First Trust Exchange-Traded AlphaDEX Fund

Transcription

1 First Trust Exchange-Traded AlphaDEX Fund Annual Report AlphaDEX Style Funds First Trust Large Cap Core AlphaDEX Fund (FEX) First Trust Mid Cap Core AlphaDEX Fund (FNX) First Trust Small Cap Core AlphaDEX Fund (FYX) First Trust Large Cap Value AlphaDEX Fund (FTA) First Trust Large Cap Growth AlphaDEX Fund (FTC) First Trust Multi Cap Value AlphaDEX Fund (FAB) First Trust Multi Cap Growth AlphaDEX Fund (FAD) First Trust Mid Cap Value AlphaDEX Fund (FNK) First Trust Mid Cap Growth AlphaDEX Fund (FNY) First Trust Small Cap Value AlphaDEX Fund (FYT) First Trust Small Cap Growth AlphaDEX Fund (FYC) First Trust Mega Cap AlphaDEX Fund (FMK) AlphaDEX is a registered trademark of First Trust Portfolios L.P.

2 Table of Contents First Trust Exchange-Traded AlphaDEX Fund Style Funds Shareholder Letter Market Overview Fund Performance Overview First Trust Large Cap Core AlphaDEX Fund (FEX) First Trust Mid Cap Core AlphaDEX Fund (FNX) First Trust Small Cap Core AlphaDEX Fund (FYX) First Trust Large Cap Value AlphaDEX Fund (FTA) First Trust Large Cap Growth AlphaDEX Fund (FTC) First Trust Multi Cap Value AlphaDEX Fund (FAB) First Trust Multi Cap Growth AlphaDEX Fund (FAD) First Trust Mid Cap Value AlphaDEX Fund (FNK) First Trust Mid Cap Growth AlphaDEX Fund (FNY) First Trust Small Cap Value AlphaDEX Fund (FYT) First Trust Small Cap Growth AlphaDEX Fund (FYC) First Trust Mega Cap AlphaDEX Fund (FMK) Notes to Fund Performance Overview Understanding Your Fund Expenses Portfolio of Investments First Trust Large Cap Core AlphaDEX Fund (FEX) First Trust Mid Cap Core AlphaDEX Fund (FNX) First Trust Small Cap Core AlphaDEX Fund (FYX) First Trust Large Cap Value AlphaDEX Fund (FTA) First Trust Large Cap Growth AlphaDEX Fund (FTC) First Trust Multi Cap Value AlphaDEX Fund (FAB) First Trust Multi Cap Growth AlphaDEX Fund (FAD) First Trust Mid Cap Value AlphaDEX Fund (FNK) First Trust Mid Cap Growth AlphaDEX Fund (FNY) First Trust Small Cap Value AlphaDEX Fund (FYT) First Trust Small Cap Growth AlphaDEX Fund (FYC) First Trust Mega Cap AlphaDEX Fund (FMK) Statements of Assets and Liabilities Statements of Operations Statements of Changes in Net Assets Financial Highlights Notes to Financial Statements Report of Independent Registered Public Accounting Firm Additional Information Board of Trustees and Officers Privacy Policy

3 Caution Regarding Forward-Looking Statements This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. ( First Trust or the Advisor ) and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as anticipate, estimate, intend, expect, believe, plan, may, should, would or other words that convey uncertainty of future events or outcomes. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of any series of First Trust Exchange-Traded AlphaDEX Fund (the Trust ) described in this report (each such series is referred to as a Fund and collectively, as the Funds ) to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forwardlooking statements to reflect events and circumstances that arise after the date hereof. Performance and Risk Disclosure There is no assurance that any Fund described in this report will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in a Fund. See Risk Considerations in the Additional Information Section of this report for a discussion of other risks in investing in the Funds. Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost. The Advisor may also periodically provide additional information on Fund performance on each Fund s webpage at How to Read This Report This report contains information that may help you evaluate your investment in each Fund. It includes details about each Fund s portfolios and presents data and analysis that provide insight into each Fund s performance and investment approach. By reading the market overview by Robert F. Carey, Chief Market Strategist of the Advisor, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund s performance compared to that of relevant market benchmarks. It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information, this report and other Fund regulatory filings. Page 1

4 Shareholder Letter First Trust Exchange-Traded AlphaDEX Fund Annual Letter from the Chairman and CEO Dear Shareholders: Thank you for your investment in the Style Funds of First Trust Exchange-Traded AlphaDEX Fund. First Trust Advisors L.P. ( First Trust ) is pleased to provide you with the annual report which contains detailed information about your investment for the 12 months ended, including a market overview and a performance analysis for the period. We encourage you to read this report and discuss it with your financial advisor. While markets were up and down during 2015, we believe there are three important things to remember. First, the U.S. economy grew, despite the massive decline in oil prices. Second, the tapering that began in 2014 by the Federal Reserve (the Fed ) did not stop growth in the U.S. economy. Finally, the long-anticipated rate hike by the Fed in December 2015 had little effect on the money supply, and the stock market was not shocked by the hike. Early in 2016, many investors were concerned that the volatility we saw in the market in 2015 would continue, and it did. From December 31, 2015 through February 11, 2016, the S&P 500 Index declined by 10.27%. Since then, the market has made a steady comeback, and from February 11, 2016 to, the S&P 500 Index was up 19.99%. First Trust believes that having a long-term investment horizon and investing in quality products can help you reach your goals, regardless of how the market behaves. We have always maintained perspective about the markets and believe investors should as well. We will continue to strive to provide quality investment opportunities each and every day, which has been one of the hallmarks of our firm since its inception 25 years ago. Thank you for giving First Trust the opportunity to be a part of your investment plan. We value our relationship with you and will continue to focus on helping investors like you reach your financial goals. Sincerely, James A. Bowen Chairman of the Board of Trustees Chief Executive Officer of First Trust Advisors L.P. Page 2

5 Market Overview First Trust Exchange-Traded AlphaDEX Fund Annual Report Robert F. Carey, CFA Senior Vice President and Chief Market Strategist First Trust Advisors L.P. Mr. Carey is responsible for the overall management of research and analysis of the First Trust product line. Mr. Carey has over 25 years of experience as an Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial Analyst ( CFA ) designation. He is a graduate of the University of Illinois at Champaign- Urbana with a B.S. in Physics. He is also a member of the Investment Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been quoted by several publications, including The Wall Street Journal, The Wall Street Reporter, Bloomberg News Service, and Registered Rep. State of the U.S./Global Economy One of the reasons cited by the Federal Reserve for not raising interest rates beyond the initial 0.25% hike in the federal funds target rate on December 16, 2015 is the slowdown in global growth. The International Monetary Fund reduced its global growth estimate for 2016 from 3.3% in April to 3.2% in July. It also shaved its 2017 estimate by 0.1% to 3.5%, according to its own release. To help put this concern into perspective, the rate was 5.4% in The rebound in the price of crude oil is boosting Mergers & Acquisitions ( M&A ) activity in the energy sector, according to Bloomberg. From February 11, 2016 (multi-year low) through August 25, 2016, the price of a barrel of crude oil rose 80.6%, from $26.21 to $ Wood Mackenzie, a consulting firm, reported that more than $11 billion worth of oil and gas transactions were announced globally in July. It was the highest monthly total so far this year. Since May, deal volume has totaled $32 billion. Wood Mackenzie believes that M&A activity will continue to accelerate as oil prices stabilize. Higher energy prices, if sustained, could help boost global economic growth moving forward. Many nations around the globe rely fairly heavily on the sale of crude oil to help fund their economies, in our opinion. ETFGI, an industry research group, reported that total assets invested in exchange-traded funds (ETFs) and other exchange-traded products (ETPs) reached a record high of $3.34 trillion globally in July 2016, according to its own release. Total assets invested in U.S. ETFs/ETPs reached a record high of $2.37 trillion in July Style/Market Cap Investing One barometer for gauging investors appetites for equities is tracking money flows in and out of open-end mutual funds and ETFs. For the 12-month period ended, U.S. Equity funds/etfs reported net outflows totaling over $47 billion, according to data from Morningstar. Investors continue to favor passive funds over actively managed funds. Passive U.S. Equity funds/etfs reported net inflows totaling $163.6 billion, compared to net outflows totaling $211.0 billion for actively managed U.S. Equity funds/etfs. For the 12-month period ended July 2016, Morningstar reported the following net flows for these nine Style/Market Cap fund categories: $51.2 billion (Large Blend); $1.1 billion (Large Value); -$58.8 billion (Large Growth); -$2.2 billion (Mid-Cap Blend); -$6.4 billion (Mid-Cap Value); -$20.3 billion (Mid-Cap Growth); -$0.4 billion (Small Blend); $2.6 billion (Small Value); and -$14.4 billion (Small Growth). Slow and steady appears to be winning the race, in our opinion. Despite the moderate pace of economic growth since the previous recession ended in 2009, the current bull market in stocks is the second-longest in U.S. history at 2,701 days through July, as measured by the S&P 500 Index, according to Bespoke Investment Group. From March 9, 2009 to July 29, 2016, the S&P 500 Index posted a cumulative total return of %, according Bloomberg. From 2009 to 2015, the S&P 500 Index increased its annual earnings from $58.15 to $109.32, according to Bloomberg. Currently, Bloomberg s consensus estimates for 2016 and 2017 are $ and $133.11, respectively. Page 3

6 Fund Performance Overview (Unaudited) First Trust Large Cap Core AlphaDEX Fund (FEX) From the beginning of the period covered by this report until April 8, 2016, the First Trust Large Cap Core AlphaDEX Fund (the Fund ) sought investment results that corresponded generally to the price and yield (before the Fund s fees and expenses) of an equity index called the Defined Large Cap Core Index. Effective April 8, 2016, the Fund changed its investment objective to seek investment results that correspond generally to the price and yield (before the Fund s fees and expenses) of an equity index called the Nasdaq AlphaDEX Large Cap Core Index (the Index ). The Fund will normally invest at least 90% of its net assets in common stocks that comprise the Index. From the beginning of the period covered by this report until April 8, 2016, the shares of the Fund traded on the NYSE Arca. Effective April 8, 2016, the shares of the Fund are listed and trade on The Nasdaq Stock Market LLC under the ticker symbol FEX. The Fund commenced trading on May 9, The Index employs the AlphaDEX stock selection methodology which uses fundamental growth and value factors to objectively select stocks from the Nasdaq US 500 Large Cap Index that may generate positive alpha relative to traditional passive indices. The Index is a modified equal-dollar weighted index where higher ranked stocks receive a higher weight within the Index. Performance Average Annual Cumulative Total Returns Total Returns 1 Year 5 Years Inception 5 Years Inception Ended Ended (5/8/07) Ended (5/8/07) 7/31/16 7/31/16 to 7/31/16 7/31/16 to 7/31/16 Fund Performance NAV 3.59% 12.03% 6.22% 76.51% 74.58% Market Price 3.53% 12.05% 6.22% 76.63% 74.61% Index Performance Defined Large Cap Core Index (1) 4.13% 12.79% 6.98% 82.50% 86.43% Nasdaq AlphaDEX Large Cap Core Index (2) (3) N/A N/A N/A N/A N/A Nasdaq US 500 Large Cap Index (2) N/A N/A N/A N/A N/A S&P 500 Index 5.61% 13.38% 6.31% 87.36% 75.97% (1) The Defined Large Cap Core Index was replaced with the Nasdaq AlphaDEX Large Cap Core Index. The new index is substantially similar to the old index. (2) Performance data is not available for all the periods shown in the table for the index because performance data does not exist for each of the entire periods. (3) The Fund s cumulative total returns from April 8, 2016 through were 7.33% and 7.38% at NAV and Market Price, respectively. That compares to an Index return of 7.54% for the same period. (See Notes to Fund Performance Overview on page 28.) Performance Review FEX s one-year net asset value ( NAV ) return of 3.59% underperformed the benchmark S&P 500 Index return of 5.61% by -2.02%. The Utilities sector was the leading contributing sector during the period with a 1.9% contribution, 24.2% return, and 8.4% average weighting. The Gas Utilities industry had an impressive 51.9% return, but was limited to a 0.2% contribution due to its small allocation of 0.4%. The Consumer Discretionary sector was given the highest weighting during the period at 19%, and due to its -3.6% return, contributed -1.1% to the Fund s return. Amongst the Consumer Discretionary sector, securities held within the Multiline Retail industry such as Kohls Co., Macy s Inc., and Nordstrom, Inc. had a -21.9% return and contributed -0.4% to the Fund s return. On a relative basis the Fund underperformed the benchmark primarily due to the Consumer Discretionary sector where the Fund was overweight the sector by 6.2% and underperformed by -7.1%, creating -1.7% of relative underperformance. The Financials sector, the second highest weighted sector during the period at 15.2%, reversed 1.3% of underperformance by outperforming the benchmark by 4.9%. Page 4

7 Fund Performance Overview (Unaudited) (Continued) First Trust Large Cap Core AlphaDEX Fund (FEX) (Continued) % of Total Sector Classification Long-Term Investments Financials 22.72% Consumer Discretionary Information Technology Industrials Health Care 8.81 Consumer Staples 7.46 Utilities 7.35 Energy 4.02 Materials 3.99 Telecommunication Services 2.57 Total % % of Total Top Ten Holdings Long-Term Investments American Airlines Group, Inc. 0.54% Gap (The), Inc NVIDIA Corp WhiteWave Foods (The) Co Hewlett Packard Enterprise Co Edwards Lifesciences Corp United Continental Holdings, Inc BorgWarner, Inc Lear Corp General Motors Co Total 4.99% $20,000 $15,000 $10,000 $5,000 Performance of a $10,000 Initial Investment May 8, /8/07 7/31/07 1/31/08 7/31/08 1/31/09 7/31/09 1/31/10 7/31/10 1/31/11 7/31/11 1/31/12 7/31/12 First Trust Large Cap Core AlphaDEX Fund Defined Large Cap Core Index S&P 500 Index 1/31/13 7/31/13 1/31/14 7/31/14 1/31/15 7/31/15 1/31/16 7/31/16 $18,644 $17,598 $17,457 Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund s past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period August 1, 2011 through. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 8/1/11-7/31/ /1/12-7/31/ /1/13-7/31/ /1/14-7/31/ /1/15-7/31/ Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 8/1/11-7/31/ /1/12-7/31/ /1/13-7/31/ /1/14-7/31/ /1/15-7/31/ Page 5

8 Fund Performance Overview (Unaudited) (Continued) First Trust Mid Cap Core AlphaDEX Fund (FNX) From the beginning of the period covered by this report until April 8, 2016, the First Trust Mid Cap Core AlphaDEX Fund (the Fund ) sought investment results that corresponded generally to the price and yield (before the Fund s fees and expenses) of an equity index called the Defined Mid Cap Core Index. Effective April 8, 2016, the Fund changed its investment objective to seek investment results that correspond generally to the price and yield (before the Fund s fees and expenses) of an equity index called the Nasdaq AlphaDEX Mid Cap Core Index (the Index ). The Fund will normally invest at least 90% of its net assets in common stocks that comprise the Index. From the beginning of the period covered by this report until April 8, 2016, the shares of the Fund traded on the NYSE Arca. Effective April 8, 2016, the shares of the Fund are listed and trade on The Nasdaq Stock Market LLC under the ticker symbol FNX. The Fund commenced trading on May 9, The Index employs the AlphaDEX stock selection methodology which uses fundamental growth and value factors to objectively select stocks from the Nasdaq US 600 Mid Cap Index that may generate positive alpha relative to traditional passive indices. The Index is a modified equal-dollar weighted index where higher ranked stocks receive a higher weight within the Index. Performance Average Annual Cumulative Total Returns Total Returns 1 Year 5 Years Inception 5 Years Inception Ended Ended (5/8/07) Ended (5/8/07) 7/31/16 7/31/16 to 7/31/16 7/31/16 to 7/31/16 Fund Performance NAV 0.76% 10.03% 7.11% 61.25% 88.55% Market Price 0.76% 10.04% 7.11% 61.34% 88.55% Index Performance Defined Mid Cap Core Index (1) 2.17% 10.95% 7.97% 68.11% % Nasdaq AlphaDEX Mid Cap Core Index (2) (3) N/A N/A N/A N/A N/A Nasdaq US 600 Mid Cap Index (2) N/A N/A N/A N/A N/A S&P MidCap 400 Index 5.53% 12.28% 7.85% 78.48% % (1) The Defined Mid Cap Core Index was replaced with the Nasdaq AlphaDEX Mid Cap Core Index. The new index is substantially similar to the old index. (2) Performance data is not available for all the periods shown in the table for the index because performance data does not exist for each of the entire periods. (3) The Fund s cumulative total returns for the period from April 8, 2016 through were 8.40% and 8.39% at NAV and Market Price, respectively. That compares to an Index return of 8.59% for the same period. (See Notes to Fund Performance Overview on page 28.) Performance Review FNX s one-year NAV return of 0.76% underperformed the benchmark S&P MidCap 400 Index return of 5.53% by -4.77%. The Financials sector contributed the most during the period to the Fund s return, with a 2.5% contribution stemming from its high 21.8% allocation and 6.6% return. Amongst this sector, the Real Estate Investment Trust ( REIT ) industry contributed 2.8% to the Fund s return. REITs had a return of 29.8% during the period. The Energy sector was the Fund s worst performing sector with a -29.3% return, contributing -3.1% to the Fund s return, and given an average allocation of 6.4% during the period. The two industries within the Energy sector, the Oil Gas & Consumable Fuels and the Energy Equipment & Services contributed -1.9% and -1.2%, respectively, to the Fund s return. On a relative basis the Fund underperformed the benchmark. The Energy sector caused -1.4% of the underperformance by allocating 2.8% more of the Fund s weighting to the -29.3% returning sector. Several securities contributed to this sectors underperformance including Atwood Oceanics, Inc. (-0.40%), SM Energy Co. (-0.30%), and Western Refining, Inc. (-0.20%). The Utilities sector, which was the top returning sector during the period at 31.0%, reversed 0.6% of underperformance as the Fund was slightly overweight the benchmark by 0.6%. Most securities held within the sector contributed to the outperformance as they were given slightly higher allocations than the benchmark. Page 6

9 Fund Performance Overview (Unaudited) (Continued) First Trust Mid Cap Core AlphaDEX Fund (FNX) (Continued) % of Total Sector Classification Long-Term Investments Financials 29.35% Industrials Consumer Discretionary Information Technology Health Care 7.68 Materials 4.75 Energy 3.58 Utilities 3.51 Consumer Staples 3.24 Telecommunication Services 1.31 Total % % of Total Top Ten Holdings Long-Term Investments Hertz Global Holdings, Inc. 0.93% Penske Automotive Group, Inc Cirrus Logic, Inc Trinity Industries, Inc Radian Group, Inc MGIC Investment Corp LaSalle Hotel Properties 0.41 GameStop Corp., Class A 0.41 Popular, Inc Burlington Stores, Inc Total 4.72% $25,000 $20,000 $15,000 $10,000 $5,000 5/8/07 7/31/07 Performance of a $10,000 Initial Investment May 8, /31/08 7/31/08 1/31/09 7/31/09 1/31/10 7/31/10 1/31/11 7/31/11 1/31/12 7/31/12 First Trust Mid Cap Core AlphaDEX Fund Defined Mid Cap Core Index S&P MidCap 400 Index 1/31/13 7/31/13 1/31/14 7/31/14 1/31/15 7/31/15 1/31/16 7/31/16 $20,291 $20,087 $18,853 Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund s past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period August 1, 2011 through. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 8/1/11-7/31/ /1/12-7/31/ /1/13-7/31/ /1/14-7/31/ /1/15-7/31/ Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 8/1/11-7/31/ /1/12-7/31/ /1/13-7/31/ /1/14-7/31/ /1/15-7/31/ Page 7

10 Fund Performance Overview (Unaudited) (Continued) First Trust Small Cap Core AlphaDEX Fund (FYX) From the beginning of the period covered by this report until April 8, 2016, the First Trust Small Cap Core AlphaDEX Fund (the Fund ) sought investment results that corresponded generally to the price and yield (before the Fund s fees and expenses) of an equity index called the Defined Small Cap Core Index. Effective April 8, 2016, the Fund changed its investment objective to seek investment results that correspond generally to the price and yield (before the Fund s fees and expenses) of an equity index called the Nasdaq AlphaDEX Small Cap Core Index (the Index ). The Fund will normally invest at least 90% of its net assets in common stocks that comprise the Index. From the beginning of the period covered by this report until April 8, 2016, the shares of the Fund traded on the NYSE Arca. Effective April 8, 2016, the shares of the Fund are listed and trade on The Nasdaq Stock Market LLC under the ticker symbol FYX. The Fund commenced trading on May 9, The Index employs the AlphaDEX stock selection methodology which uses fundamental growth and value factors to objectively select stocks from the Nasdaq US 700 Small Cap Index that may generate positive alpha relative to traditional passive indices. The Index is a modified equal-dollar weighted index where higher ranked stocks receive a higher weight within the Index. Performance Average Annual Cumulative Total Returns Total Returns 1 Year 5 Years Inception 5 Years Inception Ended Ended (5/8/07) Ended (5/8/07) 7/31/16 7/31/16 to 7/31/16 7/31/16 to 7/31/16 Fund Performance NAV 2.20% 10.36% 6.00% 63.71% 71.23% Market Price 2.20% 10.36% 5.99% 63.72% 71.13% Index Performance Defined Small Cap Core Index (1) 1.46% 10.83% 6.66% 67.20% 81.33% Nasdaq AlphaDEX Small Cap Core Index (2) (3) N/A N/A N/A N/A N/A Nasdaq US 700 Small Cap Index (2) N/A N/A N/A N/A N/A S&P SmallCap 600 Index 5.96% 13.05% 7.43% 84.63% 93.75% (1) The Defined Small Cap Core Index was replaced with the Nasdaq AlphaDEX Small Cap Core Index. The new index is substantially similar to the old index. (2) Performance data is not available for all the periods shown in the table for the index because performance data does not exist for each of the entire periods. (3) The Fund s cumulative total returns for the period from April 8, 2016 through were 12.13% and 12.33% at NAV and Market Price, respectively. That compares to an Index return of 12.33% for the same period. (See Notes to Fund Performance Overview on page 28.) Performance Review FYX s one-year NAV return of 2.20% underperformed the benchmark S&P SmallCap 600 Index return of 5.96% by -3.76%. The Information Technology sector contributed the most to the Fund s return during the period with a 2.8% contribution. This sector had a 16.2% allocation and 19.5% return. Within the Information Technology sector, the Diversified Telecommunication Services industry had an impressive 57.9% return. The Energy sector contributed -3.8% to the Fund s return as a result of the Fund allocating 4.9% to the -37.8% returning sector. The Energy Equipment & Services industry, in particular, returned -46.7% and contributed -2.3% to the Fund s return. On a relative basis the Fund underperformed the benchmark primarily due to the Energy sector. This sector had a -7.5% lower return during the period and was given a 2.0% greater allocation. It was the Energy Equipment & Services industry that created the most underperformance within the Energy sector, creating -1.6% drag from its -19.1% lower return, relative to the benchmark. The Financials and Information Technology sectors each reversed about 0.34% of drag by outperforming the benchmark. Page 8

11 Fund Performance Overview (Unaudited) (Continued) First Trust Small Cap Core AlphaDEX Fund (FYX) (Continued) % of Total Sector Classification Long-Term Investments Financials 24.04% Industrials Consumer Discretionary Information Technology Health Care 9.90 Materials 4.77 Consumer Staples 3.89 Energy 2.59 Utilities 2.55 Telecommunication Services 1.47 Total % % of Total Top Ten Holdings Long-Term Investments Advanced Micro Devices, Inc. 0.40% CBL & Associates Properties, Inc DigitalGlobe, Inc Gigamon, Inc DeVry Education Group, Inc Navigant Consulting, Inc MaxLinear, Inc., Class A 0.36 TrueBlue, Inc Exelixis, Inc Universal Forest Products, Inc Total 3.68% $20,000 $15,000 $10,000 $5,000 $0 5/8/07 7/31/07 Performance of a $10,000 Initial Investment May 8, /31/08 7/31/08 1/31/09 7/31/09 1/31/10 7/31/10 1/31/11 7/31/11 1/31/12 7/31/12 First Trust Small Cap Core AlphaDEX Fund Defined Small Cap Core Index S&P SmallCap 600 Index 1/31/13 7/31/13 1/31/14 7/31/14 1/31/15 7/31/15 1/31/16 7/31/16 $19,377 $18,134 $17,124 Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund s past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period August 1, 2011 through. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 8/1/11-7/31/ /1/12-7/31/ /1/13-7/31/ /1/14-7/31/ /1/15-7/31/ Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 8/1/11-7/31/ /1/12-7/31/ /1/13-7/31/ /1/14-7/31/ /1/15-7/31/ Page 9

12 Fund Performance Overview (Unaudited) (Continued) First Trust Large Cap Value AlphaDEX Fund (FTA) From the beginning of the period covered by this report until April 8, 2016, the First Trust Large Cap Value AlphaDEX Fund (the Fund ) sought investment results that corresponded generally to the price and yield (before the Fund s fees and expenses) of an equity index called the Defined Large Cap Value Index. Effective April 8, 2016, the Fund changed its investment objective to seek investment results that correspond generally to the price and yield (before the Fund s fees and expenses) of an equity index called the Nasdaq AlphaDEX Large Cap Value Index (the Index ). The Fund will normally invest at least 90% of its net assets in common stocks that comprise the Index. From the beginning of the period covered by this report until April 8, 2016, the shares of the Fund traded on the NYSE Arca. Effective April 8, 2016, the shares of the Fund are listed and trade on The Nasdaq Stock Market LLC under the ticker symbol FTA. The Fund commenced trading on May 9, The Index employs the AlphaDEX stock selection methodology which uses fundamental growth and value factors to objectively select stocks from the Nasdaq US 500 Large Cap Value Index that may generate positive alpha relative to traditional passive indices. The Index is a modified equal-dollar weighted index where higher ranked stocks receive a higher weight within the Index. Performance Average Annual Cumulative Total Returns Total Returns 1 Year 5 Years Inception 5 Years Inception Ended Ended (5/8/07) Ended (5/8/07) 7/31/16 7/31/16 to 7/31/16 7/31/16 to 7/31/16 Fund Performance NAV 2.94% 11.00% 5.51% 68.49% 64.02% Market Price 2.94% 11.00% 5.51% 68.49% 64.01% Index Performance Defined Large Cap Value Index (1) 4.12% 11.90% 6.36% 75.46% 76.72% Nasdaq AlphaDEX Large Cap Value Index (2) (3) N/A N/A N/A N/A N/A Nasdaq US 500 Large Cap Value Index (2) N/A N/A N/A N/A N/A S&P 500 Index 5.61% 13.38% 6.31% 87.36% 75.97% S&P 500 Value Index 5.79% 12.59% 4.30% 80.91% 47.50% (1) The Defined Large Cap Value Index was replaced with the Nasdaq AlphaDEX Large Cap Value Index. The new index is substantially similar to the old index. (2) Performance data is not available for all the periods shown in the table for the index because performance data does not exist for each of the entire periods. (3) The Fund s cumulative total returns for the period from April 8, 2016 through were 6.78% and 6.74% at NAV and Market Price, respectively. That compares to an Index return of 6.99% for the same period. (See Notes to Fund Performance Overview on page 28.) Performance Review FTA s one-year NAV return of 2.94% underperformed the benchmark S&P 500 Value Index return of 5.79% by -2.85%. The Energy sector contributed -1.9% to the Fund s return during the period as it had a -9.8% return and 12.3% allocation. The Oil Gas & Consumables industry contributed -1.2% of the -1.9% due to the fact that the Fund had a return of -8.6% and 9.5% allocation within the industry. The Utilities sector was by far the leading sector in terms of contribution. The Utilities sector contributed 2.9% as a result of the Fund s 23.5% return and 13.5% allocation. The Multi-Utilities and Electric Utilities industries each accounted for about 1.5% of contribution. On a relative basis, the Fund underperformed the benchmark. The Energy sector accounted for -2.3% of the underperformance due to the Fund having a -17.1% worse relative return. Several securities contributed to the sectors underperformance, including Southwestern Energy Co. (-0.4% of underperformance), Exxon Mobil Corp. (-0.38%), and HollyFrontier Co., (-0.28%). The Financials sector reversed close to 2.1% of underperformance within the Banking industry by underweighting the benchmark by 5.3% and outperforming the benchmark by 1.8%. Wells Fargo & Co., Citigroup Inc., and Bank of America Co. were the three largest contributors to the outperformance, each creating about 0.5% outperformance. Page 10

13 Fund Performance Overview (Unaudited) (Continued) First Trust Large Cap Value AlphaDEX Fund (FTA) (Continued) % of Total Sector Classification Long-Term Investments Financials 27.96% Consumer Discretionary Industrials Information Technology Utilities 8.90 Energy 6.82 Health Care 3.93 Materials 3.85 Consumer Staples 3.78 Telecommunication Services 3.38 Total % % of Total Top Ten Holdings Long-Term Investments American Airlines Group, Inc. 1.07% Gap (The), Inc Hewlett Packard Enterprise Co United Continental Holdings, Inc BorgWarner, Inc Lear Corp General Motors Co Bunge Ltd Best Buy Co., Inc Kohl s Corp Total 9.76% $20,000 $15,000 $10,000 $5,000 $0 5/8/07 7/31/07 Performance of a $10,000 Initial Investment May 8, S&P 500(R) Value Index S&P 500(R) Index Defined Large Cap Value Index First Trust Large Cap Value AlphaDEX(R) Fund 1/31/08 7/31/08 1/31/09 7/31/09 1/31/10 7/31/10 1/31/11 7/31/11 1/31/12 7/31/12 First Trust Large Cap Value AlphaDEX Fund Defined Large Cap Value Index S&P 500 Index S&P 500 Value Index 1/31/13 7/31/13 1/31/14 7/31/14 1/31/15 7/31/15 1/31/16 7/31/16 $17,673 $17,598 $16,398 $14,750 Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund s past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period August 1, 2011 through. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 8/1/11-7/31/ /1/12-7/31/ /1/13-7/31/ /1/14-7/31/ /1/15-7/31/ Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 8/1/11-7/31/ /1/12-7/31/ /1/13-7/31/ /1/14-7/31/ /1/15-7/31/ Page 11

14 Fund Performance Overview (Unaudited) (Continued) First Trust Large Cap Growth AlphaDEX Fund (FTC) From the beginning of the period covered by this report until April 8, 2016, the First Trust Large Cap Growth AlphaDEX Fund (the Fund ) sought investment results that corresponded generally to the price and yield (before the Fund s fees and expenses) of an equity index called the Defined Large Cap Growth Index. Effective April 8, 2016, the Fund changed its investment objective to seek investment results that correspond generally to the price and yield (before the Fund s fees and expenses) of an equity index called the Nasdaq AlphaDEX Large Cap Growth Index (the Index ). The Fund will normally invest at least 90% of its net assets in common stocks that comprise the Index. From the beginning of the period covered by this report until April 8, 2016, the shares of the Fund traded on the NYSE Arca. Effective April 8, 2016, the shares of the Fund are listed and trade on The Nasdaq Stock Market LLC under the ticker symbol FTC. The Fund commenced trading on May 9, The Index employs the AlphaDEX stock selection methodology which uses fundamental growth and value factors to objectively select stocks from the Nasdaq US 500 Large Cap Growth Index that may generate positive alpha relative to traditional passive indices. The Index is a modified equal-dollar weighted index where higher ranked stocks receive a higher weight within the Index. Performance Average Annual Cumulative Total Returns Total Returns 1 Year 5 Years Inception 5 Years Inception Ended Ended (5/8/07) Ended (5/8/07) 7/31/16 7/31/16 to 7/31/16 7/31/16 to 7/31/16 Fund Performance NAV 3.96% 12.81% 6.73% 82.70% 82.43% Market Price 3.86% 12.81% 6.73% 82.72% 82.39% Index Performance Defined Large Cap Growth Index (1) 4.56% 13.58% 7.49% 89.04% 94.86% Nasdaq AlphaDEX Large Cap Growth Index (2) (3) N/A N/A N/A N/A N/A Nasdaq US 500 Large Cap Growth Index (2) N/A N/A N/A N/A N/A S&P 500 Index 5.61% 13.38% 6.31% 87.36% 75.97% S&P 500 Growth Index 5.28% 14.08% 8.23% 93.23% % (1) The Defined Large Cap Growth Index was replaced with the Nasdaq AlphaDEX Large Cap Growth Index. The new index is substantially similar to the old index. (2) Performance data is not available for all the periods shown in the table for the index because performance data does not exist for each of the entire periods. (3) The Fund s cumulative total returns for the period from April 8, 2016 through were 7.26% and 7.31% at NAV and Market Price, respectively. That compares to an Index return of 7.47% for the same period. (See Notes to Fund Performance Overview on page 28.) Performance Review FTC s one-year NAV return of 3.96% underperformed the benchmark S&P 500 Growth Index return of 5.28% by -1.32%. The Information Technology sector was the leading contributing sector with a 2.1% contribution. This sector was given the second highest weighting of 18.8% and had a return of 10.8%. NVIDIA Corp. notably had 190.3% return during the period and contributed 1.0%. The Health Care sector, the third highest weighted sector at 15.7%, was the worst contributing sector with a return of -1.8%, causing a -2.3% contribution. The Health Care Providers & Services industry contributed -1.3%, containing securities such as Tenet Healthcare Co. (-32.1% return), HCA Holdings, Inc. (-32.4% return), and AmerisourceBergen Co. (-17.2% return). On a relative basis, the Fund underperformed the benchmark primarily due to the Fund having a 4.6% greater allocation and -6.2% lower relative return within the Consumer Discretionary sector, causing -1.7% of underperformance. Amazon.com, Inc., held within the Consumer Discretionary sector, was held at a 1.6% lower weighting relative to the benchmark throughout the period, which created -0.5% of underperformance. The Energy sector, which made up a small portion of the Fund throughout the period at 0.7%, reversed 0.9% of underperformance by having a notable 36.6% higher return than the benchmark. Cameron International Co., within the Energy sector, in particular, had a 38.4% higher return than the benchmark. Page 12

15 Fund Performance Overview (Unaudited) (Continued) First Trust Large Cap Growth AlphaDEX Fund (FTC) (Continued) % of Total Sector Classification Long-Term Investments Information Technology 17.77% Financials Health Care Consumer Discretionary Consumer Staples Industrials Utilities 4.64 Materials 3.59 Telecommunication Services 1.81 Energy 1.07 Total % % of Total Top Ten Holdings Long-Term Investments NVIDIA Corp. 1.06% WhiteWave Foods (The) Co Edwards Lifesciences Corp Prologis, Inc Tyson Foods, Inc., Class A 0.96 Applied Materials, Inc Cintas Corp Ulta Salon, Cosmetics & Fragrance, Inc T-Mobile US, Inc Amazon.com, Inc Total 9.75% $25,000 $20,000 $15,000 $10,000 $5,000 $0 5/8/07 7/31/07 Performance of a $10,000 Initial Investment May 8, /31/08 7/31/08 1/31/09 7/31/09 1/31/10 7/31/10 1/31/11 7/31/11 1/31/12 7/31/12 First Trust Large Cap Growth AlphaDEX Fund Defined Large Cap Growth Index S&P 500 Index S&P 500 Growth Index 1/31/13 7/31/13 1/31/14 7/31/14 1/31/15 7/31/15 1/31/16 7/31/16 $20,753 $19,487 $18,245 $17,598 Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund s past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period August 1, 2011 through. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 8/1/11-7/31/ /1/12-7/31/ /1/13-7/31/ /1/14-7/31/ /1/15-7/31/ Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 8/1/11-7/31/ /1/12-7/31/ /1/13-7/31/ /1/14-7/31/ /1/15-7/31/ Page 13

16 Fund Performance Overview (Unaudited) (Continued) First Trust Multi Cap Value AlphaDEX Fund (FAB) From the beginning of the period covered by this report until April 8, 2016, the First Trust Multi Cap Value AlphaDEX Fund (the Fund ) sought investment results that corresponded generally to the price and yield (before the Fund s fees and expenses) of an equity index called the Defined Multi Cap Value Index. Effective April 8, 2016, the Fund changed its investment objective to seek investment results that correspond generally to the price and yield (before the Fund s fees and expenses) of an equity index called the Nasdaq AlphaDEX Multi Cap Value Index (the Index ). The Fund will normally invest at least 90% of its net assets in common stocks that comprise the Index. From the beginning of the period covered by this report until April 8, 2016, the shares of the Fund traded on the NYSE Arca. Effective April 8, 2016, the shares of the Fund are listed and trade on The Nasdaq Stock Market LLC under the ticker symbol FAB. The Fund commenced trading on May 9, The Index employs the AlphaDEX stock selection methodology which uses fundamental growth and value factors to objectively select value stocks from the Nasdaq US 500 Large Cap Index, Nasdaq US 600 Mid Cap Index and Nasdaq US 700 Small Cap Index (together the Nasdaq US Multi Cap Value Index ) that may generate positive alpha relative to traditional passive indices. The Index is a modified equal-dollar weighted index where higher ranked stocks receive a higher weight within the Index. Performance Average Annual Cumulative Total Returns Total Returns 1 Year 5 Years Inception 5 Years Inception Ended Ended (5/8/07) Ended (5/8/07) 7/31/16 7/31/16 to 7/31/16 7/31/16 to 7/31/16 Fund Performance NAV 1.98% 10.47% 5.93% 64.50% 70.16% Market Price 2.05% 10.48% 5.93% 64.63% 70.11% Index Performance Defined Multi Cap Value Index (1) 2.96% 11.37% 6.79% 71.34% 83.45% Nasdaq AlphaDEX Multi Cap Value Index (2) (3) N/A N/A N/A N/A N/A Nasdaq US Multi Cap Value Index (2) N/A N/A N/A N/A N/A S&P Composite 1500 Index 5.60% 13.28% 6.48% 86.52% 78.52% S&P Composite 1500 Value Index 6.03% 12.61% 4.59% 81.10% 51.30% (1) The Defined Multi Cap Value Index was replaced with the Nasdaq AlphaDEX Multi Cap Value Index. The new index is substantially similar to the old index. (2) Performance data is not available for all the periods shown in the table for the index because performance data does not exist for each of the entire periods. (3) The Fund s cumulative total returns for the period from April 8, 2016 through were 8.04% and 8.31% at NAV and Market Price, respectively. That compares to an Index return of 8.28% for the same period. (See Notes to Fund Performance Overview on page 28.) Performance Review FAB s one-year NAV return of 1.98% underperformed the benchmark S&P Composite 1500 Value Index return of 6.03% by -4.05%. The Utilities sector contributed the most to the Fund s return, with a 2.5% contribution, coming from the sector s 27.7% return and 10.0% allocation. Electric Utilities were the cause of 1.2% of the Fund s return. This industry had a 5.3% allocation and 25.3% return. The Energy sector contributed -3.9% to the Fund s return as it returned -21.9% and was given an allocation of 11%. On a relative basis, the Fund underperformed the benchmark. The Energy sector contributed the most to the relative underperformance. The Fund and benchmark each had an allocation of about 11%, but the Fund had a -26.8% lower return than the benchmark. The return difference is attributable to the Energy Equipment & Services and Oil Gas & Consumable Fuels industries, having -20.4% and -26.8% lower returns than the benchmark, respectively. The Financials sector reversed 2.6% of underperformance as the Fund was underweight the benchmark in this relatively poor performing sector (0.4% return) by 4.9%. The Banking industry, in particular, was the cause of 1.9% of the outperformance as the Fund underweighted the benchmark by 5.3% and outperformed the benchmark by 6.9%. Page 14