Rule 497 (c)
                                                             File No. 333-140895


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                                  AlphaDEX(R)
                                 Family of ETFs

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FUND NAME                                      TICKER SYMBOL      EXCHANGE

First Trust Mid Cap Growth AlphaDEX(R) Fund         FNY           NYSE Arca
First Trust Mid Cap Value AlphaDEX(R) Fund          FNK           NYSE Arca
First Trust Small Cap Growth AlphaDEX(R) Fund       FYC           NYSE Arca
First Trust Small Cap Value AlphaDEX(R) Fund        FYT           NYSE Arca


Each of the funds listed above (each, a "Fund," and collectively, the "Funds")
lists and principally trades its shares (the "Shares") on the NYSE Arca, Inc.
(the "NYSE Arca" or the "Exchange"), an affiliate of NYSE Euronext. Market
prices may differ to some degree from the net asset value ("NAV") of the Shares.
Unlike mutual funds, each Fund issues and redeems Shares on a continuous basis,
at its NAV, only in large specified blocks each consisting of 50,000 Shares
(each block of Shares issued and redeemed, called a "Creation Unit" and
collectively, the "Creation Units"). Each Fund's Creation Units are issued and
redeemed principally in-kind for securities included in the applicable Fund.



EXCEPT WHEN AGGREGATED IN CREATION UNITS, THE SHARES ARE NOT REDEEMABLE
SECURITIES OF THE FUNDS.

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.




                                 April 19, 2011
--------------------------------------------------------------------------------





                               TABLE OF CONTENTS


Summary Information
      First Trust Mid Cap Growth AlphaDEX(R) Fund.............................1
      First Trust Mid Cap Value AlphaDEX(R) Fund..............................4
      First Trust Small Cap Growth AlphaDEX(R) Fund...........................7
      First Trust Small Cap Value AlphaDEX(R) Fund...........................10

Investment Strategies........................................................13

Additional Risks of Investing in the Funds...................................13

Fund Organization............................................................14

Management of the Funds......................................................14

How to Buy and Sell Shares...................................................15

Dividends, Distributions and Taxes...........................................16

Federal Tax Matters..........................................................16

Distribution Plan............................................................18

Net Asset Value..............................................................19

Fund Service Providers.......................................................20

Index Provider...............................................................20

Disclaimers..................................................................20

Index Information............................................................21

Premium/Discount Information.................................................24

Other Information............................................................24


                                       i





--------------------------------------------------------------------------------
                              SUMMARY INFORMATION

                  FIRST TRUST MID CAP GROWTH ALPHADEX(R) FUND
--------------------------------------------------------------------------------

INVESTMENT OBJECTIVE

The First Trust Mid Cap Growth AlphaDEX(R) 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 Growth Index (the
"Index").

FEES AND EXPENSES OF THE FUND

The following table describes the fees and expenses you may pay if you buy and
hold Shares of the Fund. Investors purchasing and selling Shares may be subject
to costs (including customary brokerage commissions) charged by their broker.



                                                                                           
   SHAREHOLDER FEES (fees paid directly from your investment)
   Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)       None
   ANNUAL FUND OPERATING EXPENSES (Expenses that you pay each year as a percentage of
           the value of your investment)
              Management Fees                                                                 0.70%
              Distribution and Service (12b-1) Fees (1)                                       0.00%
              Other Expenses                                                                  0.00%
                                                                                             -------
              Total Annual Fund Operating Expenses                                            0.70%


Example

The example below is intended to help you compare the cost of investing in the
Fund with the cost of investing in other funds. This example does not take into
account customary brokerage commissions that you pay when purchasing or selling
Shares of the Fund in the secondary market.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then you retain the Shares or redeem 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 annual operating expenses remain at current levels
until April 19, 2012 and thereafter at 0.95% to represent the imposition of the
12b-1 fee of 0.25% per annum of the Fund's average daily net assets. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:

                        1 YEAR              3 YEARS

                          $72                 $259
----------
(1)   Although the Fund has adopted a 12b-1 plan that permits it to pay up
      to 0.25% per annum, it will not pay 12b-1 fees at any time before
      April 19, 2012.

PORTFOLIO TURNOVER

The Fund pays transaction costs, such as commissions, when it buys and sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
Shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund's performance.

PRINCIPAL INVESTMENT STRATEGIES

The Fund will normally invest at least 90% of its net assets plus the amount of
any borrowings for investment purposes in common stocks that comprise the Index.
The Fund, using an "indexing" investment approach, attempts to replicate, before
fees and expenses, the performance of the Index. First Trust seeks a correlation
of 0.95 or better (before fees and expenses) between the Fund's performance and
the performance of the Index; a figure of 1.00 would represent perfect
correlation. First Trust will regularly monitor the Fund's tracking accuracy and
will seek to maintain an appropriate correlation.


The Index is in the "Defined Index Series," a family of custom enhanced indices
developed, maintained and sponsored by Standard & Poor's Financial Services LLC
("S&P" or the "Index Provider"). The 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(R) selection methodology.


                                       1



--------------------------------------------------------------------------------
               FIRST TRUST MID CAP GROWTH ALPHADEX(R) FUND - FNY
--------------------------------------------------------------------------------


Alpha is an indication of how much an investment outperforms or underperforms on
a risk-adjusted basis relative to its benchmark. As of March 31, 2011, the Index
was comprised of 132 securities and the market capitalization range represented
in the Index was $1.37 billion to $10.35 billion. The Index is rebalanced and
reconstituted as of the last business day of each calendar quarter. Changes to
the Index will be effective at the open of trading on the sixth business day of
the following month.

The Fund intends to invest entirely in the Index, however there may also be
instances in which the Fund may be overweighted in certain securities in the
Index, purchase securities not in the Index that are appropriate to substitute
for certain securities in the Index or utilize various combinations of the above
techniques in seeking to track the Index.

PRINCIPAL RISKS

You could lose money by investing in the Fund. An investment in the Fund is not
a deposit of a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.

MARKET RISK. Market risk is the risk that a particular stock owned by the Fund,
Shares of the 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.

NON-CORRELATION RISK. The Fund's return may not match the return of the Index
for a number of reasons. For example, the Fund incurs operating expenses not
applicable to the Index, and may incur costs in buying and selling securities,
especially when rebalancing the Fund's portfolio holdings to reflect changes in
the composition of the Index. In addition, the Fund's portfolio holdings may not
exactly replicate the securities included in the Index or the ratios between the
securities included in the Index.

REPLICATION MANAGEMENT RISK. The Fund is exposed to additional market risk due
to its policy of investing principally in the securities included in the Index.
As a result of this policy, securities held by the 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 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
Index.

NON-DIVERSIFICATION RISK. The Fund is classified as "non-diversified" under the
Investment Company Act of 1940, as amended (the "1940 Act"). As a result, the
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 "Code"). The Fund may invest
a relatively high percentage of its assets in a limited number of issuers. As a
result, the Fund may be more susceptible to a single adverse economic or
regulatory occurrence affecting one or more of these issuers, experience
increased volatility and be highly concentrated in certain issues.

INDEX TRACKING RISK. You should anticipate that the value of Fund Shares will
decline, more or less, in correlation with any decline in the value of the
Fund's Index.

GROWTH INVESTMENT STYLE RISK. The Fund's growth-oriented investment style may
not be successful in realizing the 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.

MARKET CAPITALIZATION RISK. The Fund normally invests at least 90% of its assets
in common stocks that comprise the Index. The securities of companies
represented in the Index generally have market capitalizations that are
consistent with the name of the Index. For purposes of determining the market
capitalization range of such securities, the Fund will use the current range of
the Index. However, the Fund will not be forced to sell a stock because the
stock has exceeded or fallen below the current market capitalization range of
the Index. Because of market movement, there can be no assurance that the
securities in the Fund will stay within a given market capitalization range. As
a result, the Fund may be exposed to additional risk or may not give investors
the opportunity to invest fully in a given market capitalization range.

SMALLER COMPANY RISK. The 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.

PERFORMANCE

The Fund has not yet commenced operations and, therefore, does not have a
performance history. Once available, the Fund's performance information will be
available on the Fund's website at www.ftportfolios.com.


                                       2



--------------------------------------------------------------------------------
               FIRST TRUST MID CAP GROWTH ALPHADEX(R) FUND - FNY
--------------------------------------------------------------------------------


MANAGEMENT

      Investment Advisor

      First Trust Advisors L.P. ("First Trust")

      Portfolio Managers

      The Fund's portfolio is managed by a team (the "Investment Committee")
      consisting of: Daniel J. Lindquist, Chairman of the Investment Committee
      and Senior Vice President of First Trust; Robert F. Carey, Chief
      Investment Officer and Senior Vice President of First Trust; Jon C.
      Erickson, Senior Vice President of First Trust; David G. McGarel, Senior
      Vice President of First Trust; Roger F. Testin, Senior Vice President of
      First Trust; and Stan Ueland, Vice President of First Trust. Each
      Investment Committee member has served as a part of the portfolio
      management team of the Fund since inception.

PURCHASE AND SALE OF FUND SHARES

The Fund issues and redeems Shares on a continuous basis, at NAV, only in
Creation Units consisting of 50,000 Shares. The Fund's Creation Units are issued
and redeemed principally in-kind for securities included in the Fund's
portfolio. Individual Shares may only be purchased and sold on NYSE Arca through
a broker-dealer. Shares of the Fund will trade on NYSE Arca at market prices
rather than NAV, which may cause the Shares to trade at a price greater than NAV
(premium) or less than NAV (discount).

TAX INFORMATION

The Fund's distributions are taxable and will generally be taxed as ordinary
income or capital gains.

PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES

If you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), First Trust and First Trust Portfolios L.P., the Fund's
distributor, may pay the intermediary for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing the
broker-dealer or other intermediary and your salesperson to recommend the Fund
over another investment. Ask your salesperson or visit your financial
intermediary's website for more information.


                                       3



--------------------------------------------------------------------------------
                              SUMMARY INFORMATION

                   FIRST TRUST MID CAP VALUE ALPHADEX(R) FUND
--------------------------------------------------------------------------------

INVESTMENT OBJECTIVE

The First Trust Mid Cap Value AlphaDEX(R) 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 Value Index (the
"Index").

FEES AND EXPENSES OF THE FUND

The following table describes the fees and expenses you may pay if you buy and
hold Shares of the Fund. Investors purchasing and selling Shares may be subject
to costs (including customary brokerage commissions) charged by their broker.



                                                                                           
   SHAREHOLDER FEES (fees paid directly from your investment)
   Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)       None
   ANNUAL FUND OPERATING EXPENSES (Expenses that you pay each year as a percentage of
           the value of your investment)
              Management Fees                                                                 0.70%
              Distribution and Service (12b-1) Fees (1)                                       0.00%
              Other Expenses                                                                  0.00%
                                                                                             -------
              Total Annual Fund Operating Expenses                                            0.70%


Example

The example below is intended to help you compare the cost of investing in the
Fund with the cost of investing in other funds. This example does not take into
account customary brokerage commissions that you pay when purchasing or selling
Shares of the Fund in the secondary market.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then you retain the Shares or redeem 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 annual operating expenses remain at current levels
until April 19, 2012 and thereafter at 0.95% to represent the imposition of the
12b-1 fee of 0.25% per annum of the Fund's average daily net assets. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:

                        1 YEAR              3 YEARS

                          $72                 $259
----------
(1)   Although the Fund has adopted a 12b-1 plan that permits it to pay up
      to 0.25% per annum, it will not pay 12b-1 fees at any time before
      April 19, 2012.

PORTFOLIO TURNOVER

The Fund pays transaction costs, such as commissions, when it buys and sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
Shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund's performance.

PRINCIPAL INVESTMENT STRATEGIES

The Fund will normally invest at least 90% of its net assets plus the amount of
any borrowings for investment purposes in common stocks that comprise the Index.
The Fund, using an "indexing" investment approach, attempts to replicate, before
fees and expenses, the performance of the Index. First Trust seeks a correlation
of 0.95 or better (before fees and expenses) between the Fund's performance and
the performance of the Index; a figure of 1.00 would represent perfect
correlation. First Trust will regularly monitor the Fund's tracking accuracy and
will seek to maintain an appropriate correlation.

The Index is in the "Defined Index Series," a family of custom enhanced indices
developed, maintained and sponsored by Standard & Poor's Financial Services LLC
("S&P" or the "Index Provider"). The 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(R) selection methodology.
Alpha is an indication of how much an investment outperforms or underperforms on
a risk-adjusted basis relative to its benchmark. As of March 31, 2011, the Index


                                       4



--------------------------------------------------------------------------------
                FIRST TRUST MID CAP VALUE ALPHADEX(R) FUND - FNK
--------------------------------------------------------------------------------


was comprised of 164 securities and the market capitalization range represented
in the Index was $515 million to $7.63 billion. The Index is rebalanced and
reconstituted as of the last business day of each calendar quarter. Changes to
the Index will be effective at the open of trading on the sixth business day of
the following month.

The Fund intends to invest entirely in the Index, however there may also be
instances in which the Fund may be overweighted in certain securities in the
Index, purchase securities not in the Index that are appropriate to substitute
for certain securities in the Index or utilize various combinations of the above
techniques in seeking to track the Index.

PRINCIPAL RISKS

You could lose money by investing in the Fund. An investment in the Fund is not
a deposit of a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.

MARKET RISK. Market risk is the risk that a particular stock owned by the Fund,
Shares of the 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. Companies with smaller market capitalizations are generally subject
to additional market risk.

NON-CORRELATION RISK. The Fund's return may not match the return of the Index
for a number of reasons. For example, the Fund incurs operating expenses not
applicable to the Index, and may incur costs in buying and selling securities,
especially when rebalancing the Fund's portfolio holdings to reflect changes in
the composition of the Index. In addition, the Fund's portfolio holdings may not
exactly replicate the securities included in the Index or the ratios between the
securities included in the Index.

REPLICATION MANAGEMENT RISK. The Fund is exposed to additional market risk due
to its policy of investing principally in the securities included in the Index.
As a result of this policy, securities held by the 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 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
Index.

NON-DIVERSIFICATION RISK. The Fund is classified as "non-diversified" under the
Investment Company Act of 1940, as amended (the "1940 Act"). As a result, the
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 "Code"). The Fund may invest
a relatively high percentage of its assets in a limited number of issuers. As a
result, the Fund may be more susceptible to a single adverse economic or
regulatory occurrence affecting one or more of these issuers, experience
increased volatility and be highly concentrated in certain issues.

INDEX TRACKING RISK. You should anticipate that the value of Fund Shares will
decline, more or less, in correlation with any decline in the value of the
Fund's Index.

VALUE INVESTMENT STYLE RISK. The Fund's value-oriented investment style may not
be successful in realizing the 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.

MARKET CAPITALIZATION RISK. The Fund normally invests at least 90% of its assets
in common stocks that comprise the Index. The securities of companies
represented in the Index generally have market capitalizations that are
consistent with the name of the Index. For purposes of determining the market
capitalization range of such securities, the Fund will use the current range of
the Index. However, the Fund will not be forced to sell a stock because the
stock has exceeded or fallen below the current market capitalization range of
the Index. Because of market movement, there can be no assurance that the
securities in the Fund will stay within a given market capitalization range. As
a result, the Fund may be exposed to additional risk or may not give investors
the opportunity to invest fully in a given market capitalization range.

SMALLER COMPANY RISK. The 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.


                                       5



--------------------------------------------------------------------------------
                FIRST TRUST MID CAP VALUE ALPHADEX(R) FUND - FNK
--------------------------------------------------------------------------------


PERFORMANCE

The Fund has not yet commenced operations and, therefore, does not have a
performance history. Once available, the Fund's performance information will be
available on the Fund's website at www.ftportfolios.com.

MANAGEMENT

    Investment Advisor

    First Trust Advisors L.P. ("First Trust")

    Portfolio Managers

    The Fund's portfolio is managed by a team (the "Investment Committee")
    consisting of: Daniel J. Lindquist, Chairman of the Investment Committee and
    Senior Vice President of First Trust; Robert F. Carey, Chief Investment
    Officer and Senior Vice President of First Trust; Jon C. Erickson, Senior
    Vice President of First Trust; David G.McGarel, Senior Vice President of
    First Trust; Roger F. Testin, Senior Vice President of First Trust; and Stan
    Ueland, Vice President of First Trust. Each Investment Committee member has
    served as a part of the portfolio management team of the Fund since
    inception.

PURCHASE AND SALE OF FUND SHARES

The Fund issues and redeems Shares on a continuous basis, at NAV, only in
Creation Units consisting of 50,000 Shares. The Fund's Creation Units are issued
and redeemed principally in-kind for securities included in the Fund's
portfolio. Individual Shares may only be purchased and sold on NYSE Arca through
a broker-dealer. Shares of the Fund will trade on NYSE Arca at market prices
rather than NAV, which may cause the Shares to trade at a price greater than NAV
(premium) or less than NAV (discount).

TAX INFORMATION

The Fund's distributions are taxable and will generally be taxed as ordinary
income or capital gains.

PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES

If you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), First Trust and First Trust Portfolios L.P., the Fund's
distributor, may pay the intermediary for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing the
broker-dealer or other intermediary and your salesperson to recommend the Fund
over another investment. Ask your salesperson or visit your financial
intermediary's website for more information.


                                       6



--------------------------------------------------------------------------------
                              SUMMARY INFORMATION

                 FIRST TRUST SMALL CAP GROWTH ALPHADEX(R) FUND
--------------------------------------------------------------------------------


INVESTMENT OBJECTIVE

The First Trust Small Cap Growth AlphaDEX(R) 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 Growth Index (the
"Index").

FEES AND EXPENSES OF THE FUND

The following table describes the fees and expenses you may pay if you buy and
hold Shares of the Fund. Investors purchasing and selling Shares may be subject
to costs (including customary brokerage commissions) charged by their broker.



                                                                                           
   SHAREHOLDER FEES (fees paid directly from your investment)
   Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)       None
   ANNUAL FUND OPERATING EXPENSES (Expenses that you pay each year as a percentage of
           the value of your investment)
              Management Fees                                                                 0.70%
              Distribution and Service (12b-1) Fees(1)                                        0.00%
              Other Expenses                                                                  0.00%
                                                                                             -------
              Total Annual Fund Operating Expenses                                            0.70%


Example

The example below is intended to help you compare the cost of investing in the
Fund with the cost of investing in other funds. This example does not take into
account customary brokerage commissions that you pay when purchasing or selling
Shares of the Fund in the secondary market.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then you retain the Shares or redeem 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 annual operating expenses remain at current levels
until April 19, 2012 and thereafter at 0.95% to represent the imposition of the
12b-1 fee of 0.25% per annum of the Fund's average daily net assets. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:

                        1 YEAR              3 YEARS

                          $72                 $259
----------
(1)   Although the Fund has adopted a 12b-1 plan that permits it to pay up
      to 0.25% per annum, it will not pay 12b-1 fees at any time before
      April 19, 2012.

PORTFOLIO TURNOVER

The Fund pays transaction costs, such as commissions, when it buys and sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
Shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund's performance.

PRINCIPAL INVESTMENT STRATEGIES

The Fund will normally invest at least 90% of its net assets plus the amount of
any borrowings for investment purposes in common stocks that comprise the Index.
The Fund, using an "indexing" investment approach, attempts to replicate, before
fees and expenses, the performance of the Index. First Trust seeks a correlation
of 0.95 or better (before fees and expenses) between the Fund's performance and
the performance of the Index; a figure of 1.00 would represent perfect
correlation. First Trust will regularly monitor the Fund's tracking accuracy and
will seek to maintain an appropriate correlation.

The Index is in the "Defined Index Series," a family of custom enhanced indices
developed, maintained and sponsored by Standard & Poor's Financial Services LLC
("S&P" or the "Index Provider"). The 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(R) selection methodology.
Alpha is an indication of how much an investment outperforms or underperforms on


                                       7



--------------------------------------------------------------------------------
              FIRST TRUST SMALL CAP GROWTH ALPHADEX(R) FUND - FYC
--------------------------------------------------------------------------------


a risk-adjusted basis relative to its benchmark. As of March 31, 2011, the Index
was comprised of 192 securities and the market capitalization range represented
in the Index was $86 million to $3.94 billion. The Index is rebalanced and
reconstituted as of the last business day of each calendar quarter. Changes to
the Index will be effective at the open of trading on the sixth business day of
the following month.

The Fund intends to invest entirely in the Index, however there may also be
instances in which the Fund may be overweighted in certain stocks in the Index,
purchase securities not in the Index that are appropriate to substitute for
certain securities in the Index or utilize various combinations of the above
techniques in seeking to track the Index.

PRINCIPAL RISKS

You could lose money by investing in the Fund. An investment in the Fund is not
a deposit of a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.

MARKET RISK. Market risk is the risk that a particular stock owned by the Fund,
Shares of the 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. Companies with smaller market capitalizations are generally subject
to additional market risk.

NON-CORRELATION RISK. The Fund's return may not match the return of the Index
for a number of reasons. For example, the Fund incurs operating expenses not
applicable to the Index, and may incur costs in buying and selling securities,
especially when rebalancing the Fund's portfolio holdings to reflect changes in
the composition of the Index. In addition, the Fund's portfolio holdings may not
exactly replicate the securities included in the Index or the ratios between the
securities included in the Index.

REPLICATION MANAGEMENT RISK. The Fund is exposed to additional market risk due
to its policy of investing principally in the securities included in the Index.
As a result of this policy, securities held by the 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 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
Index.

NON-DIVERSIFICATION RISK. The Fund is classified as "non-diversified" under the
Investment Company Act of 1940, as amended (the "1940 Act"). As a result, the
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 "Code"). The Fund may invest
a relatively high percentage of its assets in a limited number of issuers. As a
result, the Fund may be more susceptible to a single adverse economic or
regulatory occurrence affecting one or more of these issuers, experience
increased volatility and be highly concentrated in certain issues.

INDEX TRACKING RISK. You should anticipate that the value of Fund Shares will
decline, more or less, in correlation with any decline in the value of the
Fund's Index.

GROWTH INVESTMENT STYLE RISK. The Fund's growth-oriented investment style may
not be successful in realizing the 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.

MARKET CAPITALIZATION RISK. The Fund normally invests at least 90% of its assets
in common stocks that comprise the Index. The securities of companies
represented in the Index generally have market capitalizations that are
consistent with the name of the Index. For purposes of determining the market
capitalization range of such securities, the Fund will use the current range of
the Index. However, the Fund will not be forced to sell a stock because the
stock has exceeded or fallen below the current market capitalization range of
the Index. Because of market movement, there can be no assurance that the
securities in the Fund will stay within a given market capitalization range. As
a result, the Fund may be exposed to additional risk or may not give investors
the opportunity to invest fully in a given market capitalization range. Because
the Fund invests in small capitalization companies, the Fund is more vulnerable
to adverse general market or economic developments, may be less liquid,and may
experience greater price volatility than larger, more established companies.

SMALLER COMPANY RISK. The 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.


                                       8



--------------------------------------------------------------------------------
              FIRST TRUST SMALL CAP GROWTH ALPHADEX(R) FUND - FYC
--------------------------------------------------------------------------------


PERFORMANCE

The Fund has not yet commenced operations and, therefore, does not have a
performance history. Once available, the Fund's performance information will be
available on the Fund's website at www.ftportfolios.com.

MANAGEMENT

      Investment Advisor

      First Trust Advisors L.P. ("First Trust")

      Portfolio Managers

      The Fund's portfolio is managed by a team (the "Investment Committee")
      consisting of: Daniel J. Lindquist, Chairman of the Investment Committee
      and Senior Vice President of First Trust; Robert F. Carey, Chief
      Investment Officer and Senior Vice President of First Trust; Jon C.
      Erickson, Senior Vice President of First Trust; David G. McGarel, Senior
      Vice President of First Trust; Roger F. Testin, Senior Vice President of
      First Trust; and Stan Ueland, Vice President of First Trust. Each
      Investment Committee member has served as a part of the portfolio
      management team of the Fund since inception.

PURCHASE AND SALE OF FUND SHARES

The Fund issues and redeems Shares on a continuous basis, at NAV, only in
Creation Units consisting of 50,000 Shares. The Fund's Creation Units are issued
and redeemed principally in-kind for securities included in the Fund's
portfolio. Individual Shares may only be purchased and sold on NYSE Arca through
a broker-dealer. Shares of the Fund will trade on NYSE Arca at market prices
rather than NAV, which may cause the Shares to trade at a price greater than NAV
(premium) or less than NAV (discount).

TAX INFORMATION

The Fund's distributions are taxable and will generally be taxed as ordinary
income or capital gains.

PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES

If you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), First Trust and First Trust Portfolios L.P., the Fund's
distributor, may pay the intermediary for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing the
broker-dealer or other intermediary and your salesperson to recommend the Fund
over another investment. Ask your salesperson or visit your financial
intermediary's website for more information.


                                       9



--------------------------------------------------------------------------------
                              SUMMARY INFORMATION

                  FIRST TRUST SMALL CAP VALUE ALPHADEX(R) FUND
--------------------------------------------------------------------------------

INVESTMENT OBJECTIVE

The First Trust Small Cap Value AlphaDEX(R) 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 Value Index (the
"Index").

FEES AND EXPENSES OF THE FUND

The following table describes the fees and expenses you may pay if you buy and
hold Shares of the Fund. Investors purchasing and selling Shares may be subject
to costs (including customary brokerage commissions) charged by their broker.



                                                                                           
   SHAREHOLDER FEES (fees paid directly from your investment)
   Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)       None
   ANNUAL FUND OPERATING EXPENSES (Expenses that you pay each year as a percentage of
           the value of your investment)
              Management Fees                                                                 0.70%
              Distribution and Service (12b-1) Fees(1)                                        0.00%
              Other Expenses                                                                  0.00%
                                                                                             -------
              Total Annual Fund Operating Expenses                                            0.70%


Example

The example below is intended to help you compare the cost of investing in the
Fund with the cost of investing in other funds. This example does not take into
account customary brokerage commissions that you pay when purchasing or selling
Shares of the Fund in the secondary market.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then you retain the Shares or redeem 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 annual operating expenses remain at current levels
until April 19, 2012 and thereafter at 0.95% to represent the imposition of the
12b-1 fee of 0.25% per annum of the Fund's average daily net assets. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:

                        1 YEAR              3 YEARS

                          $72                 $259
----------
(1)   Although the Fund has adopted a 12b-1 plan that permits it to pay up
      to 0.25% per annum, it will not pay 12b-1 fees at any time before
      April 19, 2012.

PORTFOLIO TURNOVER

The Fund pays transaction costs, such as commissions, when it buys and sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Fund
Shares are held in a taxable account. These costs, which are not reflected in
annual fund operating expenses or in the example, affect the Fund's performance.

PRINCIPAL INVESTMENT STRATEGIES

The Fund will normally invest at least 90% of its net assets plus the amount of
any borrowings for investment purposes in common stocks that comprise the Index.
The Fund, using an "indexing" investment approach, attempts to replicate, before
fees and expenses, the performance of the Index. First Trust seeks a correlation
of 0.95 or better (before fees and expenses) between the Fund's performance and
the performance of the Index; a figure of 1.00 would represent perfect
correlation. First Trust will regularly monitor the Fund's tracking accuracy and
will seek to maintain an appropriate correlation.

The Index is in the "Defined Index Series," a family of custom enhanced indices
developed, maintained and sponsored by Standard & Poor's Financial Services LLC
("S&P" or the "Index Provider"). The 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(R) selection methodology.


                                       10



--------------------------------------------------------------------------------
               FIRST TRUST SMALL CAP VALUE ALPHADEX(R) FUND - FYT
--------------------------------------------------------------------------------


Alpha is an indication of how much an investment outperforms or underperforms on
a risk-adjusted basis relative to its benchmark. As of March 31, 2011 the Index
was comprised of 251 securities and the market capitalization range represented
in the Index was $76 million to $3.18 billion. The Index is rebalanced and
reconstituted as of the last business day of each calendar quarter. Changes to
the Index will be effective at the open of trading on the sixth business day of
the following month.

The Fund intends to invest entirely in the Index, however there may also be
instances in which the Fund may be overweighted in certain stocks in the Index,
purchase securities not in the Index that are appropriate to substitute for
certain securities in the Index or utilize various combinations of the above
techniques in seeking to track the Index.

PRINCIPAL RISKS

You could lose money by investing in the Fund. An investment in the Fund is not
a deposit of a bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.

MARKET RISK. Market risk is the risk that a particular stock owned by the Fund,
Shares of the 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.

NON-CORRELATION RISK. The Fund's return may not match the return of the Index
for a number of reasons. For example, the Fund incurs operating expenses not
applicable to the Index, and may incur costs in buying and selling securities,
especially when rebalancing the Fund's portfolio holdings to reflect changes in
the composition of the Index. In addition, the Fund's portfolio holdings may not
exactly replicate the securities included in the Index or the ratios between the
securities included in the Index.

REPLICATION MANAGEMENT RISK. The Fund is exposed to additional market risk due
to its policy of investing principally in the securities included in the Index.
As a result of this policy, securities held by the 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 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
Index.

NON-DIVERSIFICATION RISK. The Fund is classified as "non-diversified" under the
Investment Company Act of 1940, as amended (the "1940 Act"). As a result, the
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 "Code"). The Fund may invest
a relatively high percentage of its assets in a limited number of issuers. As a
result, the Fund may be more susceptible to a single adverse economic or
regulatory occurrence affecting one or more of these issuers, experience
increased volatility and be highly concentrated in certain issues.

INDEX TRACKING RISK. You should anticipate that the value of Fund Shares will
decline, more or less, in correlation with any decline in the value of the
Fund's Index.

VALUE INVESTMENT STYLE RISK. The Fund's value-oriented investment style may not
be successful in realizing the 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.

MARKET CAPITALIZATION RISK. The Fund normally invests at least 90% of its assets
in common stocks that comprise the Index. The securities of companies
represented in the Index generally have market capitalizations that are
consistent with the name of the Index. For purposes of determining the market
capitalization range of such securities, the Fund will use the current range of
the Index. However, the Fund will not be forced to sell a stock because the
stock has exceeded or fallen below the current market capitalization range of
the Index. Because of market movement, there can be no assurance that the
securities in the Fund will stay within a given market capitalization range. As
a result, the Fund may be exposed to additional risk or may not give investors
the opportunity to invest fully in a given market capitalization range. Because
the Fund invests in small capitalization companies, the Fund is more vulnerable
to adverse general market or economic developments, may be less liquid,and may
experience greater price volatility than larger, more established companies.

SMALLER COMPANY RISK. The 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.


                                       11



--------------------------------------------------------------------------------
               FIRST TRUST SMALL CAP VALUE ALPHADEX(R) FUND - FYT
--------------------------------------------------------------------------------


PERFORMANCE

The Fund has not yet commenced operations and, therefore, does not have a
performance history. Once available, the Fund's performance information will be
available on the Fund's website at www.ftportfolios.com.

MANAGEMENT

      Investment Advisor

      First Trust Advisors L.P. ("First Trust")

      Portfolio Managers

      The Fund's portfolio is managed by a team (the "Investment Committee")
      consisting of: Daniel J. Lindquist, Chairman of the Investment Committee
      and Senior Vice President of First Trust; Robert F. Carey, Chief
      Investment Officer and Senior Vice President of First Trust; Jon C.
      Erickson, Senior Vice President of First Trust; David G. McGarel, Senior
      Vice President of First Trust; Roger F. Testin, Senior Vice President of
      First Trust; and Stan Ueland, Vice President of First Trust. Each
      Investment Committee member has served as a part of the portfolio
      management team of the Fund since inception.

PURCHASE AND SALE OF FUND SHARES

The Fund issues and redeems Shares on a continuous basis, at NAV, only in
Creation Units consisting of 50,000 Shares. The Fund's Creation Units are issued
and redeemed principally in-kind for securities included in the Fund's
portfolio. Individual Shares may only be purchased and sold on NYSE Arca through
a broker-dealer. Shares of the Fund will trade on NYSE Arca at market prices
rather than NAV, which may cause the Shares to trade at a price greater than NAV
(premium) or less than NAV (discount).

TAX INFORMATION

The Fund's distributions are taxable and will generally be taxed as ordinary
income or capital gains.

PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES

If you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), First Trust and First Trust Portfolios L.P., the Fund's
distributor, may pay the intermediary for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing the
broker-dealer or other intermediary and your salesperson to recommend the Fund
over another investment. Ask your salesperson or visit your financial
intermediary's website for more information.


                                       12



                             INVESTMENT STRATEGIES

Each Fund is a series of the First Trust Exchange-Traded AlphaDEX 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 (each Fund's corresponding equity index is
referred to herein as an "Index," and together, as the "Indices;" the provider
of each Fund's Index is referred to herein as the "Index Provider"). Each Fund
will normally invest at least 90% of its net assets in common stocks that
comprise its Index. Each Fund's investment objective, the 90% investment
strategy and each of the policies described herein are non-fundamental policies
that may be changed by the Board of Trustees of the Trust (the "Board") without
shareholder approval. As non-fundamental policies, each Fund's investment
objective and the 90% investment strategy require 60 days' prior written notice
to shareholders before they can be changed. Certain fundamental policies of the
Funds are set forth in the Statement of Additional Information ("SAI") under
"Investment Objectives and Policies."

In seeking to achieve each Fund's investment objective, the Fund generally will
invest in all of the securities comprising its Index, in proportion to their
weightings in the Index. However, under various circumstances, it may not be
possible or practicable to purchase all of those stocks in those weightings. In
those circumstances, a Fund may purchase a sample of stocks in its Index. There
may also be instances in which First Trust may choose to overweight certain
stocks in the applicable Index, purchase securities not in the Index which First
Trust believes are appropriate to substitute for certain securities in the
Index, use futures or derivative instruments, or utilize various combinations of
the above techniques in seeking to track the Index. A Fund may sell stocks that
are represented in its Index in anticipation of their removal from the Index or
purchase stocks not represented in the Index in anticipation of their addition
to the Index.

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 Funds' SAI and on the Funds'
website at www.ftportfolios.com.


                   ADDITIONAL RISKS OF INVESTING IN THE FUNDS

Risk is inherent in all investing. Investing in a Fund involves risk, including
the risk that you may lose all or part of your investment. There can be no
assurance that a Fund will meet its stated objective. Before you invest, you
should consider the following risks in addition to the Principal Risks set forth
above in this prospectus.

INTELLECTUAL PROPERTY RISK. Each Fund relies on a license and related sublicense
that permits the Fund to use its Index and associated trade names, trademarks
and service marks (the "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, the 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"), 120 East Liberty Drive, Wheaton, Illinois 60187,
on behalf of First Trust and the 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
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.

PASSIVE INVESTMENT RISK. No Fund is actively managed. A Fund may be affected by
a general decline in certain market segments relating to its Index. A Fund
invests in securities included in or representative of its Index regardless of
their investment merit. A Fund generally will not attempt to take defensive
positions in declining markets.

INFLATION RISK. 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 a Fund's distributions. Common stock prices may be particularly
sensitive to rising interest rates, as the cost of capital rises and borrowing
costs increase.

TRADING ISSUES

Although Shares of each Fund are listed for trading on NYSE Arca, there can be
no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares on NYSE Arca may be halted due to market
conditions or for reasons that, in the view of NYSE Arca, make trading in Shares
inadvisable. In addition, trading in Shares on NYSE Arca is subject to trading
halts caused by extraordinary market volatility pursuant to NYSE Arca "circuit
breaker" rules. There can be no assurance that the requirements of NYSE Arca
necessary to maintain the listing of the Funds will continue to be met or will


                                       13



remain unchanged. Due to the small asset size of some of the Funds, these Funds
are more likely to have difficulty maintaining their listing on NYSE Arca.

FLUCTUATION OF NET ASSET VALUE

The NAV of Shares of each Fund will generally fluctuate with changes in the
market value of such 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 NYSE Arca. 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 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.


                               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 is responsible for the overall management and direction of the
Trust. The Board elects the Trust's officers and approves all significant
agreements, including those with the investment advisor, custodian and fund
administrative and accounting agent.


                            MANAGEMENT OF THE FUNDS

First Trust Advisors L.P. ("First Trust" or the "Advisor"), 120 East Liberty
Drive, Wheaton, Illinois 60187, is the investment advisor 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 James A. Bowen, the Chief Executive Officer
of the Advisor. First Trust discharges its responsibilities subject to the
policies of the Board.

First Trust serves as advisor or sub-advisor to 12 mutual fund portfolios, 4
exchange-traded funds consisting of 57 series and 13 closed-end funds and is
also the portfolio supervisor of certain unit investment trusts sponsored by
FTP. 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 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 is Chairman of the Investment Committee and presides over
Investment Committee meetings. Mr. Lindquist is responsible for overseeing the
implementation of each Fund's investment strategy. Mr. Lindquist joined First
Trust as a Vice President in April 2004 and has been a Senior Vice President of
First Trust and FTP since September 2005. Mr. Carey is the Chief Investment
Officer and a Senior Vice President of First Trust and FTP. As First Trust's
Chief Investment Officer, Mr. Carey consults with the other members of 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. Mr. Testin is a Senior Vice President of First Trust and
FTP. 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. For
additional information concerning First Trust, including a description of the
services provided to the Funds, see the Funds' SAI. In addition, the SAI


                                       14



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.

Pursuant to the Investment Management Agreement, First Trust will manage the
investment of each Fund's assets and will be responsible for each Fund's
expenses, including the cost of transfer agency, custody, fund administration,
legal, audit and other services, but excluding fee payments under the Investment
Management Agreement, interest, taxes, brokerage commissions and other expenses
connected with the execution of portfolio transactions, distribution fees and
extraordinary expenses. Each Fund has agreed to pay First Trust an annual
management fee as set forth in the table below.

                                                           ANNUAL
                                                       MANAGEMENT FEE
                                                        (% OF AVERAGE
    FUND                                              DAILY NET ASSETS)
    ---------------------------------------------    ------------------
    First Trust Mid Cap Growth AlphaDEX(R) Fund             0.70%
    First Trust Mid Cap Value AlphaDEX(R) Fund              0.70%
    First Trust Small Cap Growth AlphaDEX(R) Fund           0.70%
    First Trust Small Cap Value AlphaDEX(R) Fund            0.70%

A discussion regarding the Board's approval of the Investment Management
Agreement is available in the Funds' Annual Report to Shareholders for the
period ended July 31, 2011.

                           HOW TO BUY AND SELL SHARES

Most investors will buy and sell Shares of the Funds in secondary market
transactions through brokers. Shares of the Funds are listed for trading on the
secondary market on NYSE Arca. Shares can be bought and sold throughout the
trading day like other publicly traded shares. There is no minimum investment
when buying Shares on NYSE Arca. 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, investors should
expect to incur customary brokerage commissions, investors may receive less than
the NAV of the Shares, and investors 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.

For purposes 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 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.

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 NYSE Arca may differ from such Fund's
daily NAV and can be affected by market forces of supply and demand, economic
conditions and other factors.


                                       15



NYSE Arca intends to disseminate 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 of
Shares of the Funds and the Funds do not make any warranty as to its accuracy.

FREQUENT PURCHASES AND REDEMPTIONS OF THE FUNDS' SHARES

The Funds impose 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 the Funds'
shareholders. The Board considered that, unlike traditional mutual funds, each
Fund issues and redeems its Shares at NAV per Share generally for a basket of
securities intended to mirror such Fund's portfolio, plus a small amount of
cash, and the Shares may be purchased and sold on NYSE Arca 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 broker-dealers and large
institutional investors that have entered into participation agreements (i.e.,
authorized participants ("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 the Funds 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 it is not necessary to adopt policies and procedures to
detect and deter market timing of the Funds' Shares.


                       DIVIDENDS, DISTRIBUTIONS AND TAXES

Dividends from net investment income, if any, are declared and paid
semi-annually by each Fund. Each Fund distributes its net realized capital
gains, if any, to shareholders at least 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 advisor.


                                       16



FUND STATUS

Each Fund intends to continue 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 gain 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 Fund 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 gain 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 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 Code treats certain capital gains as ordinary income in
special situations.

Ordinary income dividends received by an individual shareholder from a regulated
investment company 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.


                                       17



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 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.

DEDUCTIBILITY OF FUND EXPENSES

Expenses incurred and deducted by the Funds will generally not be treated as
income taxable to you. In some cases, however, you may be required to treat your
portion of these Fund expenses as income. In these cases, you may be able to
take a deduction for these expenses. However, certain miscellaneous itemized
deductions, such as investment expenses, may be deducted by individuals only to
the extent that all of these deductions exceed 2% of the individual's adjusted
gross income.

NON-U.S. TAX CREDIT

Because the Funds may invest in 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 such 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 a 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 a Fund that are properly designated by a Fund as capital
gain dividends may not be subject to U.S. federal income taxes, including
withholding taxes, provided that a Fund makes certain elections and certain
other conditions are met. In the case of dividends with respect to taxable years
of a Fund beginning prior to 2010, distributions from a Fund that are properly
designated by such 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 such Fund
may not be subject to U.S. federal income taxes, including withholding taxes
when received by certain foreign investors, provided that a Fund makes certain
elections and certain other conditions are met.

INVESTMENTS IN CERTAIN NON-U.S. CORPORATIONS

If the Fund holds an equity interest in any PFICs, which are generally certain
non-U.S. corporations that receive at least 75% of their annual gross income
from passive sources (such as interest, dividends, certain rents and royalties
or capital gains) or that hold at least 50% of their assets in investments
producing such passive income, 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 shareholders. The Fund will not be able to pass through to
its shareholders 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.


                               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


                                       18



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.

The Funds do not currently pay 12b-1 fees, and pursuant to a contractual
arrangement, the Funds will not pay 12b-1 fees any time before April 19, 2011.
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 or its delegate.

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 in accordance with
valuation procedures adopted by the Trust's Board of Trustees and in accordance
with the 1940 Act. Portfolio securities listed on any exchange other than
NASDAQ(R) National Market ("NASDAQ(R)") and the London Stock Exchange
Alternative Investment Market ("AIM") are valued at the last sale price on the
business day as of which such value is being determined. Securities listed on
the NASDAQ(R) or the AIM are valued at the official closing price on the
business day as of which such value is being determined. If there has been no
sale on such day, or no official closing price in the case of securities traded
on the NASDAQ(R) or the AIM, the securities are valued at the mean of the most
recent bid and asked prices on such day. Portfolio securities traded on more
than one securities exchange are valued at the last sale price or official
closing price, as applicable, 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 trading on the NASDAQ(R) and the AIM, are valued at the
closing bid prices. Short-term investments that mature in less than 60 days when
purchased are valued at amortized cost.

Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board or its delegate at fair
value. The use of fair value pricing by a Fund is governed by valuation
procedures adopted by the Board and in accordance with the provisions of the
1940 Act. These securities generally include, but are not limited to, restricted
securities (securities which may not be publicly sold without registration under
the Securities Act of 1933, as amended (the "Securities Act")) for which a
pricing service is unable to provide a market price; securities whose trading
has been formally suspended; a security whose market price is not available from
a pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of a Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
"fair value." As a general principle, the current "fair value" of a security
would appear to be the amount which the owner might reasonably expect to receive
for the security upon its current sale. The use of fair value prices by a Fund
generally results in the prices used by a Fund that may differ from the current
market quotations or official closing prices on the applicable exchange. A
variety of factors may be considered in determining the fair value of such
securities. See the SAI for details.

Valuing a Fund's securities using fair value pricing will result in using prices
for those securities that may differ from current market quotations or official
closing prices on the applicable exchange. Use of fair value prices and certain
current market quotations or official closing prices could result in a
difference between the prices used to calculate a Fund's NAV and the prices used
by its Index, which, in turn, could result in a difference between such Fund's
performance and the performance of its Index.

Because foreign securities exchanges may be open on different days than the days
during which an investor may purchase or sell Shares of the Fund, the value of
the Fund's securities may change on days when investors are not able to purchase
or sell Shares of the Fund.

The value of securities denominated in foreign currencies is converted into U.S.
dollars at the exchange rates in effect at the time of valuation. Any use of a
different rate from the rates used by the Index may adversely affect the Fund's
ability to track the Index.


                                       19



                             FUND SERVICE PROVIDERS

The Bank of New York Mellon Corporation 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.


                                 INDEX PROVIDER

Each equity index in the Defined Index Series that each applicable 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 applicable Fund, S&P,
First Trust and FTP, which in turn has a licensing agreement with S&P. S&P, or
its agent, also serves as the index calculation agent for each equity index in
the Defined Index Series. The index calculation agent will calculate and
disseminate the values of such Indices at least once every 15 seconds.


                                  DISCLAIMERS

First Trust does not guarantee the accuracy and/or the completeness of the
Indices 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
Indices 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 Indices 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 Indices, even if notified of the possibility of such damages.

"AlphaDEX(R)" is a registered 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(R)" for certain purposes.

ALPHADEX(R) FUNDS

FTP has licensed to S&P, free of charge, the right to use certain intellectual
property owned by FTP, including the AlphaDEX(R) trademark and the AlphaDEX(R)
stock selection method, in connection with the S&P's creation of the Defined
Index Series. A patent application with respect to the AlphaDEX(R) 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. S&P freely exercises discretion in using the AlphaDEX(R)
methodology to select individual stocks for the Index.

The Funds are not sponsored, endorsed, sold or promoted by 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 FTP 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
FTP 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.

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
FTP, 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


                                       20



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.


                               INDEX INFORMATION

FIRST TRUST MID CAP GROWTH ALPHADEX(R) FUND

INDEX CONSTRUCTION

The Index is a modified equal-dollar weighted index designed by S&P to
objectively identify and select stocks from the S&P MidCap 400 Growth Index that
may generate positive alpha relative to traditional passive-style indices
through the use of the AlphaDEX(R) selection 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 MidCap 400 Growth Index includes certain
stocks within the S&P MidCap 400 Index selected on growth factors. The inception
date of the Index was December 31, 2010. The initial divisor was created to set
a benchmark value of 100.00 on December 31, 2010. The Index was created and
trademarked by S&P.

The 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 Growth and Value series of the S&P MidCap 400 Index 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 classified
solely as growth or value, the stock receives the rank for that style from step
2a as its selection score. Stocks that S&P classified solely as value are not
eligible for inclusion in the Index. For stocks that S&P allocates between
growth and value, the stock receives the best rank from step 2a 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 allocates between growth
and value are not eligible for inclusion in the Index if their value scores are
better than their growth scores.

3. For the Index, all eligible stocks from 2b above 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 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 Index is rebalanced and reconstituted as of the last business day of each
calendar quarter. Changes will be effective at the open of trading 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 Index is reallocated prorate among the remaining Index
constituents. Spin-offs are not included in the Index. The value of the spin-off
is reallocated to the parent company.


FIRST TRUST MID CAP VALUE ALPHADEX(R) FUND

INDEX CONSTRUCTION

The Index is a modified equal-dollar weighted index designed by S&P to
objectively identify and select stocks from the S&P MidCap 400 Value Index that
may generate positive alpha relative to traditional passive-style indices
through the use of the AlphaDEX(R) selection 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 MidCap 400 Value Index includes certain
stocks within the S&P MidCap 400 Index selected on value factors. The inception
date of the Index was December 31, 2010. The initial divisor was created to set
a benchmark value of 100.00 on December 31, 2010. The Index was created and
trademarked by S&P.


                                       21



The 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 Growth and Value series of the S&P MidCap 400 Index 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 classified
solely as growth or value, the stock receives the rank for that style from step
2a as its selection score. Stocks that S&P classified solely as growth are not
eligible for inclusion in the Index. For stocks that S&P allocates between
growth and value, the stock receives the best rank from step 2a 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 allocates between growth
and value are not eligible for inclusion in the Index if their growth scores are
better than their value scores.

3. For the Index, all eligible stocks from 2b above 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 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 Index is rebalanced and reconstituted as of the last business day of each
calendar quarter. Changes will be effective at the open of trading 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 Index is reallocated prorate among the remaining Index
constituents. Spin-offs are not included in the Index. The value of the spin-off
is reallocated to the parent company.


FIRST TRUST SMALL CAP GROWTH ALPHADEX(R) FUND

INDEX CONSTRUCTION

The Index is a modified equal-dollar weighted index designed by S&P to
objectively identify and select stocks from the S&P SmallCap 600 Growth Index
that may generate positive alpha relative to traditional passive-style indices
through the use of the AlphaDEX(R) selection 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 SmallCap 600 Growth Index includes certain
stocks within the S&P SmallCap 600 Index selected on growth factors. The
inception date of the Index was December 31, 2010. The initial divisor was
created to set a benchmark value of 100.00 on December 31, 2010. The Index was
created and trademarked by S&P.

The 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 Growth and Value series of the S&P SmallCap 600 Index 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 classified
solely as growth or value, the stock receives the rank for that style from step
2a as its selection score. Stocks that S&P classified solely as value are not
eligible for inclusion in the Index. For stocks that S&P allocates between
growth and value, the stock receives the best rank from step 2a 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 allocates between growth
and value are not eligible for inclusion in the Index if their value scores are
better than their growth scores.

3. For the Index, all eligible stocks from 2b above 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 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.


                                       22



The Index is rebalanced and reconstituted as of the last business day of each
calendar quarter. Changes will be effective at the open of trading 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 Index is reallocated prorate among the remaining Index
constituents. Spin-offs are not included in the Index. The value of the spin-off
is reallocated to the parent company.


FIRST TRUST SMALL CAP VALUE ALPHADEX(R) FUND

INDEX CONSTRUCTION

The Index is a modified equal-dollar weighted index designed by S&P to
objectively identify and select stocks from the S&P SmallCap 600 Value Index
that may generate positive alpha relative to traditional passive-style indices
through the use of the AlphaDEX(R) selection 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 SmallCap 600 Value Index includes certain
stocks within the S&P SmallCap 600 Index selected on value factors. The
inception date of the Index was December 31, 2010. The initial divisor was
created to set a benchmark value of 100.00 on December 31, 2010. The Index was
created and trademarked by S&P.

The 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 Growth and Value series of the S&P SmallCap 600 Index 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 classified
solely as growth or value, the stock receives the rank for that style from step
2a as its selection score. Stocks that S&P classified solely as growth are not
eligible for inclusion in the Index. For stocks that S&P allocates between
growth and value, the stock receives the best rank from step 2a 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 allocates between growth
and value are not eligible for inclusion in the Index if their growth scores are
better than their value scores.

3. For the Index, all eligible stocks from 2b above 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 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 Index is rebalanced and reconstituted as of the last business day of each
calendar quarter. Changes will be effective at the open of trading 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 Index is reallocated prorate among the remaining Index
constituents. Spin-offs are not included in the Index. The value of the spin-off
is reallocated to the parent company.

ALPHADEX(R) FUNDS

The Defined Index Series was created 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.


                                       23



                          PREMIUM/DISCOUNT INFORMATION

The Funds have not yet commenced operation and, therefore, do not have
information about the differences between the Funds' daily market price on NYSE
Arca and their NAVs.


                               OTHER INFORMATION

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 Fund Shares, 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, 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)(c) 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 NYSE Arca is satisfied by the fact that the
Prospectus is available from NYSE Arca 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.


                                       24



--------------------------------------------------------------------------------

                                  FIRST TRUST

--------------------------------------------------------------------------------

                               ALPHADEX(R) FUNDS

                  First Trust Mid Cap Growth AlphaDEX(R) Fund
                   First Trust Mid Cap Value AlphaDEX(R) Fund
                 First Trust Small Cap Growth AlphaDEX(R) Fund
                  First Trust Small Cap Value AlphaDEX(R) 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, annual and semi-annual reports 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 advisor.
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. 20549-1520 or by sending an electronic request to
publicinfo@sec.gov.




First Trust Advisors L.P.
120 East Liberty Drive
Suite 400
Wheaton, Illinois  60187
(800) 621-1675                                           SEC File #: 333-140895
www.ftportfolios.com                                                  811-22019









                      STATEMENT OF ADDITIONAL INFORMATION




                   INVESTMENT COMPANY ACT FILE NO. 811-22019
                  FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND

                                                      TICKER
                  FUND NAME                           SYMBOL           EXCHANGE

FIRST TRUST MID CAP GROWTH ALPHADEX(R) FUND             FNY            NYSE ARCA
FIRST TRUST MID CAP VALUE ALPHADEX(R) FUND              FNK            NYSE ARCA
FIRST TRUST SMALL CAP GROWTH ALPHADEX(R) FUND           FYC            NYSE ARCA
FIRST TRUST SMALL CAP VALUE ALPHADEX(R) FUND            FYT            NYSE ARCA



                              DATED APRIL 19, 2011

      This Statement of Additional Information ("SAI") is not a Prospectus. It
should be read in conjunction with the Funds' Prospectus dated April 19, 2011,
as it may be amended from time to time (the "Prospectus"), for each of the First
Trust Mid Cap Growth AlphaDEX(R) Fund, First Trust Mid Cap Value AlphaDEX(R)
Fund, First Trust Small Cap Growth AlphaDEX(R) Fund and First Trust Small Cap
Value AlphaDEX(R) Fund (each, a "Fund" and collectively, the "Funds"), each a
series of the First Trust Exchange-Traded AlphaDEX(R) Fund (the "Trust").
Capitalized terms used herein that are not defined have the same meaning as in
the Funds' Prospectus, unless otherwise noted. A copy of the Funds' Prospectus
may be obtained without charge by writing to the Trust's distributor, First
Trust Portfolios L.P., 120 East Liberty Drive, Suite 400, Wheaton, Illinois
60187, 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 OBJECTIVES AND POLICIES.............................................4

INVESTMENT STRATEGIES..........................................................5

SUBLICENSE AGREEMENTS.........................................................15

INVESTMENT RISKS..............................................................16

MANAGEMENT OF THE FUNDS.......................................................19

ACCOUNTS MANAGED BY INVESTMENT COMMITTEE......................................32

BROKERAGE ALLOCATIONS.........................................................32

CUSTODIAN, TRANSFER AGENT, FUND ACCOUNTING AGENT, DISTRIBUTOR, INDEX
      PROVIDER AND EXCHANGE...................................................34

ADDITIONAL INFORMATION........................................................37

PROXY VOTING POLICIES AND PROCEDURES..........................................38

CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS.........................39

FEDERAL TAX MATTERS...........................................................50

DETERMINATION OF NAV..........................................................56

DIVIDENDS AND DISTRIBUTIONS...................................................58

MISCELLANEOUS INFORMATION.....................................................59


                                      -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 20 series including: First Trust Mid
Cap Growth AlphaDEX(R) Fund, First Trust Mid Cap Value AlphaDEX(R) Fund, First
Trust Small Cap Growth AlphaDEX(R) Fund and First Trust Small Cap Value
AlphaDEX(R) Fund (each, a "Fund" and collectively, the "Funds"), each of which
is a non-diversified series. This Statement of Additional Information relates to
the four above listed Funds. The shares of the Funds are referred to herein as
"Shares" or "Fund Shares." Each Fund as a 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.

      The Trust or any series or class thereof may be terminated at any time by
the Board of Trustees upon written notice to the shareholders.

      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, except in limited circumstances, be
amended or supplemented by the Trustees in any respect without a 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


                                      -1-



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 a 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 a Fund's costs, including attorneys'
fees. The Declaration also provides that any shareholder bringing an action
against a 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


                                      -2-



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
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 advised by First Trust Advisors L.P. (the "Advisor" 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 of each Fund are listed and trade on
NYSE Arca, Inc., an affiliate of NYSE EuronextSM ("NYSE Arca"). The Shares of
each Fund will trade on NYSE Arca 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 of a Fund.

      The Trust reserves the right to offer a "cash" option for creations and
redemptions of Fund Shares. 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 applicable Fund 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 SEC
applicable to management investment companies offering redeemable securities.

                          EXCHANGE LISTING AND TRADING

      There can be no assurance that the requirements of NYSE Arca necessary to
maintain the listing of Shares of a Fund will continue to be met. NYSE Arca 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 (as
defined below) is no longer calculated or available; or (iii) such other event
shall occur or condition exist that, in the opinion of NYSE Arca, makes further
dealings on NYSE Arca inadvisable. NYSE Arca 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 NYSE Arca, 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 OBJECTIVES AND POLICIES

      The Prospectus describes the investment objectives and policies of the
Funds. The following supplements the information contained in the Prospectus
concerning the investment objectives 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, as amended (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


                                      -4-



      contracts, forward contracts or other derivative instruments, or from
      investing in securities or other instruments backed by physical
      commodities).

            (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 is based upon
      concentrates in an industry or a group of industries. Accordingly, a Fund
      will not concentrate in any industry or group of industries if the Index
      is not so concentrated. 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.

      The Funds have adopted a non-fundamental investment policy pursuant to
Rule 35d-1 under the 1940 Act (the "Name Policy") whereby each Fund, under
normal market conditions, will invest at least 80% of its net assets in equity
securities of U.S. listed companies with market capitalizations at the time of
investment that correspond to each Fund's name. Accordingly, if the market
capitalization of a company included in a Fund grows above or below the Fund's
market capitalization classification after the time of investment, such Fund
shall not be required to sell such security. The Name Policy may be changed by
the Board of Trustees without shareholder approval upon 60 days' prior written
notice.

      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 and may be changed by the
Board of Trustees.

                             INVESTMENT STRATEGIES

      Under normal circumstances, each Fund will invest at least 90% of its net
assets in common stocks that comprise such Fund's corresponding equity index as
set forth below (each, an "Index" and collectively, the "Indices"). Fund
shareholders are entitled to 60 days' notice prior to any change in this


                                      -5-



non-fundamental investment policy. Fund shareholders are entitled to 60 days'
notice prior to any change in this non-fundamental investment policy.

      The Indices in the following table (the "Defined Index Series") are a
family of custom "enhanced" indices developed, maintained and sponsored by
Standard & Poor's Financial Services LLC ("S&P" or the "Index Provider").

                   FUND                                      INDEX

First Trust Mid Cap Growth AlphaDEX(R) Fund       Defined Mid Cap Growth Index

First Trust Mid Cap Value AlphaDEX(R) Fund        Defined Mid Cap Value Index

First Trust Small Cap Growth AlphaDEX(R) Fund     Defined Small Cap Growth Index

First Trust Small Cap Value AlphaDEX(R) Fund      Defined Small Cap Value Index

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
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


                                      -6-



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 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 delegate 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, 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.

      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 by Standard & Poor's Ratings Group ("S&P Ratings"), Moody's Investors
Service, Inc. ("Moody's") or Fitch, Inc. ("Fitch") and having a maturity of one


                                      -7-



year or less. The use of temporary investments is not a part of a principal
investment strategy of the Funds.

      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) Federal
      National Mortgage Association ("FNMA" or "Fannie Mae") which is a
      government-sponsored organization owned entirely by private stockholders
      and whose securities are guaranteed as to principal and interest by FNMA;
      and (d) the Student Loan Marketing Association, whose securities are
      supported only by its credit. In September 2008, FNMA was placed into
      conservatorship overseen by the Federal Housing Finance Agency ("FHFA").
      As conservator, FHFA will succeed to the rights, titles, powers and
      privileges of FNMA and any stockholder, officer or director of the company
      with respect to FNMA and its assets and title to all books, records and
      company assets held by any other custodian or third party. FHFA is charged
      with operating FNMA. 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 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.
      On October 3, 2008, the Emergency Economic Stabilization Act of 2008
      increased the maximum amount of federal deposit insurance coverage payable
      as to any certificate of deposit from $100,000 to $250,000 per depositor,
      and the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted
      on July 21, 2010, extended this increased coverage permanently. 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


                                      -8-



      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 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


                                      -9-



      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 higher
      by S&P Ratings, Prime-1 or higher by Moody's or F2 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
bought and sold during a year is known as a Fund's portfolio turnover rate. A
turnover rate of 100% would occur, for example, if a Fund bought and sold
securities valued at 100% of its net assets within one year. A high portfolio
turnover rate could result in the payment by a Fund of increased brokerage
costs, expenses and taxes.

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. The use of Futures is not a part of a principal investment strategy of
the Funds.

      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.

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 the 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.


                                      -10-



      The foregoing limitations are non-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 S&P 500 Index or the Value Line(R) Composite
Index or a more narrow market index, such as the S&P 100 Index. 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,
NYSE Amex Options, The NASDAQ(R) Stock Market ("NASDAQ(R)") 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


                                      -11-



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 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.


                                      -12-



      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
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


                                      -13-



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 U.S. 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 NYSE Composite
Index(R).

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


                                      -14-



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 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 (each a "Sublicense
Agreement") with First Trust, 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 the Index Provider in connection with
the issuance, distribution, marketing and/or promotion of the applicable Fund.
Pursuant to each Sublicense Agreement, each Fund and First Trust have agreed to


                                      -15-



be bound by certain provisions of the product license agreement by and between
the Index Provider and First Trust Portfolios (each a "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. A Fund 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
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


                                      -16-



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.

      Whether or not the equity securities in the Funds are listed on a
securities exchange, the principal trading market for certain of the equity
securities in certain of the Funds 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.

ADDITIONAL RISKS OF INVESTING IN THE FUNDS

Liquidity Risk

      Whether or not the equity securities in the Funds are listed on a
securities exchange, the principal trading market for certain of the equity
securities in certain of the Funds 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.

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. 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 managers will
      analyze the benefits and risks of the derivative transactions and weigh


                                      -17-



      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 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


                                      -18-



      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 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.

                            MANAGEMENT OF THE FUNDS

TRUSTEES AND OFFICERS

      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 advisor. 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. In connection with the organization of
the Trust, each Trustee has been elected for an indefinite term. The officers of
the Trust serve indefinite terms. Each Trustee, except for James A. Bowen, is an
Independent Trustee. Mr. Bowen is deemed an "interested person" (as that term is
defined in the 1940 Act) ("Interested Trustee") of the Trust due to his position
as Chief Executive Officer of First Trust, investment advisor to the Funds.


                                      -19-





                                                                                           NUMBER OF
                                                                                         PORTFOLIOS IN        OTHER
                                                                                           THE FIRST     TRUSTEESHIPS OR
                                                TERM OF OFFICE                            TRUST FUND      DIRECTORSHIPS
                                                AND YEAR FIRST                              COMPLEX      HELD BY TRUSTEE
     NAME, ADDRESS            POSITION AND        ELECTED OR     PRINCIPAL OCCUPATIONS    OVERSEEN BY    DURING THE PAST
   AND DATE OF BIRTH       OFFICES WITH TRUST      APPOINTED      DURING PAST 5 YEARS       TRUSTEE          5 YEARS

Trustee who is an
Interested Person of the
Trust
------------------------
                                                                                          
James A. Bowen(1)          President,           o Indefinite     Chief Executive         79              Trustee of
120 East Liberty Drive,    Chairman of the        term           Officer (December       Portfolios      Wheaton College
Wheaton, IL 60187          Board, Chief                          2010 to Present),
D.O.B.: 09/55              Executive Officer    o Since          President (until
                           and Trustee            inception      December 2010), First
                                                                 Trust Advisors L.P.
                                                                 and First Trust
                                                                 Portfolios L.P.;
                                                                 Chairman of the Board
                                                                 of Directors,
                                                                 BondWave LLC
                                                                 (Software Development
                                                                 Company/Investment
                                                                 Advisor) and
                                                                 Stonebridge Advisors
                                                                 LLC (Investment
                                                                 Advisor)

Independent Trustees
------------------------
Richard E. Erickson        Trustee              o Indefinite     Physician; President,   79              None
c/o First Trust Advisors                          term           Wheaton Orthopedics;    Portfolios
120 East Liberty Drive,                                          Co-owner and
  Suite 400                                     o Since          Co-Director (January
Wheaton, IL 60187                                 inception      1996 to May 2007),
D.O.B.: 04/51                                                    Sports Med Center for
                                                                 Fitness; Limited
                                                                 Partner, Gundersen
                                                                 Real Estate Limited
                                                                 Partnership; Member,
                                                                 Sportsmed LLC

Thomas R. Kadlec           Trustee              o Indefinite     President (March 2010   79              Director of
c/o First Trust Advisors                          term           to Present), Senior     Portfolios      ADM Investor
L.P.                                                             Vice President and                      Services,
120 East Liberty Drive,                         o Since          Chief Financial                         Inc.; ADM
  Suite 400                                       inception      Officer (May 2007 to                    Investor
Wheaton, IL 60187                                                March 2010), Vice                       Services
D.O.B.: 11/57                                                    President and Chief                     International;
                                                                 Financial Officer                       and ADM
                                                                 (1990 to May 2007),                     Investor
                                                                 ADM Investor                            Services Hong
                                                                 Services, Inc.                          Kong Ltd.
                                                                 (Futures Commission
                                                                 Merchant)

Robert F. Keith            Trustee              o Indefinite     President (2003 to      79              Trust Company
c/o First Trust Advisors                          term           Present), Hibs          Portfolios      of Illinois
L.P.                                                             Enterprises
120 East Liberty Drive,                         o Since          (Financial and
  Suite 400                                       inception      Management
Wheaton, IL 60187                                                Consulting)
D.O.B.: 11/56

Niel B. Nielson            Trustee              o Indefinite     President (June 2002    79              Director of
c/o First Trust Advisors                          term           to Present), Covenant   Portfolios      Covenant
L.P.                                                             College                                 Transport Inc.
120 East Liberty Drive,                         o Since
  Suite 400                                       inception
Wheaton, IL 60187
D.O.B.: 03/54

Officers of the Trust
------------------------
Mark R. Bradley            Treasurer, Chief     o Indefinite     Chief Financial         N/A             N/A
120 East Liberty Drive,    Financial Officer      term           Officer, Chief
  Suite 400                and Chief                             Operating Officer
Wheaton, IL 60187          Accounting           o Since          (December 2010 to
D.O.B.: 11/57              Officer                inception      Present), First Trust
                                                                 Advisors L.P. and
                                                                 First Trust
                                                                 Portfolios L.P.;



                                      -20-



                                                                                           NUMBER OF
                                                                                         PORTFOLIOS IN        OTHER
                                                                                           THE FIRST     TRUSTEESHIPS OR
                                                TERM OF OFFICE                            TRUST FUND      DIRECTORSHIPS
                                                AND YEAR FIRST                              COMPLEX      HELD BY TRUSTEE
     NAME, ADDRESS            POSITION AND        ELECTED OR     PRINCIPAL OCCUPATIONS    OVERSEEN BY    DURING THE PAST
   AND DATE OF BIRTH       OFFICES WITH TRUST      APPOINTED      DURING PAST 5 YEARS       TRUSTEE          5 YEARS

                                                                 Chief Financial
                                                                 Officer, BondWave LLC
                                                                 (Software Development
                                                                 Company/Investment
                                                                 Advisor) and
                                                                 Stonebridge Advisors
                                                                 LLC (Investment
                                                                 Advisor)

Erin E. Chapman            Assistant            o Indefinite     Assistant General       N/A             N/A
120 East Liberty Drive,    Secretary              term           Counsel (October 2007
  Suite 400                                                      to Present),
Wheaton, IL 60187                               o Since          Associate Counsel
D.O.B.: 08/76                                     inception      (March 2006 to
                                                                 October 2007), First
                                                                 Trust Advisors L.P.
                                                                 and First Trust
                                                                 Portfolios L.P.;
                                                                 Associate (November
                                                                 2003 to March 2006),
                                                                 Doyle & Bolotin, Ltd.

James M. Dykas             Assistant            o Indefinite     Controller (January     N/A             N/A
120 East Liberty Drive,    Treasurer              term           2011 to Present),
  Suite 400                                                      Senior Vice President
Wheaton, IL 60187                               o Since          (April 2007 to
D.O.B.: 01/66                                     inception      Present), Vice
                                                                 President (January
                                                                 2005 to April 2007),
                                                                 First Trust Advisors
                                                                 L.P. and First Trust
                                                                 Portfolios L.P.

Rosanne Gatta              Assistant            o Indefinite     Board Liaison           N/A             N/A
120 East Liberty Drive,    Secretary                             Associate (July 2010
  Suite 400                                     o Since March    to Present), First
Wheaton, IL 60187                                 2011           Trust Advisors L.P.
DOB: 7/55                                                        and First Trust
                                                                 Portfolios L.P.;
                                                                 Assistant Vice
                                                                 President (February
                                                                 2001 to July 2010),
                                                                 PNC Global Investment
                                                                 Servicing


W. Scott Jardine           Secretary            o Indefinite     General Counsel,        N/A             N/A
120 East Liberty Drive,                           term           First Trust Advisors
  Suite 400                                                      L.P., First Trust
Wheaton, IL 60187                               o Since          Portfolios L.P. and
D.O.B.: 05/60                                     inception      BondWave LLC (August
                                                                 2009 to present)
                                                                 (Software Development
                                                                 Company/Investment
                                                                 Advisor); Secretary
                                                                 of Stonebridge
                                                                 Advisors LLC
                                                                 (Investment Advisor)

Daniel J. Lindquist        Vice President       o Indefinite     Senior Vice President   N/A             N/A
120 East Liberty Drive,                           term           (September 2005 to
  Suite 400                                                      Present), Vice
Wheaton, IL 60187                               o Since          President (April 2004
D.O.B.: 02/70                                     inception      to September 2005),
                                                                 First Trust Advisors
                                                                 L.P. and First Trust
                                                                 Portfolios L.P.


                                      -21-



                                                                                           NUMBER OF
                                                                                         PORTFOLIOS IN        OTHER
                                                                                           THE FIRST     TRUSTEESHIPS OR
                                                TERM OF OFFICE                            TRUST FUND      DIRECTORSHIPS
                                                AND YEAR FIRST                              COMPLEX      HELD BY TRUSTEE
     NAME, ADDRESS            POSITION AND        ELECTED OR     PRINCIPAL OCCUPATIONS    OVERSEEN BY    DURING THE PAST
   AND DATE OF BIRTH       OFFICES WITH TRUST      APPOINTED      DURING PAST 5 YEARS       TRUSTEE          5 YEARS

Coleen D. Lynch            Assistant Vice       o Indefinite     Assistant Vice          N/A             N/A
120 East Liberty Drive     President              term           President (January
  Suite 400                                                      2008 to Present),
Wheaton, IL 60187                               o Since          First Trust Advisors
D.O.B.: 07/58                                     inception      L.P. and First Trust
                                                                 Portfolios L.P.; Vice
                                                                 President (May 1998
                                                                 to January 2008), Van
                                                                 Kampen Asset
                                                                 Management and Morgan
                                                                 Stanley Investment
                                                                 Management

Kristi A. Maher            Assistant            o Indefinite     Deputy General          N/A             N/A
120 East Liberty Drive,    Secretary and          term           Counsel (May 2007 to
  Suite 400                Chief Compliance                      Present), Assistant
Wheaton, IL 60187          Officer              o Since          General Counsel
D.O.B.: 12/66                                     inception      (March 2004 to May
                                                                 2007), First Trust
                                                                 Advisors L.P. and
                                                                 First Trust
                                                                 Portfolios L.P.

Roger F. Testin            Vice President       o Indefinite     Senior Vice             N/A             N/A
120 East Liberty Drive,                           term           President, First
  Suite 400                                                      Trust Advisors L.P.
Wheaton, IL 60187                               o Since          and First Trust
D.O.B.: 06/66                                     inception      Portfolios L.P.

Stan Ueland                Vice President       o Indefinite     Vice President          N/A             N/A
120 East Liberty Drive,                           term           (August 2005 to
  Suite 400                                                      Present), First Trust
Wheaton, IL 60187                               o Since          Advisors L.P. and
D.O.B.: 11/70                                     inception      First Trust
                                                                 Portfolios L.P; Vice
                                                                 President (May 2004
                                                                 to August 2005),
                                                                 BondWave LLC
                                                                 (Software Development
                                                                 Company/Investment
                                                                 Advisor)

--------------------

(1)   Mr. Bowen is deemed an "interested person" of the Trust due to his
      position as Chief Executive Officer of First Trust, investment advisor of
      the Funds.

UNITARY BOARD LEADERSHIP STRUCTURE

      Each Trustee serves as a trustee of all open-end and closed-end funds in
the First Trust Fund Complex (as defined below), which is known as a "unitary"
board leadership structure. Each Trustee currently serves as a trustee of First
Trust Series Fund and First Defined Portfolio Fund, LLC, open-end funds with ten
portfolios advised by First Trust; First Trust 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/Aberdeen
Emerging Opportunity Fund, First Trust Specialty Finance and Financial
Opportunities Fund, First Trust Active Dividend Income Fund and First Trust High
Income Long/Short Fund, closed-end funds advised by First Trust; and the Trust,
First Trust Exchange-Traded Fund, First Trust Exchange-Traded Fund II and First
Trust Exchange-Traded AlphaDEX(R) Fund II, exchange-traded funds with 57

                                      -22-



portfolios advised by First Trust (each a "First Trust Fund" and collectively,
the "First Trust Fund Complex"). 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 other funds in the First Trust Fund Complex as they hold with the Trust. Mr.
Ueland, Vice President of the Trust, serves in the same position for all of the
funds in the First Trust Fund Complex with the exception of First Defined
Portfolio Fund, LLC, First Trust Series Fund and the closed-end funds. Mr.
Testin, Vice President of the Trust, serves in the same position for all funds
in the First Trust Fund Complex with the exception of the closed-end funds.

      The management of the Funds, including general supervision of the duties
performed for the Funds under the investment management agreement between the
Trust, on behalf of the Funds, and the Advisor, is the responsibility of the
Board of Trustees. The Trustees of the Trust set broad policies for the Funds,
choose the Trust's officers, and hire the Funds' investment advisor and other
service providers. The officers of the Trust manage the day-to-day operations
and are responsible to the Trust's Board. The Trust's Board is composed of four
Independent Trustees and one Interested Trustee. The Interested Trustee, James
A. Bowen, serves as both the Chief Executive Officer for each First Trust Fund
and the Chairman of each Board in the First Trust Fund Complex.

      The same five persons serve as Trustees on the Trust's Board and on the
Boards of all other First Trust Funds. The unitary board structure was adopted
for the First Trust Funds because of the efficiencies it achieves with respect
to the governance and oversight of the First Trust Funds. Each First Trust Fund
is subject to the rules and regulations of the 1940 Act (and other applicable
securities laws), which means that many of the First Trust Funds face similar
issues with respect to certain of their fundamental activities, including risk
management, portfolio liquidity, portfolio valuation and financial reporting.
Because of the similar and often overlapping issues facing the First Trust
Funds, including among the First Trust exchange-traded funds, the Board of the
First Trust Funds believes that maintaining a unitary board structure promotes
efficiency and consistency in the governance and oversight of all First Trust
Funds and reduces the costs, administrative burdens and possible conflicts that
may result from having multiple boards. In adopting a unitary board structure,
the Trustees seek to provide effective governance through establishing a board
the overall composition of which will, as a body, possesses the appropriate
skills, diversity, independence and experience to oversee the Funds' business.

      Annually, the Board reviews its governance structure and the committee
structures, their performance and functions and reviews any processes that would
enhance Board governance over the Funds' business. The Board has determined that
its leadership structure, including the unitary board and committee structure,
is appropriate based on the characteristics of the funds it serves and the
characteristics of the First Trust Fund Complex as a whole.

      In order to streamline communication between the Advisor and the
Independent Trustees and create certain efficiencies, each Board has a Lead
Independent Trustee who is responsible for: (i) coordinating activities of the
Independent Trustees; (ii) working with the Advisor, Fund counsel and the


                                      -23-



independent legal counsel to the Independent Trustees to determine the agenda
for Board meetings; (iii) serving as the principal contact for and facilitating
communication between the Independent Trustees and the Funds' service providers,
particularly the Advisor; and (iv) any other duties that the Independent
Trustees may delegate to the Lead Independent Trustee. The Lead Independent
Trustee is selected by the Independent Trustees and serves a two-year term or
until his successor is selected. Effective January 1, 2010, Niel B. Nielson
serves as the Lead Independent Trustee.

      The Board has established four standing committees (as described below)
and has delegated certain of its responsibilities to those committees. The Board
and its committees meet frequently throughout the year to oversee the Funds'
activities, review contractual arrangements with and performance of service
providers, oversee compliance with regulatory requirements, and review Fund
performance. The Independent Trustees are represented by independent legal
counsel at all Board and committee meetings. Generally, each Board acts by
majority vote of all the Trustees, including a majority vote of the Independent
Trustees if required by applicable law.

      The three committee Chairmen and the Lead Independent Trustee rotate every
two years in serving as Chairman of the Audit Committee, the Nominating and
Governance Committee or the Valuation Committee, or as Lead Independent Trustee.
The Lead Independent Trustee also serves on the Executive Committee with the
Interested Trustee.

      The four standing committees of the First Trust Fund Complex are: the
Executive Committee (and 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. Such Committee
is also responsible for the declaration and setting of dividends. Mr. Nielson
and Mr. Bowen are members of the Executive Committee. During the last fiscal
year, the Executive Committee held four meetings.

      The Nominating and Governance Committee is responsible for appointing and
nominating non-interested persons to the Trust's Board of Trustees. 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. The
Board of Trustees adopted a mandatory retirement age of 72 for Trustees, beyond
which age Trustees are ineligible to serve. The Nominating and Governance
Committee Charter provides that the Committee will not consider new trustee
candidates who are 72 years of age or older or will turn 72 years old during the
initial term. When a vacancy on the Board of Trustees of a First Trust Fund
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 applicable Fund. To
submit a recommendation for nomination as a candidate for a position on the
Board of Trustees, shareholders of the applicable Fund shall mail such
recommendation to W. Scott Jardine, Secretary, at the Fund's address, 120 East
Liberty Drive, Suite 400, Wheaton, Illinois 60187. Such recommendation shall
include the following information: (i) evidence of Fund ownership of the person
or entity recommending the candidate (if a Fund shareholder); (ii) a full

                                      -24-



description of the proposed candidate's background, including their education,
experience, current employment and date of birth; (iii) names and addresses of
at least three professional references for the candidate; (iv) information as to
whether the candidate is an "interested person" in relation to the Fund, as such
term is defined in the 1940 Act, and such other information that may be
considered to impair the candidate's independence; and (v) any other information
that may be helpful to the 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 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 four meetings.

      The Valuation Committee is responsible for the oversight of the pricing
procedures of each Fund. Messrs. Erickson, Kadlec, Keith and Nielson are members
of the Valuation Committee. During the last fiscal year, the Valuation Committee
held four meetings.

      The Audit Committee is responsible for overseeing each Fund's 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 seven meetings.

RISK OVERSIGHT

      As part of the general oversight of the Funds, the Board is involved in
the risk oversight of the Funds. The Board has adopted and periodically reviews
policies and procedures designed to address each Fund's risks. Oversight of
investment and compliance risk, including oversight of any sub-advisors, is
performed primarily at the Board level in conjunction with the Advisor's
investment oversight group and the Trust's Chief Compliance Officer ("CCO").
Oversight of other risks also occurs at the committee level. The Advisor's
investment oversight group reports to the Board at quarterly meetings regarding,
among other things, Fund performance and the various drivers of such performance
as well as information related to sub-advisors and their operations and
processes. The Board reviews reports on the Funds' and the service providers'
compliance policies and procedures at each quarterly Board meeting and receives
an annual report from the CCO regarding the operations of the Funds' and the
service providers' compliance program. In addition, the Independent Trustees
meet privately each quarter with the CCO. The Audit Committee reviews with the
Advisor each Fund's major financial risk exposures and the steps the Advisor has
taken to monitor and control these exposures, including each Fund's risk
assessment and risk management policies and guidelines. The Audit Committee
also, as appropriate, reviews in a general manner the processes other Board
committees have in place with respect to risk assessment and risk management.
The Nominating and Governance Committee monitors all matters related to the
corporate governance of the Funds. The Valuation Committee monitors valuation


                                      -25-



risk and compliance with the Fund's Valuation Procedures and oversees the
pricing agents and actions by the Advisor's Pricing Committee with respect to
the valuation of portfolio securities.

      Not all risks that may affect the Funds can be identified nor can controls
be developed to eliminate or mitigate their occurrence or effects. It may not be
practical or cost effective to eliminate or mitigate certain risks, the
processes and controls employed to address certain risks may be limited in their
effectiveness, and some risks are simply beyond the reasonable control of the
Funds or the Advisor or other service providers. Moreover, it is necessary to
bear certain risks (such as investment related risks) to achieve a Fund's goals.
As a result of the foregoing and other factors, the Funds' ability to manage
risk is subject to substantial limitations.

BOARD DIVERSIFICATION AND TRUSTEE QUALIFICATIONS

      As described above, the Nominating and Governance Committee of each Board
oversees matters related to the nomination of Trustees. The Nominating and
Governance Committee seeks to establish an effective Board with an appropriate
range of skills and diversity, including, as appropriate, differences in
background, professional experience, education, vocations, and other individual
characteristics and traits in the aggregate. Each Trustee must meet certain
basic requirements, including relevant skills and experience, time availability,
and if qualifying as an Independent Trustee, independence from the Advisor,
sub-advisors, underwriters or other service providers, including any affiliates
of these entities.

      Listed below for each current Trustee are the experiences, qualifications
and attributes that led to the conclusion, as of the date of this SAI, that each
current Trustee should serve as a trustee.

      Richard E. Erickson, M.D., is an orthopedic surgeon and President of
Wheaton Orthopedics. He also has been a co-owner and director of a fitness
center and a limited partner of two real estate companies. Dr. Erickson has
served as a Trustee of each First Trust Fund since its inception. Dr. Erickson
has also served as the Lead Independent Trustee (2008 - 2009), Chairman of the
Nominating and Governance Committee (2003 - 2007) and Chairman of the Valuation
Committee (June 2006 - 2007) of the First Trust Funds. He currently serves as
Chairman of the Valuation Committee (since 2010).

      Thomas R. Kadlec is President of ADM Investor Services Inc. ("ADMIS"), a
futures commission merchant and wholly-owned subsidiary of the Archer Daniels
Midland Company ("ADM"). Mr. Kadlec has been employed by ADMIS and its
affiliates since 1990 in various accounting, financial, operations and risk
management capacities. Mr. Kadlec serves on the boards of several international
affiliates of ADMIS and is a member of ADM's Integrated Risk Committee, which is
tasked with the duty of implementing and communicating enterprise-wide risk
management. Mr. Kadlec has served as a Trustee of each First Trust Fund since
its inception. Mr. Kadlec has also served on the Executive Committee since the
organization of the first First Trust closed-end Fund in 2003 until he was
elected as the first Lead Independent Trustee in December 2005, serving as such
through 2007. He also served as Chairman of the Valuation Committee (2008 -
2009) and currently serves as Chairman of the Audit Committee (since 2010) of
the First Trust Funds.


                                      -26-



      Robert F. Keith is President of Hibs Enterprises, a financial and
management consulting firm. Mr. Keith has been with Hibs Enterprises since 2004.
Prior thereto, Mr. Keith spent 18 years with ServiceMaster and Aramark,
including three years as President and COO of ServiceMaster Consumer Services,
where he led the initial expansion of certain products overseas, five years as
President and COO of ServiceMaster Management Services and two years as
President of Aramark ServiceMaster Management Services. Mr. Keith is a certified
public accountant and also has held the positions of Treasurer and Chief
Financial Officer of ServiceMaster, at which time he oversaw the financial
aspects of ServiceMaster's expansion of its Management Services division in to
Europe, the Middle East and Asia. Mr. Keith has served as a Trustee of the First
Trust Funds since June 2006. Mr. Keith has also served as the Chairman of the
Audit Committee (2008 - 2009) of the First Trust Funds. He currently serves as
Chairman of the Nominating and Governance Committee.

      Niel B. Nielson, Ph.D., has served as the President of Covenant College
since 2002. Mr. Nielson formerly served as a partner and trader (of options and
futures contracts for hedging options) for Ritchie Capital Markets Group (1996 -
1997), where he held an administrative management position at this proprietary
derivatives trading company. He also held prior positions in new business
development for ServiceMaster Management Services Company, and in personnel and
human resources for NationsBank of North Carolina, N.A. and Chicago Research and
Trading Group, Ltd. ("CRT"). His international experience includes serving as a
director of CRT Europe, Inc. for two years, directing out of London all aspects
of business conducted by the U.K. and European subsidiary of CRT. Prior to that,
Mr. Nielson was a trader and manager at CRT in Chicago. Mr. Nielson has served
as a Trustee of each First Trust Fund since its inception and of the First Trust
Funds since 1999. Mr. Nielson has also served as the Chairman of the Audit
Committee (2003 - 2006), Chairman of the Nominating and Governance Committee
(2008 - 2009) and currently serves as Lead Independent Trustee (since 2010) of
the First Trust Funds.

      James A. Bowen is President and Chief Executive Officer of the First Trust
Funds and Chief Executive Officer of First Trust Advisors L.P. and First Trust
Portfolios L.P. Mr. Bowen is involved in the day-to-day management of the First
Trust Funds and serves on the Executive Committee. He has over 26 years of
experience in the investment company business in sales, sales management and
executive management. Mr. Bowen has served on the Board of Trustees for Wheaton
College since October 2005. Mr. Bowen has served as a Trustee of each First
Trust Fund since its inception and of the First Trust Funds since 1999.

      Each trust in the First Trust Fund Complex pays each Trustee who is not an
officer or employee of First Trust Advisors, any sub-advisor or any of their
affiliates ("Independent Trustees") an annual retainer of $10,000 per trust for
the first 14 trusts in 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. In
addition, for all the trusts in the First Trust Fund Complex, Dr. Nielson is
paid annual compensation of $10,000 to serve as the Lead Independent Trustee,
Mr. Kadlec is paid annual compensation of $5,000 to serve as the chairman of the
Audit Committee, Dr. Erickson is paid annual compensation of $2,500 to serve as
chairman of the Valuation Committee and Mr. Keith is paid annual compensation of
$2,500 to serve as the chairman of the Nominating and Governance Committee. Each


                                      -27-



chairman and the Lead Independent Trustee will serve a two year term expiring
December 31, 2011 before rotating to serve as a chairman of another committee or
as Lead Independent Trustee. The annual compensation is allocated equally among
each of the trusts in the First Trust Fund Complex. Trustees are also reimbursed
by the investment companies in the First Trust Fund Complex for travel and
out-of-pocket expenses incurred in connection with all meetings.

      The following table sets forth the estimated compensation (including
reimbursement for travel and out-of-pocket expenses) to be paid by the Trust and
the First Trust Fund Complex to each of the Independent Trustees for one fiscal
year and the calendar year ended December 31, 2010 respectively. 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. The
Trust has no employees. Its officers are compensated by First Trust.



                        ESTIMATED COMPENSATION FROM        TOTAL COMPENSATION FROM
 NAME OF TRUSTEE               THE TRUST(1)            THE FIRST TRUST FUND COMPLEX(2)
                                                             
 Richard E. Erickson               $9,583                          $167,426
 Thomas R. Kadlec                  $9.722                          $169,963
 Robert F. Keith                   $9,583                          $167,426
 Niel B. Nielson                  $10,000                          $179,633


--------------------

(1)   The estimated compensation to be paid by the Trust to the Independent
      Trustees for one fiscal year for services to the Funds of the Trust.

(2)   The total compensation paid to the Independent Trustees for the calendar
      year ended December 31, 2010 for services to the eight portfolios of First
      Defined Portfolio Fund, LLC, an open-end fund, 14 closed-end funds and 57
      series of the Trust, First Trust Exchange-Traded Fund, First Trust
      Exchange-Traded Fund II and First Trust Exchange-Traded AlphaDEX(R) Fund
      II, all advised 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, 2010:

                  DOLLAR RANGE OF EQUITY SECURITIES IN A FUND


                                                   Aggregate Dollar Range of Equity
                                                     Securities in All Registered
                         Dollar Range of Equity    Investment Companies Overseen by
                          Securities in a Fund     Trustee in the First Trust Fund
                        (Number of Shares Held)                Complex

Interested Trustee
                                                   
James A. Bowen                    None                   $50,001 - $100,000

Independent Trustees
Richard E. Erickson               None                      Over $100,000
Thomas R. Kadlec                  None                      Over $100,000
Robert F. Keith                   None                      Over $100,000
Niel B. Nielson                   None                      Over $100,000



                                      -28-



      As of December 31, 2010, the Independent Trustees of the Trust and
immediate family members do not own beneficially or of record any class of
securities of an investment advisor or principal underwriter of the Funds or any
person directly or indirectly controlling, controlled by, or under common
control with an investment advisor or principal underwriter of the Funds.

      Information as to beneficial ownership is based on the securities position
listing reports as of March 31, 2011. The Funds do not have any knowledge of who
the ultimate beneficiaries are of the Shares.

      Investment Advisor. The Board of Trustees of the Trust, including the
Independent Trustees, approved an investment management agreement (the
"Investment Management Agreement") for the Funds for an initial two-year term at
a meeting held on December 13, 2010. The Board of Trustees determined that the
Investment Management Agreement is in the best interests of the Fund in light of
the services, expenses and such other matters as the Board of Trustees
considered to be relevant in the exercise of its reasonable business judgment.

      Pursuant to the Investment Management Agreement between First Trust and
the Trust, First Trust will manage the investment of each Fund's assets and will
be responsible for paying all expenses of each Fund, excluding the fee payments
under the Investment Management Agreement, interest, taxes, brokerage
commissions and other expenses connected with the execution of portfolio
transactions, distribution and service fees payable pursuant to a Rule 12b-1
plan, if any, and extraordinary expenses. Each Fund has agreed to pay First
Trust an annual management fee equal to 0.70% of its average daily net assets.

      First Trust, 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187,
is the investment advisor to the Funds. 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 James A. Bowen, the Chief Executive Officer of First Trust. First Trust
discharges its responsibilities subject to the policies of the Board of
Trustees.

      First Trust provides investment tools and portfolios for advisors 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 advisor 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.

      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


                                      -29-



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 a 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:




                      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
                                                                      (September 2005 to Present),
                                                                      Vice President (April 2004 to
                                                                      September 2005) First Trust
                                                                      Advisors L.P. and First Trust
                                                                      Portfolios L.P.

Robert F. Carey       Chief Investment Officer    Since 1991          Chief Investment Officer and
                      and Senior Vice President                       Senior Vice President, First
                                                                      Trust Advisors L.P. and First
                                                                      Trust Portfolios L.P.

Jon C. Erickson       Senior Vice President       Since 1994          Senior Vice President, First
                                                                      Trust Advisors L.P.  and First
                                                                      Trust Portfolios L.P.

David G. McGarel      Senior Vice President       Since 1997          Senior Vice President, First
                                                                      Trust Advisors L.P.  and First
                                                                      Trust Portfolios L.P.

Roger F. Testin       Senior Vice President       Since 2001          Senior Vice President, First
                                                                      Trust Advisors L.P.  and First
                                                                      Trust Portfolios L.P.

Stan Ueland           Vice President              Since 2005          Vice President (August 2005 to
                                                                      Present), First Trust Advisors
                                                                      L.P. and First Trust
                                                                      Portfolios L.P.; Vice
                                                                      President (May 2004 to August
                                                                      2005), BondWave LLC (Software
                                                                      Development Company/Investment
                                                                      Advisor)



                                      -30-



      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 a Fund's portfolio.

      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 executes the investment strategies of each of the
Funds.

      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.
Erickson, Mr. Lindquist, Mr. McGarel and Mr. Ueland 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 (other than the
Funds) with the number of accounts and assets, as of December 31, 2010, set
forth in the table below:

                                      -31-





                       ACCOUNTS MANAGED BY INVESTMENT COMMITTEE

                            REGISTERED           OTHER POOLED
                            INVESTMENT            INVESTMENT              OTHER
                             COMPANIES             VEHICLES              ACCOUNTS
INVESTMENT COMMITTEE    NUMBER OF ACCOUNTS    NUMBER OF ACCOUNTS    NUMBER OF ACCOUNTS
MEMBER                      ($ ASSETS)            ($ ASSETS)        ACCOUNTS ($ ASSETS)

                                                          
Robert F. Carey        63 ($12,434,282,513)    7 ($403,170,273)    3,985 ($948,191,008)

Roger F. Testin        63 ($12,434,282,513)    7 ($403,170,273)    3,985 ($948,191,008)

Jon C. Erickson        63 ($12,434,282,513)    7 ($403,170,273)    3,985 ($948,191,008)

David G. McGarel       63 ($12,434,282,513)    7 ($403,170,273)    3,985 ($948,191,008)

Daniel J. Lindquist    63 ($12,434,282,513)           N/A          3,985 ($948,191,008)

Stan Ueland            43  ($5,432,216,101)           N/A                   N/A


--------------------

      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.

                             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


                                      -32-



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 1934 Act permits an investment advisor, 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). Such brokerage and research services are
often referred to as "soft dollars." First Trust has advised the Board of
Trustees that it does not currently intend to use soft dollars.

      Notwithstanding the foregoing, in selecting brokers, First Trust may in
the future 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. In addition, First Trust must determine 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 Advisor 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 would
not be reduced as a result of receipt by First Trust of research services.

      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


                                      -33-



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.

      Administrator. The Bank of New York Mellon Corporation ("BONY") serves as
Administrator for the Funds. Its principal address is 101 Barclay Street, New
York, New York 10286.

      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 of
Trustees 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; and provide monitoring
reports and assistance regarding compliance with federal and state securities
laws.

      Pursuant to the Fund Administration and Accounting Agreement, the Trust on
behalf of the Funds 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.

         CUSTODIAN, TRANSFER AGENT, FUND ACCOUNTING AGENT, DISTRIBUTOR,
                          INDEX PROVIDER AND EXCHANGE

      Custodian, Transfer Agent and Accounting Agent. 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.


                                      -34-



      Distributor. First Trust Portfolios is the distributor (the "Distributor")
and principal underwriter of the Shares of the Funds. Its principal address is
120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187. 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."

      The Advisor may, from time to time and from its own resources, pay, defray
or absorb costs relating to distribution, including payments out of its own
resources to the Distributor, or to otherwise promote the sale of Shares. The
Advisor's available resources to make these payments may include profits from
advisory fees received from the Funds. The services the Advisor may pay for
include, but are not limited to, advertising and attaining access to certain
conferences and seminars, as well as being presented with the opportunity to
address investors and industry professionals through speeches and written
marketing materials.

      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% their 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 19, 2012.

      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 1934
Act and a member of the Financial Industry Regulatory Authority ("FINRA").

      The Distribution Agreement provides that it may be terminated 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 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 "Creation and Redemption of Creation Unit Aggregations-Procedures for
Creation of Creation Unit Aggregations" below) and DTC Participants (as defined
in "Additional Information-DTC Acts as Securities Depository for Fund Shares"
below).


                                      -35-



      Index Provider. The Index that each of the Funds seeks to track is
compiled by S&P.

      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.

      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(R) trademark and the AlphaDEX(R) stock selection method, in connection
with the S&P's creation of the Defined Index Series. A patent application with
respect to the AlphaDEX(R) 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 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.

      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 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


                                      -36-



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(R)" is a registered trademark of First Trust Portfolios. The
Trust and First Trust on behalf of the Funds have been granted the right by
First Trust Portfolios to use the name "AlphaDEX(R)" for certain purposes.

      Exchange. The only relationship that NYSE Arca has with First Trust or the
Distributor of the Funds in connection with the Funds is that NYSE Arca lists
the Shares of the Funds pursuant to its listing agreement with the Trust. NYSE
Arca 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. NYSE Arca 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 "How to Buy
and Sell Shares-Book Entry."

      DTC Acts as Securities Depository for Fund Shares. Shares of the Funds are
represented by securities registered in the name of The Depository Trust Company
("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
or 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
a number of its DTC Participants and by the New York Stock Exchange (the "NYSE")
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


                                      -37-



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
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.

      First Trust has engaged the services of ISS Governance Services, a
division of RiskMetrics Group, Inc. ("ISS"), to make recommendations to First
Trust on the voting of proxies relating to securities held by the Funds. ISS
provides voting recommendations based upon established guidelines and practices.


                                      -38-



First Trust reviews the ISS recommendations and frequently follows the ISS
recommendations. However, on selected issues, First Trust may not vote in
accordance with the ISS recommendations when First Trust believes that specific
ISS recommendations are not in the best interests of the applicable Fund. 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 ISS
recommendations to avoid any conflict of interest. While these guidelines are
not intended to be all-inclusive, they do provide guidance on First Trust's
general voting policies.

      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. Forms N-Q for the Trust is available on the
SEC's website at http://www.sec.gov. The Funds' Forms 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 Forms N-Q are available without charge, upon
request, by calling (800) 621-1675 or by writing to First Trust Portfolios L.P.,
120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187.

      Policy Regarding Disclosure of Portfolio Holdings. The Trust has adopted a
policy regarding the disclosure of information about each Fund's portfolio
holdings. The Board of Trustees must approve all material amendments to this
policy. 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 websites. 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 each day the NYSE is open for trading via
the National Securities Clearing Corporation ("NSCC"). The basket represents one
Creation Unit of a Fund. Each Fund's portfolio holdings are also available on
the Funds' website at http://www.ftportfolios.com. The Trust, First Trust, First
Trust Portfolios and BONY will not disseminate non-public information concerning
the Trust.

      Codes 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 of Ethics 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 of Ethics 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,


                                      -39-



Martin Luther King, Jr. Day, President's Day, 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 may consist of (i) cash in
lieu of all or a portion of the Deposit Securities, as defined below, and/or
(ii) a designated portfolio of equity securities determined by First Trust--the
"Deposit Securities"--per each Creation Unit Aggregation constituting a
substantial replication of the stocks included in the underlying index ("Fund
Securities") and generally an amount of cash--the "Cash Component"--computed as
described below. Together, the Deposit Securities and the Cash Component
(including the cash in lieu amount) 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 and/or cash in lieu
of all or a portion 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 NSCC (discussed below), makes available on each
Business Day, prior to the opening of business of 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 be at the expense of a Fund and will


                                      -40-



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 Distributor no later than
the closing time of the regular trading session on the NYSE ("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 Distributor 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 Distributor 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
Distributor or an Authorized Participant.


                                      -41-



      All orders from investors who are not Authorized Participants to create
Creation Unit Aggregations shall be placed with an Authorized Participant 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 Distributor 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
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.


                                      -42-



      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
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


                                      -43-



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. In addition, an order
may be rejected for practical reasons such as the imposition by a foreign
government or a regulatory body of controls, or other monetary, currency or
trading restrictions that directly affect the portfolio securities held or
systems failures involving computer or other information systems affecting any
relevant sub-custodian. 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


                                      -44-



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 a 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
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


                                      -45-



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

      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 a 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.


                                      -46-



      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 a 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 a 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 a 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 a 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


                                      -47-



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.

 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 form  Deposit Securities must                   delivered.
                          must be received by   be received by a Fund's
                          the Distributor.      account through DTC.

                                                2:00 p.m. (ET)

                                                Cash Component must be
                                                received by the
                                                Custodian.


                                      -48-



                              TRANSMITTAL            NEXT BUSINESS       SECOND BUSINESS     THIRD BUSINESS
                                DATE (T)               DAY (T+1)            DAY (T+2)           DAY (T+3)

 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 form  Available Deposit                         Missing Deposit
 A PORTION OF THE         must be received by   Securities.                               Securities are due to
 DEPOSIT SECURITIES       the Distributor.                                                the Trust or the Trust
                                                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 form  Deposit Securities must                   delivered.
                          must be received by   be received by a Fund's
                          the Distributor.      account through DTC.

                          Order received after  2:00 p.m. (ET)
                          3:00 p.m. will be
                          treated as standard   Cash Component must be
                          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)

 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 after  2:00 p.m.
                          4:00 p.m. (ET) will
                          be deemed received    Cash Component, if any,
                          on the next business  is due.
                          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.


                                      -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)        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 after  2:00 p.m.
                          3:00 p.m. will be
                          treated as standard   Cash Component, if any,
                          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.

      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 of 1986, as amended
(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 net 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


                                      -50-



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. There are
certain exceptions for failure to qualify if the failure is for reasonable cause
or is de minimis, and certain corrective action is taken and certain tax
payments are made by the Fund.

      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 98.2% 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.

      Subject to certain reasonable cause and de minimis exceptions, 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


                                      -51-



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 each
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, 2013. The Funds will provide notice to its shareholders of the
amount of any distributions that may be taken into account as a dividend which
is eligible for the capital gains tax rates. The Funds cannot make any
guarantees as to the amount of any distribution which will be regarded as a
qualifying dividend.

      Under the "Health Care and Education Reconciliation Act of 2010," income
from the Fund may also be subject to a new 3.8% "Medicare tax" imposed for
taxable years beginning after 2012. This tax will generally apply to net
investment income if the taxpayer's adjusted gross income exceeds certain
threshold amounts, which are $250,000 in the case of married couples filing
joint returns and $200,000 in the case of single individuals.

      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 reported 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.


                                      -52-



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
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.


                                      -53-



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 distribution requirement for avoiding
excise taxes.

INVESTMENTS IN CERTAIN FOREIGN CORPORATIONS

      If a 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. A Fund will
not be able to pass through to its Unitholders any credit or deduction for such
taxes. A 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, a 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
is 28% until 2013, 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.

                                      -54-



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
a Fund is "effectively connected" with a U.S. trade or business carried on by
the shareholder.

      In addition to the rules described above concerning the potential
imposition of withholding on distributions to non-U.S. persons, distributions
after December 31, 2012, to non-U.S. persons that are "financial institutions"
may be subject to a withholding tax of 30% unless an agreement is in place
between the financial institution and the U.S. Treasury to collect and disclose
information about accounts, equity investments, or debt interests in the
financial institution held by one or more U.S. persons. For these purpose, a
"financial institution" means any entity that (i) accepts deposits in the
ordinary course of a banking or similar business, (ii) holds financial assets
for the account of others as a substantial portion of its business, or (iii) is
engage (or holds itself out as being engaged) primarily in the business of
investing, reinvesting or trading in securities, partnership interests,
commodities or any interest (including a futures contract or option) in such
securities, partnership interests or commodities.

      Distributions to non-financial non-U.S. entities (other than publicly
traded foreign entities, entities owned by residents of U.S. possessions,
foreign governments, international organizations, or foreign central banks)
after December 31, 2012, will also be subject to a withholding tax of 30% if the
entity does not certify that the entity does not have any substantial U.S.
owners or provide the name, address and TIN of each substantial U.S. owner.

      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


                                      -55-



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.

      In the case of dividends with respect to taxable years of the Fund
beginning prior to 2012, dividends paid by the Fund 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 reported by the Fund
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, 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.

      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. Under normal circumstances, daily calculation of the NAV will
utilize the last closing price of each security held by the Fund at the close of
the market on which such security is principally listed. 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 other than NASDAQ(R) and the London Stock Exchange
      Alternative Investment Market ("AIM") will be valued at the last sale


                                      -56-



      price on the business day as of which such value is being determined.
      Securities listed on NASDAQ(R) or AIM are valued at the official closing
      price on the business day as of which such value is being determined. If
      there has been no sale on such day, or no official closing price in the
      case of securities traded on NASDAQ(R) and AIM, the securities are valued
      at the mean of the most recent bid and ask prices on such day. Portfolio
      securities traded on more than one securities exchange are valued at the
      last sale price or official closing price, as applicable, 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.

            (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. If no closing price is available, exchange-traded options and
      futures contracts will be valued at the mean between the last bid and
      asked price. 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 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 repurchase 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.

      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 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 1933 Act) for which a pricing service is unable to


                                      -57-



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 each Fund as a regulated investment
company 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.


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                           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 60606, serves as the Funds' independent
registered public accounting firm. The firm audits each Fund's financial
statements and performs other related audit services.


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