fund Performance Overview (Continued)
FTC - FIRST TRUST LARGE CAP GROWTH OPPORTUNITIES ALPHADEX(TM) FUND
The First Trust Large Cap Growth Opportunities AlphaDEX(TM) 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 Defined
Large Cap Growth Opportunities Index (the "Large Cap Growth Index"). The Fund
will normally invest at least 90% of its total assets in common stocks that
comprise the Large Cap Growth Index. The Shares of the Fund are listed and trade
on the AMEX under the ticker symbol "FTC." The Fund began trading on May 10,
2007.
The Large Cap Growth Index is a modified equal-dollar weighted index designed by
S&P to objectively identify and select stocks from the S&P 500/Citigroup Growth
Index that may generate positive alpha relative to traditional passive style
indices through the use of the AlphaDEX(TM) screening methodology. Alpha is an
indication of how much an investment outperforms or underperforms on a
risk-adjusted basis relative to its benchmark (S&P 500/Citigroup Growth Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV -2.60%
Market Price -2.43%
INDEX PERFORMANCE
S&P 500 Index -3.10%
Defined Large Cap Growth Opportunities Index -2.43%
S&P 500/Citigroup Growth Index -1.98%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Energy was the best-performing sector in the Fund and had the
largest contribution to return. The Fund also benefited from an underweight
position in the health care sector, the second worst-performing sector over the
period ended July 31, 2007. Information technology was the biggest detractor
from performance, relative to its benchmark, due to an underweight position in
the sector.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were National Oilwell Varco, Inc., Amazon.com, Inc.
and Hilton Hotels Corp. The worst-performing stocks, by percentage loss, were
American Standard Cos., Inc., Big Lots, Inc. and Sunoco, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Information Technology 20.14%
Consumer Discretionary 16.18
Industrials 15.67
Health Care 14.16
Energy 13.28
Financials 10.29
Materials 4.73
Utilities 2.94
Consumer Staples 2.64
Net Other Assets and Liabilities (0.03)
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
National Oilwell Varco, Inc. 1.14%
Amazon.com, Inc. 1.14
Precision Castparts Corp. 1.12
Schlumberger Ltd. 1.10
NVIDIA Corp. 1.10
Apple, Inc. 1.07
Terex Corp. 1.05
Noble Corp. 1.04
Smith International, Inc. 1.04
Fluor Corp. 1.03
-----
Total 10.83%
=====
----------
|
The Defined Large Cap Growth Opportunities Index is the exclusive property of
S&P. First Trust Portfolios L.P. has contracted with S&P to calculate and
maintain the Defined Large Cap Growth Opportunities Index. STANDARD & POOR'S and
S&P are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for
use by First Trust Portfolios L.P. The First Trust Large Cap Growth
Opportunities AlphaDEX(TM) Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's and Standard & Poor's does not make any representation
regarding the advisability of investing in the Fund.
Page 30
Fund Performance Overview (Continued)
FTC - FIRST TRUST LARGE CAP GROWTH OPPORTUNITIES ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
-------------------------------------------------------------------------------------------------------------------
First Trust Large Cap Defined Large Cap
Growth Opportunities Growth Opportunities S&P 500 S&P 500/Citigroup
AlphaDEX(TM) Fund Index Index Growth Index
-------------------------------------------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000 $10,000
7/31/2007 $ 9,740 $ 9,757 $ 9,690 $ 9,802
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 37 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 19 0 0 0
|
Page 31
Fund Performance Overview (Continued)
FAB - FIRST TRUST MULTI CAP VALUE ALPHADEX(TM) FUND
The First Trust Multi Cap Value AlphaDEX(TM) 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 Defined Multi Cap Value Index (the
"Multi Cap Value Index"). The Fund will normally invest at least 90% of its
total assets in common stocks that comprise the Multi Cap Value Index. The
Shares of the Fund are listed and trade on the AMEX under the ticker symbol
"FAB." The Fund began trading on May 10, 2007.
The Multi Cap Value Index is a modified equal-dollar weighted index designed by
S&P to objectively identify and select stocks from the S&P Composite
1500/Citigroup Value Index that may generate positive alpha relative to
traditional passive style indices through the use of the AlphaDEX(TM) screening
methodology. Alpha is an indication of how much an investment outperforms or
underperforms on a risk-adjusted basis relative to its benchmark (S&P Composite
1500/Citigroup Value Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV -6.83%
Market Price -6.50%
INDEX PERFORMANCE
S&P Composite 1500 Index -3.22%
Defined Multi Cap Value Index -6.66%
S&P Composite 1500/Citigroup Value Index -4.33%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Energy was the best-performing sector over the period ended July 31,
2007, followed by telecommunication services. A significantly underweight
position in financials also benefited the Fund as it was the worst-performing
sector over the period ended July 31, 2007. Consumer discretionary was the
biggest detractor from Fund performance over the period ended July 31, 2007 due
to an overweight position and underperformance of the Fund's holdings in that
sector.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were Cummins, Inc., Penford Corp. and
Freeport-McMoRan Copper & Gold, Inc. The worst-performing stocks, by percentage
loss, were Beazer Homes USA, Inc., MGIC Investment Corp. and Radian Group, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Financials 16.78%
Consumer Discretionary 16.17
Utilities 14.43
Industrials 14.22
Information Technology 11.88
Materials 9.41
Energy 7.21
Consumer Staples 4.90
Health Care 2.91
Telecommunication Services 2.25
Net Other Assets and Liabilities (0.16)
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
Tyco International Ltd. 0.51%
Hess Corp. 0.48
Rowan Cos., Inc. 0.47
ConocoPhillips 0.47
ADC Telecommunications, Inc. 0.47
Archer-Daniels Midland Co. 0.47
Chevron Corp. 0.46
Ryder System, Inc. 0.46
Parker Hannifin Corp. 0.46
Novellus System, Inc. 0.46
----
Total 4.71%
====
----------
|
The Defined Multi Cap Value Index is the exclusive property of S&P. First Trust
Portfolios L.P. has contracted with S&P to calculate and maintain the Defined
Multi Cap Value Index. STANDARD & POOR'S and S&P are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by First Trust
Portfolios L.P. The First Trust Multi Cap Value AlphaDEX(TM) Fund is not
sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's
does not make any representation regarding the advisability of investing in the
Fund.
Page 32
Fund Performance Overview (Continued)
FAB - FIRST TRUST MULTI CAP VALUE ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
------------------------------------------------------------------------------------------------------------
First Trust Defined Multi
Multi Cap Value Cap Value S&P Composite S&P Composite 1500/Citigroup
AlphaDEX(TM) Fund Index 1500 Index Value Index
------------------------------------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000 $10,000
7/31/2007 $ 9,317 $ 9,334 $ 9,678 $ 9,567
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 39 0 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 18 0 0 0
|
Page 33
Fund Performance Overview (Continued)
FAD - FIRST TRUST MULTI CAP GROWTH ALPHADEX(TM) FUND
The First Trust Multi Cap Growth AlphaDEX(TM) 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 Defined Multi Cap Growth Index (the
"Multi Cap Growth Index"). The Fund will normally invest at least 90% of its
total assets in common stocks that comprise the Multi Cap Growth Index. The
Shares of the Fund are listed and trade on the AMEX under the ticker symbol
"FAD." The Fund began trading on May 10, 2007.
The Multi Cap Growth Index is a modified equal-dollar weighted index designed by
S&P to objectively identify and select stocks from the S&P Composite
1500/Citigroup Growth Index that may generate positive alpha relative to
traditional passive style indices through the use of the AlphaDEX(TM) screening
methodology. Alpha is an indication of how much an investment outperforms or
underperforms on a risk-adjusted basis relative to its benchmark (S&P Composite
1500/Citigroup Growth Index).
--------------------------------------------------------------------------------
Performance as of July 31, 2007
Since Fund Inception
(May 8, 2007)
FUND PERFORMANCE
NAV -2.03%
Market Price -1.90%
INDEX PERFORMANCE
S&P Composite 1500 Index -3.22%
Defined Multi Cap Growth Index -1.82%
S&P Composite 1500/Citigroup Growth Index -2.04%
--------------------------------------------------------------------------------
|
(See Notes to Fund Performance Overview on page 36.)
FUND RECAP. Energy was the best-performing sector in the Fund over the period
ended July 31, 2007, followed by industrials. Health care was the biggest
contributor to performance, relative to its benchmark, due to the outperformance
of the Fund's holdings in the sector versus its benchmark. The consumer
discretionary sector had the worst contribution to return due to an overweight
position in that sector. An underweight position in information technology also
held back Fund performance as it was the third best-performing sector over the
period ended July 31, 2007.
The top three performing stocks in the Fund over the period ended July 31, 2007,
by contribution to return, were National Oilwell Varco, Inc., Intuitive
Surgical, Inc. and Crocs, Inc. The worst-performing stocks, by percentage loss,
were American Standard Cos., Inc., Big Lots, Inc. and Sunoco, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF JULY 31, 2007
SECTOR % OF NET ASSETS
Information Technology 20.28%
Industrials 18.95
Consumer Discretionary 17.89
Health Care 15.15
Energy 11.27
Financials 7.17
Materials 4.41
Consumer Staples 2.52
Utilities 1.54
Telecommunication Services 0.26
Net Other Assets and Liabilities 0.56
------
Total 100.00%
======
|
TOP TEN PORTFOLIO HOLDINGS AS OF JULY 31, 2007
SECURITY % OF NET ASSETS
National Oilwell Varco, Inc. 0.57%
Amazon.com, Inc. 0.57
Precision Castparts Corp. 0.56
Schlumberger Ltd. 0.55
NVIDIA Corp. 0.55
Apple, Inc. 0.54
Terex Corp. 0.53
Noble Corp. 0.52
Smith International, Inc. 0.52
Fluor Corp. 0.51
----
Total 5.42%
====
----------
|
The Defined Multi Cap Growth Index is the exclusive property of S&P. First Trust
Portfolios L.P. has contracted with S&P to calculate and maintain the Defined
Multi Cap Growth Index. STANDARD & POOR'S and S&P are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by First Trust
Portfolios L.P. The First Trust Multi Cap Growth AlphaDEX(TM) Fund is not
sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's
does not make any representation regarding the advisability of investing in the
Fund.
Page 34
Fund Performance Overview (Continued)
FAD - FIRST TRUST MULTI CAP GROWTH ALPHADEX(TM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - July 31, 2007
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
-------------------------------------------------------------------------------------------------------------------
First Trust Multi Defined Multi Cap S&P S&P Composite
Cap Growth Growth Composite 1500/Citigroup
AlphaDEX(TM) Fund Index 1500 Index Growth Index
-------------------------------------------------------------------------------------------------------------------
5/8/2007 $10,000 $10,000 $10,000 $10,000
7/31/2007 $ 9,797 $ 9,818 $ 9,678 $ 9,796
|
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF JULY 31, 2007
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through July 31, 2007.
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 29 1 0 0
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
FOR THE PERIOD 0-49 BASIS POINTS 50-99 BASIS POINTS 100-199 BASIS POINTS >= 200 BASIS POINTS
5/10/07 - 7/31/07 27 0 0 0
|
Page 35
Notes to Fund Performance Overview
Total returns for the periods since inception are calculated from the inception
date of each Fund. 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 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.
Page 36
First Trust Exchange-Traded AlphaDEX(TM) Fund
Understanding Your Fund Expenses
July 31, 2007 (Unaudited)
As a shareholder of First Trust Consumer Discretionary AlphaDEX(TM) Fund, First
Trust Consumer Staples AlphaDEX(TM) Fund, First Trust Energy AlphaDEX(TM) Fund,
First Trust Financials AlphaDEX(TM) Fund, First Trust Health Care AlphaDEX(TM)
Fund, First Trust Industrials/Producer Durables AlphaDEX(TM) Fund, First Trust
Materials AlphaDEX(TM) Fund, First Trust Technology AlphaDEX(TM) Fund, First
Trust Utilities AlphaDEX(TM) Fund, First Trust Large Cap Core AlphaDEX(TM) Fund,
First Trust Mid Cap Core AlphaDEX(TM) Fund, First Trust Small Cap Core
AlphaDEX(TM) Fund, First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund,
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund, First Trust Multi
Cap Value AlphaDEX(TM) Fund, or First Trust Multi Cap Growth AlphaDEX(TM) 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 mutual funds.
The Hypothetical Example is based on an investment of $1,000 invested for the
most recent fiscal half-year ended July 31, 2007. The Actual Example is based on
an investment of $1,000 invested for the period since inception through July 31,
2007.
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 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 and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions paid on purchases and sales of Fund shares. Therefore, the second
line in the table is useful in comparing ongoing costs only, and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE PERIOD
ACCOUNT VALUE ACCOUNT VALUE NUMBER OF DAYS MAY 8, 2007 (A) TO
MAY 8, 2007 (A) JULY 31, 2007 IN THE PERIOD (B) JULY 31, 2007 (C)
FIRST TRUST CONSUMER DISCRETIONARY ALPHADEX(TM) FUND
Actual $1,000.00 $941.50 0.70% $1.58
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST CONSUMER STAPLES ALPHADEX(TM) FUND
Actual $1,000.00 $955.50 0.70% $1.59
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST ENERGY ALPHADEX(TM) FUND
Actual $1,000.00 $1,037.00 0.70% $1.66
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST FINANCIALS ALPHADEX(TM) FUND
Actual $1,000.00 $895.50 0.70% $1.54
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST HEALTH CARE ALPHADEX(TM) FUND
Actual $1,000.00 $974.00 0.70% $1.61
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
Page 37
|
First Trust Exchange-Traded AlphaDEX(TM) Fund
Understanding Your Fund Expenses (Continued)
July 31, 2007 (Unaudited)
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE PERIOD
ACCOUNT VALUE ACCOUNT VALUE NUMBER OF DAYS MAY 8, 2007 (A) TO
MAY 8, 2007 (A) JULY 31, 2007 IN THE PERIOD (B) JULY 31, 2007 (C)
FIRST TRUST INDUSTRIALS/PRODUCER DURABLES ALPHADEX(TM) FUND
Actual $1,000.00 $943.50 0.70% $1.58
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST MATERIALS ALPHADEX(TM) FUND
Actual $1,000.00 $1,008.50 0.70% $1.64
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST TECHNOLOGY ALPHADEX(TM) FUND
Actual $1,000.00 $1,023.50 0.70% $1.65
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST UTILITIES ALPHADEX(TM) FUND
Actual $1,000.00 $918.50 0.70% $1.56
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST LARGE CAP CORE ALPHADEX(TM) FUND
Actual $1,000.00 $956.00 0.70% $1.59
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST MID CAP CORE ALPHADEX(TM) FUND
Actual $1,000.00 $952.70 0.70% $1.59
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST SMALL CAP CORE ALPHADEX(TM) FUND
Actual $1,000.00 $943.30 0.70% $1.58
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST LARGE CAP VALUE OPPORTUNITIES ALPHADEX(TM) FUND
Actual $1,000.00 $945.00 0.70% $1.59
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST LARGE CAP GROWTH OPPORTUNITIES ALPHADEX(TM) FUND
Actual $1,000.00 $974.00 0.70% $1.61
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST MULTI CAP VALUE ALPHADEX(TM) FUND
Actual $1,000.00 $931.70 0.70% $1.57
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
FIRST TRUST MULTI CAP GROWTH ALPHADEX(TM) FUND
Actual $1,000.00 $979.70 0.70% $1.61
Hypothetical (5% return before expenses) $1,000.00 $1,021.32 0.70% $3.51
|
(a) Inception date.
(b) These expense ratios reflect expense caps.
(c) Actual expenses are equal to the annualized expense ratio of 0.70%,
multiplied by the average account value over the period, multiplied by 85/365
(to reflect the actual period May 8, 2007 to July 31, 2007). Hypothetical
expenses are assumed for the most recent fiscal half-year.
Page 38
First Trust Consumer Discretionary AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007 (Unaudited)
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCK--101.3%
CHEMICALS--0.5%
189 International Flavors & Fragrances,
Inc. $ 9,471
-------------
COMMERCIAL SERVICES & SUPPLIES--6.6%
1,098 Allied Waste Industries, Inc. (a) 14,131
77 Brink's (The) Co. 4,709
375 Cintas Corp. 13,710
322 Copart, Inc. (a) 9,061
781 Corrections Corp. of America (a) 22,533
267 Manpower, Inc. 21,106
340 R.R. Donnelley & Sons Co. 14,368
322 Republic Services, Inc. 10,288
378 Waste Management, Inc. 14,375
-------------
124,281
-------------
DIVERSIFIED CONSUMER SERVICES--3.7%
253 Apollo Group, Inc., Class A (a) 14,955
292 Career Education Corp. (a) 8,667
210 ITT Educational Services, Inc. (a) 22,188
320 Laureate Education, Inc. (a) 19,731
94 Weight Watchers International, Inc. 4,561
-------------
70,102
-------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS--1.8%
290 CDW Corp. (a) 24,410
278 Dolby Laboratories, Inc., Class A (a) 9,246
-------------
33,656
-------------
FOOD & STAPLES RETAILING--2.0%
273 BJ's Wholesale Club, Inc. (a) 9,271
253 Costco Wholesale Corp. 15,129
307 Wal-Mart Stores, Inc. 14,107
-------------
38,507
-------------
HOTELS, RESTAURANTS & LEISURE--9.1%
935 Burger King Holdings, Inc. 22,711
404 Carnival Corp. 17,901
108 Darden Restaurants, Inc. 4,598
116 Harrah's Entertainment, Inc. 9,824
142 Hilton Hotels Corp. 6,278
90 International Speedway Corp., Class A 4,310
291 McDonald's Corp. 13,930
239 MGM MIRAGE, Inc. (a) 17,473
89 Orient-Express Hotels Ltd., Class A 4,134
410 Penn National Gaming, Inc. (a) 23,576
459 Royal Caribbean Cruises Ltd. 17,685
136 Scientific Games Corp., Class A (a) 4,666
55 Station Casinos, Inc. 4,759
272 Wyndham Worldwide Corp. (a) 9,153
301 Yum! Brands, Inc. 9,644
-------------
170,642
-------------
HOUSEHOLD DURABLES--7.5%
112 Black & Decker (The) Corp. $ 9,696
169 Harman International Industries, Inc. 19,604
573 Jarden Corp. (a) 20,702
1,117 Leggett & Platt, Inc. 23,156
244 Mohawk Industries, Inc. (a) 21,962
94 Snap-on, Inc. 4,919
325 Stanley Works (The) 17,982
222 Whirlpool Corp. 22,669
-------------
140,690
-------------
HOUSEHOLD PRODUCTS--0.5%
147 Kimberly-Clark Corp. 9,889
-------------
INTERNET & CATALOG RETAIL--3.8%
360 Amazon.com, Inc. (a) 28,274
162 Expedia, Inc. (a) 4,311
137 IAC/InterActiveCorp. (a) 3,937
1,103 Liberty Media Corp. - Interactive,
Class A (a) 23,108
212 NutriSystem, Inc. (a) 11,813
-------------
71,443
-------------
INTERNET SOFTWARE & SERVICES--2.6%
386 aQuantive, Inc. (a) 25,533
28 Google, Inc., Class A (a) 14,280
311 VeriSign, Inc. (a) 9,234
-------------
49,047
-------------
IT SERVICES--2.6%
459 Accenture Ltd., Class A 19,337
813 Convergys Corp. (a) 15,488
462 Hewitt Associates, Inc., Class A (a) 13,823
-------------
48,648
-------------
LEISURE EQUIPMENT & PRODUCTS
--2.1%
627 Hasbro, Inc. 17,569
584 Mattel, Inc. 13,379
252 Pool Corp. 8,470
-------------
39,418
-------------
MACHINERY--0.7%
251 Toro (The) Co. 14,111
-------------
MEDIA--19.1%
444 CBS Corp., Class B 14,084
202 Central European Media Enterprises
Ltd., Class A (a) 18,681
126 Clear Channel Communications, Inc. 4,649
168 Clear Channel Outdoor Holdings,
Inc., Class A (a) 4,612
545 CTC Media, Inc. (a) 13,314
206 DIRECTV Group (The), Inc. (a) 4,616
643 Discovery Holding Co., Class A (a) 15,252
216 E.W. Scripps (The) Co., Class A 8,850
|
See Notes to Financial Statements Page 39
First Trust Consumer Discretionary AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDIA (CONTINUED)
341 EchoStar Communications Corp.,
Class A (a) $ 14,421
448 Gannett Co., Inc. 22,355
309 Getty Images, Inc. (a) 13,883
384 Harte-Hanks, Inc. 9,043
409 Hearst-Argyle Television, Inc. 8,589
558 Idearc, Inc. 19,368
408 John Wiley & Sons, Inc., Class A 17,254
600 Liberty Global, Inc., Class A (a) 25,159
973 McClatchy (The) Co., Class A 23,761
70 McGraw-Hill (The) Cos., Inc. 4,235
160 Meredith Corp. 9,038
465 News Corp., Class A 9,821
90 Omnicom Group, Inc. 4,668
449 Regal Entertainment Group, Class A 9,604
937 Time Warner, Inc. 18,047
670 Tribune Co. 18,733
114 Viacom, Inc., Class B (a) 4,366
606 Virgin Media, Inc. 15,053
577 Walt Disney (The) Co. 19,041
13 Washington Post (The) Co., Class B 10,280
-------------
360,777
-------------
MULTILINE RETAIL--8.5%
670 Big Lots, Inc. (a) 17,326
686 Dillard's, Inc., Class A 20,505
566 Dollar Tree Stores, Inc. (a) 21,654
718 Family Dollar Stores, Inc. 21,267
67 Kohl's Corp. (a) 4,074
495 Macy's, Inc. 17,855
193 Nordstrom, Inc. 9,183
692 Saks, Inc. (a) 12,809
116 Sears Holdings Corp. (a) 15,868
310 Target Corp. 18,777
-------------
159,318
-------------
PERSONAL PRODUCTS--1.3%
623 Alberto-Culver Co. 14,653
129 Avon Products, Inc. 4,645
105 Estee Lauder (The) Cos., Inc., Class A 4,727
-------------
24,025
-------------
ROAD & RAIL--1.2%
693 Avis Budget Group, Inc. (a) 17,789
179 Hertz Global Holdings, Inc. (a) 4,008
-------------
21,797
-------------
SPECIALTY RETAIL--19.1%
135 Abercrombie & Fitch Co., Class A 9,437
365 Advance Auto Parts, Inc. 12,691
695 AnnTaylor Stores Corp. (a) 21,837
878 AutoNation, Inc. (a) 17,103
108 Autozone, Inc. (a) 13,695
SPECIALTY RETAIL (CONTINUED)
512 Barnes & Noble, Inc. $ 17,178
580 CarMax, Inc. (a) 13,879
195 Chico's FAS, Inc. (a) 3,775
315 Circuit City Stores, Inc. 3,749
205 Coldwater Creek, Inc. (a) 4,036
339 Dick's Sporting Goods, Inc. (a) 19,062
1,130 Foot Locker, Inc. 20,973
630 GameStop Corp., Class A (a) 25,421
774 Gap (The), Inc. 13,313
513 Guess?, Inc. 24,362
501 Home Depot (The), Inc. 18,622
173 Limited Brands, Inc. 4,178
501 OfficeMax, Inc. 16,473
404 O'Reilly Automotive, Inc. (a) 13,457
694 Penske Automotive Group, Inc. 13,519
304 PetSmart, Inc. 9,828
743 RadioShack Corp. 18,672
154 Ross Stores, Inc. 4,455
464 Tiffany & Co. 22,388
173 TJX (The) Cos., Inc. 4,801
189 Tractor Supply Co. (a) 8,981
198 Urban Outfitters, Inc. (a) 3,972
-------------
359,857
-------------
TEXTILES, APPAREL & LUXURY
GOODS--6.9%
208 Coach, Inc. (a) 9,456
573 Crocs, Inc. (a) 33,990
660 Liz Claiborne, Inc. 23,192
254 NIKE, Inc., Class B 14,338
325 Phillips-Van Heusen Corp. 16,920
251 Polo Ralph Lauren Corp. 22,427
108 VF Corp. 9,265
-------------
129,588
-------------
TRADING COMPANIES & DISTRIBUTORS
--1.7%
235 Fastenal Co. 10,591
358 MSC Industrial Direct Co., Inc.,
Class A 18,005
79 WESCO International, Inc. (a) 4,230
-------------
32,826
-------------
TOTAL INVESTMENTS--101.3%
(Cost $2,023,036) 1,908,093
NET OTHER ASSETS AND
LIABILITIES--(1.3%) (25,267)
-------------
NET ASSETS--100.0% $ 1,882,826
=============
|
(a) Non-income producing security.
Page 40 See Notes to Financial Statements
First Trust Consumer Staples AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS--100.8%
BEVERAGES--25.2%
552 Anheuser-Busch Cos., Inc. $ 26,921
394 Brown-Forman Corp., Class B 26,177
551 Coca-Cola (The) Co. 28,713
5,537 Constellation Brands, Inc., Class A (a) 121,426
2,011 Hansen Natural Corp. (a) 81,546
1,818 Molson Coors Brewing Co., Class B 161,693
2,566 Pepsi Bottling Group (The), Inc. 85,858
6,842 PepsiAmericas, Inc. 189,319
-------------
721,653
-------------
FOOD & STAPLES RETAILING--20.1%
4,779 Kroger (The) Co. 124,063
26,340 Rite Aid Corp. (a) 145,133
4,938 Safeway, Inc. 157,374
3,628 SUPERVALU, Inc. 151,179
-------------
577,749
-------------
FOOD PRODUCTS--34.0%
1,732 Campbell Soup Co. 63,790
1,073 ConAgra Foods, Inc. 27,201
5,273 Dean Foods Co. (a) 151,703
11,056 Del Monte Foods Co. 128,249
1,151 General Mills, Inc. 64,019
3,599 Hormel Foods Corp. 123,878
1,056 J.M. Smucker (The) Co. 58,935
2,452 Kraft Foods, Inc., Class A 80,303
755 McCormick & Co., Inc. 25,791
1,656 Sara Lee Corp. 26,248
4,366 Smithfield Foods, Inc. (a) 135,607
1,563 Wm. Wrigley Jr. Co. 90,154
-------------
975,878
-------------
HOUSEHOLD PRODUCTS--7.1%
1,783 Church & Dwight Co., Inc. 87,475
464 Clorox (The) Co. 28,053
1,412 Procter & Gamble (The) Co. 87,346
-------------
202,874
-------------
PERSONAL PRODUCTS--2.4%
1,556 NBTY, Inc. (a) 67,748
-------------
TOBACCO--12.0%
958 Altria Group, Inc. $ 63,678
1,740 Loews Corp. - Carolina Group 131,875
1,326 Reynolds American, Inc. 81,111
1,252 UST, Inc. 67,045
-------------
343,709
-------------
TOTAL INVESTMENTS--100.8%
(Cost $3,048,199) 2,889,611
NET OTHER ASSETS AND
LIABILITIES--(0.8%) (23,125)
-------------
|
NET ASSETS--100.0% $ 2,866,486
(a) Non-income producing security.
See Notes to Financial Statements Page 41
First Trust Energy AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS--100.5%
ENERGY EQUIPMENT & SERVICES--39.1%
361 Baker Hughes, Inc. $ 28,537
1,272 Cameron International Corp. (a) 99,216
297 Diamond Offshore Drilling, Inc. 30,644
3,350 Dresser-Rand Group, Inc. (a) 124,285
1,491 ENSCO International, Inc. 91,055
382 FMC Technologies, Inc. (a) 34,961
6,167 Global Industries Ltd. (a) 159,726
421 GlobalSantaFe Corp. 30,190
563 Grant Prideco, Inc. (a) 31,584
4,670 Helmerich & Payne, Inc. 151,168
3,963 Nabors Industries Ltd. (a) 115,878
1,270 National Oilwell Varco, Inc. (a) 152,540
678 Noble Corp. 69,468
1,256 Oceaneering International, Inc. (a) 70,537
6,312 Patterson-UTI Energy, Inc. 144,545
1,767 Pride International, Inc. (a) 61,933
1,613 Rowan Cos., Inc. 68,052
779 Schlumberger Ltd. 73,787
1,417 SEACOR Holdings, Inc. (a) 123,591
1,552 Smith International, Inc. 95,308
759 Superior Energy Services, Inc. (a) 30,603
623 Transocean, Inc. (a) 66,941
2,628 Unit Corp. (a) 144,698
548 Weatherford International Ltd. (a) 30,321
-------------
2,029,568
-------------
INDEPENDENT POWER PRODUCERS &
ENERGY TRADERS--2.4%
3,184 NRG Energy, Inc. (a) 122,743
-------------
OIL, GAS & CONSUMABLE FUELS--59.0%
1,749 Anadarko Petroleum Corp. 88,027
1,622 Apache Corp. 131,122
3,823 Chesapeake Energy Corp. 130,135
1,571 Chevron Corp. 133,943
4,198 Cimarex Energy Co. 158,894
2,108 ConocoPhillips 170,411
10,336 Continental Resources, Inc. (a) 162,585
809 Denbury Resources, Inc. (a) 32,360
1,161 Devon Energy Corp. 86,622
905 EOG Resources, Inc. 63,441
789 Exxon Mobil Corp. 67,168
2,154 Forest Oil Corp. (a) 87,172
2,079 Frontier Oil Corp. 80,520
2,280 Helix Energy Solutions Group, Inc. (a) 88,806
1,542 Hess Corp. 94,370
2,230 Holly Corp. 150,280
2,206 Marathon Oil Corp. 121,771
511 Murphy Oil Corp. 31,702
1,452 Newfield Exploration Co. (a) 69,769
487 Noble Energy, Inc. 29,775
2,286 Occidental Petroleum Corp. 129,662
623 Pioneer Natural Resources Co. 28,347
3,460 Plains Exploration & Production Co. (a) 149,507
2,606 Pogo Producing Co. 138,796
OIL, GAS & CONSUMABLE FUELS
(CONTINUED)
809 Range Resources Corp. $ 30,046
2,485 St. Mary Land & Exploration Co. 82,726
829 Sunoco, Inc. 55,311
1,592 Tesoro Corp. 79,282
2,240 Valero Energy Corp. 150,102
3,250 W&T Offshore, Inc. 76,115
2,862 Western Refining, Inc. 158,841
-------------
3,057,608
-------------
TOTAL INVESTMENTS--100.5%
(Cost $5,463,172) 5,209,919
NET OTHER ASSETS AND
LIABILITIES--(0.5%) (25,432)
-------------
NET ASSETS--100.0% $ 5,184,487
=============
|
(a) Non-income producing security.
Page 42 See Notes to Financial Statements
First Trust Financials AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS--101.3%
CAPITAL MARKETS--14.7%
240 A.G. Edwards, Inc. $ 19,406
122 Affiliated Managers Group, Inc. (a) 13,786
381 Allied Capital Corp. 10,790
477 American Capital Strategies Ltd. 18,112
112 Bear Stearns (The) Cos., Inc. 13,577
25 BlackRock, Inc. 3,988
201 Charles Schwab (The) Corp. 4,046
178 E*TRADE Financial Corp. (a) 3,297
356 Eaton Vance Corp. 14,902
103 Federated Investors, Inc., Class B 3,709
89 Franklin Resources, Inc. 11,336
73 Goldman Sachs Group (The), Inc. 13,749
91 Investment Technology Group, Inc. (a) 3,636
565 Janus Capital Group, Inc. 16,984
146 Jefferies Group, Inc. 3,835
120 Legg Mason, Inc. 10,800
104 Lehman Brothers Holdings, Inc. 6,448
141 Merrill Lynch & Co., Inc. 10,462
188 Morgan Stanley 12,008
123 Northern Trust Corp. 7,683
253 Nuveen Investments, Inc. 15,468
127 Raymond James Financial, Inc. 3,895
135 SEI Investments Co. 3,680
115 State Street Corp. 7,708
227 T. Rowe Price Group, Inc. 11,834
1,014 TD Ameritrade Holding Corp. (a) 17,187
-------------
262,326
-------------
COMMERCIAL BANKS--13.5%
241 Associated Banc-Corp. 6,926
322 BancorpSouth, Inc. 7,519
193 BB&T Corp. 7,222
74 BOK Financial Corp. 3,701
52 City National Corp. 3,681
315 Colonial BancGroup (The), Inc. 6,870
132 Comerica, Inc. 6,951
213 Commerce Bancorp, Inc. 7,125
174 Commerce Bancshares, Inc. 7,734
74 Cullen/Frost Bankers, Inc. 3,676
101 East West Bancorp, Inc. 3,703
61 First Citizens BancShares, Inc., Class A 10,960
101 First Horizon National Corp. 3,204
546 Fulton Financial Corp. 7,218
519 Huntington Bancshares, Inc. 9,965
344 KeyCorp 11,933
74 M&T Bank Corp. 7,865
165 Marshall & Ilsley Corp. 6,800
472 National City Corp. 13,872
220 PNC Financial Services Group, Inc. 14,664
735 Popular, Inc. 9,695
238 Regions Financial Corp. 7,157
92 SunTrust Banks, Inc. 7,204
128 Synovus Financial Corp. 3,579
142 TCF Financial Corp. 3,492
COMMERCIAL BANKS (CONTINUED)
119 U.S. Bancorp $ 3,564
198 UnionBanCal Corp. 10,941
175 Valley National Bancorp 3,705
230 Wachovia Corp. 10,858
184 Webster Financial Corp. 7,997
224 Wells Fargo & Co. 7,564
261 Whitney Holding Corp. 6,522
102 Zions Bancorporation 7,604
-------------
241,471
-------------
COMMERCIAL SERVICES & SUPPLIES
--1.2%
115 Dun & Bradstreet (The) Corp. 11,243
266 Equifax, Inc. 10,762
-------------
22,005
-------------
CONSUMER FINANCE--2.6%
129 American Express Co. 7,552
593 AmeriCredit Corp. (a) 12,062
150 Capital One Financial Corp. 10,614
273 SLM Corp. (a) 13,423
19 Student Loan (The) Corp. 3,534
-------------
47,185
-------------
DIVERSIFIED FINANCIAL SERVICES
--3.9%
241 Bank of America Corp. 11,428
287 CIT Group, Inc. 11,819
153 Citigroup, Inc. 7,125
7 CME Group, Inc. 3,868
137 IntercontinentalExchange, Inc. (a) 20,704
244 JPMorgan Chase & Co. 10,738
132 Nasdaq Stock Market, Inc. (a) 4,062
-------------
69,744
-------------
HEALTH CARE PROVIDERS &
SERVICES--0.9%
301 CIGNA Corp. 15,544
-------------
INSURANCE--39.4%
324 ACE Ltd. 18,701
77 AFLAC, Inc. 4,013
39 Alleghany Corp. (a) 16,380
396 Allied World Assurance Holdings Ltd. 18,790
256 Allstate (The) Corp. 13,606
181 Ambac Financial Group, Inc. 12,154
461 American Financial Group, Inc. 12,949
169 American International Group, Inc. 10,846
52 American National Insurance Co. 7,776
92 Aon Corp. 3,684
279 Arch Capital Group Ltd. (a) 19,435
141 Arthur J. Gallagher & Co. 3,889
200 Assurant, Inc. 10,144
499 Axis Capital Holdings Ltd. 18,388
374 Chubb (The) Corp. 18,853
|
See Notes to Financial Statements Page 43
First Trust Financials AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
363 Cincinnati Financial Corp. $ 14,230
330 CNA Financial Corp. 13,702
753 Conseco, Inc. (a) 13,697
506 Endurance Specialty Holdings Ltd. 18,924
146 Erie Indemnity Co., Class A 7,539
187 Everest Re Group, Ltd. 18,373
855 Fidelity National Financial, Inc.,
Class A 17,861
318 First American Corp. 14,720
343 Genworth Financial, Inc., Class A 10,468
242 Hanover Insurance Group, Inc. 10,621
120 Hartford Financial Services Group
(The), Inc. 11,024
471 HCC Insurance Holdings, Inc. 13,791
111 Lincoln National Corp. 6,696
309 Loews Corp. 14,647
24 Markel Corp. (a) 11,172
255 Marsh & McLennan Cos., Inc. 7,025
253 MBIA, Inc. 14,193
286 Mercury General Corp. 14,809
122 MetLife, Inc. 7,347
124 Nationwide Financial Services,
Class A 7,057
740 Old Republic International Corp. 13,586
621 OneBeacon Insurance Group Ltd. 14,345
262 PartnerRe Ltd. 18,610
485 Philadelphia Consolidated Holding
Corp. (a) 17,528
68 Principal Financial Group, Inc. 3,835
658 Progressive (The) Corp. 13,805
247 Protective Life Corp. 10,626
121 Prudential Financial, Inc. 10,724
196 Reinsurance Group of America, Inc. 10,449
327 RenaissanceRe Holdings Ltd. 18,803
326 SAFECO Corp. 19,061
150 StanCorp Financial Group, Inc. 7,044
176 Torchmark Corp. 10,831
166 Transatlantic Holdings, Inc. 12,143
379 Travelers (The) Cos., Inc. 19,246
320 Unitrin, Inc. 13,562
301 Unum Group 7,314
26 White Mountains Insurance
Group Ltd. 14,287
623 W.R. Berkley Corp. 18,329
187 XL Capital Ltd., Class A 14,560
-------------
706,192
-------------
IT SERVICES--5.5%
262 Alliance Data Systems Corp. (a) 20,122
196 CheckFree Corp. (a) 7,221
99 DST Systems, Inc. (a) 7,511
373 Fidelity National Information
Services, Inc. 18,512
241 First Data Corp. 7,661
IT SERVICES (CONTINUED)
208 Fiserv, Inc. (a) $ 10,279
122 MasterCard, Inc., Class A 19,618
133 Total System Services, Inc. 3,741
189 Western Union Co. 3,771
-------------
98,436
-------------
MEDIA--1.1%
353 Dow Jones & Co., Inc. 20,255
-------------
REAL ESTATE INVESTMENT TRUSTS
--5.0%
273 Annaly Capital Management, Inc. 3,945
198 Boston Properties, Inc. 18,709
160 CapitalSource, Inc. 3,040
556 Colonial Properties Trust 19,233
95 Hospitality Properties Trust 3,644
1,135 HRPT Properties Trust 10,612
89 iStar Financial, Inc. 3,233
69 ProLogis 3,926
262 Rayonier, Inc. 11,093
451 Thornburg Mortgage, Inc. 11,464
-------------
88,899
-------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT--1.9%
431 CB Richard Ellis Group, Inc.,
Class A (a) 15,051
179 Jones Lang LaSalle, Inc. 19,650
-------------
34,701
-------------
ROAD & RAIL--1.1%
377 Ryder System, Inc. 20,497
-------------
SOFTWARE--1.1%
173 FactSet Research Systems, Inc. 11,416
196 Fair Isaac Corp. 7,695
-------------
19,111
-------------
THRIFTS & MORTGAGE FINANCE
--7.7%
157 Astoria Financial Corp. 3,697
433 Countrywide Financial Corp. 12,198
120 Fannie Mae 7,181
334 Freddie Mac 19,128
695 IndyMac Bancorp, Inc. 15,290
356 MGIC Investment Corp. 13,763
231 New York Community Bancorp, Inc. 3,749
454 PMI Group (The), Inc. 15,468
375 Radian Group, Inc. 12,641
1,757 TFS Financial Corp. (a) 19,959
162 Washington Federal, Inc. 3,650
277 Washington Mutual, Inc. 10,396
-------------
137,120
-------------
|
Page 44 See Notes to Financial Statements
First Trust Financials AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TRADING COMPANIES & DISTRIBUTORS
--1.7%
240 GATX Corp. $ 10,886
623 United Rentals, Inc. (a) 20,024
-------------
30,910
-------------
TOTAL INVESTMENTS--101.3%
(Cost $2,026,884) 1,814,396
NET OTHER ASSETS AND
LIABILITIES--(1.3%) (23,435)
-------------
NET ASSETS--100.0% $ 1,790,961
=============
|
(a) Non-income producing security.
See Notes to Financial Statements Page 45
First Trust Health Care AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS--98.3%
BIOTECHNOLOGY--8.9%
318 Amgen, Inc. (a) $ 17,089
214 Amylin Pharmaceuticals, Inc. (a) 9,953
329 Biogen Idec, Inc. (a) 18,602
307 Celgene Corp. (a) 18,592
586 Cephalon, Inc. (a) 44,031
137 Genzyme Corp. (a) 8,641
729 Gilead Sciences, Inc. (a) 27,141
1,214 PDL BioPharma, Inc. (a) 28,517
-------------
172,566
-------------
COMMERCIAL SERVICES & SUPPLIES
--2.0%
792 Stericycle, Inc. (a) 37,968
-------------
FOOD & STAPLES RETAILING--1.7%
965 CVS Caremark Corp. 33,958
-------------
HEALTH CARE EQUIPMENT & SUPPLIES
--22.3%
679 Bausch & Lomb, Inc. 43,408
502 Baxter International, Inc. 26,405
136 Beckman Coulter, Inc. 9,632
192 Biomet, Inc. (a) 8,742
330 Cooper Cos. (The), Inc. 16,543
1,093 Cytyc Corp. (a) 46,015
662 Dade Behring Holdings, Inc. 49,551
920 DENTSPLY International, Inc. 33,571
291 Gen-Probe, Inc. (a) 18,336
299 IDEXX Laboratories, Inc. (a) 29,978
254 Intuitive Surgical, Inc. (a) 54,003
544 Kinetic Concepts, Inc. (a) 33,445
413 Respironics, Inc. (a) 18,895
682 St. Jude Medical, Inc. (a) 29,421
139 Stryker Corp. 8,678
104 Zimmer Holdings, Inc. (a) 8,087
-------------
434,710
-------------
HEALTH CARE PROVIDERS & SERVICES
--37.6%
712 Aetna, Inc. 34,226
572 AmerisourceBergen Corp. 26,947
193 Brookdale Senior Living, Inc. 7,722
249 Cardinal Health, Inc. 16,367
870 Community Health Systems, Inc. (a) 33,843
610 Coventry Health Care, Inc. (a) 34,044
327 DaVita, Inc. (a) 17,311
942 Express Scripts, Inc. (a) 47,222
333 Health Net, Inc. (a) 16,497
329 Henry Schein, Inc. (a) 17,878
774 Humana, Inc. (a) 49,606
225 Laboratory Corp. of America
Holdings (a) 16,616
1,218 LifePoint Hospitals, Inc. (a) 35,992
221 Lincare Holdings, Inc. (a) 7,887
722 Manor Care, Inc. 45,739
HEALTH CARE PROVIDERS & SERVICES
(CONTINUED)
590 McKesson Corp. $ 34,078
604 Medco Health Solutions, Inc. (a) 49,087
244 Omnicare, Inc. 8,091
236 Patterson Cos., Inc. (a) 8,465
160 Pediatrix Medical Group, Inc. (a) 8,634
681 Quest Diagnostics, Inc. 37,775
423 Sierra Health Services, Inc. (a) 17,191
344 UnitedHealth Group, Inc. 16,660
766 Universal Health Services, Inc., Class B 40,169
467 VCA Antech, Inc. (a) 18,372
521 WellCare Health Plans, Inc. (a) 52,757
441 WellPoint, Inc. (a) 33,128
-------------
732,304
-------------
HEALTH CARE TECHNOLOGY--3.0%
634 Cerner Corp. (a) 33,520
880 IMS Health, Inc. 24,754
-------------
58,274
-------------
LIFE SCIENCES TOOLS & SERVICES--9.3%
682 Charles River Laboratories
International, Inc. (a) 34,905
412 Covance, Inc. (a) 29,075
383 Invitrogen Corp. (a) 27,499
377 Millipore Corp. (a) 29,636
739 Pharmaceutical Product Development,
Inc. 24,757
680 Thermo Fisher Scientific, Inc. (a) 35,502
-------------
181,374
-------------
PHARMACEUTICALS--13.5%
153 Allergan, Inc. 8,894
175 Barr Pharmaceuticals, Inc. (a) 8,964
279 Bristol-Myers Squibb Co. 7,926
257 Endo Pharmaceuticals Holdings, Inc. (a) 8,741
459 Johnson & Johnson 27,770
2,304 King Pharmaceuticals, Inc. (a) 39,191
353 Merck & Co., Inc. 17,526
1,376 Pfizer, Inc. 32,350
1,548 Schering-Plough Corp. 44,179
1,449 Watson Pharmaceuticals, Inc. (a) 44,079
493 Wyeth 23,920
-------------
263,540
-------------
|
TOTAL INVESTMENTS--98.3%
(Cost $1,939,767) 1,914,694
NET OTHER ASSETS AND
LIABILITIES--1.7% 33,838
-------------
NET ASSETS--100.0% $ 1,948,532
=============
(a) Non-income producing security.
|
Page 46 See Notes to Financial Statements
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS--100.3%
AEROSPACE & DEFENSE--12.2%
1,318 Alliant Techsystems, Inc. (a) $ 130,627
3,950 BE Aerospace, Inc. (a) 160,213
310 Boeing (The), Co. 32,063
2,191 Goodrich Corp. 137,836
1,143 Northrop Grumman Corp. 86,982
417 United Technologies Corp. 30,428
-------------
578,149
-------------
COMMERCIAL SERVICES & SUPPLIES--1.9%
2,647 Covanta Holding Corp. (a) 60,034
1,604 Steelcase, Inc., Class A 27,926
-------------
87,960
-------------
COMPUTERS & PERIPHERALS--2.5%
1,252 Diebold, Inc. 63,439
1,323 Lexmark International, Inc., Class A (a) 52,311
-------------
115,750
-------------
ELECTRICAL EQUIPMENT--10.8%
2,245 AMETEK, Inc. 87,600
1,559 Cooper Industries Ltd., Class A 82,502
2,155 General Cable Corp. (a) 171,322
1,203 Hubbell, Inc., Class B 69,353
521 Roper Industries, Inc. 31,250
1,127 Thomas & Betts Corp. (a) 69,649
-------------
511,676
-------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS--3.8%
682 Mettler-Toledo International, Inc. (a) 64,899
2,967 Molex, Inc. 84,085
878 Tektronix, Inc. 28,842
-------------
177,826
-------------
HOUSEHOLD DURABLES--15.8%
8,189 D.R. Horton, Inc. 133,644
3,317 KB Home 105,514
1,785 Lennar Corp., Class A 54,728
240 NVR, Inc. (a) 138,835
1,323 Pulte Homes, Inc. 25,587
4,366 Ryland Group (The), Inc. 145,169
6,535 Toll Brothers, Inc. (a) 143,313
-------------
746,790
-------------
MACHINERY--39.8%
3,007 AGCO Corp. (a 115,559
1,137 Caterpillar, Inc. 89,596
652 Crane Co. 29,901
1,613 Cummins, Inc. 191,463
737 Deere & Co. 88,750
1,824 Flowserve Corp. 131,820
2,091 Gardner Denver, Inc. (a) 86,965
2,310 IDEX Corp. 83,645
MACHINERY (CONTINUED)
1,204 Illinois Tool Works, Inc. $ 66,280
2,381 Ingersoll-Rand Co., Ltd., Class A 119,812
1,118 Joy Global, Inc. 55,330
1,990 Kennametal, Inc. 152,553
1,759 Lincoln Electric Holdings, Inc. 126,630
2,030 Manitowoc (The) Co., Inc. 157,670
2,838 Pall Corp. 117,834
908 Parker Hannifin Corp. 89,601
2,009 Terex Corp. (a) 173,276
-------------
1,876,685
-------------
OFFICE ELECTRONICS--1.8%
4,817 Xerox Corp. (a) 84,105
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--7.9%
1,493 Applied Materials, Inc. 32,906
541 KLA-Tencor Corp. 30,723
4,601 Novellus Systems, Inc. (a) 131,221
1,689 Teradyne, Inc. (a) 26,500
3,258 Varian Semiconductor Equipment
Associates, Inc. (a) 153,126
-------------
374,476
-------------
TRADING COMPANIES & DISTRIBUTORS
--1.8%
957 W.W. Grainger, Inc. 83,604
-------------
WIRELESS TELECOMMUNICATION
SERVICES--2.0%
707 American Tower Corp., Class A (a) 29,454
1,944 SBA Communications Corp. (a) 64,774
-------------
94,228
-------------
TOTAL INVESTMENTS--100.3%
(Cost $4,997,436) 4,731,249
NET OTHER ASSETS AND
LIABILITIES--(0.3%) (12,930)
-------------
NET ASSETS--100.0% $ 4,718,319
=============
|
(a) Non-income producing security.
See Notes to Financial Statements Page 47
First Trust Materials AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCK--97.9%
AEROSPACE & DEFENSE--2.4%
522 Precision Castparts Corp. $ 71,545
-------------
BUILDING PRODUCTS--9.0%
806 American Standard Cos., Inc. 43,564
1,711 Armstrong World Industries, Inc. (a) 74,121
926 Lennox International, Inc. 35,466
2,551 Owens Corning, Inc. (a) 77,627
969 USG Corp. (a) 40,223
-------------
271,001
-------------
CHEMICALS--25.8%
394 Air Products and Chemicals, Inc. 34,030
992 Airgas, Inc. 46,327
248 Ashland, Inc. 15,143
664 Cabot Corp. 26,812
2,213 Celanese Corp., Class A 82,989
2,852 Chemtura Corp. 29,746
745 Cytec Industries, Inc. 49,908
1,075 Dow Chemical (The) Co. 46,741
312 E.I. du Pont de Nemours and Co. 14,580
739 Eastman Chemical Co. 50,858
982 Lubrizol (The) Corp. 61,532
704 Monsanto Co. 45,373
1,218 Mosaic (The) Co. (a) 45,748
1,731 Nalco Holding Co. 39,882
208 PPG Industries, Inc. 15,864
220 Praxair, Inc. 16,856
579 Rohm and Haas Co. 32,725
685 RPM International, Inc. 16,104
371 Sigma-Aldrich Corp. 16,814
558 Valspar (The) Corp. 15,395
3,051 Westlake Chemical Corp. 76,214
-------------
779,641
-------------
CONSTRUCTION & ENGINEERING--10.9%
427 Fluor Corp. 49,323
1,492 Jacobs Engineering Group, Inc. (a) 91,952
2,066 Quanta Services, Inc. (a) 58,736
1,854 Shaw Group (The), Inc. (a) 98,670
653 URS Corp. (a) 32,167
-------------
330,848
-------------
CONSTRUCTION MATERIALS--1.3%
293 Martin Marietta Materials, Inc. 40,141
-------------
CONTAINERS & PACKAGING--9.1%
1,192 Ball Corp. 61,114
955 Bemis Co., Inc. 28,144
1,269 Crown Holdings, Inc. (a) 31,167
2,452 Owens-Illinois, Inc. (a) 98,030
626 Packaging Corp. of America 15,976
1,021 Sealed Air Corp. 27,822
370 Sonoco Products Co. 13,568
-------------
275,821
-------------
FOOD PRODUCTS--2.7%
1,436 Archer-Daniels-Midland Co. $ 48,250
187 Bunge Ltd. 16,944
349 Corn Products International, Inc. 15,572
-------------
80,766
-------------
HOUSEHOLD PRODUCTS--1.6%
477 Energizer Holdings, Inc. (a) 48,129
-------------
INDUSTRIAL CONGLOMERATES--2.8%
1,032 McDermott International, Inc. (a) 85,594
-------------
MACHINERY--2.6%
1,219 Harsco Corp. 64,192
439 Timken (The) Co. 14,663
-------------
78,855
-------------
METALS & MINING--26.1%
2,296 AK Steel Holding Corp. (a) 91,770
782 Alcoa, Inc. 29,872
302 Allegheny Technologies, Inc. 31,689
243 Carpenter Technology Corp. 28,842
882 Chaparral Steel Co. 74,123
816 Cleveland-Cliffs, Inc. 56,524
1,876 Commercial Metals Co. 57,856
765 Freeport-McMoRan Copper &
Gold, Inc. 71,895
406 Newmont Mining Corp. 16,951
1,080 Nucor Corp. 54,216
1,525 Reliance Steel & Aluminum Co. 80,124
672 Southern Copper Corp. 75,741
1,512 Steel Dynamics, Inc. 63,398
583 United States Steel Corp. 57,303
-------------
790,304
-------------
PAPER & FOREST PRODUCTS--3.6%
2,197 International Paper Co. 81,443
401 Weyerhaeuser Co. 28,567
-------------
110,010
-------------
TOTAL INVESTMENTS--97.9%
(Cost $3,016,697) 2,962,655
NET OTHER ASSETS AND
LIABILITIES--2.1% 62,452
-------------
NET ASSETS--100.0% $ 3,025,107
=============
|
(a) Non-income producing security.
Page 48 See Notes to Financial Statements
First Trust Technology AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS--101.2%
AEROSPACE & DEFENSE--4.8%
676 DRS Technologies, Inc. $ 35,395
247 General Dynamics Corp. 19,404
497 L-3 Communications Holdings, Inc. 48,488
-------------
103,287
-------------
COMMUNICATIONS EQUIPMENT--17.4%
2,639 ADC Telecommunications, Inc. (a) 49,323
2,298 Avaya, Inc. (a) 38,009
1,071 Ciena Corp. (a) 39,124
695 Cisco Systems, Inc. (a) 20,092
829 CommScope, Inc. (a) 45,122
355 Corning, Inc. 8,463
480 F5 Networks, Inc. (a) 41,611
709 Harris Corp. 38,910
1,537 Juniper Networks, Inc. (a) 46,049
1,093 Motorola, Inc. 18,570
209 QUALCOMM, Inc. 8,705
1,798 Tellabs, Inc. (a) 20,407
-------------
374,385
-------------
COMPUTERS & PERIPHERALS--16.2%
396 Apple, Inc. (a) 52,177
1,160 Brocade Communications Systems,
Inc. (a) 8,166
1,016 Dell, Inc. (a) 28,418
2,672 EMC Corp. (a) 49,459
650 Hewlett-Packard Co. 29,920
184 International Business Machines Corp. 20,360
552 NCR Corp. (a) 28,825
1,162 QLogic Corp. (a) 15,443
395 SanDisk Corp. (a) 21,184
1,333 Seagate Technology 31,339
1,724 Sun Microsystems, Inc. (a) 8,792
2,500 Western Digital Corp. (a) 53,374
-------------
347,457
-------------
ELECTRICAL EQUIPMENT--3.4%
279 Rockwell Automation, Inc. 19,527
767 SunPower Corp., Class A (a) 54,097
-------------
73,624
-------------
ELECTRONIC EQUIPMENT & INSTRUMENTS
--17.2%
1,085 Amphenol Corp., Class A 37,172
1,259 Arrow Electronics, Inc. (a) 48,119
1,220 Avnet, Inc. (a) 46,214
2,311 AVX Corp. 36,953
1,337 Ingram Micro, Inc., Class A (a) 26,807
411 Jabil Circuit, Inc. 9,260
891 National Instruments Corp. 28,824
10,514 Solectron Corp. (a) 39,533
1,502 Trimble Navigation Ltd. (a) 49,610
ELECTRONIC EQUIPMENT & INSTRUMENTS
(CONTINUED)
3,057 Vishay Intertechnology, Inc. (a) $ 47,414
-------------
369,906
-------------
HOUSEHOLD DURABLES--2.6%
654 Garmin Ltd. 54,871
-------------
IT SERVICES--6.0%
343 Acxiom Corp. 8,630
512 Affiliated Computer Services, Inc.,
Class A (a) 27,474
553 Ceridian Corp. (a) 18,747
654 Computer Sciences Corp. (a) 36,415
1,395 Electronic Data Systems Corp. 37,650
-------------
128,916
-------------
LIFE SCIENCES TOOLS & SERVICES--1.0%
742 PerkinElmer, Inc. 20,650
-------------
OFFICE ELECTRONICS--0.4%
234 Zebra Technologies Corp., Class A (a) 8,478
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--18.7%
874 Altera Corp. 20,277
241 Analog Devices, Inc. 8,543
748 Cree, Inc. (a) 19,164
2,077 Cypress Semiconductor Corp. (a) 52,050
1,502 Fairchild Semiconductor International,
Inc. (a) 27,412
382 Intel Corp. 9,023
779 International Rectifier Corp. (a) 28,597
922 Intersil Corp., Class A 26,969
5,152 LSI Corp. (a) 37,094
271 Maxim Integrated Products, Inc. 8,591
475 MEMC Electronic Materials, Inc. (a) 29,127
3,860 Micron Technology, Inc. (a) 45,818
321 National Semiconductor Corp. 8,343
1,171 NVIDIA Corp. (a) 53,584
771 Texas Instruments, Inc. 27,131
-------------
401,723
-------------
SOFTWARE--13.5%
228 Amdocs Ltd. (a) 8,251
822 Autodesk, Inc. (a) 34,829
1,413 BEA Systems, Inc. (a) 17,493
881 Cadence Design Systems, Inc. (a) 18,853
269 Citrix Systems, Inc. (a) 9,730
3,262 Compuware Corp. (a) 30,434
1,099 McAfee, Inc. (a) 39,411
308 Microsoft Corp. 8,929
457 NAVTEQ Corp. (a) 24,737
1,164 Novell, Inc. (a) 7,810
1,472 Oracle Corp. (a) 28,145
677 Salesforce.com, Inc. (a) 26,308
|
See Notes to Financial Statements Page 49
First Trust Technology AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SOFTWARE (CONTINUED)
1,437 Symantec Corp. (a) $ 27,590
343 Synopsys, Inc. (a) 8,390
-------------
290,910
-------------
TOTAL INVESTMENTS--101.2%
(Cost $2,170,215) 2,174,207
NET OTHER ASSETS AND
LIABILITIES--(1.2%) (25,271)
-------------
NET ASSETS--100.0% $ 2,148,936
=============
|
(a) Non-income producing security.
Page 50 See Notes to Financial Statements
First Trust Utilities AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS--100.6%
DIVERSIFIED TELECOMMUNICATION
SERVICES--4.2%
421 AT&T, Inc. $ 16,486
1,780 CenturyTel, Inc. 81,649
424 Verizon Communications, Inc. 18,071
-------------
116,206
-------------
ELECTRIC UTILITIES--24.7%
775 American Electric Power Co., Inc. 33,705
4,770 Duke Energy Corp. 81,232
622 Edison International 32,898
163 Entergy Corp. 16,293
809 FirstEnergy Corp. 49,147
308 FPL Group, Inc. 17,781
2,398 Great Plains Energy, Inc. 66,568
737 Hawaiian Electric Industries, Inc. 16,811
1,231 Northeast Utilities 33,656
1,238 Pepco Holdings, Inc. 33,513
2,191 Pinnacle West Capital Corp. 82,118
1,119 PPL Corp. 52,750
1,532 Progress Energy, Inc. 66,887
3,977 Sierra Pacific Resources (a) 63,195
1,018 Southern Co. 34,246
-------------
680,800
-------------
GAS UTILITIES--9.6%
863 AGL Resources, Inc. 32,535
2,904 Atmos Energy Corp. 81,514
1,271 Energen Corp. 67,249
346 ONEOK, Inc. 17,560
330 Questar Corp. 16,992
536 Southern Union Company 16,552
1,280 UGI Corp. 33,037
-------------
265,439
-------------
INDEPENDENT POWER PRODUCERS
& ENERGY TRADERS--4.0%
401 Constellation Energy Group 33,604
2,047 Mirant Corp. (a) 77,438
-------------
111,042
-------------
MEDIA--3.1%
2,412 Cablevision Systems Corp.,
Class A (a) 85,843
-------------
MULTI-UTILITIES--41.8%
2,247 Alliant Energy Corp. 83,027
1,425 Ameren Corp. 68,372
1,015 CMS Energy Corp. 16,402
1,548 Consolidated Edison, Inc. 67,617
202 Dominion Resources, Inc. 17,012
1,448 DTE Energy Co. 67,158
2,677 Energy East Corp. 67,755
344 Integrys Energy Group, Inc. 17,025
1,248 KeySpan Corp. 51,854
MULTI-UTILITIES (CONTINUED)
1,868 MDU Resources Group, Inc. $ 50,922
4,215 NiSource, Inc. 80,380
1,614 NSTAR 50,760
1,429 OGE Energy Corp. 47,371
1,156 PG&E Corp. 49,488
3,610 Puget Energy, Inc. 83,571
1,824 SCANA Corp. 68,181
590 Sempra Energy 31,105
3,049 TECO Energy, Inc. 49,211
2,593 Vectren Corp. 64,747
1,184 Wisconsin Energy Corp. 50,829
3,412 Xcel Energy, Inc. 69,264
-------------
1,152,051
-------------
WIRELESS TELECOMMUNICATION
SERVICES--13.2%
517 ALLTEL Corp. 34,096
1,033 Leap Wireless International, Inc. (a) 91,317
432 NII Holdings, Inc. (a) 36,297
2,529 Sprint Nextel Corp. 51,920
837 Telephone and Data Systems, Inc. 55,577
964 United States Cellular Corp. (a) 93,508
-------------
362,715
-------------
|
TOTAL INVESTMENTS--100.6%
(Cost $3,010,654) 2,774,096
NET OTHER ASSETS AND
LIABILITIES--(0.6%) (17,883)
-------------
NET ASSETS--100.0% $ 2,756,213
=============
|
(a) Non-income producing security.
See Notes to Financial Statements Page 51
First Trust Large Cap Core AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS --100.4%
AEROSPACE & DEFENSE--2.7%
84 Boeing (The) Co. $ 8,688
103 General Dynamics Corp. 8,092
45 Goodrich Corp. 2,831
138 L-3 Communications Holdings, Inc. 13,463
29 Lockheed Martin Corp. 2,856
138 Northrop Grumman Corp. 10,502
111 Precision Castparts Corp. 15,213
50 Raytheon Co. 2,768
76 Rockwell Collins, Inc. 5,221
113 United Technologies Corp. 8,246
-------------
77,880
-------------
AIR FREIGHT & LOGISTICS--0.8%
153 C.H. Robinson Worldwide, Inc. 7,443
97 FedEx Corp. 10,743
74 United Parcel Service, Inc., Class B 5,603
-------------
23,789
-------------
AIRLINES--0.3%
540 Southwest Airlines Co. 8,456
-------------
AUTO COMPONENTS--0.2%
46 Johnson Controls, Inc. 5,205
-------------
BEVERAGES--1.0%
37 Brown-Forman Corp., Class B 2,458
51 Coca-Cola (The) Co. 2,658
331 Constellation Brands, Inc.,
Class A (a) 7,259
116 Molson Coors Brewing Co., Class B 10,317
159 Pepsi Bottling Group (The), Inc. 5,320
-------------
28,012
-------------
BIOTECHNOLOGY--0.7%
100 Biogen Idec, Inc. (a) 5,654
94 Celgene Corp. (a) 5,693
208 Gilead Sciences, Inc. (a) 7,743
-------------
19,090
-------------
BUILDING PRODUCTS--0.4%
227 American Standard Cos., Inc. 12,269
-------------
CAPITAL MARKETS--3.5%
169 Ameriprise Financial, Inc. 10,186
77 Bear Stearns (The) Cos., Inc. 9,334
121 E*TRADE Financial Corp. (a) 2,241
70 Federated Investors, Inc., Class B 2,521
81 Franklin Resources, Inc. 10,317
62 Goldman Sachs Group (The), Inc. 11,677
385 Janus Capital Group, Inc. 11,573
55 Legg Mason, Inc. 4,950
144 Lehman Brothers Holdings, Inc. 8,928
96 Merrill Lynch & Co., Inc. 7,123
32 Morgan Stanley 2,044
84 Northern Trust Corp. 5,247
CAPITAL MARKETS (CONTINUED)
78 State Street Corp. $ 5,228
155 T. Rowe Price Group, Inc. 8,080
-------------
99,449
-------------
CHEMICALS--3.3%
100 Air Products and Chemicals, Inc. 8,637
42 Ashland, Inc. 2,565
303 Dow Chemical (The) Co. 13,174
158 E.I. du Pont de Nemours & Co. 7,383
167 Eastman Chemical Co. 11,493
273 Hercules, Inc. (a) 5,667
154 International Flavors & Fragrances, Inc. 7,717
199 Monsanto Co. 12,826
70 PPG Industries, Inc. 5,339
112 Praxair, Inc. 8,581
196 Rohm and Haas Co. 11,078
-------------
94,460
-------------
COMMERCIAL BANKS--3.0%
66 BB&T Corp. 2,470
90 Comerica, Inc. 4,739
145 Commerce Bancorp, Inc. 4,850
78 Compass Bancshares, Inc. 5,404
69 First Horizon National Corp. 2,189
354 Huntington Bancshares, Inc. 6,797
234 KeyCorp 8,117
50 M&T Bank Corp. 5,315
56 Marshall & Ilsley Corp. 2,308
322 National City Corp. 9,463
150 PNC Financial Services Group, Inc. 9,997
162 Regions Financial Corp. 4,871
31 SunTrust Banks, Inc. 2,427
81 U.S. Bancorp 2,426
157 Wachovia Corp. 7,412
76 Wells Fargo & Co. 2,567
70 Zions Bancorporation 5,219
-------------
86,571
-------------
COMMERCIAL SERVICES & SUPPLIES
--1.3%
797 Allied Waste Industries, Inc. (a) 10,257
81 Avery Dennison Corp. 4,969
121 Equifax, Inc. 4,896
185 R.R. Donnelley & Sons Co. 7,818
74 Robert Half International, Inc. 2,515
206 Waste Management, Inc. 7,834
-------------
38,289
-------------
COMMUNICATIONS EQUIPMENT--2.6%
732 ADC Telecommunications, Inc. (a) 13,682
797 Avaya, Inc. (a) 13,182
297 Ciena Corp. (a) 10,849
289 Cisco Systems, Inc. (a) 8,355
105 Corning, Inc. (a) 2,503
426 Juniper Networks, Inc. (a) 12,763
|
Page 52 See Notes to Financial Statements
First Trust Large Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMMUNICATIONS EQUIPMENT (CONTINUED)
303 Motorola, Inc. $ 5,148
62 QUALCOMM, Inc. 2,582
499 Tellabs, Inc. (a) 5,664
-------------
74,728
-------------
COMPUTERS & PERIPHERALS--2.4%
110 Apple, Inc. (a) 14,493
282 Dell, Inc. (a) 7,888
741 EMC Corp. (a) 13,716
120 Hewlett-Packard Co. 5,524
76 International Business Machines Corp. 8,409
204 NCR Corp. (a) 10,653
110 SanDisk Corp. (a) 5,899
510 Sun Microsystems, Inc. (a) 2,601
-------------
69,183
-------------
CONSTRUCTION & ENGINEERING--0.5%
120 Fluor Corp. 13,861
-------------
CONSTRUCTION MATERIALS--0.2%
47 Vulcan Materials Co. 4,499
-------------
CONSUMER FINANCE--0.4%
44 American Express Co. 2,576
186 SLM Corp. (a) 9,145
-------------
11,721
-------------
CONTAINERS & PACKAGING--1.2%
252 Ball Corp. 12,919
323 Bemis Co., Inc. 9,519
346 Sealed Air Corp. 9,429
44 Temple-Inland, Inc. 2,558
-------------
34,425
-------------
DISTRIBUTORS--0.2%
108 Genuine Parts Co. 5,139
-------------
DIVERSIFIED CONSUMER SERVICES
--0.4%
138 Apollo Group, Inc., Class A (a) 8,157
115 H&R Block, Inc. 2,294
-------------
10,451
-------------
DIVERSIFIED FINANCIAL SERVICES--0.9%
165 Bank of America Corp. 7,824
196 CIT Group, Inc. 8,071
52 Citigroup, Inc. 2,422
166 JPMorgan Chase & Co. 7,306
-------------
25,623
-------------
DIVERSIFIED TELECOMMUNICATION
SERVICES--1.3%
129 AT&T, Inc. 5,052
273 CenturyTel, Inc. 12,522
DIVERSIFIED TELECOMMUNICATION
SERVICES (CONTINUED)
351 Citizens Communications Co. $ 5,065
85 Embarq Corp. 5,252
195 Verizon Communications, Inc. 8,311
182 Windstream Corp. 2,504
-------------
38,706
-------------
ELECTRIC UTILITIES--3.5%
52 Allegheny Energy, Inc. (a) 2,716
238 American Electric Power Co., Inc. 10,351
733 Duke Energy Corp. 12,483
191 Edison International 10,102
50 Entergy Corp. 4,998
74 Exelon Corp. 5,191
166 FirstEnergy Corp. 10,085
142 FPL Group, Inc. 8,198
337 Pinnacle West Capital Corp. 12,631
57 PPL Corp. 2,687
294 Progress Energy, Inc. 12,835
235 Southern Co. 7,905
-------------
100,182
-------------
ELECTRICAL EQUIPMENT--0.7%
188 Cooper Industries Ltd., Class A 9,949
115 Emerson Electric Co. 5,413
77 Rockwell Automation, Inc. 5,389
-------------
20,751
-------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS--1.1%
70 Agilent Technologies, Inc. (a) 2,671
122 Jabil Circuit, Inc. 2,749
447 Molex, Inc. 12,667
1,458 Solectron Corp. (a) 5,482
239 Tektronix, Inc. 7,851
-------------
31,420
-------------
ENERGY EQUIPMENT & SERVICES--4.8%
159 Baker Hughes, Inc. 12,569
220 ENSCO International, Inc. 13,435
233 Halliburton Co. 8,393
241 Nabors Industries Ltd. (a) 7,047
129 National Oilwell Varco, Inc. (a) 15,494
138 Noble Corp. 14,139
327 Rowan Cos., Inc. 13,796
158 Schlumberger Ltd. 14,966
229 Smith International, Inc. 14,063
27 Transocean, Inc. (a) 13,646
194 Weatherford International Ltd. (a) 10,734
-------------
138,282
-------------
FOOD & STAPLES RETAILING--1.5%
46 Costco Wholesale Corp. 2,751
294 CVS Caremark Corp. 10,347
|
See Notes to Financial Statements Page 53
First Trust Large Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
FOOD & STAPLES RETAILING (CONTINUED)
191 Kroger (The) Co. $ 4,958
315 Safeway, Inc. 10,039
232 SUPERVALU, Inc. 9,667
56 Wal-Mart Stores, Inc. 2,573
70 Whole Foods Market, Inc. 2,593
-------------
42,928
-------------
FOOD PRODUCTS--1.3%
405 Archer-Daniels-Midland Co. 13,608
337 Dean Foods Co. (a) 9,695
46 General Mills, Inc. 2,559
152 Kraft Foods, Inc., Class A 4,978
97 Wm. Wrigley Jr. Co. 5,595
-------------
36,435
-------------
GAS UTILITIES--0.5%
250 Nicor, Inc. 9,852
102 Questar Corp. 5,252
-------------
15,104
-------------
HEALTH CARE EQUIPMENT &
SUPPLIES--0.8%
143 Baxter International, Inc. 7,522
59 Biomet, Inc. (a) 2,686
194 St. Jude Medical, Inc. (a) 8,370
43 Stryker Corp. 2,684
32 Zimmer Holdings, Inc. (a) 2,488
-------------
23,750
-------------
HEALTH CARE PROVIDERS & SERVICES
--3.0%
54 Aetna, Inc. 2,596
54 AmerisourceBergen Corp. 2,544
76 Cardinal Health, Inc. 4,995
206 CIGNA Corp. 10,638
140 Coventry Health Care, Inc. (a) 7,813
268 Express Scripts, Inc. (a) 13,435
176 Humana, Inc. (a) 11,280
69 Laboratory Corp. of America
Holdings (a) 5,096
205 Manor Care, Inc. 12,987
45 McKesson Corp. 2,599
105 UnitedHealth Group, Inc. 5,085
101 WellPoint, Inc. (a) 7,587
-------------
86,655
-------------
HEALTH CARE TECHNOLOGY- 0.2%
250 IMS Health, Inc. 7,033
-------------
HOTELS, RESTAURANTS & LEISURE--1.7%
220 Carnival Corp. 9,749
61 Darden Restaurants, Inc. 2,597
63 Harrah's Entertainment, Inc. 5,335
80 Hilton Hotels Corp. 3,537
HOTELS, RESTAURANTS & LEISURE
(CONTINUED)
159 McDonald's Corp. $ 7,611
120 Starwood Hotels & Resorts
Worldwide, Inc. 7,555
148 Wyndham Worldwide Corp. (a) 4,980
246 Yum! Brands, Inc. 7,882
-------------
49,246
-------------
HOUSEHOLD DURABLES--2.5%
30 Black & Decker (The) Corp. 2,597
65 Fortune Brands, Inc. 5,285
92 Harman International Industries, Inc. 10,672
341 KB Home 10,847
608 Leggett & Platt, Inc. 12,604
220 Lennar Corp., Class A 6,745
359 Pulte Homes, Inc. 6,943
133 Stanley Works (The) 7,359
72 Whirlpool Corp. 7,352
-------------
70,404
-------------
HOUSEHOLD PRODUCTS--0.2%
80 Kimberly-Clark Corp. 5,382
-------------
INDEPENDENT POWER PRODUCERS &
ENERGY TRADERS--0.5%
245 AES (The) Corp. (a) 4,814
123 Constellation Energy Group. 10,308
-------------
15,122
-------------
INDUSTRIAL CONGLOMERATES--0.9%
93 3M Co. 8,270
70 General Electric Co. 2,713
318 Tyco International Ltd. 15,038
-------------
26,021
-------------
INSURANCE--5.2%
215 ACE Ltd. 12,410
52 AFLAC, Inc. 2,710
174 Allstate (The) Corp. 9,248
38 American International Group, Inc. 2,439
63 Aon Corp. 2,523
137 Assurant, Inc. 6,949
248 Chubb (The) Corp. 12,502
185 Cincinnati Financial Corp. 7,252
156 Genworth Financial, Inc., Class A 4,761
82 Hartford Financial Services Group
(The), Inc. 7,533
38 Lincoln National Corp. 2,292
211 Loews Corp. 10,001
87 Marsh & McLennan Cos., Inc. 2,397
172 MBIA, Inc. 9,649
125 MetLife, Inc. 7,528
28 Prudential Financial, Inc. 2,482
215 SAFECO Corp. 12,571
80 Torchmark Corp. 4,923
|
Page 54 See Notes to Financial Statements
First Trust Large Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
251 Travelers (The) Cos., Inc. $ 12,745
103 Unum Group 2,503
159 XL Capital Ltd., Class A 12,380
-------------
147,798
-------------
INTERNET & CATALOG RETAIL--0.5%
196 Amazon.com, Inc. (a) 15,394
-------------
INTERNET SOFTWARE & SERVICES--0.5%
15 Google, Inc., Class A (a) 7,650
254 VeriSign, Inc. (a) 7,541
-------------
15,191
-------------
IT SERVICES--1.9%
47 Affiliated Computer Services, Inc.,
Class A (a) 2,522
181 Computer Sciences Corp. (a) 10,078
443 Convergys Corp. (a) 8,439
387 Electronic Data Systems Corp. 10,445
247 Fidelity National Information
Services, Inc. 12,259
164 First Data Corp. 5,214
94 Fiserv, Inc. (a) 4,645
-------------
53,602
-------------
LEISURE EQUIPMENT & PRODUCTS--0.9%
411 Brunswick Corp. 11,492
256 Hasbro, Inc. 7,173
318 Mattel, Inc. 7,285
-------------
25,950
-------------
LIFE SCIENCES TOOLS & SERVICES--1.0%
107 Millipore Corp. (a) 8,412
103 PerkinElmer, Inc. 2,866
207 Thermo Fisher Scientific, Inc. (a) 10,808
90 Waters Corp. (a) 5,243
-------------
27,329
-------------
MACHINERY--4.2%
137 Caterpillar, Inc. 10,796
106 Cummins, Inc. 12,582
71 Danaher Corp. 5,302
89 Deere & Co. 10,717
105 Dover Corp. 5,355
58 Eaton Corp. 5,636
149 Illinois Tool Works, Inc. 8,202
98 Ingersoll-Rand Co., Ltd., Class A 4,931
196 ITT Corp. 12,324
62 PACCAR, Inc. 5,073
292 Pall Corp. 12,124
137 Parker Hannifin Corp. 13,520
165 Terex Corp. (a) 14,232
-------------
120,794
-------------
MEDIA--3.0%
242 CBS Corp., Class B $ 7,676
71 Clear Channel Communications, Inc. 2,620
191 Comcast Corp., Class A (a) 5,018
348 DIRECTV Group (The), Inc. (a) 7,799
117 E.W. Scripps (The) Co., Class A 4,793
244 Gannett Co., Inc. 12,176
87 Meredith Corp. 4,915
126 News Corp., Class A 2,661
51 Omnicom Group, Inc. 2,645
510 Time Warner, Inc. 9,823
456 Tribune Co. 12,749
64 Viacom, Inc., Class B (a) 2,451
314 Walt Disney (The) Co. 10,362
-------------
85,688
-------------
METALS & MINING--1.5%
265 Alcoa, Inc. 10,123
102 Allegheny Technologies, Inc. 10,703
97 Freeport-McMoRan Copper &
Gold, Inc. 9,116
46 Nucor Corp. 2,309
123 United States Steel Corp. 12,090
-------------
44,341
-------------
MULTILINE RETAIL--2.7%
365 Big Lots, Inc. (a) 9,439
373 Dillard's, Inc., Class A 11,149
391 Family Dollar Stores, Inc. 11,581
111 J. C. Penney Co., Inc. 7,552
38 Kohl's Corp. (a) 2,310
337 Macy's, Inc. 12,157
105 Nordstrom, Inc. 4,996
63 Sears Holdings Corp. (a) 8,618
169 Target Corp. 10,236
-------------
78,038
-------------
MULTI-UTILITIES--4.7%
274 Ameren Corp. 13,147
308 CenterPoint Energy, Inc. 5,076
468 CMS Energy Corp. 7,563
297 Consolidated Edison, Inc. 12,973
93 Dominion Resources, Inc. 7,832
278 DTE Energy Co. 12,894
159 Integrys Energy Group, Inc. 7,869
256 KeySpan Corp. 10,637
648 NiSource, Inc. 12,357
237 PG&E Corp. 10,146
181 Sempra Energy 9,542
625 TECO Energy, Inc. 10,088
655 Xcel Energy, Inc. 13,296
-------------
133,420
-------------
OFFICE ELECTRONICS--0.4%
581 Xerox Corp. (a) 10,144
-------------
|
See Notes to Financial Statements Page 55
First Trust Large Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL, GAS & CONSUMABLE FUELS--5.8%
206 Anadarko Petroleum Corp. $ 10,368
66 Apache Corp. 5,335
310 Chesapeake Energy Corp. 10,552
159 Chevron Corp. 13,556
171 ConocoPhillips 13,824
58 CONSOL Energy, Inc. 2,416
69 Devon Energy Corp. 5,148
156 El Paso Corp. 2,597
96 Exxon Mobil Corp. 8,172
228 Hess Corp. 13,955
224 Marathon Oil Corp. 12,365
181 Murphy Oil Corp. 11,229
232 Occidental Petroleum Corp. 13,159
111 Peabody Energy Corp. 4,691
168 Sunoco, Inc. 11,209
182 Valero Energy Corp. 12,196
255 Williams (The) Cos., Inc. 8,224
134 XTO Energy, Inc. 7,307
-------------
166,303
-------------
PAPER & FOREST PRODUCTS--0.9%
344 International Paper Co. 12,753
152 MeadWestvaco Corp. 4,946
102 Weyerhaeuser Co. 7,266
-------------
24,965
-------------
PERSONAL PRODUCTS--0.2%
73 Avon Products, Inc. 2,629
59 Estee Lauder (The) Cos., Inc.,
Class A 2,656
-------------
5,285
-------------
PHARMACEUTICALS--1.9%
53 Barr Pharmaceuticals, Inc. (a) 2,715
656 King Pharmaceuticals, Inc. (a) 11,159
420 Pfizer, Inc. 9,874
353 Schering-Plough Corp. 10,075
412 Watson Pharmaceuticals, Inc. (a) 12,532
140 Wyeth 6,793
-------------
53,148
-------------
REAL ESTATE INVESTMENT TRUSTS--0.5%
131 Boston Properties, Inc. 12,378
47 ProLogis 2,674
-------------
15,052
-------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT--0.4%
294 CB Richard Ellis Group, Inc.,
Class A (a) 10,266
-------------
ROAD & RAIL--1.9%
95 Burlington Northern Santa Fe Corp. 7,803
238 CSX Corp. 11,284
ROAD & RAIL (CONTINUED)
204 Norfolk Southern Corp. $ 10,971
249 Ryder System, Inc. 13,538
93 Union Pacific Corp. 11,080
-------------
54,676
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--4.2%
242 Altera Corp. 5,614
71 Analog Devices, Inc. 2,517
405 Applied Materials, Inc. 8,926
226 Intel Corp. 5,338
146 KLA-Tencor Corp. 8,291
74 Linear Technology Corp. 2,638
1,786 LSI Corp. (a) 12,859
80 Maxim Integrated Products, Inc. 2,536
176 MEMC Electronic Materials, Inc. (a) 10,792
1,071 Micron Technology, Inc. (a) 12,713
95 National Semiconductor Corp. 2,469
473 Novellus Systems, Inc. (a) 13,491
325 NVIDIA Corp. (a) 14,873
694 PMC-Sierra, Inc. (a) 5,288
305 Teradyne, Inc. (a) 4,785
214 Texas Instruments, Inc. 7,531
-------------
120,661
-------------
SOFTWARE--1.1%
228 Autodesk, Inc. (a) 9,659
80 Citrix Systems, Inc. (a) 2,894
226 Compuware Corp. (a) 2,109
91 Microsoft Corp. 2,638
408 Oracle Corp. (a) 7,801
398 Symantec Corp. (a) 7,642
-------------
32,743
-------------
SPECIALTY RETAIL--3.1%
74 Abercrombie & Fitch Co., Class A 5,173
478 AutoNation, Inc. (a) 9,311
59 AutoZone, Inc. (a) 7,482
421 Gap (The), Inc. 7,241
68 Home Depot (The), Inc. 2,528
293 Limited Brands, Inc. 7,076
354 Office Depot, Inc. (a) 8,836
273 OfficeMax, Inc. 8,976
405 RadioShack Corp. 10,178
81 Sherwin-Williams (The) Co. 5,645
253 Tiffany & Co. 12,206
98 TJX (The) Cos., Inc. 2,720
-------------
87,372
-------------
TEXTILES, APPAREL & LUXURY GOODS
--1.2%
113 Coach, Inc. (a) 5,137
184 NIKE, Inc., Class B 10,387
137 Polo Ralph Lauren Corp. 12,240
|
Page 56 See Notes to Financial Statements
First Trust Large Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TEXTILES, APPAREL & LUXURY GOODS
(CONTINUED)
88 VF Corp. $ 7,550
-------------
35,314
-------------
THRIFTS & MORTGAGE FINANCE--0.7%
148 Countrywide Financial Corp. 4,169
44 Freddie Mac 2,520
236 MGIC Investment Corp. 9,124
126 Washington Mutual, Inc. 4,729
-------------
20,542
-------------
TOBACCO--0.4%
38 Altria Group, Inc. 2,526
82 Reynolds American, Inc. 5,015
50 UST, Inc. 2,678
-------------
10,219
-------------
TRADING COMPANIES & DISTRIBUTORS
--0.4%
144 W.W. Grainger, Inc. 12,580
-------------
WIRELESS TELECOMMUNICATION
SERVICES--0.7%
159 ALLTEL Corp. 10,486
518 Sprint Nextel Corp. 10,635
-------------
21,121
-------------
|
TOTAL INVESTMENTS--100.4%
(Cost $3,123,253) 2,878,457
NET OTHER ASSETS AND
LIABILITIES--(0.4%) (10,098)
-------------
NET ASSETS--100.0% $ 2,868,359
=============
|
(a) Non-income producing security.
See Notes to Financial Statements Page 57
First Trust Mid Cap Core AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS--99.4%
AEROSPACE & DEFENSE--1.0%
340 Alliant Techsystems, Inc. (a) $ 33,697
471 DRS Technologies, Inc. 24,662
-------------
58,359
-------------
AIRLINES--0.6%
617 AirTran Holdings, Inc. (a) 6,071
968 Alaska Air Group, Inc. (a) 22,584
574 JetBlue Airways Corp. (a) 5,654
-------------
34,309
-------------
AUTO COMPONENTS--1.3%
157 BorgWarner, Inc. 13,573
1,027 Gentex Corp. 20,273
1,491 Modine Manufacturing Co. 38,169
-------------
72,015
-------------
AUTOMOBILES--0.1%
149 Thor Industries, Inc. 6,112
-------------
BEVERAGES--0.6%
314 Hansen Natural Corp. (a) 12,733
823 PepsiAmericas, Inc. 22,772
-------------
35,505
-------------
BIOTECHNOLOGY--0.7%
335 Cephalon, Inc. (a) 25,172
578 PDL BioPharma, Inc. (a) 13,577
-------------
38,749
-------------
CAPITAL MARKETS--1.4%
80 A.G. Edwards, Inc. 6,469
763 Eaton Vance Corp. 31,939
434 Nuveen Investments, Inc., Class A 26,535
218 Raymond James Financial, Inc. 6,686
259 Waddell & Reed Financial, Inc.,
Class A 6,529
-------------
78,158
-------------
CHEMICALS--3.3%
563 Airgas, Inc. 26,292
175 Albemarle Corp. 7,040
424 Cabot Corp. 17,121
423 Cytec Industries, Inc. 28,336
151 FMC Corp. 13,459
209 Lubrizol (The) Corp. 13,096
201 Minerals Technologies, Inc. 12,999
1,284 Olin Corp. 26,797
1,062 Sensient Technologies Corp. 26,975
474 Valspar (The) Corp. 13,078
-------------
185,193
-------------
COMMERCIAL BANKS--0.9%
206 Associated Banc-Corp. $ 5,920
201 Cathay General Bancorp 6,153
89 City National Corp. 6,300
242 Greater Bay Bancorp 6,505
254 SVB Financial Group (a) 13,381
316 Webster Financial Corp. 13,733
-------------
51,992
-------------
COMMERCIAL SERVICES & SUPPLIES
--2.4%
109 Brink's (The) Co. 6,665
131 Dun & Bradstreet (The) Corp. 12,807
427 Herman Miller, Inc. 13,036
164 HNI Corp. 6,696
982 Kelly Services, Inc., Class A 24,403
1,027 Korn/Ferry International (a) 24,268
1,089 Navigant Consulting, Inc. (a) 17,152
220 Republic Services, Inc. 7,029
455 Stericycle, Inc. (a) 21,813
-------------
133,869
-------------
COMMUNICATIONS EQUIPMENT
--2.4%
260 ADTRAN, Inc. 6,783
232 Avocent Corp. (a) 6,345
577 CommScope, Inc. (a) 31,407
225 Dycom Industries, Inc. (a) 6,289
334 F5 Networks, Inc. (a) 28,954
494 Harris Corp. 27,111
514 Plantronics, Inc. 14,402
401 Polycom, Inc. (a) 12,419
-------------
133,710
-------------
COMPUTERS & PERIPHERALS--1.1%
387 Diebold, Inc. 19,609
731 Imation Corp. 22,866
421 Palm, Inc. (a) 6,281
697 Western Digital Corp. (a) 14,881
-------------
63,637
-------------
CONSTRUCTION & ENGINEERING
--1.8%
525 Granite Construction, Inc. 34,120
586 Jacobs Engineering Group, Inc. (a) 36,115
1,099 Quanta Services, Inc. (a) 31,245
-------------
101,480
-------------
CONSTRUCTION MATERIALS--0.5%
100 Florida Rock Industries, Inc. 6,351
166 Martin Marietta Materials, Inc. 22,742
-------------
29,093
-------------
CONSUMER FINANCE--0.3%
762 AmeriCredit Corp. (a) 15,499
-------------
|
Page 58 See Notes to Financial Statements
First Trust Mid Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
CONTAINERS & PACKAGING--0.6%
799 Packaging Corp. of America $ 20,391
315 Sonoco Products Co. 11,551
-------------
31,942
-------------
DIVERSIFIED CONSUMER SERVICES
--3.2%
199 Career Education Corp. (a) 5,906
827 Corinthian Colleges, Inc. (a) 11,140
792 DeVry, Inc. 25,661
287 ITT Educational Services, Inc. (a) 30,324
437 Laureate Education, Inc. (a) 26,945
309 Matthews International Corp., Class A 11,822
705 Regis Corp. 24,576
586 Sotheby's 25,052
154 Strayer Education, Inc. 23,336
-------------
184,762
-------------
DIVERSIFIED FINANCIAL SERVICES
--0.1%
191 Leucadia National Corp. 7,182
-------------
DIVERSIFIED TELECOMMUNICATION
SERVICES--0.4%
4,664 Cincinnati Bell, Inc. (a) 24,066
-------------
ELECTRIC UTILITIES--3.1%
926 Great Plains Energy, Inc. 25,706
853 Hawaiian Electric Industries, Inc. 19,457
1,052 IDACORP, Inc. 32,570
713 Northeast Utilities 19,493
717 Pepco Holdings, Inc. 19,409
1,919 Sierra Pacific Resources (a) 30,493
1,388 Westar Energy, Inc. 31,952
-------------
179,080
-------------
ELECTRICAL EQUIPMENT--1.4%
679 AMETEK, Inc. 26,495
249 Hubbell, Inc., Class B 14,355
236 Roper Industries, Inc. 14,155
349 Thomas & Betts Corp. (a) 21,568
-------------
76,573
-------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS--3.4%
756 Amphenol Corp., Class A 25,901
877 Arrow Electronics, Inc. (a) 33,520
340 Avnet, Inc. (a) 12,879
397 CDW Corp. (a) 33,415
931 Ingram Micro, Inc., Class A (a) 18,667
1,912 KEMET Corp. (a) 13,460
621 National Instruments Corp. 20,089
2,130 Vishay Intertechnology, Inc. (a) 33,036
-------------
190,967
-------------
ENERGY EQUIPMENT & SERVICES--4.0%
471 Cameron International Corp. (a) $ 36,737
340 FMC Technologies, Inc. (a) 31,117
376 Grant Prideco, Inc. (a) 21,094
565 Hanover Compressor Co. (a) 13,464
951 Helmerich & Payne, Inc. 30,784
514 Patterson-UTI Energy, Inc. 11,771
720 Pride International, Inc. (a) 25,236
675 Superior Energy Services, Inc. (a) 27,216
475 Tidewater, Inc. 32,499
-------------
229,918
-------------
FOOD & STAPLES RETAILING--0.7%
374 BJ's Wholesale Club, Inc. (a) 12,701
895 Ruddick Corp. 24,881
-------------
37,582
-------------
FOOD PRODUCTS--1.2%
541 Hormel Foods Corp. 18,621
212 J.M. Smucker (The) Co. 11,832
322 Lancaster Colony Corp. 12,468
657 Smithfield Foods, Inc. (a) 20,406
243 Tootsie Roll Industries, Inc. 6,082
-------------
69,409
-------------
GAS UTILITIES--1.2%
499 AGL Resources, Inc. 18,812
136 Equitable Resources, Inc. 6,407
156 National Fuel Gas Co. 6,763
267 ONEOK, Inc. 13,550
826 WGL Holdings, Inc. 24,731
-------------
70,263
-------------
HEALTH CARE EQUIPMENT &
SUPPLIES--2.5%
193 Advanced Medical Optics, Inc. (a) 5,834
104 Beckman Coulter, Inc. 7,365
782 Cytyc Corp. (a) 32,923
528 DENTSPLY International, Inc. 19,267
112 Gen-Probe, Inc. (a) 7,057
207 Hillenbrand Industries, Inc. 13,049
194 Intuitive Surgical, Inc. (a) 41,247
661 STERIS Corp. 18,078
-------------
144,820
-------------
HEALTH CARE PROVIDERS & SERVICES
--3.4%
234 Apria Healthcare Group, Inc. (a) 6,135
666 Community Health Systems, Inc. (a) 25,907
255 Health Net, Inc. (a) 12,633
252 Henry Schein, Inc. (a) 13,694
1,097 Kindred Healthcare, Inc. (a) 29,378
697 LifePoint Hospitals, Inc. (a) 20,596
169 Lincare Holdings, Inc. (a) 6,032
187 Omnicare, Inc. 6,201
|
See Notes to Financial Statements Page 59
First Trust Mid Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HEALTH CARE PROVIDERS & SERVICES
(CONTINUED)
186 Psychiatric Solutions, Inc. (a) $ 6,341
329 Universal Health Services, Inc.,
Class B 17,253
358 VCA Antech, Inc. (a) 14,084
372 WellCare Health Plans, Inc. (a) 37,668
-------------
195,922
-------------
HEALTH CARE TECHNOLOGY--0.4%
364 Cerner Corp. (a) 19,245
-------------
HOTELS, RESTAURANTS & LEISURE
--0.6%
732 Bob Evans Farms, Inc. 23,754
159 CBRL Group, Inc. 6,110
193 Scientific Games Corp., Class A (a) 6,622
-------------
36,486
-------------
HOUSEHOLD DURABLES--2.0%
238 American Greetings Corp., Class A 5,886
1,092 Beazer Homes USA, Inc. 15,277
1,014 Blyth, Inc. 22,633
1,423 Furniture Brands International, Inc. 15,681
334 Mohawk Industries, Inc. (a) 30,064
30 NVR, Inc. (a) 17,354
234 Tupperware Brands Corp. 6,086
-------------
112,981
-------------
HOUSEHOLD PRODUCTS--0.8%
278 Church & Dwight Co., Inc. 13,639
338 Energizer Holdings, Inc. (a) 34,104
-------------
47,743
-------------
INDUSTRIAL CONGLOMERATES--1.4%
435 Carlisle Cos., Inc. 19,697
181 Sequa Corp., Class A (a) 29,883
412 Teleflex, Inc. 31,489
-------------
81,069
-------------
INSURANCE--4.6%
789 American Financial Group, Inc. 22,163
970 Commerce Group (The), Inc. 27,868
62 Everest Re Group Ltd. 6,092
1,422 Fidelity National Financial, Inc.,
Class A 29,707
545 First American Corp. 25,228
414 Hanover Insurance Group, Inc. 18,170
605 HCC Insurance Holdings, Inc. 17,714
952 Horace Mann Educators Corp. 16,974
367 Mercury General Corp. 19,003
467 Ohio Casualty Corp. 20,272
1,268 Old Republic International Corp. 23,280
282 Protective Life Corp. 12,132
128 StanCorp Financial Group, Inc. 6,011
INSURANCE (CONTINUED)
411 Unitrin, Inc. $ 17,418
-------------
262,032
-------------
INTERNET & CATALOG RETAIL--0.5%
1,738 Netflix, Inc. (a) 29,946
-------------
INTERNET SOFTWARE & SERVICES--0.4%
1,144 ValueClick, Inc. (a) 24,459
-------------
IT SERVICES--2.0%
255 Acxiom Corp. 6,416
436 Alliance Data Systems Corp. (a) 33,485
385 Ceridian Corp. (a) 13,052
335 CheckFree Corp. (a) 12,341
85 DST Systems, Inc. (a) 6,449
822 Gartner, Inc. (a) 17,204
2,016 MPS Group, Inc. (a) 26,873
-------------
115,820
-------------
LEISURE EQUIPMENT & PRODUCTS
--0.1%
378 Callaway Golf Co. 6,135
-------------
LIFE SCIENCES TOOLS & SERVICES
--1.9%
392 Charles River Laboratories
International, Inc. (a) 20,063
197 Covance, Inc. (a) 13,902
183 Invitrogen Corp. (a) 13,139
352 Pharmaceutical Product
Development, Inc. 11,792
246 Varian, Inc. (a) 14,794
436 Ventana Medical Systems, Inc. (a) 36,337
-------------
110,027
-------------
MACHINERY--5.0%
445 Crane Co. 20,408
850 Federal Signal Corp. 11,433
471 Flowserve Corp. 34,039
259 Harsco Corp. 13,639
347 Joy Global, Inc. 17,173
411 Kennametal, Inc. 31,507
454 Lincoln Electric Holdings, Inc. 32,683
269 Nordson Corp. 12,309
536 Oshkosh Truck Corp. 30,686
349 Pentair, Inc. 12,634
384 SPX Corp. 36,046
373 Timken (The) Co. 12,458
464 Trinity Industries, Inc. 17,739
-------------
282,754
-------------
MARINE--0.2%
254 Alexander & Baldwin, Inc. 13,772
-------------
|
Page 60 See Notes to Financial Statements
First Trust Mid Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDIA--2.5%
1,309 Belo Corp., Class A $ 23,431
558 John Wiley & Sons, Inc., Class A 23,598
1,615 Lee Enterprises, Inc. 28,440
1,013 Media General, Inc., Class A 28,567
563 Scholastic Corp. (a) 18,117
26 Washington Post (The) Co., Class B 20,560
-------------
142,713
-------------
METALS & MINING--2.5%
155 Carpenter Technology Corp. 18,397
998 Commercial Metals Co. 30,778
599 Reliance Steel & Aluminum Co. 31,471
643 Steel Dynamics, Inc. 26,961
1,556 Worthington Industries, Inc. 32,210
-------------
139,817
-------------
MULTILINE RETAIL--0.6%
514 99 Cents Only Stores (a) 6,255
774 Dollar Tree Stores, Inc. (a) 29,614
-------------
35,869
-------------
MULTI-UTILITIES--4.8%
867 Alliant Energy Corp. 32,036
678 Black Hills Corp. 25,289
1,033 Energy East Corp. 26,145
961 MDU Resources Group, Inc. 26,197
623 NSTAR 19,593
552 OGE Energy Corp. 18,299
970 PNM Resources, Inc. 25,055
1,394 Puget Energy, Inc. 32,271
704 SCANA Corp. 26,316
1,001 Vectren Corp. 24,995
457 Wisconsin Energy Corp. 19,619
-------------
275,815
-------------
OIL, GAS & CONSUMABLE FUELS
--4.8%
387 Arch Coal, Inc. 11,567
855 Cimarex Energy Co. 32,363
539 Denbury Resources, Inc. (a) 21,560
727 Encore Acquisition Co. (a) 18,807
797 Forest Oil Corp. (a) 32,255
770 Frontier Oil Corp. 29,822
432 Noble Energy 26,412
414 Overseas Shipholding Group, Inc. 32,122
138 Pioneer Natural Resources Co. 6,279
705 Plains Exploration & Production
Co. (a) 30,463
302 Quicksilver Resources, Inc. (a) 12,720
454 Southwestern Energy Co. (a) 18,446
-------------
272,816
-------------
PAPER & FOREST PRODUCTS--0.5%
540 Bowater, Inc. $ 10,595
992 Glatfelter 13,322
356 Louisiana-Pacific Corp. 6,593
-------------
30,510
-------------
PERSONAL PRODUCTS--0.5%
852 Alberto-Culver Co. 20,039
156 NBTY, Inc. (a) 6,792
-------------
26,831
-------------
PHARMACEUTICALS--0.5%
197 Endo Pharmaceuticals Holdings,
Inc. (a) 6,700
716 Par Pharmaceutical Cos., Inc. (a) 16,962
344 Perrigo Co. 6,416
-------------
30,078
-------------
REAL ESTATE INVESTMENT TRUSTS
--1.0%
697 Cousins Properties, Inc. 17,920
162 Hospitality Properties Trust 6,214
313 Potlatch Corp. 13,675
448 Rayonier, Inc. 18,968
-------------
56,777
-------------
ROAD & RAIL--2.4%
948 Avis Budget Group, Inc. (a) 24,335
671 Con-way, Inc. 33,140
690 J.B. Hunt Transport Services, Inc. 19,272
1,672 Werner Enterprises, Inc. 32,504
916 YRC Worldwide, Inc. (a) 29,422
-------------
138,673
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--3.2%
261 Cree, Inc. (a) 6,687
1,447 Cypress Semiconductor Corp. (a) 36,262
349 Fairchild Semiconductor
International, Inc. (a) 6,369
362 International Rectifier Corp. (a) 13,289
214 Intersil Corp., Class A 6,260
524 Lam Research Corp. (a) 30,308
1,060 Micrel, Inc. 10,971
182 Microchip Technology, Inc. 6,608
5,400 RF Micro Devices, Inc. (a) 37,476
778 Semtech Corp. (a) 12,643
3,996 TriQuint Semiconductor, Inc. (a) 17,662
-------------
184,535
-------------
SOFTWARE--2.7%
621 Advent Software, Inc. (a) 23,617
614 Cadence Design Systems, Inc. (a) 13,140
785 Jack Henry & Associates, Inc. 18,856
673 Macrovision Corp. (a) 16,004
|
See Notes to Financial Statements Page 61
First Trust Mid Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SOFTWARE (CONTINUED)
766 McAfee, Inc. (a) $ 27,468
512 Mentor Graphics Corp. (a) 6,149
1,247 Parametric Technology Corp. (a) 21,985
564 Sybase, Inc. (a) 13,378
255 Synopsys, Inc. (a) 6,237
613 Wind River Systems, Inc. (a) 5,860
-------------
152,694
-------------
SPECIALTY RETAIL--5.6%
499 Advance Auto Parts, Inc. 17,350
647 Aeropostale, Inc. (a) 24,638
761 AnnTaylor Stores Corp. (a) 23,911
701 Barnes & Noble, Inc. 23,519
793 CarMax, Inc. (a) 18,976
3,111 Charming Shoppes, Inc. (a) 30,737
290 Coldwater Creek, Inc. (a) 5,710
463 Dick's Sporting Goods, Inc. (a) 26,034
1,546 Foot Locker, Inc. 28,694
862 GameStop Corp., Class A (a) 34,781
369 O'Reilly Automotive, Inc. (a) 12,291
613 Pacific Sunwear of California, Inc. (a) 11,046
641 Payless ShoeSource, Inc. (a) 17,063
415 PetSmart, Inc. 13,417
1,028 Rent-A-Center, Inc. (a) 19,953
219 Ross Stores, Inc. 6,336
280 Urban Outfitters, Inc. (a) 5,617
-------------
320,073
-------------
TEXTILES, APPAREL & LUXURY
GOODS--0.5%
249 Hanesbrands, Inc. (a) 7,721
445 Phillips-Van Heusen Corp. 23,167
-------------
30,888
-------------
THRIFTS & MORTGAGE FINANCE
--1.8%
269 Astoria Financial Corp. 6,335
1,543 First Niagara Financial Group, Inc. 19,843
1,155 IndyMac Bancorp, Inc. 25,410
754 PMI Group (The), Inc. 25,689
624 Radian Group, Inc. 21,035
277 Washington Federal, Inc. 6,241
-------------
104,553
-------------
TRADING COMPANIES &
DISTRIBUTORS--1.5%
322 Fastenal Co. 14,513
274 GATX Corp. 12,429
490 MSC Industrial Direct Co., Inc., Class A 24,642
1,036 United Rentals, Inc. (a) 33,296
-------------
84,880
-------------
WIRELESS TELECOMMUNICATION
SERVICES--0.5%
431 Telephone and Data Systems, Inc. $ 28,618
-------------
TOTAL INVESTMENTS--99.4%
(Cost $6,133,306) 5,678,775
NET OTHER ASSETS AND
LIABILITIES--0.6% 36,670
-------------
NET ASSETS--100.0% $ 5,715,445
=============
(a) Non-income producing security.
Page 62 See Notes to Financial Statements
|
First Trust Small Cap Core AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS--99.6%
AEROSPACE & DEFENSE--3.1%
408 AAR Corp. (a) $ 12,171
304 Ceradyne, Inc. (a) 22,688
595 Cubic Corp. 16,380
386 Curtiss-Wright Corp. 16,818
683 EDO Corp. 22,573
465 Esterline Technologies Corp. (a) 21,525
306 Moog, Inc., Class A (a) 13,103
488 Teledyne Technologies, Inc. (a) 21,653
343 Triumph Group, Inc. 26,139
-------------
173,050
-------------
AIR FREIGHT & LOGISTICS--0.5%
264 Forward Air Corp. 8,994
638 Hub Group, Inc., Class A (a) 21,705
-------------
30,699
-------------
AIRLINES--0.8%
1,603 Frontier Airlines Holdings, Inc. (a) 8,496
2,717 Mesa Air Group, Inc. (a) 18,068
942 SkyWest, Inc. 21,016
-------------
47,580
-------------
AUTO COMPONENTS--0.8%
406 Drew Industries, Inc. (a) 14,121
1,494 Standard Motor Products, Inc. 18,599
619 Superior Industries International, Inc. 11,452
-------------
44,172
-------------
AUTOMOBILES--0.1%
313 Monaco Coach Corp. 4,366
-------------
BIOTECHNOLOGY--0.5%
299 Digene Corp. (a) 18,313
346 Martek Biosciences Corp. (a) 8,865
-------------
27,178
-------------
BUILDING PRODUCTS--1.2%
162 Apogee Enterprises, Inc. 4,173
608 Gibraltar Industries, Inc. 11,740
618 Griffon Corp. (a) 10,858
394 Lennox International, Inc. 15,091
273 NCI Building Systems, Inc. (a) 13,202
134 Simpson Manufacturing Co., Inc. 4,533
212 Universal Forest Products, Inc. 8,387
-------------
67,984
-------------
CAPITAL MARKETS--0.6%
208 Investment Technology Group, Inc. (a) 8,312
608 LaBranche & Co., Inc. (a) 3,934
162 Piper Jaffray Cos., Inc. (a) 7,763
831 SWS Group, Inc. 14,667
-------------
34,676
-------------
CHEMICALS--2.7%
369 A. Schulman, Inc. $ 8,568
128 Arch Chemicals, Inc. 4,529
744 Georgia Gulf Corp. 12,045
300 H.B. Fuller Co. 8,289
1,905 Material Sciences Corp. (a) 20,955
170 OM Group, Inc. (a) 8,235
823 Penford Corp. 29,406
2,498 PolyOne Corp. (a) 18,785
951 Quaker Chemical Corp. 20,656
1,598 Tronox, Inc., Class B 19,655
-------------
151,123
-------------
COMMERCIAL BANKS--2.4%
72 Alabama National BanCorporation 3,843
502 Boston Private Financial Holdings,
Inc. 12,795
408 Central Pacific Financial Corp. 11,509
257 Chittenden Corp. 8,597
897 Community Bank System, Inc. 16,136
116 East West Bancorp, Inc. 4,253
822 First Commonwealth Financial Corp. 7,793
168 First Republic Bank 9,198
526 Hanmi Financial Corp. 7,627
138 Prosperity Bancshares, Inc. 3,908
274 Provident Bankshares Corp. 7,864
132 Signature Bank (a) 4,077
198 South Financial Group (The), Inc. 4,269
310 Sterling Financial Corp. 7,040
602 Susquehanna Bancshares, Inc. 10,415
382 Umpqua Holdings Corp. 7,266
150 Whitney Holding Corp. 3,749
102 Wintrust Financial Corp. 4,020
-------------
134,359
-------------
COMMERCIAL SERVICES & SUPPLIES
--5.2%
870 ABM Industries, Inc. 21,889
134 Administaff, Inc. 4,382
1,065 Angelica Corp. 23,248
921 Bowne & Co., Inc. 15,970
484 Brady Corp., Class A 16,935
140 CDI Corp. 3,961
260 Consolidated Graphics, Inc. (a) 17,137
568 G&K Services, Inc., Class A 21,164
456 Healthcare Services Group 12,640
350 Heidrick & Struggles International,
Inc. (a) 18,809
476 Interface, Inc., Class A 8,773
972 Labor Ready, Inc. (a) 22,899
308 Mobile Mini, Inc. (a) 8,800
419 On Assignment, Inc. (a) 4,203
254 School Specialty, Inc. (a) 8,748
1,913 Spherion Corp. (a) 16,892
416 Tetra Tech, Inc. (a) 8,748
270 United Stationers, Inc. (a) 17,210
|
See Notes to Financial Statements Page 63
First Trust Small Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMMERCIAL SERVICES & SUPPLIES
(CONTINUED)
426 Viad Corp. $ 15,315
730 Volt Information Sciences, Inc. (a) 11,373
356 Watson Wyatt Worldwide, Inc.,
Class A 15,860
-------------
294,956
-------------
COMMUNICATIONS EQUIPMENT
--2.4%
1,277 Arris Group, Inc. (a) 18,926
396 Bel Fuse, Inc., Class B 11,975
434 Black Box Corp. 17,469
182 Blue Coat Systems, Inc. (a) 8,869
958 C-COR, Inc. (a) 12,885
290 Comtech Telecommunications
Corp. (a) 12,606
914 Digi International, Inc. (a) 13,052
548 Ditech Networks, Inc. (a) 4,088
620 NETGEAR, Inc. (a) 17,149
534 Symmetricom, Inc. (a) 3,984
426 Tollgrade Communications, Inc. (a) 4,396
280 ViaSat, Inc. (a) 8,016
-------------
133,415
-------------
COMPUTERS & PERIPHERALS--1.8%
3,536 Adaptec, Inc. (a) 12,376
1,194 Hutchinson Technology, Inc. (a) 23,952
212 Intevac, Inc. (a) 3,445
422 Komag, Inc. (a) 13,508
863 Novatel Wireless, Inc. (a) 18,580
382 Stratasys, Inc. (a) 16,812
376 Synaptics, Inc. (a) 13,205
-------------
101,878
-------------
CONSTRUCTION & ENGINEERING
--0.3%
152 EMCOR Group, Inc. (a) 5,457
278 URS Corp. (a) 13,694
-------------
19,151
-------------
CONSTRUCTION MATERIALS--0.2%
172 Texas Industries, Inc. 13,555
-------------
CONSUMER FINANCE--0.6%
340 Cash America International, Inc. 12,451
575 First Cash Financial Services,
Inc. (a) 12,529
210 World Acceptance Corp. (a) 6,760
-------------
31,740
-------------
CONTAINERS & PACKAGING--1.0%
505 AptarGroup, Inc. 18,382
1,072 Chesapeake Corp. (a) 11,953
203 Myers Industries, Inc. 4,342
CONTAINERS & PACKAGING
(CONTINUED)
708 Rock-Tenn Co., Class A $ 21,750
-------------
56,427
-------------
DISTRIBUTORS--1.2%
346 Audiovox Corp., Class A (a) 3,502
1,266 Building Materials Holding Corp. 17,585
543 Keystone Automotive Industries,
Inc. (a) 25,390
728 LKQ Corp. (a) 20,697
-------------
67,174
-------------
DIVERSIFIED CONSUMER SERVICES
--0.9%
230 Bright Horizons Family Solutions,
Inc. (a) 8,924
64 CPI Corp. 3,759
280 Pre-Paid Legal Services, Inc. (a) 14,756
354 Universal Technical Institute,
Inc. (a) 7,657
368 Vertrue, Inc. (a) 18,183
-------------
53,279
-------------
DIVERSIFIED FINANCIAL SERVICES
--0.4%
150 Financial Federal Corp. 4,253
374 Portfolio Recovery Associates,
Inc. (a) 19,541
-------------
23,794
-------------
DIVERSIFIED TELECOMMUNICATION
SERVICES--0.3%
589 CT Communications, Inc. 18,053
-------------
ELECTRIC UTILITIES--1.8%
190 ALLETE, Inc. 8,330
596 Central Vermont Public Service
Corp. 20,264
733 Cleco Corp. 17,409
914 El Paso Electric Co. (a) 21,268
542 UIL Holdings Corp. 16,032
683 Unisource Energy Corp. 20,784
-------------
104,087
-------------
ELECTRICAL EQUIPMENT--1.5%
298 Acuity Brands, Inc. 17,612
338 A.O. Smith Corp. 16,410
92 Baldor Electric Co. 4,199
82 Belden, Inc. 4,492
386 Regal-Beloit Corp. 19,578
418 Woodward Governor Co. 24,139
-------------
86,430
-------------
|
Page 64 See Notes to Financial Statements
First Trust Small Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRONIC EQUIPMENT &
INSTRUMENTS--5.4%
634 Aeroflex, Inc. (a) $ 8,895
399 Agilysys, Inc. 7,665
238 Anixter International, Inc. (a) 19,671
1,377 Bell Microproducts, Inc. (a) 8,648
596 Benchmark Electronics, Inc. (a) 13,231
356 Checkpoint Systems, Inc. (a) 8,213
294 Coherent, Inc. (a) 8,511
1,064 CTS Corp. 13,555
216 Electro Scientific Industries, Inc. (a) 4,741
388 FLIR Systems, Inc. (a) 16,936
386 Gerber Scientific, Inc. (a) 4,007
597 Insight Enterprises, Inc. (a) 13,468
116 Itron, Inc. (a) 9,214
806 LoJack Corp. (a) 17,184
1,148 Methode Electronics, Inc. 18,563
302 MTS Systems Corp. 12,609
870 Newport Corp. (a) 11,371
478 Park Electrochemical Corp. 14,173
196 Plexus Corp. (a) 4,753
122 Rogers Corp. (a) 4,409
702 ScanSource, Inc. (a) 18,835
783 Technitrol, Inc. 20,358
558 Trimble Navigation Ltd. (a) 18,431
1,727 TTM Technologies, Inc. (a) 22,519
608 X-Rite, Inc. (a) 8,208
-------------
308,168
-------------
ENERGY EQUIPMENT & SERVICES--4.2%
328 Atwood Oceanics, Inc. (a) 22,501
453 Bristow Group, Inc. (a) 21,486
205 CARBO Ceramics, Inc. 9,241
300 Dril-Quip, Inc. (a) 14,397
464 Hornbeck Offshore Services, Inc. (a) 19,975
863 Input/Output, Inc. (a) 12,298
278 Lufkin Industries, Inc. 16,460
904 Matrix Service Co. (a) 20,873
426 Oceaneering International, Inc. (a) 23,925
240 SEACOR Holdings, Inc. (a) 20,933
637 TETRA Technologies, Inc. (a) 17,715
286 Unit Corp. (a) 15,747
362 W-H Energy Services, Inc. (a) 23,197
-------------
238,748
-------------
FOOD & STAPLES RETAILING--1.0%
330 Casey's General Stores, Inc. 8,227
536 Great Atlantic & Pacific Tea
(The) Co., Inc. (a) 15,624
171 Longs Drug Stores Corp. 8,270
182 Nash Finch Co. 7,329
276 Performance Food Group Co. (a) 7,910
273 Spartan Stores, Inc. 7,991
-------------
55,351
-------------
FOOD PRODUCTS--1.4%
396 Corn Products International, Inc. $ 17,670
134 Flowers Foods, Inc. 2,747
166 Hain Celestial Group (The), Inc. (a) 4,497
238 J & J Snack Foods Corp. 8,199
168 Ralcorp Holdings, Inc. (a) 8,729
499 Sanderson Farms, Inc. 19,895
675 TreeHouse Foods, Inc. (a) 15,127
-------------
76,864
-------------
GAS UTILITIES--3.0%
747 Atmos Energy Corp. 20,967
327 Energen Corp. 17,302
422 Laclede Group (The), Inc. 12,470
264 New Jersey Resources Corp. 12,408
486 Northwest Natural Gas Co. 20,252
546 Piedmont Natural Gas Co. 12,662
508 South Jersey Industries, Inc. 16,647
551 Southern Union Co. 17,015
664 Southwest Gas Corp. 20,637
658 UGI Corp. 16,983
-------------
167,343
-------------
HEALTH CARE EQUIPMENT &
SUPPLIES--3.7%
62 Analogic Corp. 4,116
306 ArthroCare Corp. (a) 15,490
306 CONMED Corp. (a) 8,537
352 Datascope Corp. 12,112
108 DJO, Inc. (a) 5,128
278 Greatbatch, Inc. (a) 8,626
170 Haemonetics Corp. (a) 8,401
162 Hologic, Inc. (a) 8,392
210 ICU Medical, Inc. (a) 6,980
142 IDEXX Laboratories, Inc. (a) 14,237
160 Immucor, Inc. (a) 4,986
272 Integra LifeSciences Holdings (a) 13,505
622 Meridian Bioscience, Inc. 13,889
2,495 Osteotech, Inc. (a) 17,889
330 PolyMedica Corp. 13,329
210 Respironics, Inc. (a) 9,608
270 SurModics, Inc. (a) 12,385
280 Symmetry Medical, Inc. (a) 4,180
5,385 Theragenics Corp. (a) 21,271
80 Vital Signs, Inc. 4,161
-------------
207,222
-------------
HEALTH CARE PROVIDERS &
SERVICES--3.9%
494 Amedisys, Inc. (a) 18,698
378 AMERIGROUP Corp. (a) 10,463
408 AMN Healthcare Services, Inc. (a) 8,760
186 AmSurg Corp. (a) 4,676
420 Centene Corp. (a) 9,076
1,035 CryoLife, Inc. (a) 9,884
672 Gentiva Health Services, Inc. (a) 13,420
|
See Notes to Financial Statements Page 65
First Trust Small Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HEALTH CARE PROVIDERS &
SERVICES (CONTINUED)
759 HealthExtras, Inc. (a) $ 20,364
190 Healthways, Inc. (a) 8,303
246 inVentiv Health, Inc. (a) 8,728
475 LCA-Vision, Inc. 16,867
445 Matria Healthcare, Inc. (a) 11,494
1,458 Option Care, Inc. 28,271
128 Owens & Minor, Inc. 4,922
82 Pediatrix Medical Group, Inc. (a) 4,425
1,261 RehabCare Group, Inc. (a) 17,868
637 Res-Care, Inc. (a) 12,377
324 Sierra Health Services, Inc. (a) 13,167
-------------
221,763
-------------
HOTELS, RESTAURANTS & LEISURE
--2.7%
418 California Pizza Kitchen, Inc. (a) 7,934
224 CKE Restaurants, Inc. 3,873
190 Jack in the Box, Inc. (a) 12,158
594 Landry's Restaurants, Inc. 15,735
378 Marcus (The) Corp. 7,439
168 Monarch Casino & Resort, Inc. (a) 4,753
1,114 O'Charley's, Inc. 19,751
312 Papa John's International, Inc. (a) 8,558
160 Pinnacle Entertainment, Inc. (a) 4,242
336 RARE Hospitality International,
Inc. (a) 8,991
445 Red Robin Gourmet Burgers, Inc. (a) 17,164
528 Ruth's Chris Steak House, Inc. (a) 8,828
1,345 Steak n Shake (The) Co. (a) 20,175
351 Texas Roadhouse, Inc., Class A (a) 4,166
467 WMS Industries, Inc. (a) 12,184
-------------
155,951
-------------
HOUSEHOLD DURABLES--0.8%
914 Champion Enterprises, Inc. (a) 10,712
132 Ethan Allen Interiors, Inc. 4,509
208 Libbey, Inc. 4,150
338 M/I Homes, Inc. 8,298
216 National Presto Industries, Inc. 12,128
241 Russ Berrie and Co., Inc. (a) 3,709
-------------
43,506
-------------
HOUSEHOLD PRODUCTS--0.2%
766 Central Garden & Pet Co., Class A (a) 9,376
136 WD-40 Co. 4,514
-------------
13,890
-------------
INDUSTRIAL CONGLOMERATES--0.5%
316 Standex International Corp. 7,489
1,054 Tredegar Corp. 19,352
-------------
26,841
-------------
INSURANCE--3.5%
322 Delphi Financial Group, Inc.,
Class A $ 12,935
88 Infinity Property & Casualty Corp. 3,876
232 LandAmerica Financial Group, Inc. 17,769
108 Philadelphia Consolidated Holding
Corp. (a) 3,903
685 Presidential Life Corp. 11,172
322 ProAssurance Corp. (a) 15,900
402 RLI Corp. 23,317
434 Safety Insurance Group, Inc. 14,452
718 SCPIE Holdings, Inc. (a) 16,133
668 Selective Insurance Group, Inc. 13,707
564 Stewart Information Services Corp. 20,575
140 Tower Group, Inc. 3,710
634 United Fire & Casualty Co. 21,822
477 Zenith National Insurance Corp. 19,252
-------------
198,523
-------------
INTERNET & CATALOG RETAIL--0.8%
372 Blue Nile, Inc. (a) 28,127
1,049 PetMed Express, Inc. (a) 15,294
-------------
43,421
-------------
INTERNET SOFTWARE & SERVICES
--0.8%
375 Bankrate, Inc. (a) 16,819
194 InfoSpace, Inc. 4,039
514 j2 Global Communications, Inc. (a) 16,777
544 United Online, Inc. 7,681
-------------
45,316
-------------
IT SERVICES--1.6%
502 Authorize.Net Holdings, Inc. (a) 8,700
92 CACI International Inc., Class A (a) 4,088
2,745 CIBER, Inc. (a) 20,835
254 eFunds Corp. (a) 9,081
146 ManTech International Corp.,
Class A (a) 4,768
104 MAXIMUS, Inc. 4,346
408 SI International, Inc. (a) 11,885
1,249 StarTek, Inc. (a) 13,689
946 Sykes Enterprises, Inc. (a) 15,836
-------------
93,228
-------------
LEISURE EQUIPMENT & PRODUCTS
--1.9%
907 Arctic Cat, Inc. 16,435
798 JAKKS Pacific, Inc. (a) 18,921
1,478 K2, Inc. (a) 21,593
673 MarineMax, Inc. (a) 12,585
248 Polaris Industries, Inc. 12,241
460 Pool Corp. 15,461
224 RC2 Corp. (a) 7,932
-------------
105,168
-------------
|
Page 66 See Notes to Financial Statements
First Trust Small Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
LIFE SCIENCES TOOLS & SERVICES
--0.9%
126 Dionex Corp. (a) $ 8,569
366 Kendle International, Inc. (a) 13,524
534 PAREXEL International Corp. (a) 21,590
282 Pharmanet Development Group,
Inc. (a) 7,896
-------------
51,579
-------------
MACHINERY--5.0%
111 Albany International Corp.,
Class A 4,160
426 Astec Industries, Inc. (a) 22,224
260 A.S.V., Inc. (a) 3,793
426 Barnes Group, Inc. 13,291
286 Cascade Corp. 19,388
240 CLARCOR, Inc. 8,350
210 EnPro Industries, Inc. (a) 8,270
528 Gardner Denver, Inc. (a) 21,960
466 IDEX Corp. 16,874
258 Kaydon Corp. 13,728
507 Lindsay Corp. 20,615
1,537 Lydall, Inc. (a) 17,752
280 Manitowoc (The) Co., Inc. 21,748
522 Mueller Industries, Inc. 19,251
254 Robbins & Myers, Inc. 13,393
305 Toro (The) Co. 17,147
247 Valmont Industries, Inc. 18,671
307 Wabash National Corp. 3,902
480 Watts Water Technologies, Inc.,
Class A 16,757
-------------
281,274
-------------
MARINE--0.3%
351 Kirby Corp. (a) 14,219
-------------
MEDIA--0.2%
174 Arbitron, Inc. 8,665
-------------
METALS & MINING--2.4%
375 A.M. Castle & Co. 12,383
164 AMCOL International Corp. 4,695
535 Brush Engineered Materials, Inc. (a) 20,260
246 Century Aluminum Co. (a) 12,679
312 Chaparral Steel Co. 26,221
289 Cleveland-Cliffs, Inc. 20,019
369 Quanex Corp. 16,627
60 RTI International Metals, Inc. (a) 4,754
596 Ryerson, Inc. 19,126
-------------
136,764
-------------
MULTILINE RETAIL--0.4%
1,343 Fred's, Inc. 15,942
364 Tuesday Morning Corp. 4,244
-------------
20,186
-------------
MULTI-UTILITIES--0.6%
834 Avista Corp. $ 16,530
400 CH Energy Group, Inc. 17,740
-------------
34,270
-------------
OIL, GAS & CONSUMABLE FUELS
--0.7%
122 Cabot Oil & Gas Corp. 4,172
450 Helix Energy Solutions Group,
Inc. (a) 17,529
210 Swift Energy Co. (a) 8,975
214 World Fuel Services Corp. 8,750
-------------
39,426
-------------
PAPER & FOREST PRODUCTS--1.4%
1,451 Buckeye Technologies, Inc. (a) 22,244
436 Neenah Paper, Inc. 16,886
4,525 Pope & Talbot, Inc. (a) 11,901
724 Schweitzer-Mauduit International,
Inc. 16,529
1,005 Wausau Paper Corp. 11,246
-------------
78,806
-------------
PERSONAL PRODUCTS--0.3%
142 Chattem, Inc. (a) 7,974
565 Mannatech, Inc. 5,317
100 USANA Health Sciences, Inc. (a) 4,036
-------------
17,327
-------------
PHARMACEUTICALS--0.7%
346 Alpharma, Inc., Class A (a) 8,577
206 Bradley Pharmaceuticals, Inc. (a) 3,304
192 Noven Pharmaceuticals, Inc. (a) 3,410
190 Sciele Pharma, Inc. (a) 4,406
1,627 ViroPharma, Inc. (a) 20,908
-------------
40,605
-------------
REAL ESTATE INVESTMENT TRUSTS
--0.8%
250 Entertainment Properties Trust 11,138
592 LTC Properties, Inc. 11,881
679 Medical Properties Trust, Inc. 7,605
411 National Retail Properties, Inc. 8,902
442 Senior Housing Properties Trust 7,638
-------------
47,164
-------------
ROAD & RAIL--1.4%
346 Arkansas Best Corp. 12,466
276 Heartland Express, Inc. 4,115
598 Kansas City Southern (a) 20,637
695 Knight Transportation, Inc. 12,260
280 Landstar System, Inc. 12,729
596 Old Dominion Freight Line, Inc. (a) 17,201
-------------
79,408
-------------
|
See Notes to Financial Statements Page 67
First Trust Small Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--4.1%
991 Advanced Energy Industries,
Inc. (a) $ 17,551
1,076 AMIS Holdings, Inc. (a) 11,094
150 ATMI, Inc. (a) 4,347
3,460 Axcelis Technologies, Inc. (a) 19,203
1,237 Brooks Automation, Inc. (a) 21,733
126 Cabot Microelectronics Corp. (a) 5,371
404 Cohu, Inc. 8,076
112 Cymer, Inc. (a) 4,788
645 Diodes, Inc. (a) 17,138
335 Exar Corp. (a) 4,734
138 FEI Co. (a) 3,958
188 Microsemi Corp. (a) 4,382
811 MKS Instruments, Inc. (a) 18,410
1,207 Pericom Semiconductor Corp. (a) 12,891
1,509 Photronics, Inc. (a) 21,156
1,352 Rudolph Technologies, Inc. (a) 21,158
611 Skyworks Solutions, Inc. (a) 4,839
392 Standard Microsystems Corp. (a) 13,089
448 Varian Semiconductor Equipment
Associates, Inc. (a) 21,056
-------------
234,974
-------------
SOFTWARE--2.9%
152 Ansoft Corp. (a) 3,844
339 ANSYS, Inc. (a) 8,828
2,631 Captaris, Inc. (a) 13,497
983 Concur Technologies, Inc. (a) 23,455
906 Epicor Software Corp. (a) 11,832
1,389 EPIQ Systems, Inc. (a) 23,683
197 FactSet Research Systems, Inc. 13,000
608 Informatica Corp. (a) 8,476
915 JDA Software Group, Inc. (a) 20,688
160 Manhattan Associates, Inc. (a) 4,459
82 MICROS Systems, Inc. (a) 4,369
118 Quality Systems, Inc. 4,571
339 Radiant Systems, Inc. (a) 4,712
306 SPSS, Inc. (a) 12,558
148 THQ, Inc. (a) 4,256
-------------
162,228
-------------
SPECIALTY RETAIL--5.7%
615 Aaron Rents, Inc. 14,219
352 Big 5 Sporting Goods Corp. 7,522
554 Brown Shoe Co., Inc. 11,601
204 Cato (The) Corp., Class A 4,219
502 Charlotte Russe Holding, Inc. (a) 8,921
174 Children's Place Retail Stores
(The), Inc. (a) 5,935
262 Christopher & Banks Corp. 3,909
218 Dress Barn (The), Inc. (a) 3,965
1,971 Finish Line (The), Inc., Class A 13,324
430 Genesco, Inc. (a) 21,736
SPECIALTY RETAIL (CONTINUED)
222 Group 1 Automotive, Inc. $ 8,329
226 Guitar Center, Inc. (a) 13,119
342 Gymboree (The) Corp. (a) 14,723
1,539 Haverty Furniture Cos., Inc. 17,160
164 Hibbett Sports, Inc. (a) 4,203
790 Jo-Ann Stores, Inc. (a) 18,810
542 Jos. A. Bank Clothiers, Inc. (a) 18,699
709 Lithia Motors, Inc., Class A 14,598
352 Men's Wearhouse (The), Inc. 17,389
1,114 Pep Boys-Manny, Moe &
Jack (The) 18,860
277 Select Comfort Corp. (a) 4,415
775 Sonic Automotive, Inc., Class A 21,235
428 Stage Stores, Inc. 7,636
732 Stein Mart, Inc. 7,876
258 Tractor Supply Co. (a) 12,260
402 Tween Brands, Inc. (a) 15,381
566 Zale Corp. (a) 12,016
-------------
322,060
-------------
TEXTILES, APPAREL & LUXURY
GOODS--3.2%
522 Crocs, Inc. (a) 30,965
222 Deckers Outdoor Corp. (a) 22,888
609 Fossil, Inc. (a) 15,560
606 Iconix Brand Group, Inc. (a) 11,987
160 Kellwood Co. 4,102
532 Movado Group, Inc. 15,024
405 Oxford Industries, Inc. 16,362
636 Quiksilver, Inc. (a) 8,160
308 Skechers U.S.A., Inc., Class A (a) 6,403
665 Stride Rite (The) Corp. 13,546
510 UniFirst Corp. 19,156
448 Volcom, Inc. (a) 15,895
162 Wolverine World Wide, Inc. 4,384
-------------
184,432
-------------
THRIFTS & MORTGAGE FINANCE
--2.2%
172 Anchor BanCorp Wisconsin, Inc. 3,844
895 BankUnited Financial Corp.,
Class A 15,072
1,041 Corus Bankshares, Inc. 16,927
340 Dime Community Bancshares 3,805
340 Downey Financial Corp. 18,084
396 FirstFed Financial Corp. (a) 17,898
1,491 Flagstar Bancorp, Inc. 15,954
1,669 Fremont General Corp. (a) 9,630
248 MAF Bancorp, Inc. 13,025
450 Triad Guaranty, Inc. (a) 12,407
-------------
126,646
-------------
|
Page 68 See Notes to Financial Statements
First Trust Small Cap Core AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TRADING COMPANIES & DISTRIBUTORS
--0.5%
152 Applied Industrial Technologies,
Inc. $ 4,315
288 Kaman Corp. 9,645
248 Watsco, Inc. 12,378
-------------
26,338
-------------
WATER UTILITIES--0.2%
252 American States Water Co. 9,297
-------------
TOTAL INVESTMENTS--99.6%
(Cost $6,171,934) 5,636,097
NET OTHER ASSETS AND
LIABILITIES--0.4% 24,334
-------------
NET ASSETS--100.0% $ 5,660,431
=============
|
(a) Non-income producing security.
See Notes to Financial Statements Page 69
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS--100.0%
AEROSPACE & DEFENSE--1.1%
168 Goodrich Corp. $ 10,569
106 Lockheed Martin Corp. 10,439
525 Northrop Grumman Corp. 39,952
-------------
60,960
-------------
AIR FREIGHT & LOGISTICS--0.9%
369 FedEx Corp. 40,863
137 United Parcel Service, Inc., Class B 10,374
-------------
51,237
-------------
AIRLINES--0.6%
2,059 Southwest Airlines Co. 32,244
-------------
AUTO COMPONENTS--0.2%
86 Johnson Controls, Inc. 9,731
-------------
BEVERAGES--1.0%
843 Constellation Brands, Inc.,
Class A (a) 18,487
443 Molson Coors Brewing Co.,
Class B 39,400
-------------
57,887
-------------
CAPITAL MARKETS--1.6%
293 Bear Stearns (The) Cos., Inc. 35,517
451 E*TRADE Financial Corp. (a) 8,353
208 Legg Mason, Inc. 18,720
245 Merrill Lynch & Co., Inc. 18,179
119 Morgan Stanley 7,601
-------------
88,370
-------------
CHEMICALS--3.8%
255 Air Products and Chemicals, Inc. 22,024
156 Ashland, Inc. 9,525
1,157 Dow Chemical (The) Co. 50,306
636 Eastman Chemical Co. 43,770
403 E.I. du Pont de Nemours and Co. 18,832
1,041 Hercules, Inc. (a) 21,611
269 PPG Industries, Inc. 20,517
561 Rohm and Haas Co. 31,708
-------------
218,293
-------------
COMMERCIAL BANKS--4.0%
245 BB&T Corp. 9,168
168 Comerica, Inc. 8,847
256 First Horizon National Corp. 8,120
900 Huntington Bancshares, Inc. 17,280
894 KeyCorp 31,013
94 M&T Bank Corp. 9,991
1,229 National City Corp. 36,120
429 PNC Financial Services Group, Inc. 28,593
301 Regions Financial Corp. 9,051
116 SunTrust Banks, Inc. 9,083
599 Wachovia Corp. 28,279
COMMERCIAL BANKS (CONTINUED)
283 Wells Fargo & Co. $ 9,557
266 Zions Bancorporation 19,830
-------------
224,932
-------------
COMMERCIAL SERVICES & SUPPLIES
--1.9%
2,280 Allied Waste Industries, Inc. (a) 29,344
150 Avery Dennison Corp. 9,201
706 R.R. Donnelley & Sons Co. 29,836
273 Robert Half International, Inc. 9,279
786 Waste Management, Inc. 29,891
-------------
107,551
-------------
COMMUNICATIONS EQUIPMENT--1.3%
2,791 ADC Telecommunications, Inc. (a) 52,165
564 Motorola, Inc. 9,582
927 Tellabs, Inc. (a) 10,521
-------------
72,268
-------------
COMPUTERS & PERIPHERALS--0.4%
459 Hewlett-Packard Co. 21,128
-------------
CONTAINERS & PACKAGING--1.1%
925 Bemis Co., Inc. 27,260
989 Sealed Air Corp. 26,950
162 Temple-Inland, Inc. 9,417
-------------
63,627
-------------
DISTRIBUTORS--0.3%
413 Genuine Parts Co. 19,651
-------------
DIVERSIFIED FINANCIAL SERVICES
--1.7%
628 Bank of America Corp. 29,780
746 CIT Group, Inc. 30,721
195 Citigroup, Inc. 9,081
634 JPMorgan Chase & Co. 27,902
-------------
97,484
-------------
DIVERSIFIED TELECOMMUNICATION
SERVICES--2.4%
493 AT&T, Inc. 19,306
1,043 CenturyTel, Inc. 47,842
1,340 Citizens Communications Co. 19,336
158 Embarq Corp. 9,763
746 Verizon Communications, Inc. 31,795
676 Windstream Corp. 9,302
-------------
137,344
-------------
ELECTRIC UTILITIES--5.2%
682 American Electric Power Co., Inc. 29,660
2,795 Duke Energy Corp. 47,599
191 Entergy Corp. 19,092
632 FirstEnergy Corp. 38,394
361 FPL Group, Inc. 20,841
|
Page 70 See Notes to Financial Statements
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRIC UTILITIES (CONTINUED)
1,284 Pinnacle West Capital Corp. $ 48,124
213 PPL Corp. 10,041
1,123 Progress Energy, Inc. 49,030
895 Southern Co. 30,108
-------------
292,889
-------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS--1.2%
1,705 Molex, Inc. 48,320
5,561 Solectron Corp. (a) 20,909
-------------
69,229
-------------
ENERGY EQUIPMENT & SERVICES
--3.1%
487 Baker Hughes, Inc. 38,497
838 ENSCO International, Inc. 51,177
890 Halliburton Co. 32,058
1,249 Rowan Cos., Inc. 52,695
-------------
174,427
-------------
FOOD & STAPLES RETAILING--1.8%
728 Kroger (The) Co. 18,899
1,203 Safeway, Inc. 38,340
884 SUPERVALU, Inc. 36,836
261 Whole Foods Market, Inc. 9,667
-------------
103,742
-------------
FOOD PRODUCTS--1.9%
1,546 Archer-Daniels-Midland Co. 51,946
1,284 Dean Foods Co. (a) 36,941
171 General Mills, Inc. 9,511
283 Kraft Foods, Inc., Class A 9,268
-------------
107,666
-------------
GAS UTILITIES--0.7%
954 Nicor, Inc. 37,597
-------------
HEALTH CARE PROVIDERS &
SERVICES--0.9%
202 Aetna, Inc. 9,710
167 McKesson Corp. 9,646
385 WellPoint, Inc. (a) 28,921
-------------
48,277
-------------
HOTELS, RESTAURANTS & LEISURE
--1.3%
839 Carnival Corp. 37,176
457 Starwood Hotels & Resorts
Worldwide, Inc. 28,773
275 Wyndham Worldwide Corp. 9,254
-------------
75,203
-------------
HOUSEHOLD DURABLES--3.5%
249 Fortune Brands, Inc. $ 20,244
1,299 KB Home 41,321
2,320 Leggett & Platt, Inc. 48,095
840 Lennar Corp., Class A 25,754
912 Pulte Homes, Inc. 17,638
337 Stanley Works (The) 18,646
276 Whirlpool Corp. 28,182
-------------
199,880
-------------
HOUSEHOLD PRODUCTS--0.4%
306 Kimberly-Clark Corp. 20,585
-------------
INDUSTRIAL CONGLOMERATES--1.6%
353 3M Co. 31,389
1,211 Tyco International Ltd. 57,268
-------------
88,657
-------------
INSURANCE--8.9%
818 ACE Ltd. 47,215
666 Allstate (The) Corp. 35,398
521 Assurant, Inc. 26,425
945 Chubb (The) Corp. 47,637
708 Cincinnati Financial Corp. 27,754
595 Genworth Financial, Inc., Class A 18,159
311 Hartford Financial Services Group
(The), Inc. 28,572
140 Lincoln National Corp. 8,445
802 Loews Corp. 38,015
323 Marsh & McLennan Cos., Inc. 8,899
658 MBIA, Inc. 36,914
102 Prudential Financial, Inc. 9,040
822 SAFECO Corp. 48,061
305 Torchmark Corp. 18,770
956 Travelers (The) Cos., Inc. 48,545
383 Unum Group 9,307
607 XL Capital Ltd., Class A 47,261
-------------
504,417
-------------
INTERNET SOFTWARE & SERVICES
--0.5%
967 VeriSign, Inc. (a) 28,710
-------------
IT SERVICES--1.8%
692 Computer Sciences Corp. (a) 38,531
1,688 Convergys Corp. (a) 32,156
1,107 Electronic Data Systems Corp. 29,878
-------------
100,565
-------------
LEISURE EQUIPMENT & PRODUCTS
--1.4%
1,568 Brunswick Corp. 43,842
652 Hasbro, Inc. 18,269
809 Mattel, Inc. 18,534
-------------
80,645
-------------
|
See Notes to Financial Statements Page 71
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
LIFE SCIENCES TOOLS & SERVICES
--0.2%
383 PerkinElmer, Inc. $ 10,659
-------------
MACHINERY--3.5%
303 Cummins, Inc. 35,966
401 Dover Corp. 20,451
220 Eaton Corp. 21,380
566 Illinois Tool Works, Inc. 31,158
373 Ingersoll-Rand Co., Ltd., Class A 18,769
235 PACCAR, Inc. 19,228
523 Parker Hannifin Corp. 51,610
-------------
198,562
-------------
MEDIA--4.4%
921 CBS Corp., Class B 29,214
1,328 DIRECTV Group (The), Inc. (a) 29,760
448 E.W. Scripps (The) Co., Class A 18,355
931 Gannett Co., Inc. 46,457
471 News Corp., Class A 9,948
1,945 Time Warner, Inc. 37,461
1,392 Tribune Co. 38,920
1,199 Walt Disney (The) Co. 39,567
-------------
249,682
-------------
METALS & MINING--2.1%
1,010 Alcoa, Inc. 38,582
371 Freeport-McMoRan Copper &
Gold, Inc. 34,867
471 United States Steel Corp. 46,294
-------------
119,743
-------------
MULTILINE RETAIL--2.5%
1,424 Dillard's, Inc., Class A 42,564
424 J. C. Penney Co., Inc. 28,849
1,029 Macy's, Inc. 37,116
241 Sears Holdings Corp. (a) 32,966
-------------
141,495
-------------
MULTI-UTILITIES--8.4%
835 Ameren Corp. 40,063
1,176 CenterPoint Energy, Inc. 19,380
1,189 CMS Energy Corp. 19,214
1,133 Consolidated Edison, Inc. 49,489
237 Dominion Resources, Inc. 19,960
1,061 DTE Energy Co. 49,209
605 Integrys Energy Group, Inc. 29,941
975 KeySpan Corp. 40,511
2,470 NiSource, Inc. 47,103
904 PG&E Corp. 38,700
691 Sempra Energy 36,430
2,382 TECO Energy, Inc. 38,445
2,499 Xcel Energy, Inc. 50,731
-------------
479,176
-------------
OFFICE ELECTRONICS--0.7%
2,214 Xerox Corp. (a) $ 38,656
-------------
OIL, GAS & CONSUMABLE FUELS
--5.3%
607 Chevron Corp. 51,753
652 ConocoPhillips 52,707
868 Hess Corp. 53,121
853 Marathon Oil Corp. 47,086
884 Occidental Petroleum Corp. 50,140
692 Valero Energy Corp. 46,371
-------------
301,178
-------------
PAPER & FOREST PRODUCTS--1.5%
1,310 International Paper Co. 48,562
283 MeadWestvaco Corp. 9,209
389 Weyerhaeuser Co. 27,712
-------------
85,483
-------------
PHARMACEUTICALS--1.4%
2,500 King Pharmaceuticals, Inc. (a) 42,525
1,600 Pfizer, Inc. 37,616
-------------
80,141
-------------
REAL ESTATE INVESTMENT TRUSTS
--0.8%
501 Boston Properties, Inc. 47,339
-------------
ROAD & RAIL--3.5%
361 Burlington Northern Santa Fe Corp. 29,653
908 CSX Corp. 43,048
778 Norfolk Southern Corp. 41,841
951 Ryder System, Inc. 51,706
267 Union Pacific Corp. 31,810
-------------
198,058
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--4.1%
265 Analog Devices, Inc. 9,394
1,544 Applied Materials, Inc. 34,030
861 Intel Corp. 20,337
5,450 LSI Corp. (a) 39,240
299 Maxim Integrated Products, Inc. 9,478
4,083 Micron Technology, Inc. (a) 48,465
1,803 Novellus Systems, Inc. (a) 51,422
1,164 Teradyne, Inc. (a) 18,263
-------------
230,629
-------------
SPECIALTY RETAIL--2.7%
1,823 AutoNation, Inc. (a) 35,512
1,071 Gap (The), Inc. 18,421
746 Limited Brands, Inc. 18,016
1,013 Office Depot, Inc. (a) 25,284
1,041 OfficeMax, Inc. 34,228
308 Sherwin-Williams (The) Co. 21,465
-------------
152,926
-------------
|
Page 72 See Notes to Financial Statements
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
THRIFTS & MORTGAGE FINANCE
--0.9%
900 MGIC Investment Corp. $ 34,794
480 Washington Mutual, Inc. 18,014
-------------
52,808
-------------
TOBACCO--0.3%
142 Altria Group, Inc. 9,439
153 Reynolds American, Inc. 9,359
-------------
18,798
-------------
WIRELESS TELECOMMUNICATION
SERVICES--1.2%
455 ALLTEL Corp. 30,007
1,976 Sprint Nextel Corp. 40,568
-------------
70,575
-------------
TOTAL INVESTMENTS)--100.0%
(Cost $6,202,618) 5,671,104
NET OTHER ASSETS AND
LIABILITIES--(0.0%) (1,862)
-------------
NET ASSETS--100.0% $ 5,669,242
=============
|
(a) Non-income producing security.
See Notes to Financial Statements Page 73
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCK--100.0%
AEROSPACE & DEFENSE--4.5%
468 Boeing (The) Co. $ 48,405
431 General Dynamics Corp. 33,859
594 L-3 Communications Holdings, Inc. 57,951
477 Precision Castparts Corp. 65,377
318 Rockwell Collins, Inc. 21,847
476 United Technologies Corp. 34,734
-------------
262,173
-------------
AIR FREIGHT & LOGISTICS--0.5%
642 C.H. Robinson Worldwide, Inc. 31,233
-------------
BEVERAGES--0.7%
154 Brown-Forman Corp., Class B 10,232
215 Coca-Cola (The) Co. 11,204
668 Pepsi Bottling Group (The), Inc. 22,351
-------------
43,787
-------------
BIOTECHNOLOGY--1.6%
420 Biogen Idec, Inc. (a) 23,747
392 Celgene Corp. (a) 23,740
175 Genzyme Corp. (a) 11,037
870 Gilead Sciences, Inc. (a) 32,390
-------------
90,914
-------------
BUILDING PRODUCTS--0.9%
981 American Standard Cos., Inc. 53,023
-------------
CAPITAL MARKETS--5.7%
708 Ameriprise Financial, Inc. 42,671
548 Charles Schwab (The) Corp. 11,031
293 Federated Investors, Inc., Class B 10,551
340 Franklin Resources, Inc. 43,306
265 Goldman Sachs Group (The), Inc. 49,910
1,616 Janus Capital Group, Inc. 48,577
604 Lehman Brothers Holdings, Inc. 37,448
350 Northern Trust Corp. 21,861
329 State Street Corp. 22,053
867 T. Rowe Price Group, Inc. 45,197
-------------
332,605
-------------
CHEMICALS--2.5%
647 International Flavors &
Fragrances, Inc. 32,421
856 Monsanto Co. 55,169
625 Praxair, Inc. 47,888
264 Sigma-Aldrich Corp. 11,964
-------------
147,442
-------------
COMMERCIAL BANKS--1.3%
912 Commerce Bancorp, Inc. 30,506
489 Compass Bancshares, Inc. 33,879
366 Synovus Financial Corp. 10,233
-------------
74,618
-------------
COMMERCIAL SERVICES &
SUPPLIES--0.7%
285 Cintas Corp., Class A $ 10,420
760 Equifax, Inc. 30,749
-------------
41,169
-------------
COMMUNICATIONS EQUIPMENT
--3.8%
3,435 Avaya, Inc. (a) 56,815
1,245 Ciena Corp. (a) 45,480
1,211 Cisco Systems, Inc. (a) 35,010
880 Corning, Inc. (a) 20,979
1,787 Juniper Networks, Inc. (a) 53,539
259 QUALCOMM, Inc. 10,787
-------------
222,610
-------------
COMPUTERS & PERIPHERALS--5.0%
474 Apple, Inc. (a) 62,454
1,576 Dell, Inc. (a) 44,081
3,196 EMC Corp. (a) 59,158
321 International Business Machines Corp. 35,519
856 NCR Corp. (a) 44,700
689 SanDisk Corp. (a) 36,951
2,138 Sun Microsystems, Inc. (a) 10,904
-------------
293,767
-------------
CONSTRUCTION & ENGINEERING--1.0%
519 Fluor Corp. 59,950
-------------
CONSTRUCTION MATERIALS--0.3%
196 Vulcan Materials Co. 18,761
-------------
CONSUMER FINANCE--1.2%
368 American Express Co. 21,543
143 Capital One Financial Corp. 10,119
781 SLM Corp. (a) 38,401
-------------
70,063
-------------
CONTAINERS & PACKAGING--1.0%
1,088 Ball Corp. 55,782
-------------
DIVERSIFIED CONSUMER SERVICES
--0.7%
577 Apollo Group, Inc., Class A (a) 34,106
481 H&R Block, Inc. 9,596
-------------
43,702
-------------
ELECTRIC UTILITIES--1.3%
217 Allegheny Energy, Inc. (a) 11,334
802 Edison International$ 42,417
310 Exelon Corp. 21,747
-------------
75,498
-------------
ELECTRICAL EQUIPMENT--1.9%
1,013 Cooper Industries Ltd., Class A 53,608
721 Emerson Electric Co. 33,937
|
Page 74 See Notes to Financial Statements
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCK (CONTINUED)
ELECTRICAL EQUIPMENT (CONTINUED)
324 Rockwell Automation, Inc. $ 22,677
-------------
110,222
-------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS--0.9%
293 Agilent Technologies, Inc. (a) 11,178
510 Jabil Circuit, Inc. 11,490
1,000 Tektronix, Inc. 32,850
-------------
55,518
-------------
ENERGY EQUIPMENT & SERVICES--6.8%
1,011 Nabors Industries Ltd. (a) 29,562
555 National Oilwell Varco, Inc. (a) 66,661
593 Noble Corp. 60,759
681 Schlumberger Ltd. 64,504
986 Smith International, Inc. 60,550
546 Transocean, Inc. (a) 58,668
1,047 Weatherford International Ltd. (a) 57,931
-------------
398,635
-------------
FOOD & STAPLES RETAILING--1.1%
1,234 CVS Caremark Corp. 43,424
468 Wal-Mart Stores, Inc. 21,505
-------------
64,929
-------------
FOOD PRODUCTS--0.4%
407 Wm. Wrigley Jr. Co. 23,476
-------------
GAS UTILITIES--0.6%
638 Questar Corp. 32,851
-------------
HEALTH CARE EQUIPMENT &
SUPPLIES--2.1%
599 Baxter International, Inc. 31,507
492 Biomet, Inc. (a) 22,401
813 St. Jude Medical, Inc. (a) 35,073
357 Stryker Corp. 22,288
132 Zimmer Holdings, Inc. (a) 10,264
-------------
121,533
-------------
HEALTH CARE PROVIDERS &
SERVICES--5.5%
478 Cardinal Health, Inc. 31,419
861 CIGNA Corp. 44,462
585 Coventry Health Care, Inc. (a) 32,649
1,157 Express Scripts, Inc. (a) 58,000
739 Humana, Inc. (a) 47,363
287 Laboratory Corp. of America
Holdings (a) 21,195
886 Manor Care, Inc. 56,128
302 Patterson Cos., Inc. (a) 10,833
440 UnitedHealth Group, Inc. 21,309
-------------
323,358
-------------
HEALTH CARE TECHNOLOGY--0.5%
1,050 IMS Health, Inc. $ 29,537
-------------
HOTELS, RESTAURANTS & LEISURE
--2.4%
256 Darden Restaurants, Inc. 10,898
264 Harrah's Entertainment, Inc. 22,358
672 Hilton Hotels Corp. 29,709
886 McDonald's Corp. 42,413
1,031 Yum! Brands, Inc. 33,033
-------------
138,411
-------------
HOUSEHOLD DURABLES--1.0%
127 Black & Decker (The) Corp. 10,994
385 Harman International Industries, Inc. 44,660
-------------
55,654
-------------
INDEPENDENT POWER PRODUCERS &
ENERGY TRADERS--1.1%
1,028 AES (The) Corp. (a) 20,200
516 Constellation Energy Group 43,241
-------------
63,441
-------------
INDUSTRIAL CONGLOMERATES--0.2%
294 General Electric Co. 11,395
-------------
INSURANCE--0.9%
219 AFLAC, Inc. 11,414
161 American International Group, Inc. 10,333
523 MetLife, Inc. 31,495
-------------
53,242
-------------
INTERNET & CATALOG RETAIL--1.1%
845 Amazon.com, Inc. (a) 66,366
-------------
INTERNET SOFTWARE & SERVICES--0.8%
86 Google, Inc., Class A (a) 43,860
-------------
IT SERVICES--2.1%
397 Affiliated Computer Services,
Inc., Class A (a) 21,303
1,066 Fidelity National Information
Services, Inc. 52,906
688 First Data Corp. 21,872
594 Fiserv, Inc. (a) 29,355
-------------
125,436
-------------
LIFE SCIENCES TOOLS & SERVICES
--1.9%
449 Millipore Corp. (a) 35,296
870 Thermo Fisher Scientific, Inc. (a) 45,422
568 Waters Corp. (a) 33,092
-------------
113,810
-------------
MACHINERY--5.0%
575 Caterpillar, Inc. 45,310
298 Danaher Corp. 22,255
|
See Notes to Financial Statements Page 75
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCK (CONTINUED)
MACHINERY (CONTINUED)
479 Deere & Co. $ 57,681
847 ITT Corp. 53,259
1,258 Pall Corp. 52,232
711 Terex Corp. (a) 61,324
-------------
292,061
-------------
MEDIA--2.0%
595 Clear Channel Communications, Inc. 21,956
1,200 Comcast Corp., Class A (a) 31,523
165 McGraw-Hill (The) Cos., Inc. 9,983
548 Meredith Corp. 30,957
213 Omnicom Group, Inc. 11,048
270 Viacom, Inc., Class B (a) 10,341
-------------
115,808
-------------
METALS & MINING--0.9%
429 Allegheny Technologies, Inc. 45,015
192 Nucor Corp. 9,638
-------------
54,653
-------------
MULTILINE RETAIL--3.0%
1,529 Big Lots, Inc. (a) 39,540
1,685 Family Dollar Stores, Inc. 49,909
317 Kohl's Corp. (a) 19,274
440 Nordstrom, Inc. 20,935
707 Target Corp. 42,823
-------------
172,481
-------------
OIL, GAS & CONSUMABLE FUELS
--6.5%
865 Anadarko Petroleum Corp. 43,535
414 Apache Corp. 33,468
1,300 Chesapeake Energy Corp. 44,252
244 CONSOL Energy, Inc. 10,163
287 Devon Energy Corp. 21,413
402 Exxon Mobil Corp. 34,222
757 Murphy Oil Corp. 46,964
465 Peabody Energy Corp. 19,651
726 Sunoco, Inc. 48,440
1,067 Williams (The) Cos., Inc. 34,411
749 XTO Energy, Inc. 40,843
-------------
377,362
-------------
PERSONAL PRODUCTS--0.4%
306 Avon Products, Inc. 11,019
247 Estee Lauder (The) Cos., Inc.,
Class A 11,120
-------------
22,139
-------------
PHARMACEUTICALS--2.5%
224 Barr Pharmaceuticals, Inc. (a) 11,473
1,900 Schering-Plough Corp. 54,226
1,778 Watson Pharmaceuticals, Inc. (a) 54,087
PHARMACEUTICALS (CONTINUED)
588 Wyeth $ 28,530
-------------
148,316
-------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT--0.7%
1,233 CB Richard Ellis Group, Inc.,
Class A (a) 43,056
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--4.9%
1,525 Altera Corp. 35,380
614 KLA-Tencor Corp. 34,869
311 Linear Technology Corp. 11,087
736 MEMC Electronic Materials, Inc. (a) 45,132
796 National Semiconductor Corp. 20,688
1,400 NVIDIA Corp. (a) 64,064
2,910 PMC-Sierra, Inc. (a) 22,174
1,195 Texas Instruments, Inc. 42,052
420 Xilinx, Inc. 10,500
-------------
285,946
-------------
SOFTWARE--2.6%
956 Autodesk, Inc. (a) 40,506
435 CA, Inc. 10,910
334 Citrix Systems, Inc. (a) 12,081
382 Microsoft Corp. 11,074
2,282 Oracle Corp. (a) 43,631
1,670 Symantec Corp. (a) 32,064
-------------
150,266
-------------
SPECIALTY RETAIL--3.5%
308 Abercrombie & Fitch Co., Class A 21,529
329 AutoZone, Inc. (a) 41,720
572 Home Depot (The), Inc. 21,261
1,745 RadioShack Corp. 43,852
1,090 Tiffany & Co. 52,593
818 TJX (The) Cos., Inc. 22,700
-------------
203,655
-------------
TEXTILES, APPAREL & LUXURY
GOODS--2.6%
475 Coach, Inc. (a) 21,594
772 NIKE, Inc., Class B 43,579
590 Polo Ralph Lauren Corp. 52,716
368 VF Corp. 31,571
-------------
149,460
-------------
THRIFTS & MORTGAGE FINANCE
--0.5%
619 Countrywide Financial Corp. 17,437
185 Freddie Mac 10,595
-------------
28,032
-------------
|
Page 76 See Notes to Financial Statements
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCK (CONTINUED)
TRADING COMPANIES & DISTRIBUTORS
--0.9%
622 W.W. Grainger, Inc. $ 54,338
-------------
TOTAL INVESTMENTS--100.0%
(Cost $6,078,689) 5,846,344
NET OTHER ASSETS AND
LIABILITIES--(0.0%) (1,786)
-------------
NET ASSETS--100.0% $ 5,844,558
=============
|
(a) Non-income producing security.
See Notes to Financial Statements Page 77
First Trust Multi Cap Value AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS --100.2%
AEROSPACE & DEFENSE--0.9%
71 AAR Corp. (a) $ 2,118
83 Esterline Technologies Corp. (a) 3,842
42 Goodrich Corp. 2,642
27 Lockheed Martin Corp. 2,659
132 Northrop Grumman Corp. 10,045
61 Triumph Group, Inc. 4,649
-------------
25,955
-------------
AIR FREIGHT & LOGISTICS--0.5%
92 FedEx Corp. 10,189
34 United Parcel Service, Inc., Class B 2,574
-------------
12,763
-------------
AIRLINES--0.8%
278 Alaska Air Group, Inc. (a) 6,486
286 Frontier Airlines Holdings, Inc. (a) 1,516
484 Mesa Air Group, Inc. (a) 3,219
168 SkyWest, Inc. 3,748
516 Southwest Airlines Co. 8,080
-------------
23,049
-------------
AUTO COMPONENTS--0.8%
45 BorgWarner, Inc. 3,890
22 Johnson Controls, Inc. 2,489
428 Modine Manufacturing Co. 10,957
266 Standard Motor Products, Inc. 3,312
108 Superior Industries International, Inc. 1,998
-------------
22,646
-------------
AUTOMOBILES--0.0%
55 Monaco Coach Corp. 767
-------------
BEVERAGES--0.8%
211 Constellation Brands, Inc.,
Class A (a) 4,627
111 Molson Coors Brewing Co.,
Class B 9,873
236 PepsiAmericas, Inc. 6,530
-------------
21,030
-------------
BUILDING PRODUCTS--0.3%
28 Apogee Enterprises, Inc. 721
106 Gibraltar Industries, Inc. 2,047
108 Griffon Corp. (a) 1,898
69 Lennox International, Inc. 2,643
38 Universal Forest Products, Inc. 1,503
-------------
8,812
-------------
CAPITAL MARKETS--1.0%
73 Bear Stearns (The) Cos., Inc. 8,849
113 E*TRADE Financial Corp. (a) 2,093
106 LaBranche & Co, Inc. (a) 686
52 Legg Mason, Inc. 4,680
CAPITAL MARKETS (CONTINUED)
61 Merrill Lynch & Co., Inc. $ 4,526
30 Morgan Stanley 1,916
29 Piper Jaffray Cos., Inc. (a) 1,390
148 SWS Group, Inc. 2,612
-------------
26,752
-------------
CHEMICALS--4.4%
66 A. Schulman, Inc. 1,533
64 Air Products & Chemicals, Inc. 5,528
49 Albemarle Corp. 1,971
22 Arch Chemicals, Inc. 778
39 Ashland, Inc. 2,381
122 Cabot Corp. 4,926
121 Cytec Industries, Inc. 8,106
290 Dow Chemical (The) Co. 12,610
101 E.I. du Pont de Nemours and Co. 4,720
159 Eastman Chemical Co. 10,942
43 FMC Corp. 3,833
88 Georgia Gulf Corp. 1,425
54 H.B. Fuller Co. 1,492
261 Hercules, Inc. (a) 5,418
60 Lubrizol (The) Corp. 3,760
339 Material Sciences Corp. (a) 3,729
369 Olin Corp. 7,701
30 OM Group, Inc. (a) 1,453
147 Penford Corp. 5,252
445 PolyOne Corp. (a) 3,346
67 PPG Industries, Inc. 5,110
136 Quaker Chemical Corp. 2,954
141 Rohm & Haas Co. 7,969
305 Sensient Technologies Corp. 7,747
285 Tronox, Inc., Class B 3,506
136 Valspar (The) Corp. 3,752
-------------
121,942
-------------
COMMERCIAL BANKS--3.1%
13 Alabama National BanCorporation 694
57 Associated Banc-Corp. 1,638
61 BB&T Corp. 2,283
88 Boston Private Financial Holdings, Inc. 2,243
56 Cathay General Bancorp 1,714
71 Central Pacific Financial Corp. 2,003
46 Chittenden Corp. 1,539
42 Comerica, Inc. 2,212
160 Community Bank System, Inc. 2,878
147 First Commonwealth Financial Corp. 1,394
64 First Horizon National Corp. 2,030
67 Greater Bay Bancorp 1,801
94 Hanmi Financial Corp. 1,363
226 Huntington Bancshares, Inc. 4,339
52 Irwin Financial Corp. 609
224 KeyCorp 7,770
23 M&T Bank Corp. 2,445
308 National City Corp. 9,051
107 PNC Financial Services Group, Inc. 7,131
|
Page 78 See Notes to Financial Statements
First Trust Multi Cap Value AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMMERCIAL BANKS (CONTINUED)
24 Prosperity Bancshares, Inc. $ 680
49 Provident Bankshares Corp. 1,406
76 Regions Financial Corp. 2,285
35 South Financial Group (The), Inc. 755
55 Sterling Financial Corp. 1,249
29 SunTrust Banks, Inc. 2,271
72 Susquehanna Bancshares, Inc. 1,246
68 Umpqua Holdings Corp. 1,293
150 Wachovia Corp. 7,082
91 Webster Financial Corp. 3,955
71 Wells Fargo & Co. 2,398
26 Whitney Holding Corp. 650
18 Wintrust Financial Corp. 709
67 Zions Bancorporation 4,995
-------------
86,111
-------------
COMMERCIAL SERVICES &
SUPPLIES--2.8%
155 ABM Industries, Inc. 3,900
572 Allied Waste Industries, Inc. (a) 7,362
190 Angelica Corp. 4,148
38 Avery Dennison Corp. 2,331
164 Bowne & Co., Inc. 2,844
30 Brink's (The) Co. 1,835
24 CDI Corp. 679
46 Consolidated Graphics, Inc. (a) 3,032
101 G&K Services, Inc., Class A 3,763
59 Herman Miller, Inc. 1,801
46 HNI Corp. 1,878
282 Kelly Services, Inc., Class A 7,008
313 Navigant Consulting, Inc. (a) 4,930
73 On Assignment, Inc. (a) 732
177 R.R. Donnelley & Sons Co. 7,479
61 Republic Services, Inc. 1,949
68 Robert Half International, Inc. 2,311
45 School Specialty, Inc. (a) 1,550
341 Spherion Corp. (a) 3,011
48 United Stationers, Inc. (a) 3,060
76 Viad Corp. 2,732
128 Volt Information Sciences, Inc. (a) 1,994
197 Waste Management, Inc. 7,491
-------------
77,820
-------------
COMMUNICATIONS EQUIPMENT--1.1%
699 ADC Telecommunications, Inc. (a) 13,064
72 ADTRAN, Inc. 1,878
47 Bel Fuse, Inc., Class B 1,421
77 Black Box Corp. 3,099
160 Digi International, Inc. (a) 2,285
63 Dycom Industries, Inc. (a) 1,761
33 Inter-Tel, Inc. 819
141 Motorola, Inc. 2,396
93 Symmetricom, Inc. (a) 694
232 Tellabs, Inc. (a) 2,633
COMMUNICATIONS EQUIPMENT
(CONTINUED)
74 Tollgrade Communications, Inc. (a) $ 764
-------------
30,814
-------------
COMPUTERS & PERIPHERALS--0.7%
618 Adaptec, Inc. (a) 2,163
115 Hewlett-Packard Co. 5,293
213 Hutchinson Technology, Inc. (a) 4,273
210 Imation Corp. 6,569
37 Intevac, Inc. (a) 601
117 Palm, Inc. (a) 1,746
-------------
20,645
-------------
CONSTRUCTION & ENGINEERING
--0.1%
27 EMCOR Group, Inc. (a) 969
48 URS Corp. (a) 2,365
-------------
3,334
-------------
CONSTRUCTION MATERIALS--0.1%
28 Florida Rock Industries, Inc. 1,778
30 Texas Industries, Inc. 2,365
-------------
4,143
-------------
CONSUMER FINANCE--0.2%
219 AmeriCredit Corp. (a) 4,454
40 Cash America International, Inc. 1,465
-------------
5,919
-------------
CONTAINERS & PACKAGING--1.3%
90 AptarGroup, Inc. 3,276
232 Bemis Co., Inc. 6,837
187 Chesapeake Corp. 2,085
35 Myers Industries, Inc. 749
229 Packaging Corp of America 5,844
126 Rock-Tenn Co., Class A 3,871
248 Sealed Air Corp. 6,758
90 Sonoco Products Co. 3,300
41 Temple-Inland, Inc. 2,383
-------------
35,103
-------------
DISTRIBUTORS--0.3%
60 Audiovox Corp., Class A (a) 607
226 Building Materials Holding Corp. 3,139
103 Genuine Parts Co. 4,901
-------------
8,647
-------------
DIVERSIFIED CONSUMER SERVICES
--0.3%
11 CPI Corp. 646
202 Regis Corp. 7,042
-------------
7,688
-------------
|
See Notes to Financial Statements Page 79
First Trust Multi Cap Value AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
DIVERSIFIED FINANCIAL SERVICES
--0.9%
157 Bank of America Corp. $ 7,445
187 CIT Group, Inc. 7,700
49 Citigroup, Inc. 2,282
26 Financial Federal Corp. 737
159 JPMorgan Chase & Co. 6,998
-------------
25,162
-------------
DIVERSIFIED TELECOMMUNICATION
SERVICES--1.3%
124 AT&T, Inc. 4,856
250 CenturyTel, Inc. 11,468
336 Citizens Communications Co. 4,848
105 CT Communications, Inc. 3,218
39 Embarq Corp. 2,410
187 Verizon Communications, Inc. 7,970
169 Windstream Corp. 2,325
-------------
37,095
-------------
ELECTRIC UTILITIES--5.0%
34 ALLETE, Inc. 1,491
171 American Electric Power Co., Inc. 7,437
106 Central Vermont Public Service
Corp. 3,604
131 Cleco Corp. 3,111
701 Duke Energy Corp. 11,938
163 El Paso Electric Co. (a) 3,793
48 Entergy Corp. 4,798
158 FirstEnergy Corp. 9,599
90 FPL Group, Inc. 5,196
266 Great Plains Energy, Inc. 7,384
163 Hawaiian Electric Industries, Inc. 3,718
302 IDACORP, Inc. 9,350
205 Northeast Utilities 5,605
206 Pepco Holdings, Inc. 5,576
322 Pinnacle West Capital Corp. 12,069
53 PPL Corp. 2,498
281 Progress Energy, Inc. 12,268
441 Sierra Pacific Resources (a) 7,007
224 Southern Co. 7,535
97 UIL Holdings Corp. 2,869
97 Unisource Energy Corp. 2,952
399 Westar Energy, Inc. 9,185
-------------
138,983
-------------
ELECTRICAL EQUIPMENT--0.4%
59 A.O. Smith Corp. 2,864
16 Baldor Electric Co. 730
14 Belden, Inc. 767
71 Hubbell, Inc., Class B 4,093
51 Regal-Beloit Corp. 2,587
-------------
11,041
-------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS--2.7%
71 Agilysys, Inc. $ 1,364
43 Anixter International, Inc. (a) 3,554
252 Arrow Electronics, Inc. (a) 9,631
98 Avnet, Inc. (a) 3,712
245 Bell Microproducts, Inc. (a) 1,539
104 Benchmark Electronics, Inc. (a) 2,309
52 Coherent, Inc. (a) 1,505
186 CTS Corp. 2,370
38 Electro Scientific Industries, Inc. (a) 834
67 Gerber Scientific, Inc. (a) 695
267 Ingram Micro, Inc. Class A (a) 5,353
104 Insight Enterprises, Inc. (a) 2,346
549 KEMET Corp. (a) 3,865
204 Methode Electronics, Inc. 3,299
427 Molex, Inc. 12,102
152 Newport Corp. (a) 1,987
83 Park Electrochemical Corp. 2,461
34 Plexus Corp. (a) 825
21 Rogers Corp. (a) 759
1,394 Solectron Corp. (a) 5,241
612 Vishay Intertechnology, Inc. (a) 9,492
-------------
75,243
-------------
ENERGY EQUIPMENT & SERVICES
--2.6%
122 Baker Hughes, Inc. 9,644
81 Bristow Group, Inc. (a) 3,842
210 ENSCO International, Inc. 12,825
223 Halliburton Co. 8,032
162 Hanover Compressor Co. (a) 3,860
273 Helmerich & Payne, Inc. 8,837
313 Rowan Cos., Inc. 13,206
43 SEACOR Holdings, Inc. (a) 3,750
137 Tidewater, Inc. 9,374
-------------
73,370
-------------
FOOD & STAPLES RETAILING--1.7%
107 BJ's Wholesale Club, Inc. (a) 3,634
59 Casey's General Stores, Inc. 1,471
95 Great Atlantic & Pacific Tea
The) Co. (a) 2,769
182 Kroger (The) Co. 4,725
30 Longs Drug Stores Corp. 1,451
32 Nash Finch Co. 1,289
49 Performance Food Group Co. (a) 1,404
257 Ruddick Corp. 7,145
301 Safeway, Inc. 9,592
49 Spartan Stores, Inc. 1,434
221 SUPERVALU, Inc. 9,209
65 Whole Foods Market, Inc. 2,408
-------------
46,531
-------------
FOOD PRODUCTS--1.9%
387 Archer-Daniels-Midland Co. 13,004
Page 80 See Notes to Financial Statements
|
First Trust Multi Cap Value AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
FOOD PRODUCTS (CONTINUED)
322 Dean Foods Co. (a) $ 9,264
24 Flowers Foods, Inc. 492
43 General Mills, Inc. 2,392
29 Hain Celestial Group (The), Inc. (a) 786
155 Hormel Foods Corp. 5,335
42 J & J Snack Foods Corp. 1,447
29 J.M. Smucker (The) Co. 1,618
71 Kraft Foods, Inc., Class A 2,325
92 Lancaster Colony Corp. 3,562
30 Ralcorp Holdings, Inc. (a) 1,559
189 Smithfield Foods, Inc. (a) 5,870
68 Tootsie Roll Industries, Inc. 1,702
120 TreeHouse Foods, Inc. (a) 2,689
-------------
52,045
-------------
GAS UTILITIES--2.1%
143 AGL Resources, Inc. 5,391
133 Atmos Energy Corp. 3,733
58 Energen Corp. 3,069
74 Laclede Group (The), Inc. 2,187
43 National Fuel Gas Co. 1,864
46 New Jersey Resources Corp. 2,162
239 Nicor, Inc. 9,420
87 Northwest Natural Gas Co. 3,625
77 ONEOK, Inc. 3,908
95 Piedmont Natural Gas Co. 2,203
90 South Jersey Industries, Inc. 2,949
98 Southern Union Co. 3,026
118 Southwest Gas Corp. 3,667
117 UGI Corp. 3,020
237 WGL Holdings, Inc. 7,096
-------------
57,320
-------------
HEALTH CARE EQUIPMENT &
SUPPLIES--0.5%
54 Advanced Medical Optics, Inc. (a) 1,632
11 Analogic Corp. 730
55 CONMED Corp. (a) 1,535
61 Datascope Corp. 2,099
444 Osteotech, Inc. (a) 3,183
49 Symmetry Medical, Inc. (a) 732
959 Theragenics Corp. (a) 3,788
-------------
13,699
-------------
HEALTH CARE PROVIDERS &
SERVICES--1.4%
51 Aetna, Inc. 2,452
67 AMERIGROUP Corp. (a) 1,855
117 Gentiva Health Services, Inc. (a) 2,336
315 Kindred Healthcare, Inc. (a) 8,435
200 LifePoint Hospitals, Inc. (a) 5,910
78 Matria Healthcare, Inc. (a) 2,015
42 McKesson Corp. 2,426
52 Omnicare, Inc. 1,724
HEALTH CARE PROVIDERS &
SERVICES (CONTINUED)
22 Owens & Minor, Inc. $ 846
165 RehabCare Group, Inc. (a) 2,338
111 Res-Care, Inc. (a) 2,157
96 WellPoint, Inc. (a) 7,212
-------------
39,706
-------------
HOTELS, RESTAURANTS & LEISURE
--1.5%
210 Bob Evans Farms, Inc. 6,815
74 California Pizza Kitchen, Inc. (a) 1,405
210 Carnival Corp. 9,304
44 CBRL Group, Inc. 1,691
39 CKE Restaurants, Inc. 674
106 Landry's Restaurants, Inc. 2,808
67 Marcus (The) Corp. 1,319
198 O'Charley's, Inc. 3,511
28 Pinnacle Entertainment, Inc. (a) 742
60 RARE Hospitality International,
Inc. (a) 1,606
115 Starwood Hotels & Resorts
Worldwide, Inc. 7,240
240 Steak n Shake (The) Co. (a) 3,600
69 Wyndham Worldwide Corp. (a) 2,322
-------------
43,037
-------------
HOUSEHOLD DURABLES--2.5%
66 American Greetings Corp., Class A 1,632
314 Beazer Homes USA, Inc. 4,393
163 Champion Enterprises, Inc. (a) 1,910
23 Ethan Allen Interiors, Inc. 786
62 Fortune Brands, Inc. 5,041
409 Furniture Brands International, Inc. 4,507
326 KB Home 10,369
581 Leggett & Platt, Inc. 12,043
210 Lennar Corp., Class A 6,439
36 Libbey, Inc. 718
60 M/I Homes, Inc. 1,473
38 National Presto Industries, Inc. 2,134
228 Pulte Homes, Inc. 4,410
42 Russ Berrie and Co., Inc. (a) 646
84 Stanley Works (The) 4,648
65 Tupperware Brands Corp. 1,691
69 Whirlpool Corp. 7,046
-------------
69,886
-------------
HOUSEHOLD PRODUCTS--0.2%
136 Central Garden & Pet Co.,
Class A (a) 1,665
77 Kimberly-Clark Corp. 5,179
-------------
6,844
-------------
INDUSTRIAL CONGLOMERATES--1.2%
89 3M Co. 7,914
35 Sequa Corp., Class A (a) 5,779
|
See Notes to Financial Statements Page 81
First Trust Multi Cap Value AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INDUSTRIAL CONGLOMERATES (CONTINUED)
56 Standex International Corp. $ 1,327
188 Tredegar Corp. 3,452
304 Tyco International Ltd. 14,375
-------------
32,847
-------------
INSURANCE--8.1%
205 ACE Ltd. 11,833
167 Allstate (The) Corp. 8,876
227 American Financial Group, Inc 6,376
131 Assurant, Inc. 6,644
237 Chubb (The) Corp. 11,947
177 Cincinnati Financial Corp. 6,938
279 Commerce Group (The), Inc. 8,016
56 Delphi Financial Group, Inc., Class A 2,250
408 Fidelity National Financial, Inc.,
Class A 8,523
156 First American Corp. 7,221
149 Genworth Financial, Inc., Class A 4,547
119 Hanover Insurance Group, Inc. 5,223
78 Hartford Financial Services Group
(The), Inc. 7,166
273 Horace Mann Educators Corp. 4,868
41 LandAmerica Financial Group, Inc. 3,140
35 Lincoln National Corp. 2,111
201 Loews Corp. 9,527
81 Marsh & McLennan Cos., Inc. 2,232
165 MBIA, Inc. 9,257
105 Mercury General Corp. 5,437
134 Ohio Casualty Corp. 5,817
364 Old Republic International Corp. 6,683
120 Presidential Life Corp. 1,957
57 ProAssurance Corp. (a) 2,815
81 Protective Life Corp. 3,485
26 Prudential Financial, Inc. 2,304
71 RLI Corp. 4,118
206 SAFECO Corp. 12,045
77 Safety Insurance Group, Inc. 2,564
128 SCPIE Holdings, Inc. (a) 2,876
119 Selective Insurance Group 2,442
100 Stewart Information Services Corp. 3,648
77 Torchmark Corp. 4,739
240 Travelers (The) Cos., Inc. 12,186
113 United Fire & Casualty Co. 3,889
118 Unitrin, Inc. 5,001
96 Unum Group 2,333
152 XL Capital Ltd., Class A 11,835
85 Zenith National Insurance Corp. 3,431
-------------
226,300
-------------
INTERNET & CATALOG RETAIL--0.3%
499 Netflix, Inc. (a) 8,598
-------------
INTERNET SOFTWARE & SERVICES--0.3%
34 InfoSpace, Inc. $ 708
97 United Online, Inc. 1,370
242 VeriSign, Inc. (a) 7,185
-------------
9,263
-------------
IT SERVICES--1.6%
71 Acxiom Corp. 1,786
89 Authorize.Net Holdings, Inc. (a) 1,542
96 CheckFree Corp. (a) 3,537
489 CIBER, Inc. (a) 3,712
173 Computer Sciences Corp. (a) 9,633
423 Convergys Corp. (a) 8,058
277 Electronic Data Systems Corp. 7,476
579 MPS Group, Inc. (a) 7,718
218 StarTek, Inc. (a) 2,389
-------------
45,851
-------------
LEISURE EQUIPMENT & PRODUCTS
--1.2%
162 Arctic Cat, Inc. 2,935
393 Brunswick Corp. 10,989
163 Hasbro, Inc. 4,567
142 JAKKS Pacific, Inc. (a) 3,367
263 K2, Inc. (a) 3,842
118 MarineMax, Inc. (a) 2,207
203 Mattel, Inc. 4,651
40 RC2 Corp. (a) 1,416
-------------
33,974
-------------
LIFE SCIENCES TOOLS & SERVICES--0.1%
96 PerkinElmer, Inc. 2,672
-------------
MACHINERY--3.3%
19 Albany International Corp., Class A 712
74 Barnes Group, Inc. 2,309
76 Cummins, Inc. 9,021
100 Dover Corp. 5,100
55 Eaton Corp. 5,345
244 Federal Signal Corp. 3,282
74 Harsco Corp. 3,897
142 Illinois Tool Works, Inc. 7,817
94 Ingersoll-Rand Co. Ltd., Class A 4,730
118 Kennametal, Inc. 9,046
274 Lydall, Inc. (a) 3,165
93 Mueller Industries, Inc. 3,430
77 Nordson Corp. 3,524
59 PACCAR, Inc. 4,827
131 Parker Hannifin Corp. 12,926
49 Pentair, Inc. 1,774
107 Timken (The) Co. 3,574
133 Trinity Industries, Inc. 5,085
54 Wabash National Corp. 686
63 Watts Water Technologies, Inc., Class A 2,199
-------------
92,449
-------------
|
Page 82 See Notes to Financial Statements
First Trust Multi Cap Value AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MARINE--0.1%
73 Alexander & Baldwin, Inc. $ 3,958
-------------
MEDIA--3.4%
376 Belo Corp., Class A 6,730
231 CBS Corp., Class B 7,327
333 DIRECTV Group (The), Inc. (a) 7,463
112 E.W. Scripps (The) Co., Class A 4,589
233 Gannett Co., Inc. 11,627
464 Lee Enterprises, Inc. 8,171
291 Media General, Inc., Class A 8,206
118 News Corp., Class A 2,492
162 Scholastic Corp. (a) 5,213
487 Time Warner, Inc. 9,380
349 Tribune Co. 9,758
300 Walt Disney (The) Co. 9,900
5 Washington Post (The) Co. 3,954
-------------
94,810
-------------
METALS & MINING--2.1%
253 Alcoa, Inc. 9,665
66 A.M. Castle & Co. 2,179
29 AMCOL International, Corp. 830
95 Brush Engineered Materials, Inc. (a) 3,598
45 Carpenter Technology Corp. 5,341
43 Century Aluminum Co. (a) 2,216
93 Freeport-McMoRan Copper &
Gold, Inc. 8,740
66 Quanex Corp. 2,974
106 Ryerson, Inc. 3,402
118 United States Steel Corp. 11,598
447 Worthington Industries, Inc. 9,253
-------------
59,796
-------------
MULTILINE RETAIL--1.4%
357 Dillard's, Inc., Class A 10,671
239 Fred's, Inc. 2,837
106 J. C. Penney Co., Inc. 7,212
258 Macy's, Inc. 9,306
61 Sears Holdings Corp. (a) 8,344
63 Tuesday Morning Corp. 735
-------------
39,105
-------------
MULTI-UTILITIES--7.3%
249 Alliant Energy Corp. 9,201
209 Ameren Corp. 10,028
148 Avista Corp. 2,933
195 Black Hills Corp. 7,274
295 CenterPoint Energy, Inc. 4,862
71 CH Energy Group, Inc. 3,149
298 CMS Energy Corp. 4,816
284 Consolidated Edison, Inc. 12,404
59 Dominion Resources, Inc. 4,969
266 DTE Energy Co. 12,336
297 Energy East Corp. 7,517
MULTI-UTILITIES (CONTINUED)
152 Integrys Energy Group, Inc. $ 7,522
244 KeySpan Corp. 10,138
276 MDU Resources Group, Inc. 7,524
619 NiSource, Inc. 11,804
179 NSTAR 5,630
158 OGE Energy Corp. 5,238
226 PG&E Corp. 9,675
279 PNM Resources, Inc. 7,207
400 Puget Energy, Inc. 9,260
202 SCANA Corp. 7,551
173 Sempra Energy 9,121
597 TECO Energy, Inc. 9,636
287 Vectren Corp. 7,166
131 Wisconsin Energy Corp. 5,624
626 Xcel Energy, Inc. 12,707
-------------
205,292
-------------
OFFICE ELECTRONICS--0.4%
555 Xerox Corp. (a) 9,690
-------------
OIL, GAS & CONSUMABLE FUELS
--4.6%
111 Arch Coal, Inc. 3,318
152 Chevron Corp. 12,960
246 Cimarex Energy Co. 9,311
163 ConocoPhillips 13,177
209 Encore Acquisition Co. (a) 5,407
229 Forest Oil Corp. (a) 9,268
217 Hess Corp. 13,280
214 Marathon Oil Corp. 11,813
124 Noble Energy, Inc. 7,581
222 Occidental Petroleum Corp. 12,592
119 Overseas Shipholding Group, Inc. 9,233
202 Plains Exploration & Production
Co. (a) 8,728
174 Valero Energy Corp. 11,660
-------------
128,328
-------------
PAPER & FOREST PRODUCTS--1.5%
155 Bowater, Inc. 3,041
259 Buckeye Technologies, Inc. (a) 3,970
138 Glatfelter 1,853
328 International Paper Co. 12,160
99 Louisiana-Pacific Corp. 1,833
71 MeadWestvaco Corp. 2,310
78 Neenah Paper, Inc. 3,021
806 Pope & Talbot, Inc. (a) 2,120
129 Schweitzer-Mauduit International,
Inc. 2,945
176 Wausau Paper Corp. 1,969
97 Weyerhaeuser Co. 6,911
-------------
42,133
-------------
PERSONAL PRODUCTS--0.2%
245 Alberto-Culver Co. 5,762
-------------
|
See Notes to Financial Statements Page 83
First Trust Multi Cap Value AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS--0.9%
62 Alpharma, Inc., Class A (a) $ 1,537
627 King Pharmaceuticals, Inc. (a) 10,664
401 Pfizer, Inc. 9,428
290 ViroPharma, Inc. (a) 3,727
-------------
25,356
-------------
REAL ESTATE INVESTMENT TRUSTS
--1.3%
126 Boston Properties, Inc. 11,907
200 Cousins Properties, Inc. 5,142
44 Entertainment Properties Trust 1,960
45 Hospitality Properties Trust 1,726
103 LTC Properties, Inc. 2,067
121 Medical Properties Trust, Inc. 1,355
73 National Retail Properties, Inc. 1,581
90 Potlatch Corp. 3,932
129 Rayonier, Inc. 5,462
79 Senior Housing Properties Trust 1,365
-------------
36,497
-------------
ROAD & RAIL--3.2%
60 Arkansas Best Corp. 2,162
272 Avis Budget Group, Inc. (a) 6,982
90 Burlington Northern Santa Fe Corp. 7,393
193 Con-way, Inc. 9,532
228 CSX Corp. 10,809
107 Kansas City Southern (a) 3,693
195 Norfolk Southern Corp. 10,487
238 Ryder System, Inc. 12,940
67 Union Pacific Corp. 7,982
480 Werner Enterprises, Inc. 9,331
263 YRC Worldwide, Inc. (a) 8,448
-------------
89,759
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--4.4%
177 Advanced Energy Industries, Inc. (a) 3,135
66 Analog Devices, Inc. 2,340
387 Applied Materials, Inc. 8,529
26 ATMI, Inc. (a) 753
616 Axcelis Technologies, Inc. (a) 3,419
220 Brooks Automation, Inc. (a) 3,865
72 Cohu, Inc. 1,439
59 Exar Corp. (a) 834
97 Fairchild Semiconductor
International, Inc. (a) 1,770
216 Intel Corp. 5,102
104 International Rectifier Corp. (a) 3,818
60 Intersil Corp., Class A 1,755
151 Lam Research Corp. (a) 8,734
1,366 LSI Corp. (a) 9,835
75 Maxim Integrated Products, Inc. 2,378
304 Micrel, Inc. 3,146
51 Microchip Technology, Inc. 1,852
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (CONTINUED)
1,023 Micron Technology, Inc. (a) $ 12,144
144 MKS Instruments, Inc. (a) 3,269
452 Novellus Systems, Inc. (a) 12,892
211 Pericom Semiconductor Corp. (a) 2,253
269 Photronics, Inc. (a) 3,771
1,551 RF Micro Devices, Inc. (a) 10,764
241 Rudolph Technologies, Inc. (a) 3,772
107 Skyworks Solutions, Inc. (a) 847
69 Standard Microsystems Corp. (a) 2,304
292 Teradyne, Inc. (a) 4,581
1,148 TriQuint Semiconductor, Inc. (a) 5,074
-------------
124,375
-------------
SOFTWARE--0.6%
178 Advent Software, Inc. (a) 6,769
460 Captaris, Inc. (a) 2,360
142 Mentor Graphics Corp. (a) 1,705
59 Radiant Systems, Inc. (a) 820
162 Sybase, Inc. (a) 3,843
26 THQ, Inc. (a) 748
-------------
16,245
-------------
SPECIALTY RETAIL--3.9%
110 Aaron Rents, Inc. 2,543
219 AnnTaylor Stores Corp. (a) 6,881
457 AutoNation, Inc. (a) 8,901
151 Barnes & Noble, Inc. 5,066
97 Brown Shoe Co, Inc 2,031
88 Charlotte Russe Holding, Inc. (a) 1,564
894 Charming Shoppes, Inc. (a) 8,833
351 Finish Line (The), Inc., Class A 2,373
444 Foot Locker, Inc. 8,241
269 Gap (The), Inc. 4,627
40 Group 1 Automotive, Inc. 1,501
274 Haverty Furniture Cos., Inc. 3,055
141 Jo-Ann Stores, Inc. (a) 3,357
187 Limited Brands, Inc. 4,516
126 Lithia Motors, Inc., Class A 2,594
254 Office Depot, Inc. (a) 6,340
261 OfficeMax, Inc. 8,582
184 Payless ShoeSource, Inc. (a) 4,898
198 Pep Boys-Manny Moe & Jack (The) 3,352
295 Rent-A-Center, Inc. (a) 5,726
77 Sherwin-Williams (The) Co. 5,366
138 Sonic Automotive, Inc., Class A 3,781
131 Stein Mart, Inc. 1,410
99 Zale Corp. (a) 2,102
-------------
107,640
-------------
TEXTILES, APPAREL & LUXURY
GOODS--0.6%
69 Hanesbrands, Inc. (a) 2,140
28 Kellwood Co. 718
95 Movado Group, Inc. 2,683
|
Page 84 See Notes to Financial Statements
First Trust Multi Cap Value AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TEXTILES, APPAREL & LUXURY
GOODS (CONTINUED)
72 Oxford Industries, Inc. $ 2,909
55 Skechers U.S.A., Inc., Class A (a) 1,143
116 Stride Rite (The) Corp. 2,363
91 UniFirst Corp. 3,418
-------------
15,374
-------------
THRIFTS & MORTGAGE FINANCE
--2.2%
30 Anchor BanCorp Wisconsin, Inc 671
75 Astoria Financial Corp. 1,766
117 BankUnited Financial Corp., Class A 1,970
136 Corus Bankshares, Inc. 2,211
59 Dime Community Bancshares 660
61 Downey Financial Corp. 3,245
296 First Niagara Financial Group, Inc. 3,807
71 FirstFed Financial Corp. (a) 3,209
266 Flagstar Bancorp, Inc. 2,846
297 Fremont General Corp. (a) 1,714
332 IndyMac Bancorp, Inc. 7,304
43 MAF Bancorp, Inc. 2,258
225 MGIC Investment Corp. 8,698
217 PMI Group (The), Inc. 7,393
179 Radian Group, Inc. 6,034
80 Triad Guaranty, Inc. (a) 2,206
77 Washington Federal, Inc. 1,735
120 Washington Mutual, Inc. 4,504
-------------
62,231
-------------
TOBACCO--0.2%
36 Altria Group, Inc. 2,393
38 Reynolds American, Inc. 2,324
-------------
4,717
-------------
TRADING COMPANIES & DISTRIBUTORS
--0.6%
27 Applied Industrial Technologies, Inc. 767
79 GATX Corp. 3,583
51 Kaman Corp. 1,708
297 United Rentals, Inc. (a) 9,546
-------------
15,604
-------------
WATER UTILITIES--0.1%
45 American States Water Co. 1,660
-------------
WIRELESS TELECOMMUNICATION
SERVICES--0.9%
112 ALLTEL Corp. $ 7,386
495 Sprint Nextel Corp. 10,162
124 Telephone and Data Systems, Inc. 8,233
-------------
25,781
-------------
TOTAL INVESTMENTS--100.2%
(Cost $3,134,218) 2,799,969
NET OTHER ASSETS AND
LIABILITIES--(0.2%) (4,578)
-------------
NET ASSETS--100.0% $ 2,795,391
=============
|
(a) Non-income producing security.
See Notes to Financial Statements Page 85
First Trust Multi Cap Growth AlphaDEX(TM) Fund
Portfolio of Investments
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS--99.4%
AEROSPACE & DEFENSE--3.8%
330 Alliant Techsystems, Inc. (a) $ 32,706
354 Boeing (The) Co. 36,614
213 Ceradyne, Inc. (a) 15,896
405 Cubic Corp. 11,150
263 Curtiss-Wright Corp. 11,459
443 DRS Technologies, Inc. 23,195
477 EDO Corp. 15,765
326 General Dynamics Corp. 25,611
449 L-3 Communications Holdings, Inc. 43,804
213 Moog, Inc., Class A (a) 9,121
360 Precision Castparts Corp. 49,342
240 Rockwell Collins, Inc. 16,488
342 Teledyne Technologies, Inc. (a) 15,175
360 United Technologies Corp. 26,269
-------------
332,595
-------------
AIR FREIGHT & LOGISTICS--0.5%
486 C.H. Robinson Worldwide, Inc. 23,643
180 Forward Air Corp. 6,133
447 Hub Group, Inc., Class A (a) 15,207
-------------
44,983
-------------
AIRLINES--0.2%
1,160 AirTran Holdings, Inc. (a) 11,415
539 JetBlue Airways Corp. (a) 5,309
-------------
16,724
-------------
AUTO COMPONENTS--0.3%
285 Drew Industries, Inc. (a) 9,912
965 Gentex Corp. 19,049
-------------
28,961
-------------
AUTOMOBILES--0.1%
141 Thor Industries, Inc. 5,784
-------------
BEVERAGES--0.5%
117 Brown-Forman Corp., Class B 7,773
162 Coca-Cola (The) Co. 8,442
294 Hansen Natural Corp. (a) 11,922
506 Pepsi Bottling Group (The), Inc. 16,931
-------------
45,068
-------------
BIOTECHNOLOGY--1.5%
318 Biogen Idec, Inc. (a) 17,980
297 Celgene Corp. (a) 17,986
315 Cephalon, Inc. (a) 23,669
204 Digene Corp. (a) 12,495
132 Genzyme Corp. (a) 8,325
659 Gilead Sciences, Inc. (a) 24,536
236 Martek Biosciences Corp. (a) 6,046
815 PDL BioPharma, Inc. (a) 19,144
-------------
130,181
-------------
BUILDING PRODUCTS--0.6%
741 American Standard Cos., Inc. $ 40,051
192 NCI Building Systems, Inc. (a) 9,285
90 Simpson Manufacturing Co., Inc. 3,045
-------------
52,381
-------------
CAPITAL MARKETS--3.8%
536 Ameriprise Financial, Inc. 32,305
414 Charles Schwab (The) Corp. 8,334
743 Eaton Vance Corp. 31,102
222 Federated Investors, Inc., Class B 7,994
257 Franklin Resources, Inc. 32,734
201 Goldman Sachs Group (The), Inc. 37,857
141 Investment Technology Group, Inc. (a) 5,634
1,222 Janus Capital Group, Inc. 36,734
456 Lehman Brothers Holdings, Inc. 28,272
264 Northern Trust Corp. 16,489
408 Nuveen Investments, Inc., Class A 24,945
204 Raymond James Financial, Inc. 6,257
249 State Street Corp. 16,690
656 T. Rowe Price Group, Inc. 34,197
488 Waddell & Reed Financial, Inc.,
Class A 12,302
-------------
331,846
-------------
CHEMICALS--1.7%
530 Airgas, Inc. 24,751
489 International Flavors & Fragrances, Inc. 24,504
189 Minerals Technologies, Inc. 12,223
647 Monsanto Co. 41,699
473 Praxair, Inc. 36,241
200 Sigma-Aldrich Corp. 9,064
-------------
148,482
-------------
COMMERCIAL BANKS--1.0%
84 City National Corp. 5,946
689 Commerce Bancorp, Inc. 23,047
369 Compass Bancshares, Inc. 25,564
78 East West Bancorp, Inc. 2,859
114 First Republic Bank 6,242
239 SVB Financial Group (a) 12,591
276 Synovus Financial Corp. 7,717
-------------
83,966
-------------
COMMERCIAL SERVICES &
SUPPLIES--2.0%
92 Administaff, Inc. 3,008
330 Brady Corp., Class A 11,547
216 Cintas Corp. 7,897
207 Copart, Inc. (a) 5,825
123 Dun & Bradstreet (The) Corp. 12,024
575 Equifax, Inc. 23,264
320 Healthcare Services Group, Inc. 8,870
240 Heidrick & Struggles International,
Inc. (a) 12,898
500 Interface, Inc., Class A 9,215
|
Page 86 See Notes to Financial Statements
First Trust Multi Cap Growth AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMMERCIAL SERVICES &
SUPPLIES (CONTINUED)
965 Korn/Ferry International (a) $ 22,803
680 Labor Ready, Inc. (a) 16,021
210 Mobile Mini, Inc. (a) 6,000
428 Stericycle, Inc. (a) 20,518
285 Tetra Tech, Inc. (a) 5,994
243 Watson Wyatt Worldwide, Inc.,
Class A 10,826
-------------
176,710
-------------
COMMUNICATIONS EQUIPMENT
--3.9%
893 Arris Group, Inc. (a) 13,234
2,598 Avaya, Inc. (a) 42,971
219 Avocent Corp. (a) 5,990
123 Blue Coat Systems, Inc. (a) 5,994
671 C-COR, Inc. (a) 9,025
941 Ciena Corp. (a) 34,375
917 Cisco Systems, Inc. (a) 26,510
563 CommScope, Inc. (a) 30,644
264 Comtech Telecommunications
Corp. (a) 11,476
665 Corning, Inc. (a) 15,854
374 Ditech Networks, Inc. (a) 2,790
315 F5 Networks, Inc. (a) 27,307
465 Harris Corp. 25,519
1,352 Juniper Networks, Inc. (a) 40,506
434 NETGEAR, Inc. (a) 12,004
725 Plantronics, Inc. 20,315
377 Polycom, Inc. (a) 11,676
195 QUALCOMM, Inc. 8,122
96 ViaSat, Inc. (a) 2,748
-------------
347,060
-------------
COMPUTERS & PERIPHERALS--3.4%
359 Apple, Inc. (a) 47,302
1,192 Dell, Inc. (a) 33,340
363 Diebold, Inc. 18,393
2,416 EMC Corp. (a) 44,720
243 International Business Machines Corp. 26,888
296 Komag, Inc. (a) 9,475
647 NCR Corp. (a) 33,786
603 Novatel Wireless, Inc. (a) 12,983
521 SanDisk Corp. (a) 27,941
261 Stratasys, Inc. (a) 11,487
1,618 Sun Microsystems, Inc. (a) 8,252
264 Synaptics, Inc. (a) 9,272
654 Western Digital Corp. (a) 13,963
-------------
297,802
-------------
CONSTRUCTION & ENGINEERING
--1.6%
393 Fluor Corp. 45,396
512 Granite Construction, Inc. 33,275
CONSTRUCTION & ENGINEERING
(CONTINUED)
570 Jacobs Engineering Group, Inc. (a) $ 35,129
1,070 Quanta Services, Inc. (a) 30,420
-------------
144,220
-------------
CONSTRUCTION MATERIALS--0.4%
156 Martin Marietta Materials, Inc. 21,372
149 Vulcan Materials Co. 14,262
-------------
35,634
-------------
CONSUMER FINANCE--0.7%
278 American Express Co. 16,274
108 Capital One Financial Corp. 7,642
402 First Cash Financial Services,
Inc. (a) 8,760
591 SLM Corp. (a) 29,060
144 World Acceptance Corp. (a) 4,635
-------------
66,371
-------------
CONTAINERS & PACKAGING--0.5%
824 Ball Corp. 42,246
-------------
DISTRIBUTORS--0.3%
380 Keystone Automotive Industries,
Inc. (a) 17,769
497 LKQ Corp. (a) 14,130
-------------
31,899
-------------
DIVERSIFIED CONSUMER SERVICES--2.5%
437 Apollo Group, Inc., Class A (a) 25,832
158 Bright Horizons Family Solutions,
Inc. (a) 6,130
188 Career Education Corp. (a) 5,580
779 Corinthian Colleges, Inc. (a) 10,493
746 DeVry, Inc. 24,170
363 H&R Block, Inc. 7,242
279 ITT Educational Services, Inc. (a) 29,480
411 Laureate Education, Inc. (a) 25,342
291 Matthews International Corp., Class A 11,134
191 Pre-Paid Legal Services, Inc. (a) 10,066
551 Sotheby's 23,555
144 Strayer Education, Inc. 21,820
240 Universal Technical Institute, Inc. (a) 5,191
252 Vertrue, Inc. (a) 12,451
-------------
218,486
-------------
DIVERSIFIED FINANCIAL SERVICES
--0.2%
180 Leucadia National Corp. 6,768
261 Portfolio Recovery Associates,
Inc. (a) 13,637
-------------
20,405
-------------
|
See Notes to Financial Statements Page 87
First Trust Multi Cap Growth AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
DIVERSIFIED TELECOMMUNICATION
SERVICES--0.3%
4,384 Cincinnati Bell, Inc. (a) $ 22,621
-------------
ELECTRIC UTILITIES--0.6%
165 Allegheny Energy, Inc. (a) 8,618
606 Edison International 32,051
234 Exelon Corp. 16,415
-------------
57,084
-------------
ELECTRICAL EQUIPMENT--1.9%
204 Acuity Brands, Inc. 12,056
638 AMETEK, Inc. 24,895
767 Cooper Industries Ltd., Class A 40,589
545 Emerson Electric Co. 25,652
245 Rockwell Automation, Inc. 17,148
222 Roper Industries, Inc. 13,316
327 Thomas & Betts Corp. (a) 20,209
293 Woodward Governor Co. 16,921
-------------
170,786
-------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS--2.6%
432 Aeroflex, Inc. (a) 6,061
222 Agilent Technologies, Inc. (a) 8,469
710 Amphenol Corp., Class A 24,325
386 CDW Corp. (a) 32,489
243 Checkpoint Systems, Inc. (a) 5,606
264 FLIR Systems, Inc. (a) 11,524
78 Itron, Inc. (a) 6,196
386 Jabil Circuit, Inc. 8,697
549 LoJack Corp. (a) 11,705
210 MTS Systems Corp. 8,768
584 National Instruments Corp. 18,892
491 ScanSource, Inc. (a) 13,174
548 Technitrol, Inc. 14,248
756 Tektronix, Inc. 24,834
381 Trimble Navigation Ltd. (a) 12,584
1,208 TTM Technologies, Inc. (a) 15,752
414 X-Rite, Inc. (a) 5,589
-------------
228,913
-------------
ENERGY EQUIPMENT & SERVICES
--6.7%
228 Atwood Oceanics, Inc. (a) 15,641
459 Cameron International Corp. (a) 35,802
140 CARBO Ceramics, Inc. 6,311
210 Dril-Quip, Inc. (a) 10,078
320 FMC Technologies, Inc. (a) 29,286
353 Grant Prideco, Inc. (a) 19,803
315 Hornbeck Offshore Services, Inc. (a) 13,561
785 Input/Output, Inc. (a) 11,186
189 Lufkin Industries, Inc. 11,191
632 Matrix Service Co. (a) 14,593
764 Nabors Industries Ltd. (a) 22,339
ENERGY EQUIPMENT & SERVICES
(CONTINUED)
420 National Oilwell Varco, Inc. (a) $ 50,446
449 Noble Corp. 46,005
299 Oceaneering International, Inc. (a) 16,792
725 Patterson-UTI Energy, Inc. 16,603
677 Pride International, Inc. (a) 23,729
515 Schlumberger Ltd. 48,781
746 Smith International, Inc. 45,812
635 Superior Energy Services, Inc. (a) 25,603
434 TETRA Technologies, Inc. (a) 12,070
413 Transocean, Inc. (a) 44,377
249 Unit Corp. (a) 13,710
791 Weatherford International Ltd. (a) 43,766
254 W-H Energy Services, Inc. (a) 16,276
-------------
593,761
-------------
FOOD & STAPLES RETAILING--0.6%
932 CVS Caremark Corp. 32,797
354 Wal-Mart Stores, Inc. 16,266
-------------
49,063
-------------
FOOD PRODUCTS--0.5%
270 Corn Products International, Inc. 12,047
348 Sanderson Farms, Inc. 13,875
308 Wm. Wrigley Jr. Co. 17,766
-------------
43,688
-------------
GAS UTILITIES--0.3%
129 Equitable Resources, Inc. 6,077
483 Questar Corp. 24,870
-------------
30,947
-------------
HEALTH CARE EQUIPMENT &
SUPPLIES--3.5%
215 ArthroCare Corp. (a) 10,883
453 Baxter International, Inc. 23,828
99 Beckman Coulter, Inc. 7,011
124 Biomet, Inc. (a) 5,646
761 Cytyc Corp. (a) 32,038
497 DENTSPLY International, Inc. 18,136
75 DJO, Inc. (a) 3,561
105 Gen-Probe, Inc. (a) 6,616
189 Greatbatch, Inc. (a) 5,865
117 Haemonetics Corp. (a) 5,782
195 Hillenbrand Industries, Inc. 12,293
111 Hologic, Inc. (a) 5,750
143 ICU Medical, Inc. (a) 4,753
99 IDEXX Laboratories, Inc. (a) 9,926
110 Immucor, Inc. (a) 3,428
191 Integra LifeSciences Holdings (a) 9,483
183 Intuitive Surgical, Inc. (a) 38,907
435 Meridian Bioscience, Inc. 9,714
231 PolyMedica Corp. 9,330
144 Respironics, Inc. (a) 6,588
615 St. Jude Medical, Inc. (a) 26,531
|
Page 88 See Notes to Financial Statements
First Trust Multi Cap Growth AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HEALTH CARE EQUIPMENT &
SUPPLIES (CONTINUED)
621 STERIS Corp. $ 16,984
270 Stryker Corp. 16,856
189 SurModics, Inc. (a) 8,669
54 Vital Signs, Inc 2,809
99 Zimmer Holdings, Inc. (a) 7,698
-------------
309,085
-------------
HEALTH CARE PROVIDERS &
SERVICES--5.5%
336 Amedisys, Inc. (a) 12,718
279 AMN Healthcare Services, Inc. (a) 5,990
126 AmSurg Corp. (a) 3,168
219 Apria Healthcare Group, Inc. (a) 5,742
362 Cardinal Health, Inc. 23,794
285 Centene Corp. (a) 6,159
651 CIGNA Corp. 33,618
626 Community Health Systems, Inc. (a) 24,351
443 Coventry Health Care, Inc. (a) 24,724
725 CryoLife, Inc. (a) 6,924
875 Express Scripts, Inc. (a) 43,863
240 Health Net, Inc. (a) 11,890
531 HealthExtras, Inc. (a) 14,247
129 Healthways, Inc. (a) 5,637
237 Henry Schein, Inc. (a) 12,879
558 Humana, Inc. (a) 35,762
168 inVentiv Health, Inc. (a) 5,961
218 Laboratory Corp. of America
Holdings (a) 16,099
333 LCA-Vision, Inc. 11,825
159 Lincare Holdings, Inc. (a) 5,675
671 Manor Care, Inc. 42,508
1,019 Option Care, Inc. 19,758
228 Patterson Cos., Inc. (a) 8,178
56 Pediatrix Medical Group, Inc. (a) 3,022
174 Psychiatric Solutions, Inc. (a) 5,932
294 Sierra Health Services, Inc. (a) 11,948
333 UnitedHealth Group, Inc. 16,127
309 Universal Health Services, Inc., Class B 16,204
336 VCA Antech, Inc. (a) 13,218
363 WellCare Health Plans, Inc. (a) 36,757
-------------
484,678
-------------
HEALTH CARE TECHNOLOGY--0.4%
342 Cerner Corp. (a) 18,082
794 IMS Health, Inc. 22,335
-------------
40,417
-------------
HOTELS, RESTAURANTS & LEISURE
--1.8%
194 Darden Restaurants, Inc. 8,259
200 Harrah's Entertainment, Inc. 16,938
509 Hilton Hotels Corp. 22,503
132 Jack in the Box, Inc. (a) 8,447
HOTELS, RESTAURANTS & LEISURE
(CONTINUED)
671 McDonald's Corp. $ 32,120
114 Monarch Casino & Resort, Inc. (a) 3,225
213 Papa John's International, Inc. (a) 5,843
303 Red Robin Gourmet Burgers, Inc. (a) 11,687
360 Ruth's Chris Steak House, Inc. (a) 6,019
180 Scientific Games Corp., Class A (a) 6,176
240 Texas Roadhouse, Inc. (a) 2,849
327 WMS Industries, Inc. (a) 8,531
779 Yum! Brands, Inc. 24,959
-------------
157,556
-------------
HOUSEHOLD DURABLES--1.2%
96 Black & Decker (The) Corp. 8,311
953 Blyth, Inc. 21,271
291 Harman International Industries, Inc. 33,756
326 Mohawk Industries, Inc. (a) 29,343
27 NVR, Inc. (a) 15,619
-------------
108,300
-------------
HOUSEHOLD PRODUCTS--0.6%
261 Church & Dwight Co., Inc. 12,805
330 Energizer Holdings, Inc. (a) 33,296
93 WD-40 Co. 3,087
-------------
49,188
-------------
INDEPENDENT POWER PRODUCERS
& ENERGY TRADERS--0.5%
777 AES (The) Corp. (a) 15,268
390 Constellation Energy Group 32,682
-------------
47,950
-------------
INDUSTRIAL CONGLOMERATES--0.7%
408 Carlisle Cos., Inc. 18,474
222 General Electric Co. 8,605
401 Teleflex, Inc. 30,648
-------------
57,727
-------------
INSURANCE--0.9%
165 AFLAC, Inc. 8,600
122 American International Group, Inc. 7,830
57 Everest Re Group Ltd. 5,600
569 HCC Insurance Holdings, Inc. 16,660
60 Infinity Property & Casualty Corp. 2,642
396 MetLife, Inc. 23,848
72 Philadelphia Consolidated Holding
Co. (a) 2,602
120 StanCorp Financial Group, Inc. 5,635
96 Tower Group, Inc. 2,544
-------------
75,961
-------------
INTERNET & CATALOG RETAIL--0.9%
639 Amazon.com, Inc. (a) 50,186
260 Blue Nile, Inc. (a) 19,659
|
See Notes to Financial Statements Page 89
First Trust Multi Cap Growth AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INTERNET & CATALOG RETAIL
(CONTINUED)
734 PetMed Express, Inc. (a) $ 10,702
-------------
80,547
-------------
INTERNET SOFTWARE & SERVICES--0.9%
255 Bankrate, Inc. (a) 11,437
66 Google, Inc., Class A (a) 33,660
351 j2 Global Communications, Inc. (a) 11,457
1,114 ValueClick, Inc. (a) 23,817
-------------
80,371
-------------
IT SERVICES--2.2%
300 Affiliated Computer Services,
Inc., Class A (a) 16,098
425 Alliance Data Systems Corp. (a) 32,640
63 CACI International Inc., Class A (a) 2,800
362 Ceridian Corp. (a) 12,272
81 DST Systems, Inc. (a) 6,145
174 eFunds Corp. (a) 6,221
806 Fidelity National Information
Services, Inc. 40,001
521 First Data Corp. 16,563
449 Fiserv, Inc. (a) 22,190
773 Gartner, Inc. (a) 16,179
71 MAXIMUS, Inc. 2,967
285 SI International, Inc. (a) 8,302
645 Sykes Enterprises, Inc. (a) 10,797
-------------
193,175
-------------
LEISURE EQUIPMENT & PRODUCTS
--0.2%
174 Polaris Industries, Inc. 8,589
314 Pool Corp. 10,553
-------------
19,142
-------------
LIFE SCIENCES TOOLS & SERVICES
--2.6%
368 Charles River Laboratories
International, Inc. (a) 18,834
185 Covance, Inc. (a) 13,055
87 Dionex Corp. (a) 5,917
171 Invitrogen Corp. (a) 12,278
255 Kendle International, Inc. (a) 9,422
339 Millipore Corp. (a) 26,649
374 PAREXEL International Corp. (a) 15,121
330 Pharmaceutical Product
Development, Inc. 11,055
296 Pharmanet Development Group, Inc. (a) 8,288
657 Thermo Fisher Scientific, Inc. (a) 34,302
231 Varian, Inc. (a) 13,892
425 Ventana Medical Systems, Inc. (a) 35,420
429 Waters Corp. (a) 24,994
-------------
229,227
-------------
MACHINERY--6.0%
290 Astec Industries, Inc. (a) $ 15,129
177 A.S.V., Inc. (a) 2,582
201 Cascade Corp. 13,626
435 Caterpillar, Inc. 34,278
164 CLARCOR, Inc 5,706
419 Crane Co. 19,215
225 Danaher Corp. 16,803
362 Deere & Co. 43,591
144 EnPro Industries, Inc. (a) 5,671
458 Flowserve Corp. 33,100
369 Gardner Denver, Inc. (a) 15,347
318 IDEX Corp. 11,515
641 ITT Corp. 40,306
326 Joy Global, Inc. 16,134
180 Kaydon Corp. 9,578
441 Lincoln Electric Holdings, Inc. 31,748
354 Lindsay Corp. 14,394
195 Manitowoc (The) Co., Inc. 15,146
521 Oshkosh Truck Corp. 29,827
950 Pall Corp. 39,444
177 Robbins & Myers, Inc. 9,333
374 SPX Corp. 35,107
539 Terex Corp. (a) 46,488
207 Toro (The) Co. 11,638
168 Valmont Industries, Inc. 12,699
-------------
528,405
-------------
MARINE--0.1%
246 Kirby Corp. (a) 9,965
-------------
MEDIA--1.4%
120 Arbitron, Inc. 5,976
450 Clear Channel Communications, Inc. 16,605
908 Comcast Corp., Class A (a) 23,854
525 John Wiley & Sons, Inc., Class A 22,202
126 McGraw-Hill (The) Cos., Inc. 7,623
414 Meredith Corp. 23,387
161 Omnicom Group, Inc. 8,351
369 Valassis Communications, Inc. (a) 4,380
204 Viacom, Inc., Class B (a) 7,813
-------------
120,191
-------------
METALS & MINING--1.8%
324 Allegheny Technologies, Inc. 33,997
219 Chaparral Steel Co. 18,405
201 Cleveland-Cliffs, Inc. 13,923
971 Commercial Metals Co. 29,946
144 Nucor Corp. 7,229
584 Reliance Steel & Aluminum Co. 30,683
42 RTI International Metals, Inc. (a) 3,328
605 Steel Dynamics, Inc. 25,368
-------------
162,879
-------------
MULTILINE RETAIL--1.9%
483 99 Cents Only Stores (a) 5,878
1,157 Big Lots, Inc. (a) 29,920
|
Page 90 See Notes to Financial Statements
First Trust Multi Cap Growth AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MULTILINE RETAIL (CONTINUED)
753 Dollar Tree Stores, Inc. (a) $ 28,810
1,274 Family Dollar Stores, Inc. 37,736
240 Kohl's Corp. (a) 14,592
333 Nordstrom, Inc. 15,844
534 Target Corp. 32,344
-------------
165,124
-------------
OFFICE ELECTRONICS--0.1%
164 Zebra Technologies Corp.,
Class A (a) 5,942
-------------
OIL, GAS & CONSUMABLE FUELS
--4.5%
654 Anadarko Petroleum Corp. 32,916
312 Apache Corp. 25,222
84 Cabot Oil & Gas Corp. 2,873
983 Chesapeake Energy Corp. 33,461
185 CONSOL Energy, Inc. 7,705
507 Denbury Resources, Inc. (a) 20,280
218 Devon Energy Corp. 16,265
305 Exxon Mobil Corp. 25,965
749 Frontier Oil Corp. 29,009
306 Helix Energy Solutions Group,
Inc. (a) 11,919
572 Murphy Oil Corp. 35,486
351 Peabody Energy Corp. 14,833
129 Pioneer Natural Resources Co. 5,870
285 Quicksilver Resources, Inc. (a) 12,004
428 Southwestern Energy Co. (a) 17,390
549 Sunoco, Inc. 36,628
221 Swift Energy Co. (a) 9,446
806 Williams (The) Cos., Inc. 25,994
146 World Fuel Services Corp. 5,970
566 XTO Energy, Inc. 30,864
-------------
400,100
-------------
PERSONAL PRODUCTS--0.4%
231 Avon Products, Inc. 8,318
96 Chattem, Inc. (a) 5,391
186 Estee Lauder (The) Cos., Inc.,
Class A 8,375
386 Mannatech, Inc. 3,632
147 NBTY, Inc. (a) 6,400
69 USANA Health Sciences, Inc. (a) 2,785
-------------
34,901
-------------
PHARMACEUTICALS--1.6%
170 Barr Pharmaceuticals, Inc. (a) 8,707
141 Bradley Prarmaceuticals, Inc. (a) 2,262
186 Endo Pharmaceuticals Holdings, Inc. (a) 6,326
131 Noven Pharmaceuticals, Inc. (a) 2,327
674 Par Pharmaceutical Cos., Inc. (a) 15,967
1,436 Schering-Plough Corp. 40,982
129 Sciele Pharma, Inc. (a) 2,992
PHARMACEUTICALS (CONTINUED)
1,345 Watson Pharmaceuticals, Inc. (a) $ 40,915
444 Wyeth 21,543
-------------
142,021
-------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT--0.4%
932 CB Richard Ellis Group, Inc.,
Class A (a) 32,545
-------------
ROAD & RAIL--0.6%
188 Heartland Express, Inc. 2,803
648 J.B. Hunt Transport Services, Inc. 18,098
486 Knight Transportation, Inc. 8,573
195 Landstar System, Inc. 8,865
407 Old Dominion Freight Line, Inc. (a) 11,746
-------------
50,085
-------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--3.6%
1,153 Altera Corp. 26,750
752 AMIS Holdings, Inc. (a) 7,753
87 Cabot Microelectronics Corp. (a) 3,709
246 Cree, Inc. (a) 6,303
75 Cymer, Inc. (a) 3,206
1,409 Cypress Semiconductor Corp. (a) 35,310
441 Diodes, Inc. (a) 11,717
93 FEI Co. (a) 2,667
464 KLA-Tencor Corp. 26,351
234 Linear Technology Corp. 8,342
557 MEMC Electronic Materials, Inc. (a) 34,155
129 Microsemi Corp. (a) 3,007
602 National Semiconductor Corp. 15,646
1,058 NVIDIA Corp. (a) 48,413
2,200 PMC-Sierra, Inc. (a) 16,764
731 Semtech Corp. (a) 11,879
905 Texas Instruments, Inc. 31,847
306 Varian Semiconductor Equipment
Associates, Inc. (a) 14,382
318 Xilinx, Inc. 7,950
-------------
316,151
-------------
SOFTWARE--3.6%
105 Ansoft Corp. (a) 2,655
231 ANSYS, Inc. (a) 6,015
722 Autodesk, Inc. (a) 30,591
330 CA, Inc. 8,276
578 Cadence Design Systems, Inc. (a) 12,369
252 Citrix Systems, Inc. (a) 9,115
687 Concur Technologies, Inc. (a) 16,392
633 Epicor Software Corp. (a) 8,267
971 EPIQ Systems, Inc. (a) 16,556
138 FactSet Research Systems, Inc. 9,107
414 Informatica Corp. (a) 5,771
737 Jack Henry & Associates, Inc. 17,703
624 JDA Software Group, Inc. (a) 14,109
|
See Notes to Financial Statements Page 91
First Trust Multi Cap Value AlphaDEX(TM) Fund
Portfolio of Investments (Continued)
July 31, 2007
SHARES DESCRIPTION MARKET VALUE
--------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SOFTWARE (CONTINUED)
632 Macrovision Corp. (a) $ 15,029
110 Manhattan Associates, Inc. (a) 3,066
719 McAfee, Inc. (a) 25,783
57 MICROS Systems, Inc. (a) 3,037
288 Microsoft Corp. 8,349
1,726 Oracle Corp. (a) 33,001
1,172 Parametric Technology Corp. (a) 20,662
81 Quality Systems, Inc. 3,138
213 SPSS, Inc. (a) 8,742
1,262 Symantec Corp. (a) 24,230
240 Synopsys, Inc. (a) 5,870
1,151 Wind River Systems, Inc. (a) 11,004
-------------
318,837
-------------
SPECIALTY RETAIL--4.9%
234 Abercrombie & Fitch Co., Class A 16,357
468 Advance Auto Parts, Inc. 16,272
608 Aeropostale, Inc. (a) 23,153
249 AutoZone, Inc. (a) 31,575
240 Big 5 Sporting Goods Corp. 5,129
746 CarMax, Inc. (a) 17,852
140 Cato (The) Corp., Class A 2,895
119 Children's Place Retail Stores
(The), Inc. (a) 4,059
179 Christopher & Banks Corp. 2,671
273 Coldwater Creek, Inc. (a) 5,375
435 Dick's Sporting Goods, Inc. (a) 24,460
150 Dress Barn (The), Inc. (a) 2,729
839 GameStop Corp., Class A (a) 33,853
300 Genesco, Inc. (a) 15,165
158 Guitar Center, Inc. (a) 9,172
240 Gymboree (The) Corp. (a) 10,332
111 Hibbett Sports, Inc. (a) 2,845
432 Home Depot (The), Inc. 16,057
378 Jos. A. Bank Clothiers, Inc. (a) 13,041
240 Men's Wearhouse (The), Inc. 11,856
347 O'Reilly Automotive, Inc. (a) 11,559
576 Pacific Sunwear of California,
Inc. (a) 10,380
390 PetSmart, Inc. 12,609
1,319 RadioShack Corp. 33,145
206 Ross Stores, Inc. 5,960
189 Select Comfort Corp. (a) 3,013
291 Stage Stores, Inc. 5,191
824 Tiffany & Co. 39,757
618 TJX (The) Cos., Inc. 17,150
236 Tractor Supply Co. (a) 11,215
275 Tween Brands, Inc. (a) 10,522
264 Urban Outfitters, Inc. (a) 5,296
-------------
430,645
-------------
TEXTILES, APPAREL & LUXURY
GOODS--2.4%
359 Coach, Inc. (a) $ 16,320
365 Crocs, Inc. (a) 21,652
156 Deckers Outdoor Corp. (a) 16,084
416 Fossil, Inc. (a) 10,629
423 Iconix Brand Group, Inc. (a) 8,367
584 NIKE, Inc., Class B 32,967
419 Phillips-Van Heusen Corp. 21,813
446 Polo Ralph Lauren Corp. 39,849
434 Quiksilver, Inc. (a) 5,568
279 VF Corp. 23,935
314 Volcom, Inc. (a) 11,141
111 Wolverine World Wide, Inc. 3,004
-------------
211,329
-------------
THRIFTS & MORTGAGE FINANCE--0.2%
468 Countrywide Financial Corp. 13,184
141 Freddie Mac 8,075
-------------
21,259
-------------
TRADING COMPANIES & DISTRIBUTORS
--1.0%
303 Fastenal Co. 13,656
461 MSC Industrial Direct Co., Inc. 23,184
174 Watsco, Inc. 8,684
470 W.W. Grainger, Inc. 41,058
-------------
86,582
-------------
TOTAL INVESTMENTS--99.4%
(Cost $9,333,411) 8,768,952
NET OTHER ASSETS AND
LIABILITIES--0.6% 49,150
-------------
NET ASSETS--100.0% $ 8,818,102
=============
|
(a) Non-income producing security.
Page 92 See Notes to Financial Statements
This page intentionally left blank.
Page 93
First Trust Exchange-Traded AlphaDEX(TM) Fund
Statement of Assets and Liabilities
July 31, 2007
FIRST TRUST FIRST TRUST
CONSUMER CONSUMER FIRST TRUST
DISCRETIONARY STAPLES ENERGY
ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND
------------------- ------------------- -----------------
ASSETS:
Investments at value .................................................. $ 1,908,093 $ 2,889,611 $ 5,209,919
Cash ................................................................. 16,016 6,539 6,013
Receivables:
Dividends....................................................... 415 2,752 1,001
From investment advisor......................................... 18,187 18,374 18,867
------------- ------------- -------------
TOTAL ASSETS................................................. 1,942,711 2,917,276 5,235,800
------------- ------------- -------------
LIABILITIES:
Payables:
Investment securities purchased ................................. 9,930 -- --
Investment advisory fees ........................................ 854 1,271 1,322
Accrued expenses and other liabilities ................................ 49,101 49,519 49,991
------------- ------------- -------------
TOTAL LIABILITIES............................................. 59,885 50,790 51,313
------------- ------------- -------------
NET ASSETS............................................................. $ 1,882,826 $ 2,866,486 $ 5,184,487
============= ============= =============
NET ASSETS CONSIST OF:
Paid-in capital ....................................................... $ 1,999,040 $ 3,021,090 $ 5,434,348
Par value ............................................................. 1,000 1,500 2,500
Accumulated net investment income (loss) .............................. 188 5,552 --
Accumulated net realized gain (loss) on investments ................... (2,459) (3,068) 892
Net unrealized appreciation (depreciation) on investments ............. (114,943) (158,588) (253,253)
------------- ------------- -------------
NET ASSETS ............................................................ $ 1,882,826 $ 2,866,486 $ 5,184,487
============= ============= =============
NET ASSET VALUE, per share............................................ $ 18.83 $ 19.11 $ 20.74
============= ============= =============
Number of shares outstanding
(unlimited number of shares authorized, par value $0.01 per share)..... 100,002 150,002 250,002
------------- ------------- -------------
Investments at cost ................................................... $ 2,023,036 $ 3,048,199 $ 5,463,172
============= ============= =============
|
Page 94 See Notes to Financial Statements
FIRST TRUST
FIRST TRUST FIRST TRUST INDUSTRIALS/ FIRST TRUST FIRST TRUST
FINANCIALS HEALTH CARE PRODUCER DURABLES MATERIALS TECHNOLOGY
ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND
------------------- ------------------- ------------------- ------------------- -------------------
$ 1,814,396 $ 1,914,694 $ 4,731,249 $ 2,962,655 $ 2,174,207
6,875 65,443 19,179 93,839 6,196
1,407 170 164 1,069 415
18,182 18,186 18,833 18,388 18,237
------------- ------------- ------------- ------------- -------------
1,840,860 1,998,493 4,769,425 3,075,951 2,199,055
------------- ------------- ------------- ------------- -------------
-- -- -- -- --
825 847 1,201 1,328 944
49,074 49,114 49,905 49,516 49,175
------------- ------------- ------------- ------------- -------------
49,899 49,961 51,106 50,844 50,119
------------- ------------- ------------- ------------- -------------
$ 1,790,961 $ 1,948,532 $ 4,718,319 $ 3,025,107 $ 2,148,936
============= ============= ============= ============= =============
$ 1,999,040 $ 1,997,615 $ 5,016,552 $ 3,080,728 $ 2,157,238
1,000 1,000 2,500 1,500 1,050
6,584 -- -- 2,537 --
(3,175) (25,010) (34,546) (5,616) (13,344)
(212,488) (25,073) (266,187) (54,042) 3,992
------------- ------------- ------------- ------------- -------------
$ 1,790,961 $ 1,948,532 $ 4,718,319 $ 3,025,107 $ 2,148,936
============= ============= ============= ============= =============
$ 17.91 $ 19.48 $ 18.87 $ 20.17 $ 20.47
============= ============= ============= ============= =============
100,002 100,002 250,002 150,002 105,000
------------- ------------- ------------- ------------- -------------
$ 2,026,884 $ 1,939,767 $ 4,997,436 $ 3,016,697 $ 2,170,215
============= ============= ============= ============= =============
|
See Notes to Financial Statements Page 95
First Trust Exchange-Traded AlphaDEX(TM) Fund
Statement of Assets and Liabilities (Continued)
July 31, 2007
FIRST TRUST FIRST TRUST
FIRST TRUST LARGE CAP MID CAP
UTILITIES CORE CORE
ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND
------------------- ------------------- ------------------
ASSETS:
Investments at value .................................................. $ 2,774,096 $ 2,878,457 $ 5,678,775
Cash ................................................................. 7,387 20,580 68,149
Receivables:
Dividends....................................................... 7,019 1,663 2,575
From investment advisor......................................... 18,378 18,343 18,794
------------- ------------- -------------
TOTAL ASSETS................................................. 2,806,880 2,919,043 5,768,293
------------- ------------- -------------
LIABILITIES:
Payables:
Investment securities purchased ................................. -- -- --
Investment advisory fees ........................................ 1,215 1,286 2,546
Accrued expenses and other liabilities ................................ 49,452 49,398 50,302
------------- ------------- -------------
TOTAL LIABILITIES............................................. 50,667 50,684 52,848
------------- ------------- -------------
NET ASSETS............................................................. $ 2,756,213 $ 2,868,359 $ 5,715,445
============= ============= =============
NET ASSETS consist of:
Paid-in capital ....................................................... $ 2,980,862 $ 3,122,966 $ 6,182,502
Par value ............................................................. 1,500 1,000 2,000
Accumulated net investment income (loss) .............................. 11,354 4,291 1,760
Accumulated net realized gain (loss) on investments ................... (945) (15,102) (16,286)
Net unrealized appreciation (depreciation) on investments ............. (236,558) (244,796) (454,531)
------------- ------------- -------------
NET ASSETS ............................................................ $ 2,756,213 $ 2,868,359 $ 5,715,445
============= ============= =============
NET ASSET VALUE, per share............................................ $ 18.37 $ 28.68 $ 28.58
============= ============= =============
Number of shares outstanding
(unlimited number of shares authorized, par value $0.01 per share)..... 150,002 100,002 200,002
------------- ------------- -------------
Investments at cost ................................................... $ 3,010,654 $ 3,123,253 $ 6,133,306
============= ============= =============
|
Page 96 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST
SMALL CAP LARGE CAP VALUE LARGE CAP GROWTH FIRST TRUST FIRST TRUST
CORE OPPORTUNITIES OPPORTUNITIES MULTI CAP VALUE MULTI CAP GROWTH
ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND
------------------- ------------------- ------------------- ------------------- -------------------
$ 5,636,097 $ 5,671,104 $ 5,846,344 $ 2,799,969 $ 8,768,952
53,548 28,093 30,440 25,258 81,637
3,486 3,209 1,951 2,455 1,543
18,842 18,648 18,782 18,464 19,289
------------- ------------- -------------- ------------- -------------
5,711,973 5,721,054 5,897,517 2,846,146 8,871,421
------------- ------------- -------------- ------------- -------------
-- -- -- -- --
1,649 1,812 2,554 1,275 2,570
49,893 50,000 50,405 49,480 50,749
------------- ------------- -------------- ------------- -------------
51,542 51,812 52,959 50,755 53,319
------------- ------------- -------------- ------------- -------------
$ 5,660,431 $ 5,669,242 $ 5,844,558 $ 2,795,391 $ 8,818,102
============= ============= ============== ============= =============
$ 6,212,432 $ 6,196,418 $ 6,074,903 $ 3,130,837 $ 9,406,123
2,000 2,000 2,000 1,000 3,000
3,211 7,676 -- 6,372 --
(21,375) (5,338) -- (8,569) (26,562)
(535,837) (531,514) (232,345) (334,249) (564,459)
------------- ------------- -------------- ------------- -------------
$ 5,660,431 $ 5,669,242 $ 5,844,558 $ 2,795,391 $ 8,818,102
============= ============= ============== ============= =============
$ 28.30 $ 28.35 $ 29.22 $ 27.95 $ 29.39
============= ============= ============== ============= =============
200,002 200,002 200,002 100,002 300,002
------------- ------------- -------------- ------------- -------------
$ 6,171,934 $ 6,202,618 $ 6,078,689 $ 3,134,218 $ 9,333,411
============= ============= ============== ============= =============
|
See Notes to Financial Statements Page 97
First Trust Exchange-Traded AlphaDEX(TM) Fund
Statements of Operations
FIRST TRUST FIRST TRUST
CONSUMER CONSUMER FIRST TRUST
DISCRETIONARY STAPLES ENERGY
ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND
------------------- ------------------ -----------------
For the Period For the Period For the Period
May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a)
through through through
July 31, 2007 July 31, 2007 July 31, 2007
------------------- ------------------ -----------------
INVESTMENT INCOME:
Dividends (b)......................................................... $ 3,390 $ 9,532 $ 3,775
-------------- -------------- --------------
Total investment income......................................... 3,390 9,532 3,775
-------------- -------------- --------------
EXPENSES:
Audit and tax fees.................................................... 31,000 31,000 31,000
Printing fees......................................................... 7,500 7,500 7,500
Legal fees............................................................ 5,685 5,685 5,685
Listing fees.......................................................... 2,562 2,704 2,986
Investment advisory fees.............................................. 2,287 2,843 2,821
Trustees' fees and expenses........................................... 605 647 788
Licensing fees........................................................ 457 569 564
Custodian fees........................................................ 444 458 458
Accounting and administration fees.................................... 229 284 282
Registration and filing fees.......................................... 62 92 165
Transfer agent fees................................................... 23 28 28
Other expenses........................................................ 1,267 1,267 1,267
-------------- -------------- --------------
Total expenses.................................................. 52,121 53,077 53,544
Less fees waived and expenses reimbursed by the
investment advisor........................................ (48,919) (49,097) (49,595)
-------------- -------------- --------------
Net expenses.................................................... 3,202 3,980 3,949
-------------- -------------- --------------
NET INVESTMENT INCOME (LOSS).......................................... 188 5,552 (174)
-------------- -------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments..................................................... (2,459) (3,068) 1,066
In-kind redemptions............................................. -- 20,666 90,156
-------------- -------------- --------------
Net realized gain (loss).............................................. (2,459) 17,598 91,222
Net change in unrealized appreciation (depreciation) on investments... (114,943) (158,588) (253,253)
-------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS) .............................. (117,402) (140,990) (162,031)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................................. $ (117,214) $ (135,438) $ (162,205)
============== ============== ==============
|
(a) Inception date.
(b) Net of foreign withholding tax of $15 for the First Trust Financials
AlphaDEX(TM) Fund.
Page 98 See Notes to Financial Statements
FIRST TRUST
FIRST TRUST FIRST TRUST INDUSTRIALS/ FIRST TRUST FIRST TRUST
FINANCIALS HEALTH CARE PRODUCER DURABLES MATERIALS TECHNOLOGY
ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
For the Period For the Period For the Period For the Period For the Period
May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a)
through through through through through
July 31, 2007 July 31, 2007 July 31, 2007 July 31, 2007 July 31, 2007
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
$ 9,733 $ 1,752 $ 2,951 $ 6,416 $ 1,145
------------------ ------------------ ------------------ ------------------ ------------------
9,733 1,752 2,951 6,416 1,145
------------------ ------------------ ------------------ ------------------ ------------------
31,000 31,000 31,000 31,000 31,000
7,500 7,500 7,500 7,500 7,500
5,685 5,685 5,685 5,685 5,685
2,563 2,562 2,986 2,704 2,577
2,249 2,269 2,638 2,771 2,463
598 604 757 664 643
450 454 528 554 493
443 443 453 455 448
225 227 264 277 246
62 62 154 93 65
22 23 26 28 25
1,267 1,267 1,267 1,267 1,267
------------------ ------------------ ------------------ ------------------ ------------------
52,064 52,096 53,258 52,998 52,412
(48,915) (48,919) (49,565) (49,119) (48,964)
------------------ ------------------ ------------------ ------------------ ------------------
3,149 3,177 3,693 3,879 3,448
------------------ ------------------ ------------------ ------------------ ------------------
6,584 (1,425) (742) 2,537 (2,303)
------------------ ------------------ ------------------ ------------------ ------------------
(3,175) (25,010) (34,546) (5,616) (13,344)
-- -- -- 59,892 60,591
------------------ ------------------ ------------------ ------------------ ------------------
(3,175) (25,010) (34,546) 54,276 47,247
(212,488) (25,073) (266,187) (54,042) 3,992
------------------ ------------------ ------------------ ------------------ ------------------
(215,663) (50,083) (300,733) 234 51,239
------------------ ------------------ ------------------ ------------------ ------------------
$ (209,079) $ (51,508) $ (301,475) $ 2,771 $ 48,936
================== ================== =================== ================== ==================
|
See Notes to Financial Statements Page 99
First Trust Exchange-Traded AlphaDEX(TM) Fund
Statements of Operations (Continued)
FIRST TRUST FIRST TRUST
FIRST TRUST LARGE CAP MID CAP
UTILITIES CORE CORE
ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND
------------------- ------------------ -----------------
For the Period For the Period For the Period
May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a)
through through through
July 31, 2007 July 31, 2007 July 31, 2007
------------------- ------------------ -----------------
Dividends (b)......................................................... $ 15,004 $ 9,097 $ 8,343
--------------- -------------- --------------
Total investment income......................................... 15,004 9,097 8,343
--------------- -------------- --------------
EXPENSES:
Audit and tax fees.................................................... 31,000 31,000 31,000
Printing fees......................................................... 7,500 7,500 7,500
Legal fees............................................................ 5,685 5,685 5,685
Listing fees.......................................................... 2,704 2,562 2,845
Investment advisory fees.............................................. 2,607 3,433 4,702
Trustees' fees and expenses........................................... 649 905 1,062
Licensing fees........................................................ 521 687 940
Custodian fees........................................................ 452 473 505
Accounting and administration fees.................................... 261 343 470
Registration and filing fees.......................................... 91 92 185
Transfer agent fees................................................... 26 34 47
Other expenses........................................................ 1,267 1,267 1,267
--------------- -------------- --------------
Total expenses.................................................. 52,763 53,981 56,208
Less fees waived and expenses reimbursed by the
investment advisor........................................ (49,113) (49,175) (49,625)
--------------- -------------- --------------
Net expenses.................................................... 3,650 4,806 6,583
--------------- -------------- --------------
NET INVESTMENT INCOME (LOSS).......................................... 11,354 4,291 1,760
--------------- -------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments..................................................... (945) (15,102) (16,286)
In-kind redemptions............................................. 32,108 123,906 166,103
--------------- -------------- --------------
Net realized gain (loss).............................................. 31,163 108,804 149,817
Net change in unrealized appreciation (depreciation) on investments... (236,558) (244,796) (454,531)
--------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS) .............................. (205,395) (135,992) (304,714)
--------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS................................................. $ (194,041) $ (131,701) $ (302,954)
=============== ============== ==============
|
(a) Inception date.
(b) Net of foreign withholding tax of $6 for the First Trust Small Cap
Core AlphaDEX(TM) Fund.
Page 100 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST
SMALL CAP LARGE CAP VALUE LARGE CAP GROWTH FIRST TRUST FIRST TRUST
CORE OPPORTUNITIES OPPORTUNITIES MULTI CAP VALUE MULTI CAP GROWTH
ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
For the Period For the Period For the Period For the Period For the Period
May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a)
through through through through through
July 31, 2007 July 31, 2007 July 31, 2007 July 31, 2007 July 31, 2007
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
$ 8,524 $ 13,219 $ 5,894 $ 11,160 $ 4,601
------------------ ----------------- ------------------- ----------------- -----------------
8,524 13,219 5,894 11,160 4,601
------------------ ----------------- ------------------- ----------------- -----------------
31,000 31,000 31,000 31,000 31,000
7,500 7,500 7,500 7,500 7,500
5,685 5,685 5,685 5,685 5,685
2,845 2,845 2,845 2,563 3,128
3,795 3,960 4,701 3,420 4,727
1,051 904 1,052 1,063 1,214
759 792 940 684 945
482 486 505 472 505
380 395 470 342 473
186 186 184 92 285
38 40 47 34 47
1,267 1,267 1,267 1,267 1,267
------------------ ----------------- ------------------- ----------------- -----------------
54,988 55,060 56,196 54,122 56,776
(49,675) (49,517) (49,614) (49,334) (50,158)
------------------ ----------------- ------------------- ----------------- -----------------
5,313 5,543 6,582 4,788 6,618
------------------ ----------------- ------------------- ----------------- -----------------
3,211 7,676 (688) 6,372 (2,017)
------------------ ----------------- ------------------- ----------------- -----------------
(21,375) (5,338) 399 (8,569) (26,562)
164,380 128,924 84,145 131,777 146,477
------------------ ----------------- ------------------- ----------------- -----------------
143,005 123,586 84,544 123,208 119,915
(535,837) (531,514) (232,345) (334,249) (564,459)
------------------ ----------------- ------------------- ----------------- -----------------
(392,832) (407,928) (147,801) (211,041) (444,544)
------------------ ----------------- ------------------- ----------------- -----------------
$ (389,621) $ (400,252) $ (148,489) $ (204,669) $ (446,561)
================== ================= =================== ================= =================
|
See Notes to Financial Statements Page 101
First Trust Exchange-Traded AlphaDEX(TM) Fund
Statement of Changes in Net Assets
FIRST TRUST FIRST TRUST
CONSUMER CONSUMER FIRST TRUST
DISCRETIONARY STAPLES ENERGY
ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND
------------------ ------------------ ------------------
For the Period For the Period For the Period
May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a)
through through through
July 31, 2007 July 31, 2007 July 31, 2007
------------------ ------------------ ------------------
OPERATIONS:
Net investment income (loss)..................................... $ 188 $ 5,552 $ (174)
Net realized gain (loss)......................................... (2,459) 17,598 91,222
Net change in unrealized appreciation (depreciation)............. (114,943) (158,588) (253,253)
--------------- -------------- ---------------
Net increase (decrease) in net assets resulting from operations.. (117,214) (135,438) (162,205)
--------------- -------------- ---------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold........................................ 2,000,040 4,005,824 6,438,163
Value of shares repurchased...................................... -- (1,003,900) (1,091,471)
--------------- -------------- ---------------
Net increase (decrease) in net assets resulting from
shareholder transactions.................................. 2,000,040 3,001,924 5,346,692
--------------- -------------- ---------------
Net increase (decrease) in net assets............................ 1,882,826 2,866,486 5,184,487
NET ASSETS:
Beginning of Period.............................................. -- -- --
--------------- -------------- ---------------
End of Period.................................................... $ 1,882,826 $ 2,866,486 $ 5,184,487
=============== ============== ===============
Accumulated net investment income (loss) at end of period........ $ 188 $ 5,552 $ --
=============== ============== ===============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.......................... -- -- --
Shares sold...................................................... 100,002 200,002 300,002
Shares repurchased............................................... -- (50,000) (50,000)
--------------- -------------- ---------------
Shares outstanding, end of period................................ 100,002 150,002 250,002
=============== ============== ===============
|
(a) Inception date.
Page 102 See Notes to Financial Statements
FIRST TRUST
FIRST TRUST FIRST TRUST INDUSTRIALS/ FIRST TRUST FIRST TRUST
FINANCIALS HEALTH CARE PRODUCER DURABLES MATERIALS TECHNOLOGY
ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
For the Period For the Period For the Period For the Period For the Period
May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a)
through through through through through
July 31, 2007 July 31, 2007 July 31, 2007 July 31, 2007 July 31, 2007
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
$ 6,584 $ (1,425) $ (742) $ 2,537 $ (2,303)
(3,175) (25,010) (34,546) 54,276 47,247
(212,488) (25,073) (266,187) (54,042) 3,992
------------------ ----------------- ----------------- ---------------- ----------------
(209,079) (51,508) (301,475) 2,771 48,936
------------------ ----------------- ----------------- ---------------- ----------------
2,000,040 2,000,040 5,019,794 4,071,138 3,148,212
-- -- -- (1,048,802) (1,048,212)
------------------ ----------------- ----------------- ---------------- ----------------
2,000,040 2,000,040 5,019,794 3,022,336 2,100,000
------------------ ----------------- ----------------- ---------------- ----------------
1,790,961 1,948,532 4,718,319 3,025,107 2,148,936
-- -- -- -- --
------------------ ----------------- ----------------- ---------------- ----------------
$ 1,790,961 $ 1,948,532 $ 4,718,319 $ 3,025,107 $ 2,148,936
================== ================= ================= ================ ================
$ 6,584 $ -- $ -- $ 2,537 $ --
================== ================= ================= ================ ================
-- -- -- -- --
100,002 100,002 250,002 200,002 155,000
-- -- -- (50,000) (50,000)
------------------ ----------------- ----------------- ---------------- ----------------
100,002 100,002 250,002 150,002 105,000
================== ================= ================= ================ ================
|
See Notes to Financial Statements Page 103
First Trust Exchange-Traded AlphaDEX(TM) Fund
Statement of Changes in Net Assets (Continued)
FIRST TRUST FIRST TRUST
FIRST TRUST LARGE CAP MID CAP
UTILITIES CORE CORE
ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND
------------------ ------------------ ------------------
For the Period For the Period For the Period
May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a)
through through through
July 31, 2007 July 31, 2007 July 31, 2007
------------------- ------------------ -----------------
OPERATIONS:
Net investment income (loss).................................... $ 11,354 $ 4,291 $ 1,760
Net realized gain (loss)........................................ 31,163 108,804 149,817
Net change in unrealized appreciation (depreciation)............ (236,558) (244,796) (454,531)
--------------- -------------- --------------
Net increase (decrease) in net assets resulting from operations (194,041) (131,701) (302,954)
--------------- -------------- --------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold....................................... 3,917,512 6,064,190 9,115,197
Value of shares repurchased..................................... (967,258) (3,064,130) (3,096,798)
--------------- -------------- --------------
Net increase (decrease) in net assets resulting from
shareholder transactions................................... 2,950,254 3,000,060 6,018,399
--------------- -------------- --------------
Net increase (decrease) in net assets........................... 2,756,213 2,868,359 5,715,445
NET ASSETS:
Beginning of Period............................................. -- -- --
--------------- -------------- --------------
End of Period................................................... $ 2,756,213 $ 2,868,359 $ 5,715,445
=============== ============== ==============
Accumulated net investment income (loss) at end of period....... $ 11,354 $ 4,291 $ 1,760
=============== ============== ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period......................... -- -- --
Shares sold..................................................... 200,002 200,002 300,002
Shares repurchased.............................................. (50,000) (100,000) (100,000)
--------------- -------------- --------------
Shares outstanding, end of period............................... 150,002 100,002 200,002
=============== ============== ==============
|
(a) Inception date.
Page 104 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST
SMALL CAP LARGE CAP VALUE LARGE CAP GROWTH FIRST TRUST FIRST TRUST
CORE OPPORTUNITIES OPPORTUNITIES MULTI CAP VALUE MULTI CAP GROWTH
ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND ALPHADEX(TM) FUND
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
For the Period For the Period For the Period For the Period For the Period
May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a) May 8, 2007 (a)
through through through through through
July 31, 2007 July 31, 2007 July 31, 2007 July 31, 2007 July 31, 2007
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
$ 3,211 $ 7,676 $ (688) $ 6,372 $ (2,017)
143,005 123,586 84,544 123,208 119,915
(535,837) (531,514) (232,345) (334,249) (564,459)
------------------ ----------------- ------------------ ----------------- -----------------
(389,621) (400,252) (148,489) (204,669) (446,561)
------------------ ----------------- ------------------ ----------------- -----------------
9,134,960 9,133,000 9,069,027 6,057,410 12,375,183
(3,084,908) (3,063,506) (3,075,980) (3,057,350) (3,110,520)
------------------ ----------------- ------------------ ----------------- -----------------
6,050,052 6,069,494 5,993,047 3,000,060 9,264,663
------------------ ----------------- ------------------ ----------------- -----------------
5,660,431 5,669,242 5,844,558 2,795,391 8,818,102
-- -- -- -- --
------------------ ----------------- ------------------ ----------------- -----------------
$ 5,660,431 $ 5,669,242 $ 5,844,558 $ 2,795,391 $ 8,818,102
================== ================= ================== ================= =================
$ 3,211 $ 7,676 $ -- $ 6,372 $ --
================== ================= ================== ================= =================
-- -- -- -- --
300,002 300,002 300,002 200,002 400,002
(100,000) (100,000) (100,000) (100,000) (100,000)
------------------ ----------------- ------------------ ----------------- -----------------
200,002 200,002 200,002 100,002 300,002
================== ================= ================== ================= =================
|
See Notes to Financial Statements Page 105
First Trust Exchange-Traded AlphaDEX(TM) Fund
Financial Highlights
For a share outstanding throughout the period
FIRST TRUST CONSUMER DISCRETIONARY ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 20.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) 0.00(f)
Net realized and unrealized gain (loss) (1.17)
------------
Total from investment operations (1.17)
------------
Net asset value, end of period $ 18.83
============
TOTAL RETURN (C) (5.85)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 1,883
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 11.39%(d)
Ratio of net investment income to average net assets 0.04%(d)
Portfolio turnover rate (e) 34%
FIRST TRUST CONSUMER STAPLES ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 20.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) 0.04
Net realized and unrealized gain (loss) (0.93)
------------
Total from investment operations (0.89)
------------
Net asset value, end of period $ 19.11
============
TOTAL RETURN (C) (4.45)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 2,866
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 9.34%(d)
Ratio of net investment income to average net assets 0.98%(d)
Portfolio turnover rate (e) 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 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.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(f) Amount represents less than $0.01 per share.
Page 106 See Notes to Financial Statements
First Trust Exchange-Traded AlphaDEX(TM) Fund
Financial Highlights
For a share outstanding throughout the period
FIRST TRUST ENERGY ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 20.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) (0.00)(f)
Net realized and unrealized gain (loss) 0.74
------------
Total from investment operations 0.74
------------
Net asset value, end of period $ 20.74
============
TOTAL RETURN (C) 3.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 5,184
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 9.49%(d)
Ratio of net investment loss to average net assets (0.03)%(d)
Portfolio turnover rate (e) 1%
FIRST TRUST FINANCIALS ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 20.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) 0.07
Net realized and unrealized gain (loss) (2.16)
------------
Total from investment operations (2.09)
------------
Net asset value, end of period $ 17.91
============
TOTAL RETURN (C) (10.45)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 1,791
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 11.58%(d)
Ratio of net investment income to average net assets 1.46%(d)
Portfolio turnover rate (e) 26%
(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 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.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(f) Amount represents less than $0.01 per share.
See Notes to Financial Statements Page 107
First Trust Exchange-Traded AlphaDEX(TM) Fund
Financial Highlights
For a share outstanding throughout the period
FIRST TRUST HEALTH CARE ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 20.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) (0.01)
Net realized and unrealized gain (loss) (0.51)
------------
Total from investment operations (0.52)
------------
Net asset value, end of period $ 19.48
============
TOTAL RETURN (C) (2.60)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 1,949
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 11.48%(d)
Ratio of net investment loss to average net assets (0.31)%(d)
Portfolio turnover rate (e) 30%
FIRST TRUST INDUSTRIALS/PRODUCER DURABLES
ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 20.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) (0.00)(f)
Net realized and unrealized gain (loss) (1.13)
------------
Total from investment operations (1.13)
------------
Net asset value, end of period $ 18.87
============
TOTAL RETURN (C) (5.65)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 4,718
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 10.09%(d)
Ratio of net investment loss to average net assets (0.14)%(d)
Portfolio turnover rate (e) 24%
(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 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.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(f) Amount represents less than $0.01 per share.
Page 108 See Notes to Financial Statements
First Trust Exchange-Traded AlphaDEX(TM) Fund
Financial Highlights
For a share outstanding throughout the period
FIRST TRUST MATERIALS ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 20.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) 0.02
Net realized and unrealized gain (loss) 0.15
------------
Total from investment operations 0.17
------------
Net asset value, end of period $ 20.17
============
TOTAL RETURN (C) 0.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 3,025
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 9.56%(d)
Ratio of net investment income to average net assets 0.46%(d)
Portfolio turnover rate (e) 1%
FIRST TRUST TECHNOLOGY ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 20.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) (0.02)
Net realized and unrealized gain (loss) 0.49
------------
Total from investment operations 0.47
------------
Net asset value, end of period $ 20.47
============
TOTAL RETURN (C) 2.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 2,149
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 10.64%(d)
Ratio of net investment loss to average net assets (0.47)%(d)
Portfolio turnover rate (e) 6%
(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 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.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
See Notes to Financial Statements Page 109
First Trust Exchange-Traded AlphaDEX(TM) Fund
Financial Highlights
For a share outstanding throughout the period
FIRST TRUST UTILITIES ALPHADEX(TM)FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 20.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) 0.09
Net realized and unrealized gain (loss) (1.72)
------------
Total from investment operations (1.63)
------------
Net asset value, end of period $ 18.37
============
TOTAL RETURN (C) (8.15)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 2,756
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 10.12%(d)
Ratio of net investment income to average net assets 2.18%(d)
Portfolio turnover rate (e) 1%
FIRST TRUST LARGE CAP CORE ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 30.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) 0.04
Net realized and unrealized gain (loss) (1.36)
------------
Total from investment operations (1.32)
------------
Net asset value, end of period $ 28.68
============
TOTAL RETURN (C) (4.40)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 2,868
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 7.86%(d)
Ratio of net investment income to average net assets 0.62%(d)
Portfolio turnover rate (e) 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 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.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
Page 110 See Notes to Financial Statements
First Trust Exchange-Traded AlphaDEX(TM) Fund
Financial Highlights
For a share outstanding throughout the period
FIRST TRUST MID CAP CORE ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 30.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) 0.01
Net realized and unrealized gain (loss) (1.43)
------------
Total from investment operations (1.42)
------------
Net asset value, end of period $ 28.58
============
TOTAL RETURN (C) (4.73)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 5,715
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 5.98%(d)
Ratio of net investment income to average net assets 0.19%(d)
Portfolio turnover rate (e) 1%
FIRST TRUST SMALL CAP CORE ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 30.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) 0.02
Net realized and unrealized gain (loss) (1.72)
------------
Total from investment operations (1.70)
------------
Net asset value, end of period $ 28.30
============
TOTAL RETURN (C) (5.67)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 5,660
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 7.25%(d)
Ratio of net investment income to average net assets 0.42%(d)
Portfolio turnover rate (e) 2%
(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 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.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
See Notes to Financial Statements Page 111
First Trust Exchange-Traded AlphaDEX(TM) Fund
Financial Highlights
For a share outstanding throughout the period
FIRST TRUST LARGE CAP VALUE OPPORTUNITIES
ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 30.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) 0.06
Net realized and unrealized gain (loss) (1.71)
------------
Total from investment operations (1.65)
------------
Net asset value, end of period $ 28.35
============
TOTAL RETURN (C) (5.50)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 5,669
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 6.95%(d)
Ratio of net investment income to average net assets 0.97%(d)
Portfolio turnover rate (e) 1%
FIRST TRUST LARGE CAP GROWTH OPPORTUNITIES
ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 30.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) (0.00)(f)
Net realized and unrealized gain (loss) (0.78)
------------
Total from investment operations (0.78)
------------
Net asset value, end of period $ 29.22
============
TOTAL RETURN (C) (2.60)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 5,845
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 5.98%(d)
Ratio of net investment loss to average net assets (0.07)%(d)
Portfolio turnover rate (e) 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 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.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
(f) Amount represents less than $0.01 per share.
Page 112 See Notes to Financial Statements
First Trust Exchange-Traded AlphaDEX(TM) Fund
Financial Highlights
For a share outstanding throughout the period
FIRST TRUST MULTI CAP VALUE ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 30.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) 0.06
Net realized and unrealized gain (loss) (2.11)
------------
Total from investment operations (2.05)
------------
Net asset value, end of period $ 27.95
============
TOTAL RETURN (C) (6.83)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 2,795
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 7.91%(d)
Ratio of net investment income to average net assets 0.93%(d)
Portfolio turnover rate (e) 2%
FIRST TRUST MULTI CAP GROWTH ALPHADEX(TM) FUND FOR THE PERIOD
MAY 8, 2007 (A)
THROUGH
JULY 31, 2007
------------------
Net asset value, beginning of period $ 30.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) (0.01)
Net realized and unrealized gain (loss) (0.60)
------------
Total from investment operations (0.61)
------------
Net asset value, end of period $ 29.39
============
TOTAL RETURN (C) (2.03)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 8,818
RATIOS TO AVERAGE NET ASSETS:
Ratio of net expenses to average net assets 0.70%(d)
Ratio of total expenses to average net assets 6.01%(d)
Ratio of net investment loss to average net assets (0.21)%(d)
Portfolio turnover rate (e) 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 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.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
See Notes to Financial Statements Page 113
Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
1. ORGANIZATION
First Trust Exchange-Traded AlphaDEX(TM) Fund (the "Trust") is an open-end
management investment company organized as a Massachusetts business trust on
December 6, 2006, and is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of sixteen funds:
First Trust Consumer Discretionary AlphaDEX(TM) Fund - (AMEX ticker "FXD")
First Trust Consumer Staples AlphaDEX(TM) Fund - (AMEX ticker "FXG")
First Trust Energy AlphaDEX(TM) Fund - (AMEX ticker "FXN")
First Trust Financials AlphaDEX(TM) Fund - (AMEX ticker "FXO")
First Trust Health Care AlphaDEX(TM) Fund - (AMEX ticker "FXH")
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund -
(AMEX ticker "FXR")
First Trust Materials AlphaDEX(TM) Fund - (AMEX ticker "FXZ")
First Trust Technology AlphaDEX(TM) Fund - (AMEX ticker "FXL")
First Trust Utilities AlphaDEX(TM) Fund - (AMEX ticker "FXU")
First Trust Large Cap Core AlphaDEX(TM) Fund - (AMEX ticker "FEX")
First Trust Mid Cap Core AlphaDEX(TM) Fund - (AMEX ticker "FNX")
First Trust Small Cap Core AlphaDEX(TM) Fund - (AMEX ticker "FYX")
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund -
(AMEX ticker "FTA")
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund -
(AMEX ticker "FTC")
First Trust Multi Cap Value AlphaDEX(TM) Fund - (AMEX ticker "FAB")
First Trust Multi Cap Growth AlphaDEX(TM) Fund - (AMEX ticker "FAD")
Each fund represents a separate series of beneficial interest in the Trust (the
"Fund" or collectively, the "Funds"). The Funds' 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 shares called a "Creation
Unit". Each Creation Unit consists of 50,000 shares for the First Trust Consumer
Discretionary AlphaDEX(TM) Fund, the First Trust Consumer Staples AlphaDEX(TM)
Fund, the First Trust Energy AlphaDEX(TM) Fund, the First Trust Financials
AlphaDEX(TM) Fund, the First Trust Health Care AlphaDEX(TM) Fund, the First
Trust Industrials/Producer Durables AlphaDEX(TM) Fund, the First Trust Materials
AlphaDEX(TM) Fund, the First Trust Technology AlphaDEX(TM) Fund, and the First
Trust Utilities AlphaDEX(TM) Fund and 100,000 shares for the First Trust Large
Cap Core AlphaDEX(TM) Fund, the First Trust Mid Cap Core AlphaDEX(TM) Fund, the
First Trust Small Cap Core AlphaDEX(TM) Fund, the First Trust Large Cap Value
Opportunities AlphaDEX(TM) Fund, the First Trust Large Cap Growth Opportunities
AlphaDEX(TM) Fund, the First Trust Multi Cap Value AlphaDEX(TM) Fund, and the
First Trust Multi Cap Growth AlphaDEX(TM) Fund. Creation Units are issued and
redeemed principally in-kind for securities included in the 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 Consumer Discretionary AlphaDEX(TM) Fund StrataQuant(TM) ConsumerDiscretionary Index
First Trust Consumer Staples AlphaDEX(TM) Fund StrataQuant(TM) Consumer Staples Index
First Trust Energy AlphaDEX(TM) Fund StrataQuant(TM) Energy Index
First Trust Financials AlphaDEX(TM) Fund StrataQuant(TM) Financials Index
First Trust Health Care AlphaDEX(TM) Fund StrataQuant(TM) Health Care Index
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund StrataQuant(TM) Industrials Index
First Trust Materials AlphaDEX(TM) Fund StrataQuant(TM) Materials Index
First Trust Technology AlphaDEX(TM) Fund StrataQuant(TM) TechnologyIndex
First Trust Utilities AlphaDEX(TM) Fund StrataQuant(TM) UtilitiesIndex
First Trust Large Cap Core AlphaDEX(TM) Fund Defined Large Cap Core Index
First Trust Mid Cap Core AlphaDEX(TM) Fund Defined Mid Cap Core Index
First Trust Small Cap Core AlphaDEX(TM) Fund Defined Small Cap Core Index
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund Defined Large Cap Value Opportunities Index
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund Defined Large Cap Growth Opportunities Index
First Trust Multi Cap Value AlphaDEX(TM) Fund Defined Multi Cap Value Index
First Trust Multi Cap Growth AlphaDEX(TM) Fund Defined Multi Cap Growth Index
|
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of the financial statements. The
preparation of the financial statements in accordance with accounting principles
generally accepted in the United States of America 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.
Page 114
Notes to Financial Statements (Continued)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
A.PORTFOLIO VALUATION
Each Fund determines the NAV of its shares daily, as of the close of
regular session 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 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
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.
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.
The Funds may hold publicly-traded master limited partnerships ("MLP").
Distributions from such investments may include a return of capital component
from the MLP to the extent of the cost basis of such MLP investments. Cumulative
distributions received in excess of the Fund's cost basis in an MLP generally
are recorded as dividend income.
C. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income of the Funds, if any, are declared and paid
semi-annually 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.
There were no distributions paid during the period ended July 31, 2007.
As of July 31, 2007, the components of distributable earnings on a tax basis for
the Funds were as follows:
Undistributed Accumulated Net Unrealized
Ordinary Capital Appreciation
Income Gain (Loss) (Depreciation)
-------------- ---------------- ----------------
First Trust Consumer Discretionary AlphaDEX(TM) Fund $ 188 $ (2,058) $ (115,344)
First Trust Consumer Staples AlphaDEX(TM) Fund 5,552 (3,068) (158,588)
First Trust Energy AlphaDEX(TM) Fund 892 -- (253,253)
First Trust Financials AlphaDEX(TM) Fund 6,584 (2,757) (212,906)
First Trust Health Care AlphaDEX(TM) Fund -- (18,355) (31,728)
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund -- (23,631) (277,102)
First Trust Materials AlphaDEX(TM) Fund 2,537 (4,424) (55,234)
First Trust Technology AlphaDEX(TM) Fund -- (12,398) 3,046
First Trust Utilities AlphaDEX(TM) Fund 11,354 (945) (236,558)
First Trust Large Cap Core AlphaDEX(TM) Fund 4,291 (15,102) (244,796)
First Trust Mid Cap Core AlphaDEX(TM) Fund 1,760 (7,911) (462,906)
First Trust Small Cap Core AlphaDEX(TM) Fund 3,211 (14,770) (542,442)
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund 7,676 (1,854) (534,998)
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund -- -- (232,345)
First Trust Multi Cap Value AlphaDEX(TM) Fund 6,372 (8,569) (334,249)
First Trust Multi Cap Growth AlphaDEX(TM) Fund -- (26,562) (564,459)
|
D. INCOME TAXES
Each Fund intends to qualify as a regulated investment company by complying with
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended, 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.
Page 115
Notes to Financial Statements (Continued)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
In June 2006, Financial Accounting Standards Board Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes" - an interpretation of FASB
Statement 109 ("FIN 48") 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 July 31, 2007, management has
evaluated the application of FIN 48 to the Funds, and has determined that there
is no material impact resulting from the adoption of this interpretation on the
Funds' financial statements.
At July 31, 2007 for federal income tax purposes, the Funds have 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 loss carryforwards are used to offset future capital gains, it
is probable that the capital gains so offset will not be distributed to
shareholders.
The following Funds incurred and elected to defer net capital losses as follows:
Capital Loss
Available through
July 31, 2015
-----------------
First Trust Consumer Discretionary AlphaDEX(TM) Fund $ 2,058
First Trust Consumer Staples AlphaDEX(TM) Fund 3,068
First Trust Energy AlphaDEX(TM) Fund --
First Trust Financials AlphaDEX(TM) Fund 2,757
First Trust Health Care AlphaDEX(TM) Fund 18,355
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund 23,631
First Trust Materials AlphaDEX(TM) Fund 4,424
First Trust Technology AlphaDEX(TM) Fund 12,398
First Trust Utilities AlphaDEX(TM) Fund 945
First Trust Large Cap Core AlphaDEX(TM) Fund 15,102
First Trust Mid Cap Core AlphaDEX(TM) Fund 7,911
First Trust Small Cap Core AlphaDEX(TM) Fund 14,770
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund 1,854
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund --
First Trust Multi Cap Value AlphaDEX(TM) Fund 8,569
First Trust Multi Cap Growth AlphaDEX(TM) Fund 26,562
|
In order to present paid-in capital and accumulated net realized gain (loss) on
the Statements of Assets and Liabilities that more closely represent their tax
character, certain adjustments have been made to paid-in capital, accumulated
net investment income (loss) and accumulated net realized gain (loss) on
investments. For the period ended July 31, 2007, the adjustments were as
follows:
Accumulated
Accumulated Net Realized
Net Investment Gain (Loss) Paid-in
Income (Loss) on Investments Capital
---------------- ---------------- ---------------
First Trust Consumer Discretionary AlphaDEX(TM) Fund $ -- $ -- $ --
First Trust Consumer Staples AlphaDEX(TM) Fund -- (20,666) 20,666
First Trust Energy AlphaDEX(TM) Fund 174 (90,330) 90,156
First Trust Financials AlphaDEX(TM) Fund -- -- --
First Trust Health Care AlphaDEX(TM) Fund 1,425 -- (1,425)
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund 742 -- (742)
First Trust Materials AlphaDEX(TM) Fund -- (59,892) 59,892
First Trust Technology AlphaDEX(TM) Fund 2,303 (60,591) 58,288
First Trust Utilities AlphaDEX(TM) Fund -- (32,108) 32,108
First Trust Large Cap Core AlphaDEX(TM) Fund -- (123,906) 123,906
First Trust Mid Cap Core AlphaDEX(TM) Fund -- (166,103) 166,103
First Trust Small Cap Core AlphaDEX(TM) Fund -- (164,380) 164,380
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund -- (128,924) 128,924
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund 688 (84,544) 83,856
First Trust Multi Cap Value AlphaDEX(TM) Fund -- (131,777) 131,777
First Trust Multi Cap Growth AlphaDEX(TM) Fund 2,017 (146,477) 144,460
|
Page 116
Notes to Financial Statements (Continued)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
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 Portfolios
L.P. ("First Trust Portfolios") has entered into licensing agreements with each
of the following "Licensors" for the respective Funds:
FUNDS LICENSOR
First Trust Consumer Discretionary AlphaDEX(TM) Fund American Stock Exchange LLC
First Trust Consumer Staples AlphaDEX(TM) Fund American Stock Exchange LLC
First Trust Energy AlphaDEX(TM) Fund American Stock Exchange LLC
First Trust Financials AlphaDEX(TM) Fund American Stock Exchange LLC
First Trust Health Care AlphaDEX(TM) Fund American Stock Exchange LLC
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund American Stock Exchange LLC
First Trust Materials AlphaDEX(TM) Fund American Stock Exchange LLC
First Trust Technology AlphaDEX(TM) Fund American Stock Exchange LLC
First Trust Utilities AlphaDEX(TM) Fund American Stock Exchange LLC
First Trust Large Cap Core AlphaDEX(TM) Fund Standard & Poor's
First Trust Mid Cap Core AlphaDEX(TM) Fund Standard & Poor's
First Trust Small Cap Core AlphaDEX(TM) Fund Standard & Poor's
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund Standard & Poor's
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund Standard & Poor's
First Trust Multi Cap Value AlphaDEX(TM) Fund Standard & Poor's
First Trust Multi Cap Growth AlphaDEX(TM) Fund Standard & Poor's
|
The Funds are entitled to use each index and corresponding trademarks and trade
names pursuant to sublicensing arrangements by and among each Fund, the
respective Licensor, First Trust Advisors L.P. ("First Trust") and First Trust
Portfolios. 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 disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Funds' financial statement disclosures.
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 the Funds' portfolios and certain
other services necessary for the management of the Funds.
For these services, First Trust will receive monthly fees from each Fund
calculated at an annual rate of 0.50% 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 0.70% of average daily net assets per
year (the "Expense Cap").
Each Fund's Expense Cap will be in effect for at least 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 July 31, 2007, the advisory fee waivers and reimbursements
of expenses (in order to maintain the Expense Caps) were as follows:
Page 117
Notes to Financial Statements (Continued)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
Advisory Fee Expense
Waivers Reimbursements
----------------- -----------------
First Trust Consumer Discretionary AlphaDEX(TM) Fund $ 2,287 $ 46,632
First Trust Consumer Staples AlphaDEX(TM) Fund 2,843 46,254
First Trust Energy AlphaDEX(TM) Fund 2,821 46,774
First Trust Financials AlphaDEX(TM) Fund 2,249 46,666
First Trust Health Care AlphaDEX(TM) Fund 2,269 46,650
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund 2,638 46,927
First Trust Materials AlphaDEX(TM) Fund 2,771 46,348
First Trust Technology AlphaDEX(TM) Fund 2,463 46,501
First Trust Utilities AlphaDEX(TM) Fund 2,607 46,506
First Trust Large Cap Core AlphaDEX(TM) Fund 3,433 45,742
First Trust Mid Cap Core AlphaDEX(TM) Fund 4,702 44,923
First Trust Small Cap Core AlphaDEX(TM) Fund 3,795 45,880
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund 3,960 45,557
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund 4,701 44,913
First Trust Multi Cap Value AlphaDEX(TM) Fund 3,420 45,914
First Trust Multi Cap Growth AlphaDEX(TM) Fund 4,727 45,431
|
The Bank of New York is the administrator, custodian, fund accountant and
transfer agent for each Fund. Effective July 2, 2007, The Bank of New York
became a subsidiary of The Bank of New York Mellon Corporation.
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, Thomas R. Kadlec is paid $10,000 annually to serve as the Lead
Independent Trustee and Niel B. Nielson is paid $5,000 annually to serve as the
chairman of the Audit Committee, with such compensation paid by the funds in the
First Trust Fund Complex and divided among those funds. Independent Trustees are
also reimbursed by the funds in the First Trust Fund Complex for travel and
out-of-pocket expenses in connection with all meetings.
4. PURCHASES AND SALES OF SECURITIES
For the period ended July 31, 2007, 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 Consumer Discretionary AlphaDEX(TM) Fund $ 702,705 $ 671,455
First Trust Consumer Staples AlphaDEX(TM) Fund 35,062 60,547
First Trust Energy AlphaDEX(TM) Fund 59,132 26,837
First Trust Financials AlphaDEX(TM) Fund 535,123 503,661
First Trust Health Care AlphaDEX(TM) Fund 584,838 621,003
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund 696,613 690,243
First Trust Materials AlphaDEX(TM) Fund 26,086 218,843
First Trust Technology AlphaDEX(TM) Fund 122,790 198,231
First Trust Utilities AlphaDEX(TM) Fund 49,836 22,279
First Trust Large Cap Core AlphaDEX(TM) Fund 20,791 217,819
First Trust Mid Cap Core AlphaDEX(TM) Fund 28,324 484,010
First Trust Small Cap Core AlphaDEX(TM) Fund 71,643 329,643
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund 25,231 70,804
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund 28,169 30,686
First Trust Multi Cap Value AlphaDEX(TM) Fund 58,577 154,471
First Trust Multi Cap Growth AlphaDEX(TM) Fund 27,797 526,545
|
Page 118
Notes to Financial Statements (Continued)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
For the period ended July 31, 2007, the cost of in-kind purchases and proceeds
from in-kind sales were as follows:
Purchases Sales
----------------- -----------------
First Trust Consumer Discretionary AlphaDEX(TM) Fund $ 1,994,245 $ --
First Trust Consumer Staples AlphaDEX(TM) Fund 3,999,951 943,865
First Trust Energy AlphaDEX(TM) Fund 6,430,897 1,091,243
First Trust Financials AlphaDEX(TM) Fund 1,998,598 --
First Trust Health Care AlphaDEX(TM) Fund 2,000,942 --
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund 5,025,611 --
First Trust Materials AlphaDEX(TM) Fund 4,075,556 920,378
First Trust Technology AlphaDEX(TM) Fund 3,049,640 851,232
First Trust Utilities AlphaDEX(TM) Fund 3,909,951 958,016
First Trust Large Cap Core AlphaDEX(TM) Fund 6,077,955 2,866,478
First Trust Mid Cap Core AlphaDEX(TM) Fund 9,142,904 2,703,729
First Trust Small Cap Core AlphaDEX(TM) Fund 9,176,045 2,889,110
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund 9,134,231 3,009,627
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund 9,065,538 3,068,876
First Trust Multi Cap Value AlphaDEX(TM) Fund 6,040,056 2,933,151
First Trust Multi Cap Growth AlphaDEX(TM) Fund 12,410,890 2,698,642
|
Gains on in-kind transactions are not considered taxable for federal income tax
purposes.
As of July 31, 2007, 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 Consumer Discretionary AlphaDEX(TM) Fund $ 2,023,437 $ (115,344) $ 37,030 $ (152,374)
First Trust Consumer Staples AlphaDEX(TM) Fund 3,048,199 (158,588) 26,139 (184,727)
First Trust Energy AlphaDEX(TM) Fund 5,463,172 (253,253) 28,886 (282,139)
First Trust Financials AlphaDEX(TM) Fund 2,027,302 (212,906) 13,291 (226,197)
First Trust Health Care AlphaDEX(TM) Fund 1,946,422 (31,728) 74,631 (106,359)
First Trust Industrials/Producer Durables AlphaDEX(TM) Fund 5,008,351 (277,102) 43,386 (320,488)
First Trust Materials AlphaDEX(TM) Fund 3,017,889 (55,234) 111,437 (166,671)
First Trust Technology AlphaDEX(TM) Fund 2,171,161 3,046 75,565 (72,519)
First Trust Utilities AlphaDEX(TM) Fund 3,010,654 (236,558) 17,560 (254,118)
First Trust Large Cap Core AlphaDEX(TM) Fund 3,123,253 (244,796) 14,488 (259,284)
First Trust Mid Cap Core AlphaDEX(TM) Fund 6,141,681 (462,906) 66,476 (529,382)
First Trust Small Cap Core AlphaDEX(TM) Fund 6,178,539 (542,442) 37,408 (579,850)
First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund 6,206,102 (534,998) 7,534 (542,532)
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund 6,078,689 (232,345) 80,937 (313,282)
First Trust Multi Cap Value AlphaDEX(TM) Fund 3,134,218 (334,249) 12,160 (346,409)
First Trust Multi Cap Growth AlphaDEX(TM) Fund 9,333,411 (564,459) 69,658 (634,117)
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Page 119
Notes to Financial Statements (Continued)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
5. CAPITAL
Shares are created and redeemed by the Funds only in Creation Unit size
aggregations of 50,000 and 100,000 shares (see Note 1). Such transactions are
generally permitted on an in-kind basis, with a balancing cash component to
equate the transaction to the net asset value per unit of each Fund on the
transaction date. Purchasers of Creation Units must pay a standard creation
transaction fee (the "Creation Transaction Fee"), which is based on the number
of different securities in a Creation Unit according to the fee schedule set
forth below:
Number of
Securities Creation
in a Creation Unit Transaction Fee
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
|
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by the Fund with respect to
transactions effected outside of the clearing process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. 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 transfer taxes.
Parties redeeming Creation Units must pay a standard redemption transaction fee
(the "Redemption Transaction Fee"), which is based on the number of different
securities in a Creation Unit according to the fee schedule set forth below:
Number of
Securities Redemption
in a Creation Unit Transaction Fee
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
|
The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable fee of up to three times the Redemption Transaction Fee may
be charged to approximate additional expenses incurred by a Fund with respect to
redemptions effected outside of the clearing process or to the extent that
redemptions are for cash. The Funds reserve the right to effect redemptions in
cash. A shareholder may request a cash redemption in lieu of securities;
however, a 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 L.P. ("FTP"), the distributor, for
amounts expended to finance activities primarily intended to result in the sale
of Creation Units or the provision of investor services. FTP may also use this
amount to compensate securities dealers or other persons that are Authorized
Participants for providing distribution assistance, including broker-dealer and
shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, the Funds will not pay 12b-1 fees any time before April 30, 2008.
Page 120
Report of Indepenent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST EXCHANGE-TRADED
ALPHADEX(TM) FUND:
We have audited the accompanying statements of assets and liabilities of First
Trust Exchange-Traded AlphaDEX(TM) Fund, comprising First Trust Large Cap Core
AlphaDEX(TM) Fund, First Trust Mid Cap Core AlphaDEX(TM) Fund, First Trust Small
Cap Core AlphaDEX(TM) Fund, First Trust Large Cap Value Opportunities
AlphaDEX(TM) Fund, First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund,
First Trust Multi Cap Value AlphaDEX(TM) Fund, First Trust Multi Cap Growth
AlphaDEX(TM) Fund, First Trust Consumer Discretionary AlphaDEX(TM) Fund, First
Trust Consumer Staples AlphaDEX(TM) Fund, First Trust Financials AlphaDEX(TM)
Fund, First Trust Energy AlphaDEX(TM) Fund, First Trust Health Care AlphaDEX(TM)
Fund, First Trust Industrials/Producer Durables AlphaDEX(TM) Fund, First Trust
Materials AlphaDEX(TM) Fund, First Trust Technology AlphaDEX(TM) Fund, and First
Trust Utilities AlphaDEX(TM) Fund (collectively, the "Funds"), including the
portfolios of investments, as of July 31, 2007, and the related statements of
operations, changes in net assets and the financial highlights for the period
May 8, 2007 (inception) through July 31, 2007. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Funds
are not required to have, nor were we engaged to perform, an audit of their
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Funds' internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of July 31, 2007 by correspondence with the Funds'
custodian and brokers. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Trust Exchange-Traded AlphaDEX(TM) Fund as of July 31, 2007, the results of
their operations, changes in their net assets, and the financial highlights for
the period May 8, 2007 (inception) through July 31, 2007 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
September 14, 2007
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Page 121
Additional Information (Unaudited)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Funds voted proxies relating to
portfolio securities during the period ended July 31, 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 Forms N-Q are available (1) by calling (800)
988-5891; (2) on the Trust's website located at http://www.ftportfolios.com; (3)
on the SEC's website at http://www.sec.gov; and (4) for review and copying at
the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding
the operation of the PRR may be obtained by calling (800) SEC-0330.
ADVISORY AGREEMENT
BOARD CONSIDERATIONS REGARDING APPROVAL OF FIRST TRUST EXCHANGE-TRADED
ALPHADEX(TM) FUND'S ADVISORY CONTRACT
The Board of Trustees of the First Trust Exchange-Traded AlphaDEX(TM) Fund (the
"Trust"), including the Independent Trustees, unanimously approved the
Investment Management Agreement (the "Agreement") with First Trust Advisors L.P.
("First Trust") for the following funds: (a) First Trust Large Cap Core
AlphaDEX(TM) Fund, First Trust Mid Cap Core AlphaDEX(TM) Fund and First Trust
SMall Cap Core AlphaDEX(TM) Fund (each a "Core Fund" and collectively, the "Core
Funds"); (b) First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund and
First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund (each a "Style
Fund" and collectively, the "Style Funds"); (c) First Trust Multi Cap Value
AlphaDEX(TM) Fund and First Trust Multi Cap Growth AlphaDEX(TM) Fund (each a
"Multi Cap FUNd" and collectively, the "Multi Cap Funds"); and (d) First Trust
Consumer Discretionary AlphaDEX(TM) Fund, First Trust Consumer Staples
AlphaDEX(TM) Fund, First Trust Energy AlphaDEX(TM) Fund, First TRUst Financials
AlphaDEX(TM) Fund, First Trust Health Care AlphaDEX(TM) Fund, First Trust
Industrials/Producer Durables AlphaDEX(TM) Fund, First Trust Materials
AlphaDEX(TM) Fund, First TruST Technology AlphaDEX(TM) Fund and First Trust
Utilities AlphaDEX(TM) Fund (each a "Sector Fund" and collectively, the "Sector
Funds"). Each Core Fund, Style Fund, Multi Cap Fund and Sector Fund is also
referred to herein individually as a "Fund" and collectively as the "Funds." The
Agreement was approved by the Board for an initial two-year term at a meeting
held on December 11, 2006. The Board of Trustees determined for each Fund that
the Agreement is in the best interests of the Fund in light of the services,
expenses and such other matters as the Board considered to be relevant in the
exercise of its reasonable business judgment.
To reach this determination for each Fund, the Board considered its duties under
the Investment Company Act of 1940, as amended (the "1940 Act"), as well as
under the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards of
trustees have fulfilled their duties; and the factors to be considered by the
Board in voting on such agreements. To assist the Board in its evaluation of the
Agreement for each Fund, the Independent Trustees received a report in advance
of the Board meeting responding to a request for information from counsel to the
Independent Trustees. The report, among other things, outlined the services to
be provided by First Trust (including the relevant personnel responsible for
these services and their experience) to each Fund; the proposed advisory fee for
each Fund 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 each Fund as compared to those of comparable funds; the nature of expenses to
be incurred in providing services to each Fund and the potential for economies
of scale, if any; financial data on First Trust; fall-out benefits to First
Trust and First Trust Portfolios L.P.; and a summary of First Trust's compliance
program. The Independent Trustees also met separately with their independent
legal counsel to discuss the information provided by First Trust. The Board also
applied its business judgment to determine whether the arrangement between the
Trust and First Trust is a reasonable business arrangement from each Fund's
perspective as well as from the perspective of shareholders.
Page 122
Additional Information (Unaudited) (Continued)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
In evaluating whether to approve the Agreement for each Fund, the Board
considered the nature, extent and quality of services to be provided under the
Agreement, and noted that, while the Funds are the initial series of the Trust,
First Trust 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 Funds. It also considered the efforts expended by First Trust
in organizing the Trust and making arrangements for entities to provide services
to the Funds. Since each Fund is newly organized, the Board did not consider the
investment performance of the Funds, but the Board did consider the performance
of the applicable index for each Fund. The Board concluded it was comfortable
that First Trust had the capabilities and resources to oversee the operations of
each Fund, including the services to be provided by other service providers.
For each Fund, the Trustees reviewed information showing the advisory fee and
estimated expense ratio as compared to those of a peer group selected by First
Trust. They noted that the peer group for each Fund consisted solely of other
ETFs. The Board considered certain limitations in the comparability of the funds
in each peer group, including that certain peer funds had operated for less than
a year. With respect to the advisory fees for the Funds, the Board noted the
following:
(a) The Board noted the services to be provided by First Trust to each
Core Fund for the annual advisory fee of 0.50% of the Core Fund's
average daily net assets and that the proposed advisory fee for each
Core Fund was above the average of the advisory fees of the Core
Fund's peer group. The Board noted that except for First Trust Mid
Cap Core AlphaDEX(TM) Fund, in each case the fee was equal to the
Core Fund's closest peer. The Board concluded that each Core Fund's
advisory fee was within an acceptable range of the peer group and
consistent with reasonable expectations in light of the nature,
quality and extent of the services to be provided by First Trust.
(b) The Board noted the services to be provided by First Trust to each
Style Fund for the annual advisory fee of 0.50% of the Style Fund's
average daily net assets and that the proposed advisory fee for each
Style Fund was above the average of the advisory fees of the Style
Fund's peer group. The Board noted that in each case the fee was
equal to the Style Fund's closest peer. The Board concluded that
each Style Fund's advisory fee was within an acceptable range of the
peer group and consistent with reasonable expectations in light of
the nature, quality and extent of the services to be provided by
First Trust.
(c) The Board noted the services to be provided by First Trust to each
Multi Cap Fund for the annual advisory fee of 0.50% of the Multi Cap
Fund's average daily net assets and that the proposed advisory fee
for each Multi Cap Fund was above the average of the advisory fees
of the Multi Cap Fund's peer group. The Board noted that in each
case the fee was equal to the Multi Cap Fund's closest peer. The
Board concluded that each Multi Cap Fund's advisory fee was within
an acceptable range of the peer group and consistent with reasonable
expectations in light of the nature, quality and extent of the
services to be provided by First Trust.
(d) The Board noted the services to be provided by First Trust to each
Sector Fund for the annual advisory fee of 0.50% of the Sector
Fund's average daily net assets and that the proposed advisory fee
for each Sector Fund was above the average of the advisory fees of
the Sector Fund's peer group. The Board noted that except for First
Trust Materials AlphaDEX(TM) Fund, in each case the fee was equal to
the Sector Fund's closesT peer. The Board concluded that each Sector
Fund's advisory fee was within an acceptable range of the peer group
and consistent with reasonable expectations in light of the nature,
quality and extent of the services to be provided by First Trust.
The Board also considered that First Trust has agreed to waive fees and/or pay
expenses for each Fund 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 0.70% of average
daily net assets for two years. The Trustees noted that expenses borne by First
Trust are proposed to be subject to reimbursement by a 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 Funds', noting that those fees were identical for
other ETFs that target alpha, and higher for non-ETFs, except non-ETFs for which
First Trust serves 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
Page 123
Additional Information (Unaudited)(Continued)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
to the Funds. In light of nature, extent and quality of services to be provided
to each Fund under the Agreement, and in light of First Trust's agreement to
waive fees and/or pay each Fund's expenses for at least two years up to the
expense cap, the Board determined for each Fund that the investment advisory fee
was fair and reasonable.
Finally, the Board noted First Trust's commitment to attempt to analyze whether
economies of scale can be realized as Trust 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 each Fund, but had agreed
to cap each 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 Funds or
other ETFs for which First Trust acts as investment advisor, 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 each Fund's portfolio.
After discussion, the Board of Trustees, including the Independent Trustees,
concluded that First Trust had the capabilities, resources and personnel
necessary to manage each Fund. Based upon such information as it considered
necessary to the exercise of its reasonable business judgment, the Board of
Trustees concluded unanimously that it was in the best interests of each Fund to
approve the Agreement. No single factor was determinative in the Board's
analysis.
Page 124
Board of Trustees and Officers (Unaudited)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
Each Fund's respective statement of additional information includes information
about the Trustees and is available without charge, upon request, by calling
(800) 988-5891.
-----------------------------------------------------------------------------------------------------------------------------------
Interested Trustee
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE THE FIRST TRUST OTHER
POSITION AND AND YEAR FIRST FUND COMPLEX TRUSTEESHIPS OR
NAME, ADDRESS OFFICES WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
AND DATE OF BIRTH TRUST APPOINTED DURING PAST FIVE YEARS TRUSTEE HELD BY TRUSTEE
-----------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1) President, o Indefinite term President, First Trust 56 Trustee of
1001 Warrenville Road Chairman of Advisors L.P. and First Wheaton College
Suite 300 the Board, o 2006 Trust Portfolios L.P.;
Lisle, IL 60532 Chief Chairman of the Board,
DOB. 9/55 Executive BondWave LLC (Software
Officer and Development Company/
Trustee Broker-Dealer) and
Stonebridge Advisors LLC
(Investment Adviser)
-----------------------------------------------------------------------------------------------------------------------------------
Independent Trustees
-----------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson Trustee o Indefinite term Physician; President, 56 NONE
c/o First Trust Advisors Wheaton Orthopedics;
L.P. o 2006 Co-Owner and Co-Director,
1001 Warrenville Road (January 1996 to May 2007),
Suite 300 Sports Med Center for
Lisle, IL 60532 Fitness; Limited Partner,
DOB: 4/51 Gundersen Real Estate
Partnership; Limited
Partner, Sportsmed LLC
Thomas R. Kadlec Trustee o Indefinite term Senior Vice President (May 56 NONE
c/o First Trust Advisors 2007 to Present), Vice
L.P. o 2006 President and Chief
1001 Warrenville Road Financial Officer (1990 to
Suite 300 May 2007), ADM Investor
Lisle, IL 60532 Services, Inc. (Futures
DOB: 11/57 Commission Merchant); Vice
President (May 2005 to
Present), ADM Derivatives,
Inc.; Registered
Representative (2000 to
present), Segerdahl &
Company, Inc., an NASD
member (Broker-Dealer)
Robert F. Keith Trustee o Indefinite term President (2003 to Present), 56 NONE
c/o First Trust Advisors Hibs Enterprises (Financial
L.P. o 2006 and Management Consulting);
1001 Warrenville Road President (2001 to 2003),
Suite 300 Aramark Service Master
Lisle, IL 60532 Management; President and
DOB: 11/58 Chief Operating Officer
(1998 to 2003), Service
Master Management Services
Niel B. Nielson Trustee o Indefinite term President (June 2002 to 56 Director of
c/o First Trust Advisors Present), Covenant College Covenant
L.P. o 2006 Transport Inc.
1001 Warrenville Road
Suite 300
Lisle, IL 60532
DOB: 3/54
|
1 Mr. Bowen is deemed an "interested person" of the Funds due to his position
as President of First Trust Advisors L.P., investment adviser of the Funds.
Page 125
Board of Trustees and Officers (Unaudited)(Continued)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
-----------------------------------------------------------------------------------------------------------------------------------
Officers
-----------------------------------------------------------------------------------------------------------------------------------
POSITION(S) TERM OF OFFICE
NAME, ADDRESS, AND HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S)
DATE OF BIRTH FUNDS TIME SERVED DURING PAST FIVE YEARS
-----------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley Treasurer, Controller, o Indefinite term Chief Financial Officer, First Trust Advisors
1001 Warrenville Road Chief Financial Officer L.P. and First Trust Portfolios L.P.; Chief
Suite 300 and Chief Accounting o 2006 Financial Officer, BondWave LLC (Software
Lisle, IL 60532 Officer Development Company/Broker-Dealer) and
DOB: 11/57 Stonebridge Advisors LLC (Investment Adviser)
Kelley Christensen Vice President o Indefinite term Assistant Vice President, First Trust
1001 Warrenville Road Portfolios L.P. and First Trust Advisors L.P.
Suite 300 o 2006
Lisle, IL 60532
DOB: 9/70
James M. Dykas Assistant Treasurer o Indefinite term Senior Vice President (April 2007 to
1001 Warrenville Road Present), Vice President (January 2005 to
Suite 300 o 2006 April 2007), First Trust Advisors L.P. and
Lisle, IL 60532 First Trust Portfolios L.P.; Executive
DOB: 1/66 Director (December 2002 to January 2005),
Vice President (December 2000 to December
2002), Van Kampen Asset Management and Morgan
Stanley Investment Management
W. Scott Jardine Secretary and Chief o Indefinite term General Counsel, First Trust Advisors L.P.
1001 Warrenville Road Compliance Officer ("CCO") and First Trust Portfolios L.P.; Secretary,
Suite 300 o 2006 BondWave LLC (Software Development
Lisle, IL 60532 Company/Broker-Dealer) and Stonebridge
DOB: 5/60 Advisors LLC (Investment Adviser)
Daniel J. Lindquist Vice President o Indefinite term Senior Vice President (September 2005 to
1001 Warrenville Road Present), Vice President (April 2004 to
Suite 300 o 2006 September 2005), First Trust Advisors L.P.
Lisle, IL 60532 and First Trust Portfolios L.P.; Chief
DOB: 2/70 Operating Officer (January 2004 to April
2004), Mina Capital Management, LLC; Chief
Operating Officer (April 2000 to January
2004), Samaritan Asset Management Services,
Inc.
Kristi A. Maher Assistant Secretary o Indefinite term Deputy General Counsel (May 2007 to Present),
1001 Warrenville Road Assistant General Counsel (March 2004 to May
Suite 300 o 2006 2007), First Trust Advisors L.P. and First
Lisle, IL 60532 Trust Portfolios L.P.; Associate (1995-2004),
DOB: 12/66 Chapman and Cutler LLP
Roger Testin Vice President o Indefinite term Senior Vice President (November 2003 to
1001 Warrenville Road Present), Vice President (August 2001 to
Suite 300 o 2006 November 2003), First Trust Portfolios L.P.
Lisle, IL 60532 and First Trust Advisors L.P.; Analyst (1998
DOB: 06/66 to 2001), Dolan Capital Management
Stan Ueland Vice President o Indefinite term Vice President .(August 2005 to Present),
1001 Warrenville Road First Trust Advisors L.P. and First Trust
Suite 300 o 2006 Portfolios L.P; Vice President (May 2004 to
Lisle, IL 60532 August 2005), BondWave LLC (Software
DOB: 11/70 Development Company/Broker-Dealer); Account
Executive (January 2003 to May 2004), Mina
Capital Management, LLC and Samaritan Asset
Management Services, Inc.; Sales Consultant
(January 1997 to January 2003), Oracle
Corporation
|
Page 126
Risk Considerations (Unaudited)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
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 THE FIRST TRUST
EXCHANGE-TRADED ALPHADEX(TM) FUND.
RISK CONSIDERATIONS
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 mutual funds, investors are generally not
able to purchase ETF 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, the
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 its 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 it invests.
The First Trust Consumer Discretionary AlphaDEX(TM) Fund, the First Trust
Consumer Staples AlphaDEX(TM) Fund, the First Trust Energy AlphaDEX(TM) Fund,
the First Trust Financials AlphaDEX(TM) Fund, the FIRst Trust Health Care
AlphaDEX(TM) Fund, the First Trust Industrials/Producer Durables AlphaDEX(TM)
FunD, the First Trust Materials AlphaDEX(TM) Fund, the First Trust Technology
AlphaDEX(TM) Fund, the FirsT Trust Utilities AlphaDEX(TM) Fund, the First Trust
Multi Cap Value AlphaDEX(TM) Fund and the First TRust Multi Cap Growth
AlphaDEX(TM) Fund may invest in small capitalization and mid capitalization
companies. Such companies may experience greater price volatility than larger,
more established companies.
The First Trust Mid Cap Core AlphaDEX(TM) Fund invests in mid-cap companies and
is subject to additional risks because 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.
Page 127
Risk Considerations (Unaudited)(Continued)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
The First Trust Small Cap Core AlphaDEX(TM) Fund invests in small-cap companies
and is subject to additional risks, as the share prices of small-cap companies
are often more volatile than those of larger companies.
The First Trust Large Cap Value Opportunities AlphaDEX(TM) Fund and the First
Trust Multi Cap Value AlphaDEX(TM) Fund invest with a value-oriented investment
style and may not be successful in realizing their respective investment
objectives. Value companies may have experienced adverse business developments
or may be subject to special risks that cause their securities to be out of
favor, may never reach what may be their full value or may go down in price.
The First Trust Large Cap Growth Opportunities AlphaDEX(TM) Fund the First Trust
Multi Cap Growth AlphaDEX(TM) Fund invest with a growth-oriented investment
style and may not be successful in realizing their respective investment
objectives. Securities of growth companies may experience significant
fluctuations in price in response to economic, political, regulatory, company
specific, sector or market developments, changes in perceptions or interest rate
changes.
The First Trust Consumer Discretionary AlphaDEX(TM) Fund invests in the
securities of companies in the consumer discretionary sector. Because companies
in the consumer discretionary sector manufacture products and provide
discretionary services directly to the consumer, the success of these companies
is tied closely to the performance of the overall domestic and international
economy, interest rates, competition and consumer confidence. Success depends
heavily on disposable household income and consumer spending. Changes in
demographics and consumer tastes can also affect the demand for, and success of,
consumer discretionary products in the marketplace.
The First Trust Consumer Staples AlphaDEX(TM) Fund invests in the securities of
companies in the consumer staples sector. Because companies in the consumer
staples sector provide products directly to the consumer that are typically
considered non-discretionary items based on consumer purchasing habits, these
companies may be affected by a variety of factors which could impact company
profitability. For instance, government regulations may affect the
permissibility of using various food additives and the production methods of
companies that manufacture food products. Tobacco companies may be adversely
affected by the adoption of proposed legislation and/or by litigation. Also, the
success of foods and soft drinks may be strongly affected by fads, marketing
campaigns and other factors affecting supply and demand.
The First Trust Energy AlphaDEX(TM) Fund invests in the securities of companies
in the energy sectoR. The companies in the energy sector include integrated oil
companies that are involved in the exploration, production and refining process,
gas distributors and pipeline-related companies and other energy companies
involved with mining, producing and delivering energy-related services and
drilling. General problems of issuers in the energy sector include volatile
fluctuations in price and supply of energy fuels, international politics,
terrorist attacks, reduced demand as a result of increases in energy efficiency
and energy conservation, the success of exploration projects, clean-up and
litigation costs relating to oil spills and environmental damage, and tax and
other regulatory policies of various governments. Natural disasters such as
hurricanes in the Gulf of Mexico will also impact the petroleum industry. Oil
production and refining companies are subject to extensive federal, state and
local environmental laws and regulations regarding air emissions and the
disposal of hazardous materials. In addition, declines in U.S. and Russian crude
oil production will likely lead to a greater world dependence on oil from OPEC
nations, which may result in more volatile oil prices.
The First Trust Financials AlphaDEX(TM) 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. Although the barriers which separated the banking, insurance
and securities industries were eliminated by legislation, these industries are
still extensively regulated at both the federal and state level and may be
adversely affected by increased regulations.
The First Trust Health Care AlphaDEX(TM) Fund invests in the securities of
companies in the health care sector. Because companies in the health care sector
are involved in medical services or health care including biotechnology research
and production, drugs and pharmaceuticals, and health care facilities and
services, general problems of these companies include extensive competition,
generic drug sales or the loss of patent protection, product liability
litigation and increased government regulation. Research and development costs
of bringing new drugs to market are substantial, and there is no guarantee that
the product will ever come to market. Health care facility operators may be
affected by the demand for services, efforts by government or insurers to limit
rates, restriction of government financial assistance and competition from other
providers.
The First Trust Industrials/Producer Durables AlphaDEX(TM) Fund invests in the
securities of companies in the industrials and producer durables sectors. Many
companies in these sectors convert unfinished goods into finished durables used
to manufacture other goods or provide services. Some industries included in
these sectors are electrical equipment and components, industrial products,
manufactured housing and telecommunications equipment. General risks of these
companies include the general state of the economy, intense competition,
consolidation, domestic and international politics, excess capacity and consumer
Page 128
Risk Considerations (Unaudited)(Continued)
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
JULY 31, 2007
demand and spending trends. In addition, they may also be significantly affected
by overall capital spending levels, economic cycles, technical obsolescence,
delays in modernization, labor relations, government regulations and e-commerce
initiatives.
The First Trust Materials AlphaDEX(TM) Fund invests in the securities of
companies in the materials sector. Because companies in the materials sector are
involved in the extracting or processing of raw materials, general risks of
these companies include the general state of the economy, consolidation,
domestic and international politics and excess capacity. In addition, materials
companies may also be significantly affected by volatility of commodity prices,
import controls, worldwide competition, liability for environmental damage,
depletion of resources, and mandated expenditures for safety and pollution
control devices.
The First Trust Technology AlphaDEX(TM) Fund invests in the securities of
companies in the technoloGY sector. Because companies in the technology sector
serve the electronics and computer industries or manufacture products based on
the latest applied science, general risks of these companies include the risks
of rapidly changing technologies, short product life cycles, fierce competition,
aggressive pricing and reduced profit margins, loss of patent, copyright and
trademark protections, cyclical market patterns, evolving industry standards,
and frequent new product introductions. Technology companies may be smaller and
less experienced companies, with limited product lines, markets or financial
resources and fewer experienced management or marketing personnel. Technology
company stocks, particularly those involved with the Internet, have experienced
extreme price and volume fluctuations that often have been unrelated to their
operating performance. Also, the stocks of many technology companies have
exceptionally high price-to-earning ratios with little or no earnings histories.
The First Trust Utilities AlphaDEX(TM) Fund invests in the securities of
companies in the utilities sector. General problems of issuers in the utilities
sector include the imposition of rate caps, increased competition due to
deregulation, the difficulty in obtaining an adequate return on invested capital
or in financing large construction projects, the limitations on operations and
increased costs and delays attributable to environmental considerations, and the
capital market's ability to absorb utility debt. In addition, taxes, government
regulation, international politics, price and supply fluctuations, volatile
interest rates and energy conservation may cause difficulties for utilities. All
of such issuers have been experiencing certain of these problems in varying
degrees.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
Page 129
[LOGO OMITTED] FIRST TRUST
ADVISORS, L.P.
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
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 ACCOUNTANT
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
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS
EXHIBIT NO. DESCRIPTION
(a) Declaration of Trust of Registrant. (1)
(b) By-Laws of the Registrant. (2)
(c) Not Applicable.
(d) (1) Investment Management Agreement dated April 26, 2007. (2)
(2) Expense Reimbursement, Fee Waiver and Recovery Agreement dated
April 26, 2007. (2)
(e) Distribution Agreement dated April 26, 2007. (2)
(f) Not Applicable.
(g) Custody Agreement between the Registrant and The Bank of New York.
(4)
(h) (1) Transfer Agency Agreement between the Registrant and The Bank
of New York. (4)
(2) Administration and Accounting Agreement between the Registrant
and The Bank of New York. (4)
(3) Form of Subscription Agreement. (2)
(4) Form of Participant Agreement. (2)
|
(5) Board Administration Services Agreement among PFPC, Inc.,
First Trust Exchange-Traded Fund and First Trust Exchange-Traded
AlphaDEX(TM) Fund dated February 15, 2007. (3)
(6) Sublicense Agreement by and among First Trust Portfolios L.P.,
First Trust Advisors L.P., American Stock Exchange LLC and First
Trust Consumer Discretionary AlphaDEX(TM) Fund dated April 26,
2007. (2)
(7) Sublicense Agreement by and among First Trust Portfolios L.P.,
First Trust Advisors L.P., American Stock Exchange LLC and First
Trust Consumer Staples AlphaDEX(TM) Fund dated April 26, 2007. (2)
(8) Sublicense Agreement by and among First Trust Portfolios L.P.,
First Trust Advisors L.P., American Stock Exchange LLC and First
Trust Energy AlphaDEX(TM) Fund dated April 26, 2007. (2)
(9) Sublicense Agreement by and among First Trust Portfolios L.P.,
First Trust Advisors L.P., American Stock Exchange LLC and First
Trust Financials AlphaDEX(TM) Fund dated April 26, 2007. (2)
(10) Sublicense Agreement by and among First Trust Portfolios
L.P., First Trust Advisors L.P., American Stock Exchange LLC and
First Trust Health Care AlphaDEX(TM) Fund dated April 26, 2007.
(2)
(11) Sublicense Agreement by and among First Trust Portfolios
L.P., First Trust Advisors L.P., American Stock Exchange LLC and
First Trust Industrials AlphaDEX(TM) Fund dated April 26, 2007.
(2)
(12) Sublicense Agreement by and among First Trust Portfolios
L.P., First Trust Advisors L.P., American Stock Exchange LLC and
First Trust Materials AlphaDEX(TM) Fund dated April 26, 2007. (2)
(13) Sublicense Agreement by and among First Trust Portfolios
L.P., First Trust Advisors L.P., American Stock Exchange LLC and
First Trust Technology AlphaDEX(TM) Fund dated April 26, 2007. (2)
(14) Sublicense Agreement by and among First Trust Portfolios
L.P., First Trust Advisors L.P., American Stock Exchange LLC and
First Trust Utilities AlphaDEX(TM) Fund dated April 26, 2007. (2
(15) Sublicense Agreement by and among First Trust Portfolios
L.P., First Trust Advisors L.P., Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. and First Trust Large Cap Core
AlphaDEX(TM) Fund dated April 26, 2007. (2)
(16) Sublicense Agreement by and among First Trust Portfolios
L.P., First Trust Advisors L.P., Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. and First Trust Mid Cap Core
AlphaDEX(TM) Fund dated April 26, 2007. (2)
(17) Sublicense Agreement by and among First Trust Portfolios
L.P., First Trust Advisors L.P., Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. and First Trust Small Cap Core
AlphaDEX(TM) Fund dated April 26, 2007. (2)
(18) Sublicense Agreement by and among First Trust Portfolios
L.P., First Trust Advisors L.P., Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. and First Trust Large Cap Value
Opportunities AlphaDEX(TM) Fund dated April 26, 2007. (2)
(19) Sublicense Agreement by and among First Trust Portfolios
L.P., First Trust Advisors L.P., Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. and First Trust Mid Cap Growth
Opportunities AlphaDEX(TM) Fund dated April 26, 2007. (2)
(20) Sublicense Agreement by and among First Trust Portfolios
L.P., First Trust Advisors L.P., Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. and First Trust Multi Cap Value
AlphaDEX(TM) Fund dated April 26, 2007. (2)
(21) Sublicense Agreement by and among First Trust Portfolios
L.P., First Trust Advisors L.P., Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. and First Trust Multi Cap Growth
AlphaDEX(TM) Fund dated April 26, 2007. (2)
(22) Amendment No. 1 to the Sublicense Agreement dated as of April
26, 2007, by and among First Trust Portfolios L.P., First Trust
Advisors L.P., American Stock Exchange LLC and First Trust
Industrials/Producer Durables AlphaDEX(TM) Fund dated May 8, 2007.
(4)
(i) (1) Opinion and Consent of Chapman and Cutler LLP dated April 26,
2007. (2)
(2) Opinion and Consent of Bingham McCutchen LLP dated April 26,
2007. (2)
(3) Opinion and Consent of Chapman and Cutler LLP dated November
16, 2007. (4)
(j) Consent of Deloitte & Touche LLP dated November 15, 2007. (4)
(k) Not Applicable.
(l) Not Applicable.
(m) (1) 12b-1 Service Plan. (2)
(2) Letter Agreement Regarding 12b-1 Fees, dated as of May 1,
2007. (3)
(3) Letter Agreement Regarding 12b-1 Fees, dated as of November
13, 2007. (4)
(n) Not Applicable.
(o) Not Applicable.
(p) (1) First Trust Advisors L.P. Investment Adviser Code of Ethics,
amended on May 31, 2006. (2)
(2) First Trust Portfolios L.P. Code of Ethics, amended on May 31,
2006. (2)
(3) First Trust Funds Code of Ethics, amended on May 31, 2006. (2)
(q) Powers of Attorney for Messrs. Bowen, Erickson, Kadlec, Keith and
Nielson authorizing, among others, James A. Bowen, W. Scott
Jardine and Eric F. Fess to execute the Registration Statement.
(1)
(1) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A (File No. 333-140895) filed on February 26, 2007.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A (File No. 333-140895) filed on April 27, 2007.
(3) Incorporated by reference to First Trust Exchange-Traded Fund's
Registration Statement on Form N-1A (File No. 333-125751) filed on June 18,
2007.
(4) Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not Applicable.
ITEM 25. INDEMNIFICATION
Section 9.5 of the Registrant's Declaration of Trust provides as
follows:
Section 9.5. Indemnification and Advancement of Expenses.
Subject to the exceptions and limitations contained in this Section 9.5,
every person who is, or has been, a Trustee, officer, or employee of the
Trust, including persons who serve at the request of the Trust as
directors, trustees, officers, employees or agents of another
organization in which the Trust has an interest as a shareholder,
creditor or otherwise (hereinafter referred to as a "Covered Person"),
shall be indemnified by the Trust to the fullest extent permitted by law
against liability and against all expenses reasonably incurred or paid by
him or in connection with any claim, action, suit or proceeding in which
he becomes involved as a party or otherwise by virtue of his being or
having been such a Trustee, director, officer, employee or agent and
against amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered
Person to the extent such indemnification is prohibited by applicable
federal law.
The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be
such a Covered Person and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Subject to applicable federal law, expenses of preparation and
presentation of a defense to any claim, action, suit or proceeding
subject to a claim for indemnification under this Section 9.5 shall be
advanced by the Trust prior to final disposition thereof upon receipt of
an undertaking by or on behalf of the recipient to repay such amount if
it is ultimately determined that he is not entitled to indemnification
under this Section 9.5.
To the extent that any determination is required to be made as
to whether a Covered Person engaged in conduct for which indemnification
is not provided as described herein, or as to whether there is reason to
believe that a Covered Person ultimately will be found entitled to
indemnification, the Person or Persons making the determination shall
afford the Covered Person a rebuttable presumption that the Covered
Person has not engaged in such conduct and that there is reason to
believe that the Covered Person ultimately will be found entitled to
indemnification.
As used in this Section 9.5, the words "claim," "action," "suit"
or "proceeding" shall apply to all claims, demands, actions, suits,
investigations, regulatory inquiries, proceedings or any other occurrence
of a similar nature, whether actual or threatened and whether civil,
criminal, administrative or other, including appeals, and the words
"liability" and "expenses" shall include without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and
other liabilities.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
First Trust Advisors L.P. ("First Trust") serves as investment
adviser to the Registrant, serves as adviser or subadviser to 25 mutual
funds, 36 exchange-traded funds and 14 closed-end funds and is the
portfolio supervisor of certain unit investment trusts. Its principal
address is 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532.
The principal business of certain of First Trust's principal
executive officers involves various activities in connection with the
family of unit investment trusts sponsored by First Trust Portfolios L.P.
("FTP"). FTP's principal address is 1001 Warrenville Road, Suite 300,
Lisle, Illinois 60532.
Information as to other business, profession, vocation or
employment during the past two years of the officers and directors of
First Trust is as follows:
NAME AND POSITION WITH FIRST TRUST EMPLOYMENT DURING PAST TWO YEARS
James A. Bowen, Managing Director/President Managing Director/President, FTP; Chairman of the Board
of Directors, BondWave LLC and Stonebridge Advisors LLC
Ronald D. McAlister, Managing Director Managing Director, FTP
Mark R. Bradley, Chief Financial Officer and Managing Chief Financial Officer and Managing Director, FTP; Chief
Director Financial Officer, BondWave LLC and Stonebridge Advisors LLC
Robert F. Carey, Chief Investment Officer and Senior Vice Senior Vice President, FTP
President
W. Scott Jardine, General Counsel General Counsel, FTP; Secretary of BondWave LLC and
Stonebridge Advisors LLC
Kristi A. Maher, Deputy General Counsel Deputy General Counsel, FTP; Assistant General Counsel, FTP
Michelle Quintos, Assistant General Counsel Assistant General Counsel, FTP; Associate, Jones Day,
2002 to December 2005
John Vasko, Assistant General Counsel Senior Counsel, Michaels and May, October 2006 to May
2007; Assistant General Counsel, ARAMARK Corporation
Pamela Wirt, Assistant General Counsel Of Counsel, Vedder, Price, Kaufman and Kammholz, P.C.,
February 2006 to January 2007; Independent Contractor
Attorney, SBA Network Services, Inc.
R. Scott Hall, Managing Director Managing Director, FTP
Andrew S. Roggensack, Managing Director Managing Director, FTP
Elizabeth H. Bull, Senior Vice President Senior Vice President, FTP
Christopher L. Dixon, Senior Vice President Senior Vice President, FTP
Jane Doyle, Senior Vice President Senior Vice President, FTP
|
NAME AND POSITION WITH FIRST TRUST EMPLOYMENT DURING PAST TWO YEARS
James M. Dykas, Senior Vice President Senior Vice President, FTP since April 2007; Vice
President, FTP from January 2005 to April 2007; Executive
Director, Van Kampen Asset Management and Morgan Stanley
Investment Management, 1999 to January 2005
Jon C. Erickson, Senior Vice President Senior Vice President, FTP
Kenneth N. Hass, Senior Vice President Senior Vice President, FTP
Jason T. Henry, Senior Vice President Senior Vice President, FTP
Daniel J. Lindquist, Senior Vice President Senior Vice President, FTP
David G. McGarel, Senior Vice President Senior Vice President, FTP
Mitchell Mohr, Senior Vice President Senior Vice President, FTP
Joseph McDermott, Chief Compliance Officer and Senior Vice Senior Vice President, FTP since April 2006; CCO Driehaus
President Capital Management LLC, Driehaus Securities LLC and
Driehaus Mutual Funds, January 2004 to April 2006
Robert M. Porcellino, Senior Vice President Senior Vice President, FTP
Roger F. Testin, Senior Vice President Senior Vice President, FTP
James P. Koeneman, Vice President Vice President, FTP
Alan M. Rooney, Vice President Senior Vice President, FTP
Ronda L. Saeli, Vice President Vice President, FTP
Kirk Sims, Vice President Vice President, FTP
Walter E. Stubbings, Jr., Vice President Vice President, FTP
Richard S. Swiatek, Vice President Vice President, FTP
Stan Ueland, Vice President Vice President, FTP since August 2005; Vice President
BondWave LLC, May 2004 to August 2005
Brad Bradley, Assistant Vice President Assistant Vice President, FTP
Kelley A. Christensen, Assistant Vice President Assistant Vice President, FTP
Katie D. Collins, Assistant Vice President Assistant Vice President, FTP
Kristen Johanneson, Assistant Vice President Assistant Vice President, FTP
Omar Sepulveda, Assistant Vice President Assistant Vice President, FTP
John H. Sherren, Assistant Vice President Assistant Vice President, FTP
Michael S. Stange, Assistant Vice President Assistant Vice President, FTP
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NAME AND POSITION WITH FIRST TRUST EMPLOYMENT DURING PAST TWO YEARS
Lynae Peays, Assistant Vice President Assistant Vice President, FTP
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ITEM 27. PRINCIPAL UNDERWRITER
(a) FTP serves as principal underwriter of the shares of the
Registrant, First Trust Exchange-Traded Fund, First Trust Exchange-Traded
Fund II, First Trust Exchange-Traded AlphaDEX(TM) Fund and the First
Defined Portfolio Fund LLC. FTP serves as principal underwriter and
depositor of the following investment companies registered as unit
investment trusts: the First Trust Combined Series, FT Series (formerly
known as the First Trust Special Situations Trust), the First Trust
Insured Corporate Trust, the First Trust of Insured Municipal Bonds and
the First Trust GNMA. The name of each director, officer and partner of
FTP is provided below.
(b) Positions and Offices with Underwriter.
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
The Charger Corporation General Partner None
Grace Partners of DuPage L.P. Limited Partner None
James A. Bowen Managing Director/President President, Chairman of the Board,
Trustee, Chief Executive Officer
Mark R. Bradley Chief Financial Officer; Managing Treasurer, Chief Financial Officer
Director and Chief Accounting Officer
Robert W. Bredemeier Managing Director None
Frank L. Fichera Managing Director None
Russell J. Graham Managing Director None
R. Scott Hall Managing Director None
W. Scott Jardine General Counsel Chief Compliance Officer and Secretary
Kristi A. Maher Deputy General Counsel Assistant Secretary
Michelle Quintos Assistant General Counsel None
John Vasko Assistant General Counsel None
Pamela Wirt Assistant General Counsel None
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NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Ronald D. McAlister Managing Director None
Richard A. Olson Managing Director None
Andrew S. Roggensack Managing Director None
Elizabeth H. Bull Senior Vice President None
Robert F. Carey Senior Vice President None
Patricia L. Costello Senior Vice President None
Christopher L. Dixon Senior Vice President None
Jane Doyle Senior Vice President None
James M. Dykas Senior Vice President Assistant Treasurer
Jon C. Erickson Senior Vice President None
Kenneth N. Hass Senior Vice President None
Thomas V. Hendricks Senior Vice President None
Jason T. Henry Senior Vice President None
Christian D. Jeppesen Senior Vice President None
Christopher A. Lagioia Senior Vice President None
Daniel J. Lindquist Senior Vice President Vice President
Joseph McDermott Senior Vice President None
David G. McGarel Senior Vice President None
Mark R. McHenney Senior Vice President None
Mitchell Mohr Senior Vice President None
Paul E. Nelson Senior Vice President None
Steve R. Nelson Senior Vice President None
Robert M. Porcellino Senior Vice President None
Steven R. Ritter Senior Vice President None
Alan Rooney Senior Vice President None
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NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Francine Russell Senior Vice President None
Brad A. Shaffer Senior Vice President None
Brian Sheehan Senior Vice President None
James J. Simpson Senior Vice President None
Andrew C. Subramanian Senior Vice President None
Mark P. Sullivan Senior Vice President None
Roger F. Testin Senior Vice President Vice President
Chadwick K. Thorson Senior Vice President None
Gregory E. Wearsch Senior Vice President None
Patrick Woelfel Senior Vice President None
Dan Affetto Vice President None
Lance Allen Vice President None
Eric Anderson Vice President None
Carlos Barbosa Vice President None
Michael Bean Vice President None
Rob Biddinger Vice President None
Mike Britt Vice President None
Nathan S. Cassel Vice President None
Robert E. Christensen Vice President None
Will Cobb Vice President None
Joshua Crosley Vice President None
Michael Dawson Vice President None
Michael Durr Vice President None
Albert K. Davis Vice President None
Daren J. Davis Vice President None
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NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Sean Degnan Vice President None
Robert T. Doak Vice President None
Joel D. Donley Vice President None
Brett Egner Vice President None
Mike Flaherty Vice President None
Wendy Flaherty Vice President None
Edward Foley Vice President None
Don Fuller Vice President None
John Gillis Vice President None
Patrick Good Vice President None
Matt D. Graham Vice President None
Matt Griffin Vice President None
William M. Hannold Vice President None
Mary Jane Hansen Vice President None
Vance Hicks Vice President None
Rick Johnson Vice President None
Tom Knickerbocker Vice President None
James P. Koeneman Vice President None
Thomas E. Kotcher Vice President None
Daniel Lavin Vice President None
Michael P. Leyden Vice President None
Keith L. Litavsky Vice President None
Stephanie L. Martin Vice President None
Marty McFadden Vice President None
Sean Moriarty Vice President None
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NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
John O'Sullivan Vice President None
David Pagano Vice President None
Brian K. Penney Vice President None
Blair R. Peterson Vice President None
Jason Peterson Vice President None
Tom Powell Vice President None
Marisa Prestigiacomo Vice President None
Craig Prichard Vice President None
David A. Rieger Vice President None
Michael Rogers Vice President None
Paul Rowe Vice President None
James Rowlette Vice President None
Ronda L. Saeli Vice President None
Jeffrey M. Samuel Vice President None
Peter H. Sandford Vice President None
Timothy Schival Vice President None
Stacy Shearer Vice President None
Nim Short Vice President None
Kirk Sims Vice President None
Edward J. Sistowicz Vice President None
Jonathan L. Steiner Vice President None
Eric Stoiber Vice President None
Walter E. Stubbings, Jr. Vice President None
Terry Swagerty Vice President None
Richard S. Swiatek Vice President None
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NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Brian Taylor Vice President None
John Taylor Vice President None
Kerry Tazakine Vice President None
Timothy Trudo Vice President None
Stanley Ueland Vice President Assistant Vice President
Bryan Ulmer Vice President None
Barbara E. Vinson Vice President None
Dan Waldron Vice President None
Christopher Walsh Vice President None
Jeff Westergaard Vice President None
Lewin M. Williams Vice President None
Jeffrey S. Barnum Assistant Vice President None
Owen Birts III Assistant Vice President None
Toby A. Bohl Assistant Vice President None
Brad Bradley Assistant Vice President None
Kelley A. Christensen Assistant Vice President Vice President
Katie D. Collins Assistant Vice President None
Michael DeBella Assistant Vice President None
Ann Marie Giudice Assistant Vice President None
Debbie Del Giudice Assistant Vice President None
Chris Fallow Assistant Vice President None
Anita K. Henderson Assistant Vice President None
James V. Huber Assistant Vice President None
Kristen Johanneson Assistant Vice President None
Daniel C. Keller Assistant Vice President None
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NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND
BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND
Robert J. Madeja Assistant Vice President None
David M. McCammond-Watts Assistant Vice President None
Michelle Parker Assistant Vice President None
Lynae Peays Assistant Vice President None
Debra K. Scherbring Assistant Vice President None
Steve Schwarting Assistant Vice President None
Omar Sepulveda Assistant Vice President None
John H. Sherren Assistant Vice President None
Michael S. Stange Assistant Vice President None
Lee Sussman Assistant Vice President None
Christopher J. Thill Assistant Vice President None
Dave Tweeten Assistant Vice President None
Thomas G. Wisnowski Assistant Vice President None
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* All addresses are
1001 Warrenville Road,
Lisle, IL 60532,
unless otherwise noted.
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
First Trust Advisors L.P. ("First Trust"), 1001 Warrenville
Road, Suite 300, Lisle, Illinois 60532, maintains the Registrant's
organizational documents, minutes of meetings, contracts of the
Registrant and all advisory material of the investment adviser.
The Bank of New York ("BONY"), 101 Barclay Street, New York, New
York 10286, maintains all general and subsidiary ledgers, journals, trial
balances, records of all portfolio purchases and sales, and all other
requirement records not maintained by First Trust.
BONY also maintains all the required records in its capacity as
transfer, accounting, dividend payment and interest holder service agent
for the Registrant.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it
meets all of the requirements for effectiveness of this registration
statement under Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement on Form N-1A to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of
Lisle, in the State of Illinois, on the 16th day of November, 2007
FIRST TRUST EXCHANGE-TRADED ALPHADEX(TM) FUND
By: /s/ James A. Bowen
--------------------------------
James A. Bowen, President
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Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the date indicated:
SIGNATURE TITLE DATE
/s/ Mark R. Bradley Treasurer, Controller and Chief
-------------------- Financial and Accounting Officer November 16, 2007
Mark R. Bradley
/s/ James A. Bowen President, Chief Executive
--------------------- Officer, Chairman and Trustee November 16, 2007
James A. Bowen
*/s/ Richard E. Erickson Trustee )
------------------------ )
Richard E. Erickson )
)
*/s/ Thomas R. Kadlec Trustee )
------------------------ ) By: /s/ James A. Bowen
Thomas R. Kadlec ) ---------------------
) James A. Bowen
*/s/ Robert Keith Trustee ) Attorney-In-Fact
------------------------ ) November 16, 2007
Robert Keith
)
*/s/ Niel B. Nielson Trustee )
------------------------ )
Niel B. Nielson )
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* Original powers of attorney authorizing James A. Bowen, W. Scott
Jardine and Eric F. Fess to execute Registrant's Registration
Statement, and Amendments thereto, for each of the trustees of the
Registrant on whose behalf this Registration Statement is filed,
were previously executed and filed as an Exhibit and are
incorporated by reference herein.
INDEX OF EXHIBITS
(g) Custody Agreement
(h)(1) Transfer Agency Agreement
(h)(2) Administration and Accounting Agreement
(h)(22) Amended Sublicense Agreement of First Trust Industrials/Producer
Durables AlphaDEX(TM) Fund
(i)(3) Opinion and Consent of Chapman and Cutler LLP
(j) Consent of Deloitte & Touche LLP
(m)(3) Letter Agreement Regarding 12b-1 Fees