0001445546-12-002081.txt : 20120430 0001445546-12-002081.hdr.sgml : 20120430 20120430153246 ACCESSION NUMBER: 0001445546-12-002081 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20120430 DATE AS OF CHANGE: 20120430 EFFECTIVENESS DATE: 20120430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST TRUST EXCHANGE-TRADED ALPHADEX FUND II CENTRAL INDEX KEY: 0001510337 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-171759 FILM NUMBER: 12794661 BUSINESS ADDRESS: STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400 CITY: WHEATON STATE: IL ZIP: 60187 BUSINESS PHONE: 630-765-8000 MAIL ADDRESS: STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400 CITY: WHEATON STATE: IL ZIP: 60187 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST TRUST EXCHANGE-TRADED ALPHADEX FUND II CENTRAL INDEX KEY: 0001510337 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-22519 FILM NUMBER: 12794662 BUSINESS ADDRESS: STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400 CITY: WHEATON STATE: IL ZIP: 60187 BUSINESS PHONE: 630-765-8000 MAIL ADDRESS: STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400 CITY: WHEATON STATE: IL ZIP: 60187 0001510337 S000031795 First Trust Emerging Markets AlphaDEX Fund C000099049 First Trust Emerging Markets AlphaDEX Fund FEM 0001510337 S000031796 First Trust Europe AlphaDEX Fund C000099050 First Trust Europe AlphaDEX Fund FEP 0001510337 S000031797 First Trust Latin America AlphaDEX Fund C000099051 First Trust Latin America AlphaDEX Fund FLN 0001510337 S000031798 First Trust Brazil AlphaDEX Fund C000099052 First Trust Brazil AlphaDEX Fund FBZ 0001510337 S000031799 First Trust China AlphaDEX Fund C000099053 First Trust China AlphaDEX Fund FCA 0001510337 S000031800 First Trust Japan AlphaDEX Fund C000099054 First Trust Japan AlphaDEX Fund FJP 0001510337 S000031801 First Trust South Korea AlphaDEX Fund C000099055 First Trust South Korea AlphaDEX Fund FKO 0001510337 S000031802 First Trust Developed Markets Ex-US AlphaDEX Fund C000099056 First Trust Developed Markets Ex-US AlphaDEX Fund FDT 0001510337 S000031803 First Trust Asia Pacific Ex-Japan AlphaDEX Fund C000099057 First Trust Asia Pacific Ex-Japan AlphaDEX Fund FPA 485BPOS 1 adex2_485b.txt POST-EFFECTIVE AMENDMENT As filed with the Securities and Exchange Commission on April 30, 2012 ================================================================================ 1933 Act Registration No. 333-171759 1940 Act Registration No. 811-22519 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] Pre-Effective Amendment No. __ [ ] Post-Effective Amendment No. 10 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] Amendment No. 11 [X] FIRST TRUST EXCHANGE-TRADED ALPHADEX FUND II (Exact name of registrant as specified in charter) 120 East Liberty Drive Wheaton, Illinois 60187 (Address of Principal Executive Offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 621-1675 W. Scott Jardine, Esq., Secretary First Trust Exchange-Traded AlphaDEX Fund II First Trust Advisors L.P. 120 East Liberty Drive Wheaton, Illinois 60187 (Name and Address of Agent for Service) Copy to: Eric F. Fess, Esq. Chapman and Cutler LLP 111 West Monroe Street Chicago, Illinois 60603 It is proposed that this filing will become effective (check appropriate box): [X] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 10 This Post-Effective Amendment to the Registration Statement comprises the following papers and contents: The Facing Sheet Part A - Prospectus for First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund, First Trust Europe AlphaDEX(R) Fund, First Trust Latin America AlphaDEX(R) Fund, First Trust Brazil AlphaDEX(R) Fund, First Trust China AlphaDEX(R) Fund, First Trust Japan AlphaDEX(R) Fund, First Trust South Korea AlphaDEX(R) Fund, First Trust Developed Markets Ex-US AlphaDEX(R) Fund and First Trust Emerging Markets AlphaDEX(R) Fund Part B - Statement of Additional Information for First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund, First Trust Europe AlphaDEX(R) Fund, First Trust Latin America AlphaDEX(R) Fund, First Trust Brazil AlphaDEX(R) Fund, First Trust China AlphaDEX(R) Fund, First Trust Japan AlphaDEX(R) Fund, First Trust South Korea AlphaDEX(R) Fund, First Trust Developed Markets Ex-US AlphaDEX(R) Fund and First Trust Emerging Markets AlphaDEX(R) Fund Part C - Other Information Signatures Index to Exhibits Exhibits ALPHADEX FAMILY OF ETFs -------------------------------------------------------------------------------- FUND NAME TICKER SYMBOL EXCHANGE ALPHADEX(R) FUND II First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund FPA NYSE Arca First Trust Europe AlphaDEX(R) Fund FEP NYSE Arca First Trust Latin America AlphaDEX(R) Fund FLN NYSE Arca First Trust Brazil AlphaDEX(R) Fund FBZ NYSE Arca First Trust China AlphaDEX(R) Fund FCA NYSE Arca First Trust Japan AlphaDEX(R) Fund FJP NYSE Arca First Trust South Korea AlphaDEX(R) Fund FKO NYSE Arca First Trust Developed Markets Ex-US AlphaDEX(R) Fund FDT NYSE Arca First Trust Emerging Markets AlphaDEX(R) Fund FEM NYSE Arca First Trust Exchange-Traded AlphaDEX(R) Fund II (the "Trust") is a registered management investment company that includes First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund, First Trust Europe AlphaDEX(R) Fund, First Trust Latin America AlphaDEX(R) Fund, First Trust Brazil AlphaDEX(R) Fund, First Trust China AlphaDEX(R) Fund, First Trust Japan AlphaDEX(R) Fund, First Trust South Korea AlphaDEX(R) Fund, First Trust Developed Markets ex-US AlphaDEX(R) Fund and First Trust Emerging Markets AlphaDEX(R) Fund (each, a "Fund" and collectively, the "Funds"), each a separate exchange-traded index fund. First Trust Advisors L.P. ("First Trust") is the investment advisor to each Fund. The shares of each Fund ("Shares) are listed 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 at its NAV, only in large specified blocks each consisting of 50,000 Shares (each such block of Shares, called a "Creation Unit" and collectively, the "Creation Units"). Each Fund's Creation Units are issued and redeemed for cash or in-kind for securities in which the Fund invests. 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 30, 2012 -------------------------------------------------------------------------------- TABLE OF CONTENTS Summary Information First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund.................... 1 First Trust Europe AlphaDEX(R) Fund................................... 5 First Trust Latin America AlphaDEX(R) Fund............................ 8 First Trust Brazil AlphaDEX(R) Fund................................... 11 First Trust China AlphaDEX(R) Fund.................................... 14 First Trust Japan AlphaDEX(R) Fund.................................... 17 First Trust South Korea AlphaDEX(R) Fund.............................. 20 First Trust Developed Markets Ex-US AlphaDEX(R) Fund.................. 23 First Trust Emerging Markets AlphaDEX(R) Fund......................... 26 Investment Strategies........................................................ 29 Additional Risks of Investing in the Funds................................... 29 Fund Organization............................................................ 31 Management of the Funds...................................................... 31 How to Buy and Sell Shares................................................... 32 Dividends, Distributions and Taxes........................................... 33 Federal Tax Matters.......................................................... 34 Distribution Plan............................................................ 36 Net Asset Value.............................................................. 36 Fund Service Providers....................................................... 37 Index Provider............................................................... 37 Disclaimers.................................................................. 37 Index Information............................................................ 38 Premium/Discount Information................................................. 47 Total Return Information..................................................... 49 Financial Highlights......................................................... 52 Other Information............................................................ 57 -------------------------------------------------------------------------------- SUMMARY INFORMATION FIRST TRUST ASIA PACIFIC EX-JAPAN ALPHADEX(R) FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The First Trust Asia Pacific Ex-Japan 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 Asia Pacific Ex-Japan 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 0.80% Distribution and Service (12b-1) Fees (1) 0.00% Other Expenses 0.00% ----- Total Annual Fund Operating Expenses 0.80% 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 30, 2013 and thereafter at 1.05% 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 5 YEARS 10 YEARS ------ ------- ------- -------- $82 $301 $547 $1,252 ------------------- (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 30, 2013. 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. During the fiscal period April 18, 2011 (inception) through December 31, 2011, the Fund's portfolio turnover rate was 49% of the average value of its portfolio. 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 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 Asia Pacific Ex-Japan BMI Index (the "Base Index") that may generate positive alpha relative to traditional passive-style indices through the use of the 1 -------------------------------------------------------------------------------- FIRST TRUST ASIA PACIFIC EX-JAPAN ALPHADEX(R) FUND -- FPA -------------------------------------------------------------------------------- AlphaDEX(R) selection methodology. The Base Index is a comprehensive, rules-based index designed to measure stock market performance in the Asia Pacific region excluding Japan. The Base Index covers all publicly listed equities with float adjusted market values of $100 million or more and annual dollar value traded of at least $50 million. 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, 2012, the Index was comprised of 98 securities from five countries. The Index is rebalanced and reconstituted as of the last business day of the semi-annual periods ended March 31 and September 30. Changes to the Index will be effective at the open of trading on the ninth 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 issuers. NON-U.S. SECURITIES AND EMERGING MARKETS RISK. The Fund invests in securities of non-U.S. issuers, including non-U.S. dollar-denominated securities traded outside of the United States and U.S. dollar-denominated securities of non-U.S. issuers traded in the United States. Such securities are subject to higher volatility than securities of domestic issuers due to possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. These risks may be heightened for securities of companies located in, or with significant operations in, emerging market countries. CASH TRANSACTIONS RISK. Unlike most exchange-traded funds, the Fund may effect a portion of creations and redemptions for cash, rather than in-kind securities. As a result, an investment in the Fund may be less tax-efficient than an investment in a more conventional exchange-traded fund. Because the Fund may effect a portion of redemptions for cash, rather than in-kind distributions, it may be required to sell portfolio securities in order to obtain the cash needed to distribute redemption proceeds. A sale of Shares may result in capital gains or losses, and may also result in higher brokerage costs. CURRENCY RISK. Because the Fund's NAV is determined on the basis of U.S. dollars and the Fund invests in foreign securities, you may lose money if the local currency of a foreign market depreciates against the U.S. dollar, even if the local currency value of the Fund's holdings goes up. REAL ESTATE INVESTMENT RISK. The Fund invests in companies in the real estate industry, including REITs. Therefore, the Fund is subject to the risks associated with investing in real estate, which may include, but are not limited to, fluctuations in the value of underlying properties; defaults by borrowers or tenants; market saturation; changes in general and local economic conditions; decreases in market rates for rents; increases in competition, property taxes, 2 -------------------------------------------------------------------------------- FIRST TRUST ASIA PACIFIC EX-JAPAN ALPHADEX(R) FUND -- FPA -------------------------------------------------------------------------------- capital expenditures or operating expenses; and other economic, political or regulatory occurrences affecting companies in the real estate industry. The Fund invests in real estate companies that may be adversely impacted by the downturn in the subprime mortgage lending market in the United States. Subprime loans have higher defaults and losses than prime loans. Subprime loans also have higher serious delinquency rates than prime loans. The downturn in the subprime mortgage lending market may have far-reaching consequences into many aspects and geographic regions of the real estate business, and consequently, the value of the Fund may decline in response to such developments. ASIA PACIFIC RISK. The Fund invests in securities issued by companies operating in the Asia Pacific region. The Fund is more susceptible to the economic, market, regulatory, political, natural disasters and local risks of the Asia Pacific region than a fund that is more geographically diversified. The region has historically been highly dependent on global trade, with nations taking strong roles in both the importing and exporting of goods; such a relationship creates a risk with this dependency on global growth. The respective stock markets tend to have a larger prevalence of smaller companies that are inherently more volatile and less liquid than larger companies. Varying levels of accounting and disclosure standards, restrictions on foreign ownership, minority ownership rights, and corporate governance standards are also common for the region. HONG KONG AND SOUTH KOREA RISK. The Fund invests heavily in companies operating in South Korea and Hong Kong. The South Korean economy is dependent on the economies of Asia and the United States as key trading partners. Reduction in spending by these economies on South Korean products and services or negative changes in any of these economies, mainly in China or Southeast Asia, may cause an adverse impact on the South Korean economy. Furthermore, South Korea's economy is also dependent on the economies of other Asian countries and can be significantly affected by currency fluctuations and increasing competition from Asia's other low-cost emerging economies. Also, the political tensions with North Korea could escalate and lead to further uncertainty in the political and economic climate on the Korean peninsula. Hong Kong companies are subject to risks related to Hong Kong's political and economic environment and the volatility of and the concentration of real estate companies listed on the Hong Kong Stock Exchange. Because of Hong Kong's reversion to China, any increase in uncertainty as to the economic and political status of Hong Kong or a deterioration of the relationship between China and the United States, could have negative implications on stocks listed on the Hong Kong Stock Exchange. Securities prices on the Hong Kong Stock Exchange, and specifically the Hang Seng Index, can be highly volatile and are sensitive to developments in Hong Kong and China, as well as other world markets. ANNUAL TOTAL RETURN The Fund has not yet operated for a full calendar year and, therefore, performance information is not included in this section of the Prospectus. See "Total Return Information" for performance information regarding the Fund. 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: o Daniel J. Lindquist, Chairman of the Investment Committee and Senior Vice President of First Trust; o Robert F. Carey, Chief Investment Officer and Senior Vice President of First Trust; o Jon C. Erickson, Senior Vice President of First Trust; o David G. McGarel, Senior Vice President of First Trust; o Roger F. Testin, Senior Vice President of First Trust; and o 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. 3 -------------------------------------------------------------------------------- FIRST TRUST ASIA PACIFIC EX-JAPAN ALPHADEX(R) FUND -- FPA -------------------------------------------------------------------------------- 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 for cash or 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 Shares of 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. 4 -------------------------------------------------------------------------------- SUMMARY INFORMATION FIRST TRUST EUROPE ALPHADEX(R) FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The First Trust Europe 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 Europe 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 0.80% Distribution and Service (12b-1) Fees (1) 0.00% Other Expenses 0.00% ----- Total Annual Fund Operating Expenses 0.80% 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 30, 2013 and thereafter at 1.05% 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 5 YEARS 10 YEARS ------ ------- ------- -------- $82 $301 $547 $1,252 ------------------- (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 30, 2013. 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. During the fiscal period April 18, 2011 (inception) through December 31, 2011, the Fund's portfolio turnover rate was 27% of the average value of its portfolio. 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 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 Europe BMI Index (the "Base Index") that may generate positive alpha relative to traditional passive-style indices through the use of the AlphaDEX(R) selection methodology. The Base Index is a comprehensive, rules-based index designed to 5 -------------------------------------------------------------------------------- FIRST TRUST EUROPE ALPHADEX(R) FUND -- FEP -------------------------------------------------------------------------------- measure stock market performance in Europe. The Base Index covers all publicly listed equities with float adjusted market values of $100 million or more and annual dollar value traded of at least $50 million. 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, 2012, the Index was comprised of 197 securities from 17 countries. The Index is rebalanced and reconstituted as of the last business day of the semi-annual periods ended March 31 and September 30. Changes to the Index will be effective at the open of trading on the ninth 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 issuers. NON-U.S. SECURITIES RISK. The Fund invests in securities of non-U.S. issuers, including non-U.S. dollar-denominated securities traded outside of the United States and U.S. dollar-denominated securities of non-U.S. issuers traded in the United States. Such securities are subject to higher volatility than securities of domestic issuers due to possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. CURRENCY RISK. Because the Fund's NAV is determined on the basis of U.S. dollars and the Fund invests in foreign securities, you may lose money if the local currency of a foreign market depreciates against the U.S. dollar, even if the local currency value of the Fund's holdings goes up. EUROPE RISK. The Fund invests in securities issued by companies operating in Europe. The Fund is therefore subject to certain risks associated specifically with Europe. A significant number of countries in Europe are member states in the European Union, and the member states no longer control their own monetary policies by directing independent interest rates for their currencies. In these member states, the authority to direct monetary policies, including money supply and official interest rates for the Euro, is exercised by the European Central Bank. Furthermore, the European sovereign debt crisis and the related austerity measures in certain countries have had, and continues to have, a significant negative impact on the economies of certain European countries and their future economic outlooks. ANNUAL TOTAL RETURN The Fund has not yet operated for a full calendar year and, therefore, performance information is not included in this section of the Prospectus. See "Total Return Information" for performance information regarding the Fund. 6 -------------------------------------------------------------------------------- FIRST TRUST EUROPE ALPHADEX(R) FUND -- FEP -------------------------------------------------------------------------------- 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: o Daniel J. Lindquist, Chairman of the Investment Committee and Senior Vice President of First Trust; o Robert F. Carey, Chief Investment Officer and Senior Vice President of First Trust; o Jon C. Erickson, Senior Vice President of First Trust; o David G. McGarel, Senior Vice President of First Trust; o Roger F. Testin, Senior Vice President of First Trust; and o 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 in cash or 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 Shares of 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. 7 -------------------------------------------------------------------------------- SUMMARY INFORMATION FIRST TRUST LATIN AMERICA ALPHADEX(R) FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The First Trust Latin America 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 Latin America 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 0.80% Distribution and Service (12b-1) Fees (1) 0.00% Other Expenses 0.00% ----- Total Annual Fund Operating Expenses 0.80% 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 30, 2013 and thereafter at 1.05% 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 5 YEARS 10 YEARS ------ ------- ------- -------- $82 $301 $547 $1,252 ------------------- (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 30, 2013. 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. During the fiscal period April 18, 2011 (inception) through December 31, 2011, the Fund's portfolio turnover rate was 54% of the average value of its portfolio. 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 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 Latin America BMI Index (the "Base Index") that may generate positive alpha relative to traditional passive-style indices through the use of the AlphaDEX(R) 8 -------------------------------------------------------------------------------- FIRST TRUST LATIN AMERICA ALPHADEX(R) FUND -- FLN -------------------------------------------------------------------------------- selection methodology. The Base Index is a comprehensive, rules-based index designed to measure stock market performance in Latin America. The Base Index covers all publicly listed equities with float adjusted market values of $100 million or more and annual dollar value traded of at least $50 million. 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, 2012, the Index was comprised of 50 securities from four countries. The Index is rebalanced and reconstituted as of the last business day of the semi-annual periods ended March 31 and September 30. Changes to the Index will be effective at the open of trading on the ninth 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 issuers. NON-U.S. SECURITIES AND EMERGING MARKETS RISK. The Fund invests in securities of non-U.S. issuers, including non-U.S. dollar-denominated securities traded outside of the United States and U.S. dollar-denominated securities of non-U.S. issuers traded in the United States. Such securities are subject to higher volatility than securities of domestic issuers due to possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. These risks may be heightened for securities of companies located in, or with significant operations in, emerging market countries. CASH TRANSACTIONS RISK. Unlike most exchange-traded funds, the Fund may effect a portion of creations and redemptions for cash, rather than in-kind securities. As a result, an investment in the Fund may be less tax-efficient than an investment in a more conventional exchange-traded fund. Because the Fund may effect a portion of redemptions for cash, rather than in-kind distributions, it may be required to sell portfolio securities in order to obtain the cash needed to distribute redemption proceeds. A sale of Shares may result in capital gains or losses, and may also result in higher brokerage costs. CURRENCY RISK. Because the Fund's NAV is determined on the basis of U.S. dollars and the Fund invests in foreign securities, you may lose money if the local currency of a foreign market depreciates against the U.S. dollar, even if the local currency value of the Fund's holdings goes up. LATIN AMERICA RISK. The Fund invests in securities issued by companies operating in Latin America. The Fund is therefore subject to certain risks associated specifically with this region. The value of Fund Shares may be adversely affected by political, economic, and social instability; inadequate investor protection; changes in laws or regulations of countries within Latin America; international relations with other nations; natural disasters; corruption and military activity. The economies of many Latin American countries differ from 9 -------------------------------------------------------------------------------- FIRST TRUST LATIN AMERICA ALPHADEX(R) FUND -- FLN -------------------------------------------------------------------------------- the economies of more developed countries in many respects. Certain Latin American countries are highly dependent upon and may be affected by developments in the United States, Europe and other Latin American economies. BRAZIL RISK. The Fund invests heavily in companies operating in Brazil. Brazil has experienced substantial economic instability resulting from, among other things, periods of very high inflation, persistent structural public sector deficits and significant devaluations of its currency leading also to a high degree of price volatility in both the Brazilian equity and foreign currency markets. Brazilian companies may also be adversely affected by high interest and unemployment rates, and are particularly sensitive to fluctuations in commodity prices. Brazilian securities may also be subject to restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards and less government supervision and regulation of exchanges than in the United States. These risks may be heightened for securities of companies located in, or with significant operations in, an emerging market country like Brazil. ANNUAL TOTAL RETURN The Fund has not yet operated for a full calendar year and, therefore, performance information is not included in this section of the Prospectus. See "Total Return Information" for performance information regarding the Fund. 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: o Daniel J. Lindquist, Chairman of the Investment Committee and Senior Vice President of First Trust; o Robert F. Carey, Chief Investment Officer and Senior Vice President of First Trust; o Jon C. Erickson, Senior Vice President of First Trust; o David G. McGarel, Senior Vice President of First Trust; o Roger F. Testin, Senior Vice President of First Trust; and o 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 for cash or 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 Shares of 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. 10 -------------------------------------------------------------------------------- SUMMARY INFORMATION FIRST TRUST BRAZIL ALPHADEX(R) FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The First Trust Brazil 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 Brazil 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 0.80% Distribution and Service (12b-1) Fees (1) 0.00% Other Expenses 0.00% ----- Total Annual Fund Operating Expenses 0.80% 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 30, 2013 and thereafter at 1.05% 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 5 YEARS 10 YEARS ------ ------- ------- -------- $82 $301 $547 $1,252 ------------------- (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 30, 2013. 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. During the fiscal period April 18, 2011 (inception) through December 31, 2011, the Fund's portfolio turnover rate was 46% of the average value of its portfolio. 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 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 Brazil BMI Index (the "Base Index") that may generate positive alpha relative to traditional passive-style indices through the use of the AlphaDEX(R) selection 11 -------------------------------------------------------------------------------- FIRST TRUST BRAZIL ALPHADEX(R) FUND -- FBZ -------------------------------------------------------------------------------- methodology. The Base Index is a comprehensive, rules-based index designed to measure stock market performance in Brazil. The Base Index covers all publicly listed equities with float adjusted market values of $100 million or more and annual dollar value traded of at least $50 million. 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, 2012, the Index was comprised of 50 securities. The Index is rebalanced and reconstituted as of the last business day of the semi-annual periods ended June 30 and December 31. Changes to the Index will be effective at the open of trading on the ninth 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 issuers. NON-U.S. SECURITIES AND EMERGING MARKETS RISK. The Fund invests in securities of non-U.S. issuers, including non-U.S. dollar-denominated securities traded outside of the United States and U.S. dollar-denominated securities of non-U.S. issuers traded in the United States. Such securities are subject to higher volatility than securities of domestic issuers due to possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. These risks may be heightened for securities of companies located in, or with significant operations in, emerging market countries. CASH TRANSACTIONS RISK. Unlike most exchange-traded funds, the Fund may effect a portion of creations and redemptions for cash, rather than in-kind securities. As a result, an investment in the Fund may be less tax-efficient than an investment in a more conventional exchange-traded fund. Because the Fund may effect a portion of redemptions for cash, rather than in-kind distributions, it may be required to sell portfolio securities in order to obtain the cash needed to distribute redemption proceeds. A sale of Shares may result in capital gains or losses, and may also result in higher brokerage costs. CURRENCY RISK. Because the Fund's NAV is determined on the basis of U.S. dollars and the Fund invests in foreign securities, you may lose money if the local currency of a foreign market depreciates against the U.S. dollar, even if the local currency value of the Fund's holdings goes up. BRAZIL RISK. The Fund invests in companies that are operating in Brazil. Brazil has experienced substantial economic instability resulting from, among other things, periods of very high inflation, persistent structural public sector deficits and significant devaluations of its currency leading also to a high degree of price volatility in both the Brazilian equity and foreign currency markets. Brazilian companies may also be adversely affected by high interest and unemployment rates, and are particularly sensitive to fluctuations in commodity 12 -------------------------------------------------------------------------------- FIRST TRUST BRAZIL ALPHADEX(R) FUND -- FBZ -------------------------------------------------------------------------------- prices. Brazilian securities may also be subject to restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards and less government supervision and regulation of exchanges than in the United States. These risks may be heightened for securities of companies located in, or with significant operations in, an emerging market country like Brazil. ANNUAL TOTAL RETURN The Fund has not yet operated for a full calendar year and, therefore, performance information is not included in this section of the Prospectus. See "Total Return Information" for performance information regarding the Fund. 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: o Daniel J. Lindquist, Chairman of the Investment Committee and Senior Vice President of First Trust; o Robert F. Carey, Chief Investment Officer and Senior Vice President of First Trust; o Jon C. Erickson, Senior Vice President of First Trust; o David G. McGarel, Senior Vice President of First Trust; o Roger F. Testin, Senior Vice President of First Trust; and o 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 for cash or 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 Shares of 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. 13 -------------------------------------------------------------------------------- SUMMARY INFORMATION FIRST TRUST CHINA ALPHADEX(R) FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The First Trust China 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 China 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 0.80% Distribution and Service (12b-1) Fees (1) 0.00% Other Expenses 0.00% ------ Total Annual Fund Operating Expenses 0.80% 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 30, 2013 and thereafter at 1.05% 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 5 YEARS 10 YEARS ------ ------- ------- -------- $82 $301 $547 $1,252 ------------------- (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 30, 2013. 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. During the fiscal period April 18, 2011 (inception) through December 31, 2011, the Fund's portfolio turnover rate was 60% of the average value of its portfolio. 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 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 China BMI Index (the "Base Index") that may generate positive alpha relative to traditional passive-style indices through the use of the AlphaDEX(R) selection 14 -------------------------------------------------------------------------------- FIRST TRUST CHINA ALPHADEX(R) FUND -- FCA -------------------------------------------------------------------------------- methodology. The Base Index is a comprehensive, rules-based index designed to measure stock market performance in China. The Base Index covers all publicly listed equities with float adjusted market values of $100 million or more and annual dollar value traded of at least $50 million. 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, 2012, the Index was comprised of 49 securities. The Index is rebalanced and reconstituted as of the last business day of the semi-annual periods ended June 30 and December 31. Changes to the Index will be effective at the open of trading on the ninth 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 issuers. NON-U.S. SECURITIES AND EMERGING MARKETS RISK. The Fund invests in securities of non-U.S. issuers, including non-U.S. dollar-denominated securities traded outside of the United States and U.S. dollar-denominated securities of non-U.S. issuers traded in the United States. Such securities are subject to higher volatility than securities of domestic issuers due to possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. These risks may be heightened for securities of companies located in, or with significant operations in, emerging market countries. CURRENCY RISK. Because the Fund's NAV is determined on the basis of U.S. dollars and the Fund invests in foreign securities, you may lose money if the local currency of a foreign market depreciates against the U.S. dollar, even if the local currency value of the Fund's holdings goes up. CHINA RISK. The Fund may invest in H shares, certain depositary receipts and U.S.-listed common stock of companies that are domiciled in China, including Hong Kong. Some Chinese companies are listed on both the Hong Kong Stock Exchange with H shares and the Shanghai Stock Exchange with A shares. Price differentials between H shares and A shares of the same company may be significant. Also, price fluctuations of A shares are limited to either 5% or 10% per trading day, while no such limitations exist for H shares. Therefore, H shares may be susceptible to greater price fluctuations. Investing in securities of companies in China involves additional risks, including, but not limited to, the economy of China differs, often unfavorably, from the U.S. economy in such respects as structure, general development, government involvement, wealth distribution, rate of inflation, growth rate, allocation of resources and capital reinvestment, among others; the central government has historically exercised substantial control over virtually every sector of the Chinese economy through administrative regulation and/or state ownership; and actions of the Chinese central and local government authorities continue to have a substantial 15 -------------------------------------------------------------------------------- FIRST TRUST CHINA ALPHADEX(R) FUND -- FCA -------------------------------------------------------------------------------- effect on economic conditions in China. Furthermore, China's economy is dependent on the economies of other Asian countries and can be significantly affected by currency fluctuations and increasing competition from Asia's other low-cost emerging economies. Chinese securities may also be subject to greater restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards and less government supervision and regulation of exchanges than in the United States. These risks may be heightened for securities of companies located in, or with significant operations in, an emerging market country like China. ANNUAL TOTAL RETURN The Fund has not yet operated for a full calendar year and, therefore, performance information is not included in this section of the Prospectus. See "Total Return Information" for performance information regarding the Fund. 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: o Daniel J. Lindquist, Chairman of the Investment Committee and Senior Vice President of First Trust; o Robert F. Carey, Chief Investment Officer and Senior Vice President of First Trust; o Jon C. Erickson, Senior Vice President of First Trust; o David G. McGarel, Senior Vice President of First Trust; o Roger F. Testin, Senior Vice President of First Trust; and o 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 for cash or 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 Shares of 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. 16 -------------------------------------------------------------------------------- SUMMARY INFORMATION FIRST TRUST JAPAN ALPHADEX(R) FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The First Trust Japan 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 Japan 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 0.80% Distribution and Service (12b-1) Fees (1) 0.00% Other Expenses 0.00% ----- Total Annual Fund Operating Expenses 0.80% 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 30, 2013 and thereafter at 1.05% 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 5 YEARS 10 YEARS ------ ------- ------- -------- $82 $301 $547 $1,252 ------------------- (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 30, 2013. 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. During the fiscal period April 18, 2011 (inception) through December 31, 2011, the Fund's portfolio turnover rate was 43% of the average value of its portfolio. 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 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 Japan BMI Index (the "Base Index") that may generate positive alpha relative to traditional passive-style indices through the use of the AlphaDEX(R) selection 17 -------------------------------------------------------------------------------- FIRST TRUST JAPAN ALPHADEX(R) FUND -- FJP -------------------------------------------------------------------------------- methodology. The Base Index is a comprehensive, rules-based index designed to measure stock market performance in Japan. The Base Index covers all publicly listed equities with float adjusted market values of $100 million or more and annual dollar value traded of at least $50 million. 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, 2012, the Index was comprised of 100 securities. The Index is rebalanced and reconstituted as of the last business day of the semi-annual periods ended June 30 and December 31. Changes to the Index will be effective at the open of trading on the ninth 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 issuers. NON-U.S. SECURITIES RISK. The Fund invests in securities of non-U.S. issuers, including non-U.S. dollar-denominated securities traded outside of the United States and U.S. dollar-denominated securities of non-U.S. issuers traded in the United States. Such securities are subject to higher volatility than securities of domestic issuers due to possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. CURRENCY RISK. Because the Fund's NAV is determined on the basis of U.S. dollars and the Fund invests in foreign securities, you may lose money if the local currency of a foreign market depreciates against the U.S. dollar, even if the local currency value of the Fund's holdings goes up. JAPAN RISK. The Fund invests in the stock of companies operating in Japan. Because Japan's economy and equity market share a strong correlation with the U.S. markets, the Japanese economy may be affected by economic problems in the U.S. Japan also has a growing economic relationship with China and other Southeast Asian countries, and thus Japan's economy may also be affected by economic, political or social instability in those countries. Despite a strengthening in the economic relationship between Japan and China, the countries' political relationship has at times been strained in recent years. Should political tension increase, it could adversely affect the economy and destabilize the region as a whole. Japan also remains heavily dependent on oil imports, and higher commodity prices could therefore have a negative impact on the economy. Japanese securities may also be subject to lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards and less government supervision and regulation of exchanges than in the United States. Furthermore, the natural disasters that have impacted Japan and the ongoing recovery efforts have had a negative affect on Japan's economy, and may continue to do so. 18 -------------------------------------------------------------------------------- FIRST TRUST JAPAN ALPHADEX(R) FUND -- FJP -------------------------------------------------------------------------------- ANNUAL TOTAL RETURN The Fund has not yet operated for a full calendar year and, therefore, performance information is not included in this section of the Prospectus. See "Total Return Information" for performance information regarding the Fund. 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: o Daniel J. Lindquist, Chairman of the Investment Committee and Senior Vice President of First Trust; o Robert F. Carey, Chief Investment Officer and Senior Vice President of First Trust; o Jon C. Erickson, Senior Vice President of First Trust; o David G. McGarel, Senior Vice President of First Trust; o Roger F. Testin, Senior Vice President of First Trust; and o 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 for cash or 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 Shares of 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. 19 -------------------------------------------------------------------------------- SUMMARY INFORMATION FIRST TRUST SOUTH KOREA ALPHADEX(R) FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The First Trust South Korea 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 South Korea 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 0.80% Distribution and Service (12b-1) Fees (1) 0.00% Other Expenses 0.00% ----- Total Annual Fund Operating Expenses 0.80% 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 30, 2013 and thereafter at 1.05% 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 5 YEARS 10 YEARS ------ ------- ------- -------- $82 $301 $547 $1,252 ------------------- (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 30, 2013. 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. During the fiscal period April 18, 2011 (inception) through December 31, 2011, the Fund's portfolio turnover rate was 123% of the average value of its portfolio. 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 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 20 -------------------------------------------------------------------------------- FIRST TRUST SOUTH KOREA ALPHADEX(R) FUND -- FKO -------------------------------------------------------------------------------- South Korea BMI Index (the "Base Index") that may generate positive alpha relative to traditional passive-style indices through the use of the AlphaDEX(R) selection methodology. The Base Index is a comprehensive, rules-based index designed to measure stock market performance in South Korea. The Base Index covers all publicly listed equities with float adjusted market values of $100 million or more and annual dollar value traded of at least $50 million. 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, 2012, the Index was comprised of 50 securities. The Index is rebalanced and reconstituted as of the last business day of the semi-annual periods ended June 30 and December 31. Changes to the Index will be effective at the open of trading on the ninth 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 issuers. NON-U.S. SECURITIES AND EMERGING MARKETS RISK. The Fund invests in securities of non-U.S. issuers, including non-U.S. dollar-denominated securities traded outside of the United States and U.S. dollar-denominated securities of non-U.S. issuers traded in the United States. Such securities are subject to higher volatility than securities of domestic issuers due to possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. These risks may be heightened for securities of companies located in, or with significant operations in, emerging market countries. CASH TRANSACTIONS RISK. Unlike most exchange-traded funds, the Fund may effect a portion of creations and redemptions for cash, rather than in-kind securities. As a result, an investment in the Fund may be less tax-efficient than an investment in a more conventional exchange-traded fund. Because the Fund may effect a portion of redemptions for cash, rather than in-kind distributions, it may be required to sell portfolio securities in order to obtain the cash needed to distribute redemption proceeds. A sale of Shares may result in capital gains or losses, and may also result in higher brokerage costs. CURRENCY RISK. Because the Fund's NAV is determined on the basis of U.S. dollars and the Fund invests in foreign securities, you may lose money if the local currency of a foreign market depreciates against the U.S. dollar, even if the local currency value of the Fund's holdings goes up. SOUTH KOREA RISK. The Fund invests in the stock of companies that are domiciled in South Korea. The South Korean economy is dependent on the economies of Asia and the United States as key trading partners. Reduction in spending by these economies on South Korean products and services or negative changes in any of these economies, mainly in China or Southeast Asia, may cause an adverse impact on the South Korean economy. Furthermore, South Korea's economy is also 21 -------------------------------------------------------------------------------- FIRST TRUST SOUTH KOREA ALPHADEX(R) FUND -- FKO -------------------------------------------------------------------------------- dependent on the economies of other Asian countries and can be significantly affected by currency fluctuations and increasing competition from Asia's other low-cost emerging economies. Also, the political tensions with North Korea could escalate and lead to further uncertainty in the political and economic climate on the Korean peninsula. South Korean securities may also be subject to restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards and less government supervision and regulation of exchanges than in the United States. These risks may be heightened for securities of companies located in, or with significant operations in, an emerging market country like South Korea. ANNUAL TOTAL RETURN The Fund has not yet operated for a full calendar year and, therefore, performance information is not included in this section of the Prospectus. See "Total Return Information" for performance information regarding the Fund. 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: o Daniel J. Lindquist, Chairman of the Investment Committee and Senior Vice President of First Trust; o Robert F. Carey, Chief Investment Officer and Senior Vice President of First Trust; o Jon C. Erickson, Senior Vice President of First Trust; o David G. McGarel, Senior Vice President of First Trust; o Roger F. Testin, Senior Vice President of First Trust; and o 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 for cash or 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 Shares of 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. 22 -------------------------------------------------------------------------------- SUMMARY INFORMATION FIRST TRUST DEVELOPED MARKETS EX-US ALPHADEX(R) FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The First Trust Developed Markets Ex-US 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 Developed Markets Ex-US 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 0.80% Distribution and Service (12b-1) Fees (1) 0.00% Other Expenses 0.00% ----- Total Annual Fund Operating Expenses 0.80% 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 30, 2013 and thereafter at 1.05% 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 5 YEARS 10 YEARS ------ ------- ------- -------- $82 $301 $547 $1,252 ------------------- (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 30, 2013. 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. During the fiscal period April 18, 2011 (inception) through December 31, 2011, the Fund's portfolio turnover rate was 67% of the average value of its portfolio. 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 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 23 -------------------------------------------------------------------------------- FIRST TRUST DEVELOPED MARKETS EX-US ALPHADEX(R) FUND -- FDT -------------------------------------------------------------------------------- Developed Markets Ex-US BMI Index (the "Base Index") that may generate positive alpha relative to traditional passive-style indices through the use of the AlphaDEX(R) selection methodology. The Base Index is a comprehensive, rules-based index designed to measure stock market performance in developed markets excluding the United States. The Base Index covers all publicly listed equities with float adjusted market values of $100 million or more and annual dollar value traded of at least $50 million. 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, 2012, the Index was comprised of 295 securities from 23 countries. The Index is rebalanced and reconstituted as of the last business day of the semi-annual periods ended March 31 and September 30. Changes to the Index will be effective at the open of trading on the ninth 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 issuers. NON-U.S. SECURITIES RISK. The Fund invests in securities of non-U.S. issuers, including non-U.S. dollar-denominated securities traded outside of the United States and U.S. dollar-denominated securities of non-U.S. issuers traded in the United States. Such securities are subject to higher volatility than securities of domestic issuers due to possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. CURRENCY RISK. Because the Fund's NAV is determined on the basis of U.S. dollars and the Fund invests in foreign securities, you may lose money if the local currency of a foreign market depreciates against the U.S. dollar, even if the local currency value of the Fund's holdings goes up. JAPAN RISK. The Fund invests in the stock of companies operating in Japan. Because Japan's economy and equity market share a strong correlation with the U.S. markets, the Japanese economy may be affected by economic problems in the U.S. Japan also has a growing economic relationship with China and other Southeast Asian countries, and thus Japan's economy may also be affected by economic, political or social instability in those countries. Despite a strengthening in the economic relationship between Japan and China, the countries' political relationship has at times been strained in recent years. Should political tension increase, it could adversely affect the economy and destabilize the region as a whole. Japan also remains heavily dependent on oil imports, and higher commodity prices could therefore have a negative impact on the economy. Japanese securities may also be subject to lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards and less government supervision and regulation of exchanges than in the United States. Furthermore, the natural disasters that have impacted Japan and the ongoing recovery efforts have had a negative affect on Japan's economy, and may continue to do so. 24 -------------------------------------------------------------------------------- FIRST TRUST DEVELOPED MARKETS EX-US ALPHADEX(R) FUND -- FDT -------------------------------------------------------------------------------- ANNUAL TOTAL RETURN The Fund has not yet operated for a full calendar year and, therefore, performance information is not included in this section of the Prospectus. See "Total Return Information" for performance information regarding the Fund. 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: o Daniel J. Lindquist, Chairman of the Investment Committee and Senior Vice President of First Trust; o Robert F. Carey, Chief Investment Officer and Senior Vice President of First Trust; o Jon C. Erickson, Senior Vice President of First Trust; o David G. McGarel, Senior Vice President of First Trust; o Roger F. Testin, Senior Vice President of First Trust; and o 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 for cash or 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 Shares of 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. 25 -------------------------------------------------------------------------------- SUMMARY INFORMATION FIRST TRUST EMERGING MARKETS ALPHADEX(R) FUND -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The First Trust Emerging Markets 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 Emerging Markets 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 0.80% Distribution and Service (12b-1) Fees (1) 0.00% Other Expenses 0.00% ----- Total Annual Fund Operating Expenses 0.80% 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 30, 2013 and thereafter at 1.05% 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 5 YEARS 10 YEARS ------ ------- ------- -------- $82 $301 $547 $1,252 ------------------- (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 30, 2013. 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. During the fiscal period April 18, 2011 (inception) through December 31, 2011, the Fund's portfolio turnover rate was 56% of the average value of its portfolio. 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 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 26 -------------------------------------------------------------------------------- FIRST TRUST EMERGING MARKETS ALPHADEX(R) FUND -- FEM -------------------------------------------------------------------------------- Emerging Markets BMI Index (the "Base Index") that may generate positive alpha relative to traditional passive-style indices through the use of the AlphaDEX(R) selection methodology. The Base Index is a comprehensive, rules-based index designed to measure stock market performance in emerging markets. The Base Index covers all publicly listed equities with float adjusted market values of $100 million or more and annual dollar value traded of at least $50 million. 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, 2012, the Index was comprised of 148 securities from 17 countries. The Index is rebalanced and reconstituted as of the last business day of the semi-annual periods ended March 31 and September 30. Changes to the Index will be effective at the open of trading on the ninth 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 issuers. NON-U.S. SECURITIES AND EMERGING MARKETS RISK. The Fund invests in securities of non-U.S. issuers, including non-U.S. dollar-denominated securities traded outside of the United States and U.S. dollar-denominated securities of non-U.S. issuers traded in the United States. Such securities are subject to higher volatility than securities of domestic issuers due to possible adverse political, social or economic developments; restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards; and less government supervision and regulation of exchanges in foreign countries. These risks may be heightened for securities of companies located in, or with significant operations in, emerging market countries. CHINA RISK. The Fund may invest in H shares, certain depositary receipts and U.S.-listed common stock of companies that are domiciled in China, including Hong Kong. Some Chinese companies are listed on both the Hong Kong Stock Exchange with H shares and the Shanghai Stock Exchange with A shares. Price differentials between H shares and A shares of the same company may be significant. Also, price fluctuations of A shares are limited to either 5% or 10% per trading day, while no such limitations exist for H shares. Therefore, H shares may be susceptible to greater price fluctuations. Investing in securities of companies in China involves additional risks, including, but not limited to, the economy of China differs, often unfavorably, from the U.S. economy in such respects as structure, general development, government involvement, wealth distribution, rate of inflation, growth rate, allocation of resources and capital reinvestment, among others; the central government has historically exercised substantial control over virtually every sector of the Chinese economy through administrative regulation and/or state ownership; and actions of the Chinese central and local government authorities continue to have a substantial effect on economic conditions in China. Furthermore, China's economy is dependent on the economies of other Asian countries and can be significantly affected by currency fluctuations and increasing competition from Asia's other 27 -------------------------------------------------------------------------------- FIRST TRUST EMERGING MARKETS ALPHADEX(R) FUND -- FEM -------------------------------------------------------------------------------- low-cost emerging economies. Chinese securities may also be subject to greater restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards and less government supervision and regulation of exchanges than in the United States. These risks may be heightened for securities of companies located in, or with significant operations in, an emerging market country like China. BRAZIL RISK. The Fund invests in companies that are operating in Brazil. Brazil has experienced substantial economic instability resulting from, among other things, periods of very high inflation, persistent structural public sector deficits and significant devaluations of its currency leading also to a high degree of price volatility in both the Brazilian equity and foreign currency markets. Brazilian companies may also be adversely affected by high interest and unemployment rates, and are particularly sensitive to fluctuations in commodity prices. Brazilian securities may also be subject to restrictions on foreign investment or exchange of securities; lack of liquidity; excessive taxation; government seizure of assets; different legal or accounting standards and less government supervision and regulation of exchanges than in the United States. These risks may be heightened for securities of companies located in, or with significant operations in, an emerging market country like Brazil. CURRENCY RISK. Because the Fund's NAV is determined on the basis of U.S. dollars and the Fund invests in foreign securities, you may lose money if the local currency of a foreign market depreciates against the U.S. dollar, even if the local currency value of the Fund's holdings goes up. ANNUAL TOTAL RETURN The Fund has not yet operated for a full calendar year and, therefore, performance information is not included in this section of the Prospectus. See "Total Return Information" for performance information regarding the Fund. 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: o Daniel J. Lindquist, Chairman of the Investment Committee and Senior Vice President of First Trust; o Robert F. Carey, Chief Investment Officer and Senior Vice President of First Trust; o Jon C. Erickson, Senior Vice President of First Trust; o David G. McGarel, Senior Vice President of First Trust; o Roger F. Testin, Senior Vice President of First Trust; and o 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 for cash or 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 Shares of 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. 28 INVESTMENT STRATEGIES Each Fund is a series of 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 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. SECURITIES LENDING Each Fund may lend securities representing up to 20% of the value of its total assets to broker-dealers, banks and other institutions to generate additional income. When a Fund loans its portfolio securities, it will receive, at the inception of each loan, cash collateral equal to at least 102% (for domestic securities) or 105% (for international securities) of the market value of the loaned securities. 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. 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 that Fund's Index. NON-U.S. SECURITIES RISK. In addition to the risks described above in "Principal Risks--Non-U.S. Securities and Emerging Markets Risk," and "Principal Risks--Non-U.S. Securities Risk," an investment in securities of non-U.S. companies involves other risks not associated with domestic issuers. Investment in non-U.S. securities may involve higher costs than investment in U.S. securities, including higher transaction and custody costs as well as the imposition of additional taxes by non-U.S. governments. Non-U.S. investments may also involve risks associated with the level of currency exchange rates, less complete financial information about the issuers, less market liquidity, more market volatility and political instability. Future political and economic developments, the possible imposition of withholding taxes on dividend income, the possible seizure or nationalization of non-U.S. holdings, the possible establishment of exchange controls or freezes on the convertibility of currency, or the adoption of other governmental restrictions might adversely affect an investment in non-U.S. securities. Additionally, non-U.S. issuers may be subject to less stringent regulation, and to different accounting, auditing and recordkeeping requirements. EMERGING MARKETS RISK. In addition to the risks described above in "Principal Risks--Non-U.S. Securities and Emerging Markets Risk," an investment in emerging market companies involves certain further risks not associated with investing in developed market countries because emerging market countries are often in the initial stages of their industrialization cycles and have low per capita income. These increased risks include the possibility of investment and trading limitations, greater liquidity concerns, higher price volatility, greater delays and possibility of disruptions in settlement transactions, greater political uncertainties and greater dependence on international trade or development assistance. In addition, emerging market countries may be subject to overburdened infrastructures and environmental problems. 29 CURRENCY RISK. In addition to the risks described above in "Principal Risks--Currency Risk," an investment in non-U.S. securities involves further risk due to currency exchange rates. Changes in currency exchange rates may affect the Funds' net asset values, the value of dividends and interest earned, and gains and losses realized on the sale of securities. An increase in the strength of the U.S. dollar relative to other currencies may cause the value of the Funds to decline. Certain non-U.S. currencies may be particularly volatile, and non-U.S. governments may intervene in the currency markets, causing a decline in value or liquidity in the Funds' non-U.S. holdings whose value is tied to the affected non-U.S. currency. DEPOSITARY RECEIPTS RISK. Depositary receipts may be less liquid than the underlying shares in their primary trading market. Any distributions paid to the holders of depositary receipts are usually subject to a fee charged by the depositary. Holders of depositary receipts may have limited voting rights, and investment restrictions in certain countries may adversely impact the value of depositary receipts because such restrictions may limit the ability to convert equity shares into depositary receipts and vice versa. Such restrictions may cause equity shares of the underlying issuer to trade at a discount or premium to the market price of the depositary receipts. RISK OF CASH TRANSACTIONS. In addition to the risks described above in "Principal Risks--Cash Transactions Risk," an investment in certain Funds involves further risk due to cash transactions. Unlike most exchange-traded funds, certain of the Funds may effect a portion of creations and redemptions for cash, rather than in-kind securities. As a result, an investment in such a Fund may be less tax-efficient than an investment in a more conventional exchange-traded fund. Because certain of the Funds may effect a portion of redemptions for cash, rather than in-kind distributions, they may be required to sell portfolio securities in order to obtain the cash needed to distribute redemption proceeds. Any recognized gain on these sales by such a Fund will generally cause the Fund to recognize gain it might not otherwise have recognized, or to recognize such gain sooner than would otherwise be required if it were to distribute portfolio securities in-kind. Such Funds generally distribute these gains to shareholders to avoid being taxed on this gain at the fund level and otherwise comply with the special tax rules that apply to it. This strategy may cause shareholders to be subject to tax on gains they would not otherwise be subject to, or at an earlier date than if they had made an investment in a different exchange-traded fund. Moreover, cash transactions may have to be carried out over several days if the securities market is relatively illiquid and may involve considerable brokerage fees and taxes. These brokerage fees and taxes, which will be higher than if a Fund sold and redeemed its shares principally in-kind, will be passed on to those purchasing and redeeming Creation Units in the form of creation and redemption transaction fees. Brazil may also impose higher local tax rates on transactions involving certain companies. In addition, these factors may result in wider spreads between the bid and the offered prices of a Fund's Shares than for more conventional exchange-traded funds. 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. 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 for use by 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. 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. Stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase. SECURITIES LENDING RISK. Each Fund may lend securities representing up to 20% of the value of its total assets to broker-dealers, banks and other institutions to generate additional income. Under these Funds' securities lending agreement, the securities lending agent will generally bear the risk that a borrower may default on its obligation to return loaned securities. The Funds, however, will be responsible for the risks associated with the investment of cash collateral. A Fund may lose money on its investment of cash collateral or may fail to earn sufficient income on its investment to meet its obligations to the borrower. When a dividend is paid on a security that is out on loan, the borrower receives the dividend and in turn makes a payment of the same amount to the fund. Dividends, if they constitute "qualified dividends," are taxable at the same rate as long-term capital gains. These payments made by borrowers, however, are not qualified dividends, and are taxable at higher ordinary income rates. As a result, some of the distributions received by shareholders who hold Fund shares 30 in taxable accounts may be subject to taxation at a higher rate than if the Fund had not loaned its portfolio securities. 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 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 14 mutual fund portfolios, 4 exchange-traded funds consisting of 69 series and 12 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 31 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 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 a Fund's assets and will be responsible for the 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 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 as set forth in the table below. ANNUAL MANAGEMENT FEE (% OF AVERAGE FUND DAILY NET ASSETS) First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund 0.80% First Trust Europe AlphaDEX(R) Fund 0.80% First Trust Latin America AlphaDEX(R) Fund 0.80% First Trust Brazil AlphaDEX(R) Fund 0.80% First Trust China AlphaDEX(R) Fund 0.80% First Trust Japan AlphaDEX(R) Fund 0.80% First Trust South Korea AlphaDEX(R) Fund 0.80% First Trust Developed Markets Ex-US AlphaDEX(R) Fund 0.80% First Trust Emerging Markets AlphaDEX(R) Fund 0.80% A discussion regarding the Board's approval of the Investment Management Agreement is available in the Funds' Semi-Annual Report to Shareholders for the period ended June 30, 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. 32 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. Information regarding the intra-day value of the Shares of a Fund, also referred to as the "indicative optimized portfolio value" ("IOPV"), is disseminated every 15 seconds throughout such Fund's trading day by the national securities exchange on which the Shares are listed or by market data vendors or other information providers. The IOPV should not be viewed as a "real-time" update of the NAV per Share of a Fund because the IOPV 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 price of a non-U.S. security that is primarily traded on a non-U.S. exchange shall be updated, using the last sale price, every 15 seconds throughout the trading day, provided, that upon the closing of such non-U.S. exchange, the closing price of the security, after being converted to U.S. dollars, will be used. Furthermore, in calculating the IOPV of a Fund's Shares, exchange rates may be used throughout the day (9:00 a.m. to 4:15 p.m., Eastern Time) that may differ from those used to calculate the NAV per Share of such Fund and consequently may result in differences between the NAV and the IOPV. A Fund is not involved in, or responsible for, the calculation or dissemination of the IOPV of Shares of such Fund and such Fund does 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 of the Funds, if any, are declared and paid quarterly by each respective Fund. Each Fund distributes its net realized capital gains, if any, to shareholders at least annually. 33 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. 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 gain 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. Under the "Health Care and Education Reconciliation Act of 2010," income from the Trust may also be subject to a new 3.8% "Medicare tax" imposed for taxable years beginning after 2012. This tax will generally apply to your net investment income if your 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. DIVIDENDS RECEIVED DEDUCTION A corporation that owns Shares generally will not be entitled to the dividends received deduction with respect to 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 0% for certain taxpayers in the 10% and 15% tax brackets). These capital gain rates are generally effective for taxable years beginning before January 1, 2013. 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% for net capital gains from most property acquired after December 31, 2000 with a holding period of more than five years, and the 10% rate is reduced to 8% for net capital gains from most property (regardless of when acquired) with a holding period of more than five years. 34 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, 2013. The Funds will provide notice to its shareholders of the amount of any distribution which may be taken into account as a dividend which is eligible for the capital gains tax rates. SALE OF SHARES If you sell your Shares, you will generally recognize a taxable gain or loss. To determine the amount of this gain or loss, you must subtract your tax basis in your Shares from the amount you receive in the transaction. Your tax basis in your Shares is generally equal to the cost of your Shares, generally including sales charges. In some cases, however, you may have to adjust your tax basis after you purchase your Shares. TAXES ON PURCHASE AND REDEMPTION OF CREATION UNITS If you exchange equity securities for Creation Units, you will generally recognize a gain or a loss. The gain or loss will be equal to the difference between the market value of the Creation Units at the time and your aggregate basis in the securities surrendered and the cash component paid. If you exchange Creation Units for equity securities, you will generally recognize a gain or loss equal to the difference between your basis in the Creation Units and the aggregate market value of the securities received and the Cash Redemption Amount. The Internal Revenue Service, however, may assert that a loss realized upon an exchange of securities for Creation Units 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 will 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 properly reports 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 reported 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 2012, distributions from a Fund that are properly reported 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. Distributions in respect of shares after December 31, 2013 may be subject to a U.S. withholding tax of 30% in the case of distributions to (i) certain non-U.S. financial institutions that 35 have not entered into an agreement with the U.S. Treasury to collect and disclose certain information and (ii) certain other non-U.S. entities that do not provide certain certifications and information about the entity's U.S. owners. Disposition of shares by such persons may be subject to such withholding after December 31, 2014. 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 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 30, 2013. 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 NASDAQ(R) or the 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. Portfolio securities traded in the over-the-counter market, but excluding securities trading on 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. 36 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 the Shares of a Fund, the value of such Fund's securities may change on the days when investors are not able to purchase or sell Shares of such 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 a Fund's Index may adversely affect such Fund's ability to track its Index. FUND SERVICE PROVIDERS Brown Brothers Harriman & Co. 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. First Trust serves as the fund reporting agent for the Funds. INDEX PROVIDER Each equity index in the Defined Index Series that each 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 the Trust on behalf of 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. 37 "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. 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 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 each Index. The AlphaDEX(R) 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 AlphaDEX(R) Funds or any member of the public regarding the advisability of investing in securities generally or in the AlphaDEX(R) 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 AlphaDEX(R) Funds. S&P is not responsible for and has not reviewed the AlphaDEX(R) 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 AlphaDEX(R) 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 ALPHADEX(R) FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE DEFINED INDEX SERIES OR ANY DATA INCLUDED THEREIN. S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE DEFINED INDEX SERIES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. INDEX INFORMATION FIRST TRUST ASIA PACIFIC EX-JAPAN 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 Asia Pacific Ex-Japan BMI Index, which, as of March 31, 2012, was comprised of 1,391 securities, 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 inception date of the Index was February 25, 2011. The initial divisor was created to set a benchmark value of 100.00 on February 25, 2011. The Index was created and trademarked by S&P. 1. Start with all stocks in the S&P Asia Pacific Ex-Japan BMI Index. Exclude the following: i. Stocks which do not trade on an eligible exchange. ii. Duplicates (multiple share classes) of a common issuer. iii. Stocks with average daily dollar volume over the last three months of less than $500,000. iv. Stocks with a market cap less than the NYSE midcap breakpoint (50th percentile). 38 v. For South Korean stocks currently at their foreign ownership limit, the direct listed security is replaced in the universe with its ADR/GDR if available (subject to above liquidity requirements). If none is available, the stock is excluded. vi. Should the steps above result in an eligible universe of fewer than 100 stocks, the next largest stock below the NYSE midcap breakpoint passing all other eligibility requirements is added until the eligible universe reaches 100 stocks. 2. Rank all remaining stocks in the universe on both growth and value factors. The five growth factors are 3, 6 & 12 month price appreciation, sales to price and 1 year sales growth. The three value factors are book value to price, cash flow to price and return on assets. 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. A stock must have data for all growth and/or value factors to receive a rank for that style. 3. Each stock receives the best style rank from step 2 as its selection score. 4. The top 100 stocks based on the selection score determined in step 3 comprise the "selected stocks". The "selected stocks" are then split into quintiles based on their selection score. 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. 5. After weights are assigned, each stock is tested in order of its selection score rank to check if the weight assigned to that stock violates a country and/or sector weighting constraint. Country and sector weighting constraints are set at 15% above the benchmark weight. 6. Stocks will fail the country/sector constraint if the weight assigned to the stock, when added with the weight assigned to all higher ranking stocks in its country/sector, is greater than the country/sector weighting constraint. 7. Stocks failing the country/sector weighting constraint test are lowered in rank to the highest rank in the next quintile. Stocks previously lower in rank than the failing stock move up one rank. This may result in a weighting change for these stocks if they move up to a higher quintile. The failing stock will later be retested for constraint violations with its new lower assigned weight in the order determined by its new rank. Stocks in the lowest quintile are removed from the portfolio and are replaced by the highest scoring stock not originally selected, subject to country/sector constraints. As of March 31, 2012, the countries represented in the Index included Australia (41.83%), Hong Kong (17.96%), New Zealand (0.90%), Singapore (9.65%) and South Korea (29.66%). The Index is rebalanced and reconstituted semi-annually as of the last business day of March and September. Changes will be effective at the open of trading on the ninth 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 pro rata 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 EUROPE 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 Europe BMI Index, which, as of March 31, 2012, was comprised of 1,727 securities, 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 inception date of the Index was February 25, 2011. The initial divisor was created to set a benchmark value of 100.00 on February 25, 2011. The Index was created and trademarked by S&P. 1. Start with all stocks in the S&P Europe BMI Index. Exclude the following: i. Stocks which do not trade on an eligible exchange. ii. Duplicates (multiple share classes) of a common issuer. iii. Stocks with average daily dollar volume over the last three months of less than $500,000. iv. Stocks with a market cap less than the NYSE midcap breakpoint (50th percentile). v. Should the steps above result in an eligible universe of fewer than 100 stocks, the next largest stock below the NYSE midcap breakpoint passing all other eligibility requirements is added until the eligible universe reaches 100 stocks. 39 2. Rank all remaining stocks in the universe on both growth and value factors. The five growth factors are 3, 6 & 12 month price appreciation, sales to price and 1 year sales growth. The three value factors are book value to price, cash flow to price and return on assets. 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. A stock must have data for all growth and/or value factors to receive a rank for that style. 3. Each stock receives the best style rank from step 2 as its selection score. 4. The top 200 stocks based on the selection score determined in step 3 comprise the "selected stocks". The "selected stocks" are then split into quintiles based on their selection score. 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. 5. After weights are assigned, each stock is tested in order of its selection score rank to check if the weight assigned to that stock violates a country and/or sector weighting constraint. Country and sector weighting constraints are set at 15% above the benchmark weight. 6. Stocks will fail the country/sector constraint if the weight assigned to the stock, when added with the weight assigned to all higher ranking stocks in its country/sector, is greater than the country/sector weighting constraint. 7. Stocks failing the country/sector weighting constraint test are lowered in rank to the highest rank in the next quintile. Stocks previously lower in rank than the failing stock move up one rank. This may result in a weighting change for these stocks if they move up to a higher quintile. The failing stock will later be retested for constraint violations with its new lower assigned weight in the order determined by its new rank. Stocks in the lowest quintile are removed from the portfolio and are replaced by the highest scoring stock not originally selected, subject to country/sector constraints. As of March 31, 2012, the countries represented in the Index included Austria (0.60%), Belgium (1.73%), Denmark (1.81%), Finland (1.66%), France (13.76%), Germany (12.72%), Greece (0.26%), Ireland (0.70%), Italy (4.18%), Luxembourg (0.44%), Netherlands (3.96%), Norway (1.82%), Portugal (0.39%), Spain (4.23%), Sweden (5.10%), Switzerland (15.50%) and United Kingdom (34.02%). The Index is rebalanced and reconstituted semi-annually as of the last business day of March and September. Changes will be effective at the open of trading on the ninth 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 pro rata 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 LATIN AMERICA 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 Latin America BMI Index, which, as of March 31, 2012, was comprised of 362 securities, 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 inception date of the Index was February 25, 2011. The initial divisor was created to set a benchmark value of 100.00 on February 25, 2011. The Index was created and trademarked by S&P. 1. Start with all stocks in the S&P Latin America BMI Index Exclude the following: i. Stocks which do not trade on an eligible exchange. ii. Duplicates (multiple share classes) of a common issuer. iii. Stocks with average daily dollar volume over the last three months of less than $500,000. iv. Stocks with a market cap less than the NYSE midcap breakpoint (50th percentile). v. Should the steps above result in an eligible universe of fewer than 100 stocks, the next largest stock below the NYSE midcap breakpoint passing all other eligibility requirements is added until the eligible universe reaches 100 stocks. 2. Rank all remaining stocks in the universe on both growth and value factors. The five growth factors are 3, 6 & 12 month price appreciation, sales to price and 1 year sales growth. The three value factors are book value to price, cash flow to price and return on assets. 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. A stock must have data for all growth and/or value factors to receive a rank for that style. 40 3. Each stock receives the best style rank from step 2 as its selection score. 4. The top 50 stocks based on the selection score determined in step 3 comprise the "selected stocks". The "selected stocks" are then split into quintiles based on their selection score. 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. 5. After weights are assigned, each stock is tested in order of its selection score rank to check if the weight assigned to that stock violates a country and/or sector weighting constraint. Country and sector weighting constraints are set at 15% above the benchmark weight. 6. Stocks will fail the country/sector constraint if the weight assigned to the stock, when added with the weight assigned to all higher ranking stocks in its country/sector, is greater than the country/sector weighting constraint. 7. Stocks failing the country/sector weighting constraint test are lowered in rank to the highest rank in the next quintile. Stocks previously lower in rank than the failing stock move up one rank. This may result in a weighting change for these stocks if they move up to a higher quintile. The failing stock will later be retested for constraint violations with its new lower assigned weight in the order determined by its new rank. Stocks in the lowest quintile are removed from the portfolio and are replaced by the highest scoring stock not originally selected, subject to country/sector constraints. As of March 31, 2012, the countries represented in the Index included Brazil (61.00%), Chile (9.77%), Colombia (5.24%), Mexico (20.49%) and Peru (3.43%). The Index is rebalanced and reconstituted semi-annually as of the last business day of March and September. Changes will be effective at the open of trading on the ninth 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 pro rata 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 BRAZIL 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 Brazil BMI Index, which, as of March 31, 2012, was comprised of 199 securities, 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 inception date of the Index was February 25, 2011. The initial divisor was created to set a benchmark value of 100.00 on February 25, 2011. The Index was created and trademarked by S&P. 1. Start with all stocks in the S&P Brazil BMI Index Exclude the following: i. Stocks which do not trade on an eligible exchange. ii. Duplicates (multiple share classes) of a common issuer. iii. Stocks with average daily dollar volume over the last three months of less than $500,000. iv. Stocks with a market cap less than the NYSE midcap breakpoint (50th percentile). v. Should the steps above result in an eligible universe of fewer than 100 stocks, the next largest stock below the NYSE midcap breakpoint passing all other eligibility requirements is added until the eligible universe reaches 100 stocks. 2. Rank all remaining stocks in the universe on both growth and value factors. The five growth factors are 3, 6 & 12 month price appreciation, sales to price and 1 year sales growth. The three value factors are book value to price, cash flow to price and return on assets. 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. A stock must have data for all growth and/or value factors to receive a rank for that style. 3. Each stock receives the best style rank from step 2 as its selection score. 4. The top 50 stocks based on the selection score determined in step 3 comprise the "selected stocks". The "selected stocks" are then split into quintiles based on their selection score. 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. 41 5. After weights are assigned, each stock is tested in order of its selection score rank to check if the weight assigned to that stock violates a sector weighting constraint. Sector weighting constraints are set at 15% above the benchmark weight. 6. Stocks will fail the sector constraint if the weight assigned to the stock, when added to the weight assigned to all higher ranking stocks in its sector, is greater than the sector weighting constraint. 7. Stocks failing the sector weighting constraint test are lowered in rank to the highest rank in the next quintile. Stocks previously lower in rank than the failing stock move up one rank. This may result in a weighting change for these stocks if they move up to a higher quintile. The failing stock will later be retested for constraint violations at its new lower assigned weight in the order determined by its new rank. Stocks in the lowest quintile that violate the sector weighting constraint are removed from the portfolio and replaced by the highest scoring stock not originally selected, subject to sector constraints. The Index is rebalanced and reconstituted semi-annually as of the last business day of June and December. Changes will be effective at the open of trading on the ninth 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 pro rata 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 CHINA 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 China BMI Index, which, as of March 31, 2012, was comprised of 600 securities, 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 inception date of the Index was February 25, 2011. The initial divisor was created to set a benchmark value of 100.00 on February 25, 2011. The Index was created and trademarked by S&P. 1. Start with all stocks in the S&P China BMI Index. Exclude the following: i. Stocks which do not trade on an eligible exchange. ii. Duplicates (multiple share classes) of a common issuer. iii. Stocks with average daily dollar volume over the last three months of less than $500,000. iv. Stocks with a market cap less than the NYSE midcap breakpoint (50th percentile). v. Should the steps above result in an eligible universe of fewer than 100 stocks, the next largest stock below the NYSE midcap breakpoint passing all other eligibility requirements is added until the eligible universe reaches 100 stocks. 2. Rank all remaining stocks in the universe on both growth and value factors. The five growth factors are 3, 6 & 12 month price appreciation, sales to price and 1 year sales growth. The three value factors are book value to price, cash flow to price and return on assets. 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. A stock must have data for all growth and/or value factors to receive a rank for that style. 3. Each stock receives the best style rank from step 2 as its selection score. 4. The top 50 stocks based on the selection score determined in step 3 comprise the "selected stocks". The "selected stocks" are then split into quintiles based on their selection score. 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. 5. After weights are assigned, each stock is tested in order of its selection score rank to check if the weight assigned to that stock violates a sector weighting constraint. Sector weighting constraints are set at 15% above the benchmark weight. 6. Stocks will fail the sector constraint if the weight assigned to the stock, when added to the weight assigned to all higher ranking stocks in its sector, is greater than the sector weighting constraint. 7. Stocks failing the sector weighting constraint test are lowered in rank to the highest rank in the next quintile. Stocks previously lower in rank than the failing stock move up one rank. This may result in a weighting change for these stocks if they move up to a higher quintile. The failing stock will later be retested for constraint violations at its new lower assigned weight in the order determined by its new rank. Stocks in the lowest quintile that 42 violate the sector weighting constraint are removed from the portfolio and replaced by the highest scoring stock not originally selected, subject to sector constraints. The Index is rebalanced and reconstituted semi-annually as of the last business day of June and December. Changes will be effective at the open of trading on the ninth 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 pro rata 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 JAPAN 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 Japan BMI Index, which, as of March 31, 2012, was comprised of 1,317 securities, 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 inception date of the Index was February 25, 2011. The initial divisor was created to set a benchmark value of 100.00 on February 25, 2011. The Index was created and trademarked by S&P. 1. Start with all stocks in the S&P Japan BMI Index. Exclude the following: i. Stocks which do not trade on an eligible exchange. ii. Duplicates (multiple share classes) of a common issuer. iii. Stocks with average daily dollar volume over the last three months of less than $500,000. iv. Stocks with a market cap less than the NYSE midcap breakpoint (50th percentile). v. Should the steps above result in an eligible universe of fewer than 100 stocks, the next largest stock below the NYSE midcap breakpoint passing all other eligibility requirements is added until the eligible universe reaches 100 stocks. 2. Rank all remaining stocks in the universe on both growth and value factors. The five growth factors are 3, 6 & 12 month price appreciation, sales to price and 1 year sales growth. The three value factors are book value to price, cash flow to price and return on assets. 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. A stock must have data for all growth and/or value factors to receive a rank for that style. 3. Each stock receives the best style rank from step 2 as its selection score. 4. The top 100 stocks based on the selection score determined in step 3 comprise the "selected stocks". The "selected stocks" are then split into quintiles based on their selection score. 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. 5. After weights are assigned, each stock is tested in order of its selection score rank to check if the weight assigned to that stock violates a sector weighting constraint. Sector weighting constraints are set at 15% above the benchmark weight. 6. Stocks will fail the sector constraint if the weight assigned to the stock, when added to the weight assigned to all higher ranking stocks in its sector, is greater than the sector weighting constraint. 7. Stocks failing the sector weighting constraint test are lowered in rank to the highest rank in the next quintile. Stocks previously lower in rank than the failing stock move up one rank. This may result in a weighting change for these stocks if they move up to a higher quintile. The failing stock will later be retested for constraint violations at its new lower assigned weight in the order determined by its new rank. Stocks in the lowest quintile that violate the sector weighting constraint are removed from the portfolio and replaced by the highest scoring stock not originally selected, subject to sector constraints. The Index is rebalanced and reconstituted semi-annually as of the last business day of June and December. Changes will be effective at the open of trading on the ninth 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 pro rata 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. 43 FIRST TRUST SOUTH KOREA 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 South Korea BMI Index, which, as of March 31, 2012, was comprised of 491 securities, 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 inception date of the Index was February 25, 2011. The initial divisor was created to set a benchmark value of 100.00 on February 25, 2011. The Index was created and trademarked by S&P. 1. Start with all stocks in the S&P South Korea BMI Index. Exclude the following: i. Stocks which do not trade on an eligible exchange. ii. Duplicates (multiple share classes) of a common issuer. iii. Stocks with average daily dollar volume over the last three months of less than $500,000. iv. Stocks with a market cap less than the NYSE midcap breakpoint (50th percentile). v. For South Korean stocks currently at their foreign ownership limit, the direct listed security is replaced in the universe with its ADR/GDR if available (subject to above liquidity requirements). If none is available, the stock is excluded. vi. Should the steps above result in an eligible universe of fewer than 100 stocks, the next largest stock below the NYSE midcap breakpoint passing all other eligibility requirements is added until the eligible universe reaches 100 stocks. 2. Rank all remaining stocks in the universe on both growth and value factors. The five growth factors are 3, 6 & 12 month price appreciation, sales to price and 1 year sales growth. The three value factors are book value to price, cash flow to price and return on assets. 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. A stock must have data for all growth and/or value factors to receive a rank for that style. 3. Each stock receives the best style rank from step 2 as its selection score. 4. The top 50 stocks based on the selection score determined in step 3 comprise the "selected stocks". The "selected stocks" are then split into quintiles based on their selection score. 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. 5. After weights are assigned, each stock is tested in order of its selection score rank to check if the weight assigned to that stock violates a sector weighting constraint. Sector weighting constraints are set at 15% above the benchmark weight. 6. Stocks will fail the sector constraint if the weight assigned to the stock, when added to the weight assigned to all higher ranking stocks in its sector, is greater than the sector weighting constraint. 7. Stocks failing the sector weighting constraint test are lowered in rank to the highest rank in the next quintile. Stocks previously lower in rank than the failing stock move up one rank. This may result in a weighting change for these stocks if they move up to a higher quintile. The failing stock will later be retested for constraint violations at its new lower assigned weight in the order determined by its new rank. Stocks in the lowest quintile that violate the sector weighting constraint are removed from the portfolio and replaced by the highest scoring stock not originally selected, subject to sector constraints. The Index is rebalanced and reconstituted semi-annually as of the last business day of June and December. Changes will be effective at the open of trading on the ninth 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 pro rata 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 DEVELOPED MARKETS EX-US 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 Developed Ex-US BMI Index, which, as of March 31, 2012, was comprised of 5,052 securities, 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 44 much an investment outperforms or underperforms on a risk-adjusted basis relative to its benchmark. The inception date of the Index was February 25, 2011. The initial divisor was created to set a benchmark value of 100.00 on February 25, 2011. The Index was created and trademarked by S&P. 1. Start with all stocks in the S&P Developed Ex-US BMI Index. Exclude the following: i. Stocks which do not trade on an eligible exchange. ii. Duplicates (multiple share classes) of a common issuer. iii. Stocks with average daily dollar volume over the last three months of less than $500,000. iv. Stocks with a market cap less than the NYSE midcap breakpoint (50th percentile). v. For South Korean stocks currently at their foreign ownership limit, the direct listed security is replaced in the universe with its ADR/GDR if available (subject to above liquidity requirements). If none is available, the stock is excluded. vi. Should the steps above result in an eligible universe of fewer than 100 stocks, the next largest stock below the NYSE midcap breakpoint passing all other eligibility requirements is added until the eligible universe reaches 100 stocks. 2. Rank all remaining stocks in the universe on both growth and value factors. The five growth factors are 3, 6 & 12 month price appreciation, sales to price and 1 year sales growth. The three value factors are book value to price, cash flow to price and return on assets. 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. A stock must have data for all growth and/or value factors to receive a rank for that style. 3. Each stock receives the best style rank from step 2 as its selection score. 4. The top 300 stocks based on the selection score determined in step 3 comprise the "selected stocks." The "selected stocks" are then split into quintiles based on their selection score. 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. 5. After weights are assigned, each stock is tested in order of its selection score rank to check if the weight assigned to that stock violates a country and/or sector weighting constraint. Country and sector weighting constraints are set at 15% above the benchmark weight. 6. Stocks will fail the country/sector constraint if the weight assigned to the stock, when added with the weight assigned to all higher ranking stocks in its country/sector, is greater than the country/sector weighting constraint. 7. Stocks failing the country/sector weighting constraint test are lowered in rank to the highest rank in the next quintile. Stocks previously lower in rank than the failing stock move up one rank. This may result in a weighting change for these stocks if they move up to a higher quintile. The failing stock will later be retested for constraint violations with its new lower assigned weight in the order determined by its new rank. Stocks in the lowest quintile are removed from the portfolio and are replaced by the highest scoring stock not originally selected, subject to country/sector constraints. As of March 31, 2012, the countries represented in the Index included Australia (7.18%), Austria (0.32%), Belgium (0.92%), Canada (10.34%), Denmark (0.96%), Finland (0.89%), France (7.33%), Germany (6.77%), Greece (0.14%), Hong Kong (3.08%), Ireland (0.37%), Israel (0.64%), Italy (2.23%), Japan (18.60%), Luxembourg (0.26%), Netherlands (2.11%), New Zealand (0.15%), Norway (0.97%), Portugal (0.21%), Singapore (1.66%), South Korea (5.09%), Spain (2.26%), Sweden (2.72%), Switzerland (6.69%) and United Kingdom (18.12%). The Index is rebalanced and reconstituted semi-annually as of the last business day of March and September. Changes will be effective at the open of trading on the ninth 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 pro rata 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 EMERGING MARKETS 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 Emerging Markets BMI Index, which, as of March 31, 2012, was comprised of 2,801 securities, 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 45 much an investment outperforms or underperforms on a risk-adjusted basis relative to its benchmark. The inception date of the Index was February 25, 2011. The initial divisor was created to set a benchmark value of 100.00 on February 25, 2011. The Index was created and trademarked by S&P. 1. Start with all stocks in the S&P Emerging Markets BMI Index. Exclude the following: i. Stocks which do not trade on an eligible exchange. ii. Duplicates (multiple share classes) of a common issuer. iii. Stocks with average daily dollar volume over the last three months of less than $500,000. iv. Stocks with a market cap less than the NYSE midcap breakpoint (50th percentile). v. Should the steps above result in an eligible universe of fewer than 100 stocks, the next largest stock below the NYSE midcap breakpoint passing all other eligibility requirements is added until the eligible universe reaches 100 stocks. 2. Rank all remaining stocks in the universe on both growth and value factors. The five growth factors are 3, 6 & 12 month price appreciation, sales to price and 1 year sales growth. The three value factors are book value to price, cash flow to price and return on assets. 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. A stock must have data for all growth and/or value factors to receive a rank for that style. 3. Each stock receives the best style rank from step 2 as its selection score. 4. The top 150 stocks based on the selection score determined in step 3 comprise the "selected stocks". The "selected stocks" are then split into quintiles based on their selection score. 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. 5. After weights are assigned, each stock is tested in order of its selection score rank to check if the weight assigned to that stock violates a country and/or sector weighting constraint. Country and sector weighting constraints are set at 15% above the benchmark weight. 6. Stocks will fail the country/sector constraint if the weight assigned to the stock, when added with the weight assigned to all higher ranking stocks in its country/sector, is greater than the country/sector weighting constraint. 7. Stocks failing the country/sector weighting constraint test are lowered in rank to the highest rank in the next quintile. Stocks previously lower in rank than the failing stock move up one rank. This may result in a weighting change for these stocks if they move up to a higher quintile. The failing stock will later be retested for constraint violations with its new lower assigned weight in the order determined by its new rank. Stocks in the lowest quintile are removed from the portfolio and are replaced by the highest scoring stock not originally selected, subject to country/sector constraints. As of March 31, 2012, the countries represented in the Index included Brazil (15.96%), Chile (2.55%), China (19.20%), Colombia (1.37%), Czech Republic (0.35%), Egypt (0.44%), Hungary (0.33%), India (8.61%), Indonesia (3.44%), Malaysia (3.51%), Mexico (5.35%), Morocco (0.34%), Peru (0.90%), Philippines (1.22%), Poland (1.57%), Russia (7.76%), South Africa (8.09%), Taiwan (14.53%), Thailand (2.60%) and Turkey (1.88%). The Index is rebalanced and reconstituted semi-annually as of the last business day of March and September. Changes will be effective at the open of trading on the ninth 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 pro rata 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. THE DEFINED INDEX SERIES The Defined Index Series were 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 any 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. 46 PREMIUM/DISCOUNT INFORMATION The tables that follow present information about the differences between each Fund's daily market price on the applicable Exchange and its NAV. The "Market Price" of a Fund generally is determined using the midpoint between the highest bid and lowest offer on the Exchange, as of the time a Fund's NAV is calculated. A Fund's Market Price may be at, above, or below its NAV. The NAV of a Fund will fluctuate with changes in the market value of its portfolio holdings. The Market Price of a Fund will fluctuate in accordance with changes in its NAV, as well as market supply and demand. Premiums or discounts are the differences (generally expressed as a percentage) between the NAV and Market Price of a Fund on a given day, generally at the time NAV is calculated. A premium is the amount that a Fund is trading above the reported NAV. A discount is the amount that a Fund is trading below the reported NAV. The following information shows the frequency distribution of premiums and discounts of the daily bid/ask price of each Fund against each Fund's NAV. The information shown for each Fund is for the period indicated. Shareholders may pay more than NAV when they buy Fund Shares and receive less than NAV when they sell those Shares because Shares are bought and sold at current market price. All data presented here represents past performance, which cannot be used to predict future results. Information about the premiums and discounts at which the Funds' Shares have traded is available on the Funds' website at www.ftportfolios.com. First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund Bid/Ask Midpoint vs. NAV Number of Days Bid/Ask Midpoint At/Above NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 69 43 9 1 3 Months Ended 3/31/2012 26 20 4 1 Number of Days Bid/Ask Midpoint Below NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 43 7 5 1 3 Months Ended 3/31/2012 9 2 0 0 First Trust Europe AlphaDEX(R) Fund Bid/Ask Midpoint vs. NAV Number of Days Bid/Ask Midpoint At/Above NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 69 60 21 3 3 Months Ended 3/31/2012 31 12 8 0 Number of Days Bid/Ask Midpoint Below NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 19 6 0 0 3 Months Ended 3/31/2012 11 0 0 0 First Trust Latin America AlphaDEX(R) Fund Bid/Ask Midpoint vs. NAV Number of Days Bid/Ask Midpoint At/Above NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 31 80 42 3 3 Months Ended 3/31/2012 29 20 0 1 Number of Days Bid/Ask Midpoint Below NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 17 5 0 0 3 Months Ended 3/31/2012 12 0 0 0 47 First Trust Brazil AlphaDEX(R) Fund Bid/Ask Midpoint vs. NAV Number of Days Bid/Ask Midpoint At/Above NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 16 27 52 64 3 Months Ended 3/31/2012 10 0 1 0 Number of Days Bid/Ask Midpoint Below NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 14 4 1 0 3 Months Ended 3/31/2012 47 4 0 0 First Trust China AlphaDEX(R) Fund Bid/Ask Midpoint vs. NAV Number of Days Bid/Ask Midpoint At/Above NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 32 35 36 16 3 Months Ended 3/31/2012 21 8 2 1 Number of Days Bid/Ask Midpoint Below NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 31 20 7 1 3 Months Ended 3/31/2012 20 10 0 0 First Trust Japan AlphaDEX(R) Fund Bid/Ask Midpoint vs. NAV Number of Days Bid/Ask Midpoint At/Above NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 79 52 5 3 3 Months Ended 3/31/2012 31 8 4 0 Number of Days Bid/Ask Midpoint Below NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 33 5 1 0 3 Months Ended 3/31/2012 15 3 1 0 48 First Trust South Korea AlphaDEX(R) Fund Bid/Ask Midpoint vs. NAV Number of Days Bid/Ask Midpoint At/Above NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 13 5 0 1 3 Months Ended 3/31/2012 7 15 2 1 Number of Days Bid/Ask Midpoint Below NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 31 37 56 35 3 Months Ended 3/31/2012 15 13 9 0 First Trust Developed Markets Ex-US AlphaDEX(R) Fund Bid/Ask Midpoint vs. NAV Number of Days Bid/Ask Midpoint At/Above NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 48 26 9 1 3 Months Ended 3/31/2012 13 31 12 0 Number of Days Bid/Ask Midpoint Below NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 52 39 3 0 3 Months Ended 3/31/2012 3 3 0 0 First Trust Emerging Markets AlphaDEX(R) Fund Bid/Ask Midpoint vs. NAV Number of Days Bid/Ask Midpoint At/Above NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 31 60 57 5 3 Months Ended 3/31/2012 15 27 12 1 Number of Days Bid/Ask Midpoint Below NAV 0.00% - 0.49% 0.50% - 0.99% 1.00% - 1.99% >= 2.00% For the Period 4/19/2011 - 12/31/2011* 12 12 1 0 3 Months Ended 3/31/2012 6 1 0 0
* Trading commenced on April 19, 2011. TOTAL RETURN INFORMATION The tables below compare the total return of each Fund to the total return of the Index on which it is based and each Fund's benchmark index. The information presented for each Fund is for the period indicated. "Cumulative total returns" represent the total change in value of an investment over the period indicated. The NAV per Share of a Fund is the value of one Share of a Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding Shares. The NAV return is based on the NAV per Share of a Fund, and the market return is based on the market price per Share of a Fund. The price used to calculate market return ("Market Price") generally is determined by using the midpoint between the highest bid and the lowest offer on the Exchange on which the Shares of a Fund are listed for trading, as of the time that a Fund's NAV is calculated. Since the Shares of each Fund typically do not trade in the secondary market until several days after a Fund's inception, for the period from inception to the first day of secondary market trading in Shares of a Fund, the NAV of a Fund is used as a proxy for the secondary market trading price to calculate market returns. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in a Fund at Market Price and NAV, respectively. An Index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, an Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by a Fund. These expenses negatively impact the performance of each Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns reflect the reinvestment of dividends on securities in the Indices. The returns shown in the table below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Shares of a Fund. The investment return and principal value of Shares of a Fund will vary with changes in market conditions. Shares of a Fund may be worth more or less than their original cost when they are redeemed or sold in the market. A Fund's past performance is no guarantee of future results. 49 FIRST TRUST ASIA PACIFIC EX-JAPAN ALPHADEX(R) FUND Cumulative Total Returns Inception (4/18/11) to 12/31/11 FUND PERFORMANCE NAV -21.78% Market Price -21.28% INDEX PERFORMANCE Defined Asia Pacific Ex-Japan Index -21.24% S&P Asia Pacific Ex-Japan BMI Index -17.84% MSCI Pacific Ex-Japan Index -16.86% FIRST TRUST EUROPE ALPHADEX(R) FUND Cumulative Total Returns Inception (4/18/11) to 12/31/11 FUND PERFORMANCE NAV -24.53% Market Price -23.53% INDEX PERFORMANCE Defined Europe Index -23.46% S&P Europe BMI Index -16.80% MSCI Europe Index -15.82% FIRST TRUST LATIN AMERICA ALPHADEX(R) FUND Cumulative Total Returns Inception (4/18/11) to 12/31/11 FUND PERFORMANCE NAV -16.41% Market Price -15.91% INDEX PERFORMANCE Defined Latin America Index -14.87% S&P Latin America BMI Index -18.15% MSCI EM Latin America Index -17.64% FIRST TRUST BRAZIL ALPHADEX(R) FUND Cumulative Total Returns Inception (4/18/11) to 12/31/11 FUND PERFORMANCE NAV -21.43% Market Price -21.06% INDEX PERFORMANCE Defined Brazil Index -20.54% S&P Brazil BMI Index -20.71% MSCI Brazil Index -21.13% 50 FIRST TRUST CHINA ALPHADEX(R) FUND Cumulative Total Returns Inception (4/18/11) to 12/31/11 FUND PERFORMANCE NAV -33.08% Market Price -33.30% INDEX PERFORMANCE Defined China Index -33.29% S&P China BMI Index -24.98% MSCI China Index -22.54% FIRST TRUST JAPAN ALPHADEX(R) FUND Cumulative Total Returns Inception (4/18/11) to 12/31/11 FUND PERFORMANCE NAV -4.66% Market Price -4.46% INDEX PERFORMANCE Defined Japan Index -5.48% S&P Japan BMI Index -6.05% MSCI Japan Index -7.22% FIRST TRUST SOUTH KOREA ALPHADEX(R) FUND Cumulative Total Returns Inception (4/18/11) to 12/31/11 FUND PERFORMANCE NAV -22.71% Market Price -22.84% INDEX PERFORMANCE Defined South Korea Index -22.00% S&P South Korea BMI Index -17.38% MSCI South Korea Index -19.36% FIRST TRUST DEVELOPED MARKETS EX-US ALPHADEX(R) FUND Cumulative Total Returns Inception (4/18/11) to 12/31/11 FUND PERFORMANCE NAV -20.92% Market Price -19.59% INDEX PERFORMANCE Defined Developed Markets Ex-US Index -20.30% S&P Developed Markets Ex-US BMI Index -15.24% MSCI World Ex-US Index -14.55% 51 FIRST TRUST EMERGING MARKETS ALPHADEX(R) FUND Cumulative Total Returns Inception (4/18/11) to 12/31/11 FUND PERFORMANCE NAV -23.22% Market Price -22.19% INDEX PERFORMANCE Defined Emerging Markets Index -22.71% S&P Emerging Markets BMI Index -21.05% MSCI Emerging Markets Index -19.58% FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand each Fund's financial performance for the periods shown. Certain information reflects financial results for a single Share of each Fund. The total returns represent the rate that an investor would have earned (or lost) on an investment in a Fund (assuming reinvestment of all dividends and distributions). The information for the periods indicated has been derived from financial statements audited by Deloitte & Touche LLP, whose report, along with each Fund's financial statements, is included in the Annual Report to Shareholders dated December 31, 2011 and is incorporated by reference in the Funds' SAI, which is available upon request. FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST ASIA PACIFIC EX-JAPAN ALPHADEX(R) FUND FOR THE PERIOD APRIL 18, 2011 (a) THROUGH DECEMBER 31, 2011 ------------------- Net asset value, beginning of period $ 29.83 ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.30 Net realized and unrealized gain (loss) (6.76) ---------- Total from investment operations (6.46) ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.36) Return of capital (0.13) ---------- Total from distributions (0.49) ---------- Net asset value, end of period $ 22.88 ========== TOTAL RETURN (b) (21.78)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 2,288 Ratio of total expenses to average net assets 0.80% (c) Ratio of net investment income (loss) to average net assets 1.60% (c) Portfolio turnover rate (d) 49% (a) Inception date. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The return presented does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. (c) Annualized. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. 52 FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST EUROPE ALPHADEX(R) FUND FOR THE PERIOD APRIL 18, 2011 (a) THROUGH DECEMBER 31, 2011 ------------------- Net asset value, beginning of period $ 29.10 ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.51 Net realized and unrealized gain (loss) (7.52) ---------- Total from investment operations (7.01) ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.49) ---------- Net asset value, end of period $ 21.60 ========== TOTAL RETURN (b) (24.53)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 5,399 Ratio of total expenses to average net assets 0.80% (c) Ratio of net investment income (loss) to average net assets 2.81% (c) Portfolio turnover rate (d) 27% FIRST TRUST LATIN AMERICA ALPHADEX(R) FUND FOR THE PERIOD APRIL 18, 2011 (a) THROUGH DECEMBER 31, 2011 ------------------- Net asset value, beginning of period $ 29.70 ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.76 Net realized and unrealized gain (loss) (5.63) ---------- Total from investment operations (4.87) ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.59) ---------- Net asset value, end of period $ 24.24 ========== TOTAL RETURN (b) (16.41)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 2,424 Ratio of total expenses to average net assets 0.80% (c) Ratio of net investment income (loss) to average net assets 3.97% (c) Portfolio turnover rate (d) 54% (a) Inception date. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The return presented does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. (c) Annualized. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. 53 FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST BRAZIL ALPHADEX(R) FUND FOR THE PERIOD APRIL 18, 2011 (a) THROUGH DECEMBER 31, 2011 ------------------- Net asset value, beginning of period $ 29.69 ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.43 Net realized and unrealized gain (loss) (6.79) ---------- Total from investment operations (6.36) ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.29) ---------- Net asset value, end of period $ 23.04 ========== TOTAL RETURN (b) (21.43)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 6,912 Ratio of total expenses to average net assets 0.80% (c) Ratio of net investment income (loss) to average net assets 2.71% (c) Portfolio turnover rate (d) 46% FIRST TRUST CHINA ALPHADEX(R) FUND FOR THE PERIOD APRIL 18, 2011 (a) THROUGH DECEMBER 31, 2011 ------------------- Net asset value, beginning of period $ 29.90 ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.45 Net realized and unrealized gain (loss) (10.23) ---------- Total from investment operations (9.78) ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.45) ---------- Net asset value, end of period $ 19.67 ========== TOTAL RETURN (b) (33.08)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 2,950 Ratio of total expenses to average net assets 0.80% (c) Ratio of net investment income (loss) to average net assets 2.56% (c) Portfolio turnover rate (d) 60% (a) Inception date. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The return presented does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. (c) Annualized. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. 54 FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST JAPAN ALPHADEX(R) FUND FOR THE PERIOD APRIL 18, 2011 (a) THROUGH DECEMBER 31, 2011 ------------------- Net asset value, beginning of period $ 39.90 ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.17 Net realized and unrealized gain (loss) (2.03) ---------- Total from investment operations (1.86) ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.23) Return of capital (0.00) (e) ---------- Total from distributions (0.23) ---------- Net asset value, end of period $ 37.81 ========== TOTAL RETURN (b) (4.66)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 3,781 Ratio of total expenses to average net assets 0.80% (c) Ratio of net investment income (loss) to average net assets 0.61% (c) Portfolio turnover rate (d) 43% FIRST TRUST SOUTH KOREA ALPHADEX(R) FUND FOR THE PERIOD APRIL 18, 2011 (a) THROUGH DECEMBER 31, 2011 ------------------- Net asset value, beginning of period $ 30.11 ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.10) Net realized and unrealized gain (loss) (6.74) ---------- Total from investment operations (6.84) ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.13) Return of capital (0.44) ---------- Total from distributions (0.57) ---------- Net asset value, end of period $ 22.70 ========== TOTAL RETURN (b) (22.71)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 1,135 Ratio of total expenses to average net assets 0.80% (c) Ratio of net investment income (loss) to average net assets (0.32)% (c) Portfolio turnover rate (d) 123% (a) Inception date. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The return presented does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. (c) Annualized. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (e) Amount represents less than $0.01 per share. 55 FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST DEVELOPED MARKETS EX-US ALPHADEX(R) FUND FOR THE PERIOD APRIL 18, 2011 (a) THROUGH DECEMBER 31, 2011 ------------------- Net asset value, beginning of period $ 49.13 ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.50 Net realized and unrealized gain (loss) (10.69) ---------- Total from investment operations (10.19) ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.42) Return of capital (0.15) ---------- Total from distributions (0.57) ---------- Net asset value, end of period $ 38.37 ========== TOTAL RETURN (b) (20.92)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 17,345 Ratio of total expenses to average net assets 0.80% (c) Ratio of net investment income (loss) to average net assets 1.31% (c) Portfolio turnover rate (d) 67% FIRST TRUST EMERGING MARKETS ALPHADEX(R) FUND FOR THE PERIOD APRIL 18, 2011 (a) THROUGH DECEMBER 31, 2011 ------------------- Net asset value, beginning of period $ 29.05 ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.25 Net realized and unrealized gain (loss) (6.98) ---------- Total from investment operations (6.73) ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.21) ---------- Net asset value, end of period $ 22.11 ========== TOTAL RETURN (b) (23.22)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 23,216 Ratio of total expenses to average net assets 0.80% (c) Ratio of net investment income (loss) to average net assets 3.09% (c) Portfolio turnover rate (d) 56% (a) Inception date. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The return presented does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. (c) Annualized. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. 56 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. 57 ================================================================================ FIRST TRUST -------------------------------------------------------------------------------- ALPHADEX(R) II FUNDS First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund First Trust Europe AlphaDEX(R) Fund First Trust Latin America AlphaDEX(R) Fund First Trust Brazil AlphaDEX(R) Fund First Trust China AlphaDEX(R) Fund First Trust Japan AlphaDEX(R) Fund First Trust South Korea AlphaDEX(R) Fund First Trust Developed Markets Ex-US AlphaDEX(R) Fund First Trust Emerging Markets 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 #: 333-171759 www.ftportfolios.com 811-22519 STATEMENT OF ADDITIONAL INFORMATION INVESTMENT COMPANY ACT FILE NO. 811-22519 FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II TICKER FUND NAME SYMBOL EXCHANGE FIRST TRUST ASIA PACIFIC EX-JAPAN ALPHADEX(R) FUND FPA NYSE ARCA FIRST TRUST EUROPE ALPHADEX(R) FUND FEP NYSE ARCA FIRST TRUST LATIN AMERICA ALPHADEX(R) FUND FLN NYSE ARCA FIRST TRUST BRAZIL ALPHADEX(R) FUND FBZ NYSE ARCA FIRST TRUST CHINA ALPHADEX(R) FUND FCA NYSE ARCA FIRST TRUST JAPAN ALPHADEX(R) FUND FJP NYSE ARCA FIRST TRUST SOUTH KOREA ALPHADEX(R) FUND FKO NYSE ARCA FIRST TRUST DEVELOPED MARKETS EX-US ALPHADEX(R) FUND FDT NYSE ARCA FIRST TRUST EMERGING MARKETS ALPHADEX(R) FUND FEM NYSE ARCA DATED APRIL 30, 2012 This Statement of Additional Information ("SAI") is not a Prospectus. It should be read in conjunction with the Prospectus dated April 30, 2012, as it may be revised from time to time (the "Prospectus"), for each of the First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund, First Trust Europe AlphaDEX(R) Fund, First Trust Latin America AlphaDEX(R) Fund, First Trust Brazil AlphaDEX(R) Fund, First Trust China AlphaDEX(R) Fund, First Trust Japan AlphaDEX(R) Fund, First Trust South Korea AlphaDEX(R) Fund, First Trust Developed Markets Ex-US AlphaDEX(R) Fund and First Trust Emerging Markets AlphaDEX(R) Fund (each, a "Fund" and collectively, the "Funds"), each a series of the First Trust Exchange-Traded AlphaDEX(R) Fund II (the "Trust"). Capitalized terms used herein that are not defined have the same meaning as in the Prospectus, unless otherwise noted. A copy of the Prospectus may be obtained without charge by writing to the Trust's distributor, First Trust Portfolios L.P., 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.......................................................6 SUBLICENSE AGREEMENTS......................................................18 INVESTMENT RISKS...........................................................18 MANAGEMENT OF THE FUNDS....................................................23 ACCOUNTS MANAGED BY INVESTMENT COMMITTEE...................................37 BROKERAGE ALLOCATIONS......................................................37 CUSTODIAN, TRANSFER AGENT, FUND ACCOUNTING AGENT, DISTRIBUTOR, INDEX PROVIDER AND EXCHANGE...................................................40 ADDITIONAL INFORMATION.....................................................43 PROXY VOTING POLICIES AND PROCEDURES.......................................45 CREATION AND REDEMPTION OF CREATION UNIT AGGREGATIONS......................46 REGULAR HOLIDAYS...........................................................55 FEDERAL TAX MATTERS........................................................61 DETERMINATION OF NAV.......................................................67 DIVIDENDS AND DISTRIBUTIONS................................................69 MISCELLANEOUS INFORMATION..................................................70 FINANCIAL STATEMENTS The audited financial statements and notes thereto for the Funds, contained in the Annual Report to Shareholders dated December 31, 2011, are incorporated by reference into this Statement of Additional Information and have been audited by Deloitte & Touche LLP, independent registered public accounting firm, whose report also appears in the Annual Report and is also incorporated by reference herein. No other parts of the Annual Report are incorporated by reference herein. The Annual Report is available without charge by calling (800) 621-1675 or by visiting the SEC's website at http://www.sec.gov. - ii - GENERAL DESCRIPTION OF THE TRUST AND THE FUNDS The Trust was organized as a Massachusetts business trust on December 3, 2010 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 eighteen series, nine of which are referred to in this SAI: First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund, First Trust Europe AlphaDEX(R) Fund, First Trust Latin America AlphaDEX(R) Fund, First Trust Brazil AlphaDEX(R) Fund, First Trust China AlphaDEX(R) Fund, First Trust Japan AlphaDEX(R) Fund, First Trust South Korea AlphaDEX(R) Fund, First Trust Developed Markets Ex-US AlphaDEX(R) Fund and First Trust Emerging Markets AlphaDEX(R) Fund (the "Funds"), each of which is a non-diversified series. This SAI relates to the 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 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 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. -2- The Declaration further provides that a Trustee acting in his or her capacity as Trustee is not personally liable to any person other than the Trust or its shareholders, for any act, omission, or obligation of the Trust. The Declaration requires the Trust to indemnify any persons who are or who have been Trustees, officers or employees of the Trust for any liability for actions or failure to act except to the extent prohibited by applicable federal law. In making any determination as to whether any person is entitled to the advancement of expenses in connection with a claim for which indemnification is sought, such 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 such Fund's corresponding Index (as hereinafter defined), together with the deposit of a specified cash payment (the "Cash Component"). Certain of the Funds, as specified in the Prospectus, may affect a portion of creations and redemptions for cash, rather than in-kind securities. 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 Securities and Exchange Commission ("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 -3- 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. 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 such 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 -4- by a Fund if, as a result, the aggregate of such loans would exceed 33-1/3% of the value of a Fund's total assets. (6) A Fund may not purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent a Fund from purchasing or selling options, futures contracts, forward contracts or other derivative instruments, or from investing in securities or other instruments backed by physical commodities). (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. 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. The First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund has adopted a non-fundamental investment policy pursuant to Rule 35d-1 under the 1940 Act (the "Name Policy") whereby the Fund, under normal market conditions, will invest at least 80% of its net assets in equity securities issued by companies domiciled or operating in the Asia Pacific region excluding Japan. The First Trust Europe AlphaDEX(R) Fund has adopted a Name Policy whereby the Fund, under normal market conditions, will invest at least 80% of its net assets in equity securities issued by companies domiciled or operating in Europe. -5- The First Trust Latin America AlphaDEX(R) Fund has adopted a Name Policy whereby the Fund, under normal market conditions, will invest at least 80% of its net assets in equity securities issued by companies domiciled or operating in Latin America. The First Trust Brazil AlphaDEX(R) Fund has adopted a Name Policy whereby the Fund, under normal market conditions, will invest at least 80% of its net assets in equity securities issued by companies domiciled or operating in Brazil. The First Trust China AlphaDEX(R) Fund has adopted a Name Policy whereby the Fund, under normal market conditions, will invest at least 80% of its net assets in equity securities issued by companies domiciled or operating in China. The First Trust Japan AlphaDEX(R) Fund has adopted a Name Policy whereby the Fund, under normal market conditions, will invest at least 80% of its net assets in equity securities issued by companies domiciled or operating in Japan. The First Trust South Korea AlphaDEX(R) Fund has adopted a Name Policy whereby the Fund, under normal market conditions, will invest at least 80% of its net assets in equity securities issued by companies domiciled or operating in South Korea. The First Trust Developed Markets Ex-US AlphaDEX(R) Fund has adopted Name Policy whereby the Fund, under normal market conditions, will invest at least 80% of its net assets in equity securities issued by companies domiciled or operating in developed markets excluding the United States. The First Trust Emering Markets AlphaDEX(R) Fund has adopted a Name Policy whereby the Fund, under normal market conditions, will invest at least 80% of its net assets in equity securities issued by companies domiciled or operating in emerging markets. As a result, each Fund must provide shareholders with a notice meeting the requirements of Rule 35d-1(c) at least 60 days prior to any change of such Fund's Name Policy. For purposes of the Name Policy, each Fund considers both direct investments and indirect investments (e.g., investments in an underlying fund, derivatives and synthetic instruments with economic characteristics similar to the underlying asset), and the Fund may achieve exposure to a particular country or geographic region through direct investments or indirect investments. 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") or in depositary receipts that may include American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") or other depositary receipts (collectively "Depositary Receipts") representing securities in such Index. Fund shareholders are entitled to 60 days' notice prior to any change in this non-fundamental investment policy. -6- 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 Asia Pacific Ex-Japan AlphaDEX(R) Fund Defined Asia Pacific Ex-Japan Index First Trust Europe AlphaDEX(R) Fund Defined Europe Index First Trust Latin America AlphaDEX(R) Fund Defined Latin America Index First Trust Brazil AlphaDEX(R) Fund Defined Brazil Index First Trust China AlphaDEX(R) Fund Defined China Index First Trust Japan AlphaDEX(R) Fund Defined Japan Index First Trust South Korea AlphaDEX(R) Fund Defined South Korea Index First Trust Developed Markets Ex-US AlphaDEX(R) Fund Defined Developed Markets Ex-US Index First Trust Emerging Markets AlphaDEX(R) Fund Defined Emerging Markets 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 -7- transaction, it will record the transaction and reflect the value of the security in determining its NAV. The Funds do not believe that NAV will be adversely affected by purchases of securities in delayed-delivery transactions. The Funds will earmark or maintain in a segregated account cash, U.S. Government securities, and high-grade liquid debt securities equal in value to commitments for delayed-delivery securities. Such earmarked or segregated securities will mature or, if necessary, be sold on or before the settlement date. When the time comes to pay for delayed-delivery securities, a Fund will meet its obligations from then-available cash flow, sale of the securities earmarked or held in the segregated account described above, sale of other securities, or, although it would not normally expect to do so, from the sale of the delayed-delivery securities themselves (which may have a market value greater or less than a Fund's payment obligation). Illiquid Securities: The Funds may invest in illiquid securities (i.e., securities that are not readily marketable). For purposes of this restriction, illiquid securities include, but are not limited to, restricted securities (securities the disposition of which is restricted under the federal securities laws), securities that may only be resold pursuant to Rule 144A under the 1933 Act 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 for such determinations. With respect to Rule 144A securities, First Trust considers 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. -8- 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 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, -9- and the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010, extended this increased coverage permanently. Certificates of deposit purchased by the Funds may not be fully insured. (3) Bankers' acceptances which are short-term credit instruments used to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an asset or it may be sold in the secondary market at the going rate of interest for a specific maturity. (4) Repurchase agreements, which involve purchases of debt securities. In such an action, at the time a Fund purchases the security, it simultaneously agrees to resell and redeliver the security to the seller, who also simultaneously agrees to buy back the security at a fixed price and time. This assures a predetermined yield for a Fund during its holding period since the resale price is always greater than the purchase price and reflects an agreed upon market rate. The period of these repurchase agreements will usually be short, from overnight to one week. Such actions afford an opportunity for a Fund to invest temporarily available cash. The Funds may enter into repurchase agreements only with respect to obligations of the U.S. Government, its agencies or instrumentalities; certificates of deposit; or bankers acceptances in which the Funds may invest. In addition, the Funds may only enter into repurchase agreements where the market value of the purchased securities/collateral equals at least 100% of principal including accrued interest and is marked-to-market daily. The risk to the Funds is limited to the ability of the seller to pay the agreed-upon sum on the repurchase date; in the event of default, the repurchase agreement provides that the affected Fund is entitled to sell the underlying collateral. If the value of the collateral declines after the agreement is entered into, however, and if the seller defaults under a repurchase agreement when the value of the underlying collateral is less than the repurchase price, a Fund could incur a loss of both principal and interest. The Funds, however, intend to enter into repurchase agreements only with financial institutions and dealers believed by First Trust to present minimal credit risks in accordance with criteria approved 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. -10- (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 managers will consider the financial condition of the corporation (e.g., earning power, cash flow, and other liquidity ratios) and will continuously monitor the corporation's ability to meet all of its financial obligations, because a Fund's liquidity might be impaired if the corporation were unable to pay principal and interest on demand. The Funds may only invest in commercial paper rated A-1 or 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. The portfolio turnover rates for the fiscal period from April 18, 2011 to December 31, 2011 for the Funds are set forth below. In-kind transactions are not taken into account in calculating the portfolio turnover rate. PORTFOLIO TURNOVER RATE FISCAL PERIOD FROM APRIL 18, 2011 TO FUND DECEMBER 31, 2011 First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund 49% First Trust Europe AlphaDEX(R) Fund 27% First Trust Latin America AlphaDEX(R) Fund 54% First Trust Brazil AlphaDEX(R) Fund 46% First Trust China AlphaDEX(R) Fund 60% First Trust Japan AlphaDEX(R) Fund 43% First Trust South Korea AlphaDEX(R) Fund 123% First Trust Developed Markets Ex-US AlphaDEX(R) Fund 67% First Trust Emerging Markets AlphaDEX(R) Fund 56% -11- 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. On February 9, 2012, the CFTC adopted amendments to its rules that, once effective, mav affect the ability of the Trust, on behalf of the Funds, to continue to claim this exclusion. A Fund that seeks to claim the exclusion after the effectiveness of the amended rules would be limited in its ability to use futures and options on futures or commodities or engage in swap transactions. If a Fund were no longer able to claim the exclusion, the Advisor would be required to register as a "commodity pool operator," and such Fund and the Advisor would be subject to regulation under the Commodity Exchange Act. The foregoing limitations are non-fundamental policies of the Funds and may be changed without shareholder approval as regulatory agencies permit. -12- 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 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. -13- 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. 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 -14- 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 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. -15- 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 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 -16- 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. LENDING OF PORTFOLIO SECURITIES In order to generate additional income, as a non-principal investment strategy, each of the Funds may lend portfolio securities representing up to 20% of the value of its total assets to broker-dealers, banks or other institutional borrowers of securities. As with other extensions of credit, there may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, the Funds will only enter into domestic loan arrangements with broker-dealers, banks, or other institutions which First Trust has determined are creditworthy under guidelines established by the Board of Trustees. The Funds will pay a portion of the income earned on the lending transaction to the placing broker and may pay administrative and custodial fees in connection with these loans. -17- In these loan arrangements, the Funds will receive collateral in the form of cash, U.S. government securities or other high-grade debt obligations equal to at least 102% (for domestic securities) or 105% (for international securities) of the market value of the securities loaned as determined at the time of loan origination. This collateral must be valued daily by First Trust or the applicable Fund's lending agent and, if the market value of the loaned securities increases, the borrower must furnish additional collateral to the lending Fund. During the time portfolio securities are on loan, the borrower pays the lending Fund any dividends or interest paid on the securities. Loans are subject to termination at any time by the lending Fund or the borrower. While a Fund does not have the right to vote securities on loan, it would terminate the loan and regain the right to vote if that were considered important with respect to the investment. When a Fund lends portfolio securities to a borrower, payments in lieu of dividends made by the borrower to the Fund will not constitute "qualified dividends" taxable at the same rate as long-term capital gains, even if the actual dividends would have constituted qualified dividends had the Fund held the securities. 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 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 Funds may not be an appropriate investment for those who are unable or unwilling to assume the risks involved generally with an equity investment. The past market and earnings performance of any of the equity securities included in a Fund is not predictive of their future performance. Common stocks are especially susceptible to general stock market movements and to volatile increases and decreases of value as market confidence in and perceptions of the issuers change. These perceptions are based on unpredictable factors including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic or banking crises. First Trust cannot predict the direction or scope of any of these factors. Shareholders of common stocks have rights to receive payments from the issuers of those common stocks that are generally subordinate to those of creditors of, or holders of debt obligations or preferred stocks of, such issuers. -18- Shareholders of common stocks of the type held by the Funds have a right to receive dividends only when and if, and in the amounts, declared by the issuer's board of directors and have a right to participate in amounts available for distribution by the issuer only after all other claims on the issuer have been paid. Common stocks do not represent an obligation of the issuer and, therefore, do not offer any assurance of income or provide the same degree of protection of capital as do debt securities. The issuance of additional debt securities or preferred stock will create prior claims for payment of principal, interest and dividends which could adversely affect the ability and inclination of the issuer to declare or pay dividends on its common stock or the rights of holders of common stock with respect to assets of the issuer upon liquidation or bankruptcy. The value of common stocks is subject to market fluctuations for as long as the common stocks remain outstanding, and thus the value of the equity securities in the Funds will fluctuate over the life of the Funds and may be more or less than the price at which they were purchased by the Funds. The equity securities held in the Funds may appreciate or depreciate in value (or pay dividends) depending on the full range of economic and market influences affecting these securities, including the impact of a Fund's purchase and sale of the equity securities and other factors. Holders of common stocks incur more risk than holders of preferred stocks and debt obligations because common stockholders, as owners of the entity, have generally inferior rights to receive payments from the issuer in comparison with the rights of creditors of, or holders of debt obligations or preferred stocks issued by, the issuer. Cumulative preferred stock dividends must be paid before common stock dividends and any cumulative preferred stock dividend omitted is added to future dividends payable to the holders of cumulative preferred stock. Preferred stockholders are also generally entitled to rights on liquidation which are senior to those of common stockholders. 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 -19- 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. Non-U.S. Securities Risk An investment in non-U.S. securities involves risks in addition to the usual risks inherent in domestic investments, including currency risk. The value of a non-U.S. security in U.S. dollars tends to decrease when the value of the U.S. dollar rises against the non-U.S. currency in which the security is denominated and tends to increase when the value of the U.S. dollar falls against such currency. Non-U.S. securities are affected by the fact that in many countries there is less publicly available information about issuers than is available in the reports and ratings published about companies in the United States and companies may not be subject to uniform accounting, auditing and financial reporting standards. Other risks inherent in non-U.S. investments include expropriation; confiscatory taxation; withholding taxes on dividends and interest; less extensive regulation of non-U.S. brokers, securities markets and issuers; diplomatic developments; and political or social instability. Non-U.S. economies may differ favorably or unfavorably from the U.S. economy in various respects, and many non-U.S. securities are less liquid and their prices tend to be more volatile than comparable U.S. securities. From time to time, non-U.S. securities may be difficult to liquidate rapidly without adverse price effects. Depositary Receipts Risk A Fund may hold securities of certain non-U.S. companies in the form of Depositary Receipts. Depositary Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. ADRs are receipts typically issued by an American bank or trust company that evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued by a European bank or trust company evidencing ownership of securities issued by a foreign corporation. New York shares are typically issued by a company incorporated in the Netherlands and represent a direct interest in the company. Unlike traditional depositary receipts, New York share programs do not involve custody of the Dutch shares of the company. GDRs are receipts issued throughout the world that evidence a similar arrangement. ADRs, EDRs and GDRs may trade in foreign currencies that differ from the currency the underlying security for each ADR, EDR or GDR principally trades in. Global shares are the actual (ordinary) shares of a non-U.S. company which trade both in the home market and the United States. Generally, ADRs and New York shares, in registered form, are designed for use in the U.S. securities markets. EDRs, in registered form, are used to access European markets. GDRs, in registered form, are tradable both in the United States and in Europe and are designed for use throughout the world. Global shares are represented by the same share certificate in the United States and the home market. Separate registrars in the United States and the home country are maintained. In most cases, purchases occurring on a U.S. exchange would be reflected on the U.S. registrar. Global shares may also be eligible to list on exchanges in addition to the United States and the home country. The Fund may hold unsponsored Depositary Receipts. The issuers of unsponsored Depositary Receipts are not obligated to disclose material information in the United States; therefore, there may be less information available regarding such issuers and there may not be a correlation between such information and the market value of the Depositary Receipts. -20- Currency Risk Changes in currency exchange rates may affect a Fund's net asset value, the value of dividends and interest earned, and gains and losses realized on the sale of securities. Passive Foreign Investment Companies Risk. A Fund may invest in companies that are considered to be "passive foreign investment companies" ("PFICs"), which are generally certain non-U.S. corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, certain rents and royalties or capital gains) or that hold at least 50% of their assets in investments producing such passive income. Therefore, 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 distributed to its shareholders in a timely manner. The Fund will not be able to pass through to its shareholders any credit or deduction for such taxes. RISKS AND SPECIAL CONSIDERATIONS CONCERNING DERIVATIVES In addition to the foregoing, the use of derivative instruments involves certain general risks and considerations as described below. (1) Market Risk. Market risk is the risk that the value of the underlying assets may go up or down. Adverse movements in the value of an underlying asset can expose the Funds to losses. Market risk is the primary risk associated with derivative transactions. Derivative instruments may include elements of leverage and, accordingly, fluctuations in the value of the derivative instrument in relation to the underlying asset may be magnified. The successful use of derivative instruments depends upon a variety of factors, particularly the portfolio managers' 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 managers' 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 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 -21- only with counterparties that First Trust reasonably believes are capable of performing under the contract. (3) Correlation Risk. Correlation risk is the risk that there might be an imperfect correlation, or even no correlation, between price movements of a derivative instrument and price movements of investments being hedged. When a derivative transaction is used to completely hedge another position, changes in the market value of the combined position (the derivative instrument plus the position being hedged) result from an imperfect correlation between the price movements of the two instruments. With a perfect hedge, the value of the combined position remains unchanged with any change in the price of the underlying asset. With an imperfect hedge, the value of the derivative instrument and its hedge are not perfectly correlated. For example, if the value of a derivative instrument used in a short hedge (such as writing a call option, buying a put option or selling a Futures Contract) increased by less than the decline in value of the hedged investments, the hedge would not be perfectly correlated. This might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which these instruments are traded. The effectiveness of hedges using instruments on indices will depend, in part, on the degree of correlation between price movements in the index and the price movements in the investments being hedged. (4) Liquidity Risk. Liquidity risk is the risk that a derivative instrument cannot be sold, closed out, or replaced quickly at or very close to its fundamental value. Generally, exchange contracts are very liquid because the exchange clearinghouse is the counterparty of every contract. OTC transactions are less liquid than exchange-traded derivatives since they often can only be closed out with the other party to the transaction. The Funds might be required by applicable regulatory requirements to maintain assets as "cover," maintain segregated accounts, and/or make margin payments when they take positions in derivative instruments involving obligations to third parties (i.e., instruments other than purchase options). If a Fund is unable to close out its positions in such instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expires, matures, or is closed out. These requirements might impair a Fund's ability to sell a security or make an investment at a time when it would otherwise be favorable to do so, or require that a Fund sell a portfolio security at a disadvantageous time. A Fund's ability to sell or close out a position in an instrument prior to expiration or maturity depends upon the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of the counterparty to enter into a transaction closing out the position. Due to liquidity risk, there is no assurance that any derivatives position can be sold or closed out at a time and price that is favorable to a Fund. (5) Legal Risk. Legal risk is the risk of loss caused by the unenforceability of a party's obligations under the derivative. While a party seeking price certainty agrees to surrender the potential upside in exchange for downside protection, the party taking the risk is looking for a positive payoff. Despite this voluntary assumption of risk, a -22- 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. 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. -23-
NUMBER OF OTHER PORTFOLIOS IN TRUSTEESHIPS OR TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE NAME, ADDRESS POSITION AND OFFICES ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING THE PAST AND DATE OF BIRTH WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS Trustee who is an Interested Person of the Trust ---------------------------- James A. Bowen(1) Chairman of the o Indefinite Chief Executive Officer 91 Portfolios None 120 East Liberty Drive, Board and Trustee term (December 2010 to Suite 400 Present), President Wheaton, IL 60187 (until December 2010), D.O.B.: 09/55 o Since First Trust Advisors L.P. inception 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, 91 Portfolios None c/o First Trust Advisors L.P. term Wheaton Orthopedics; 120 East Liberty Drive, Co-owner and Co-Director Suite 400 (January 1996 to May Wheaton, IL 60187 o Since 2007), Sports Med Center D.O.B.: 04/51 inception for Fitness; Limited Partner, Gundersen Real Estate Limited Partnership; Member, Sportsmed LLC Thomas R. Kadlec Trustee o Indefinite President (March 2010 to 91 Portfolios Director of ADM c/o First Trust Advisors L.P. term Present), Senior Vice Investor 120 East Liberty Drive, President and Chief Services, Inc. Suite 400 o Since Financial Officer (May and ADM Investor Wheaton, IL 60187 inception 2007 to March 2010), Vice Services D.O.B.: 11/57 President and Chief International Financial Officer (1990 to May 2007), ADM Investor Services, Inc. (Futures Commission Merchant) Robert F. Keith Trustee o Indefinite President (2003 to 91 Portfolios Director of c/o First Trust Advisors L.P. term Present), Hibs Trust Company of 120 East Liberty Drive, Enterprises (Financial Illinois Suite 400 o Since and Management Wheaton, IL 60187 inception Consulting) D.O.B.: 11/56 Niel B. Nielson Trustee o Indefinite President (June 2002 to 91 Portfolios Director of c/o First Trust Advisors L.P. term Present), Covenant Covenant 120 East Liberty Drive, College Transport Inc. Suite 400 o Since Wheaton, IL 60187 inception D.O.B.: 03/54 -24- NUMBER OF OTHER PORTFOLIOS IN TRUSTEESHIPS OR TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE NAME, ADDRESS POSITION AND OFFICES ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING THE PAST AND DATE OF BIRTH WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS Officers of the Trust ---------------------------- Mark R. Bradley President and Chief o Indefinite Chief Financial Officer, N/A N/A 120 East Liberty Drive, Executive Officer term Chief Operating Officer Suite 400 (December 2010 to Wheaton, IL 60187 Present), First Trust D.O.B.: 11/57 o President and Advisors L.P. and First Chief Trust Portfolios L.P.; Executive Chief Financial Officer, Officer since BondWave LLC (Software 2012 Development Company/Investment Advisor) and Stonebridge Advisors LLC (Investment Advisor) Erin E. Chapman Assistant Secretary o Indefinite Assistant General Counsel N/A N/A 120 East Liberty Drive, term (October 2007 to Suite 400 Present), Associate Wheaton, IL 60187 o Since Counsel (March 2006 to D.O.B.: 08/76 inception October 2007), First Trust Advisors L.P. and First Trust Portfolios L.P. Controller (January 2011 James M. Dykas Treasurer, Chief o Indefinite to Present) and Senior N/A N/A 120 East Liberty Drive, Financial Officer term Vice President (April Suite 400 and Chief Accounting 2007 to Present), Vice Wheaton, IL 60187 Officer o Treasurer, President (January 2005 D.O.B.: 01/66 Chief to April 2007), First Financial Trust Advisors L.P. and Officer and First Trust Portfolios Chief L.P. Accounting Officer since 2012 Rosanne Gatta Assistant Secretary o Indefinite Board Liaison Associate N/A N/A 120 East Liberty Drive, Suite term (July 2010 to Present), 400 First Trust Advisors L.P. Wheaton, IL 60187 o Since 2011 and First Trust D.O.B.: 07/55 Portfolios L.P.; Assistant Vice President (February 2001 to July 2010), PNC Global Investment Servicing W. Scott Jardine Secretary o Indefinite General Counsel, First N/A N/A 120 East Liberty Drive, term Trust Advisors L.P. and Suite 400 First Trust Portfolios Wheaton, IL 60187 o Since L.P.; Secretary, BondWave D.O.B.: 05/60 inception LLC Software Development Company/Investment Advisor) and 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 President Wheaton, IL 60187 o Since (April 2004 to September D.O.B.: 02/70 inception 2005), First Trust Advisors L.P. and First Trust Portfolios L.P. -25- NUMBER OF OTHER PORTFOLIOS IN TRUSTEESHIPS OR TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE NAME, ADDRESS POSITION AND OFFICES ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING THE PAST AND DATE OF BIRTH WITH TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS Coleen D. Lynch Assistant Vice o Indefinite Assistant Vice President N/A N/A 120 East Liberty Drive President term (January 2008 to Suite 400 Present), First Trust Wheaton, IL 60187 o Since Advisors L.P. and First D.O.B.: 07/58 inception Trust Portfolios L.P.; Vice President (May 1998 to January 2008), Van Kampen Asset Management and Morgan Stanley Investment Management Kristi A. Maher Assistant Secretary o Indefinite Deputy General Counsel N/A N/A 120 East Liberty Drive, and Chief Compliance term (May 2007 to Present), Suite 400 Officer Assistant General Counsel Wheaton, IL 60187 o Since (March 2004 to May 2007), D.O.B.: 12/66 inception First Trust Advisors L.P. and First Trust Portfolios L.P. Roger F. Testin Vice President o Indefinite Senior Vice President, N/A N/A 120 East Liberty Drive, term (November 2003 to Suite 400 Present), First Trust Wheaton, IL 60187 o Since Advisors L.P. and First D.O.B.: 06/66 inception Trust Portfolios L.P. Stan Ueland Vice President o Indefinite Vice President (August N/A N/A 120 East Liberty Drive, term 2005 to Present), First Suite 400 Trust Advisors L.P. and Wheaton, IL 60187 o Since First Trust Portfolios D.O.B.: 11/70 inception L.P.
-------------------- (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 of 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, First Trust Energy Income and Growth Fund, First Trust Enhanced Equity Income Fund, First Trust/Aberdeen Global Opportunity Income Fund, First Trust Mortgage Income Fund, First Trust Strategic High Income Fund II, First Trust/Aberdeen Emerging Opportunity Fund, First Trust Specialty Finance and Financial Opportunities Fund, First Trust Active Dividend Income Fund, First Trust High Income Long/Short Fund and First Trust Energy Infrastructure 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, exchange-traded funds with 69 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 -26- their affiliates. In addition, Mr. Bradley 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 the Chairman of the Board for each First Trust Fund 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 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 -27- 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. 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 (other than meetings of the Executive Committee). 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. Keith and Mr. Bowen are members of the Executive Committee. During the last fiscal year, when Mr. Nielson and Mr. Bowen were the Committee members, the Executive Committee held 4 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 Committee will not consider new trustee candidates who are 72 years of age or older. 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 Trust'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 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 -28- 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 4 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 4 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 7 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 risk and compliance with the Funds' Valuation Procedures and oversees the pricing agents and actions by the Advisor's Pricing Committee with respect to the valuation of portfolio securities. -29- 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, any 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 and 2010 - 2011) of the First Trust Funds. He currently serves as Chairman of the Audit Committee (since January 1, 2012) of the First Trust Funds. 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, except First Defined Portfolio Fund, LLC, since its inception. He has served as a Trustee of First Defined Portfolio Fund, LLC since 2004. Mr. Kadlec also served on the Executive Committee from 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), Chairman of the Audit Committee (2010- 2011) and he currently serves as Chairman of the Nominating and Governance Committee (since January 1, 2012) of the First Trust Funds. -30- Robert F. Keith is President of Hibs Enterprises, a financial and management consulting firm. Mr. Keith has been with Hibs Enterprises since 2003. 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) and Chairman of the Nominating and Governance Committee (2010- 2011) of the First Trust Funds. He currently serves as Lead Independent Trustee and on the Executive Committee (since January 1, 2012) of the First Trust Funds. 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 Lead Independent Trustee (2010 - 2011) and currently serves as Chairman of the Valuation Committee (since January 1, 2012) of the First Trust Funds. James A. Bowen is Chief Executive Officer of First Trust Advisors L.P. and First Trust Portfolios L.P. and until January 23, 2012, also served as President and Chief Executive Officer of the First Trust Funds. 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 as a Trustee of each First Trust Fund since its inception and of the First Trust Funds since 1999. Until January 1, 2012, each trust in the First Trust Fund Complex paid each Independent Trustee 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 was allocated equally among each of the trusts. In addition, for all the trusts in the First Trust Fund Complex, Mr. Nielson was paid annual compensation of $10,000 to serve as the Lead Independent Trustee, Mr. Kadlec was paid annual compensation of $5,000 to serve as the Chairman of the Audit Committee, Dr. Erickson was paid annual compensation of $2,500 to serve as Chairman of the Valuation Committee and Mr. Keith was paid annual compensation of $2,500 to serve as the Chairman of the Nominating and Governance Committee. -31- The annual compensation was allocated equally among each of the trusts in the First Trust Fund Complex. Effective January 1, 2012, each Independent Trustee is paid a fixed annual retainer of $125,000 per year and an annual per fund fee of $4,000 for each closed-end fund or other actively managed fund and $1,000 for each index fund in the First Trust Fund Complex. The fixed annual retainer is allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Additionally, the Lead Independent Trustee is paid $15,000 annually, the Chairman of the Audit Committee is paid $10,000 annually, and each of the Chairmen of the Nominating and Governance Committee and the Valuation Committee is paid $5,000 annually to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Trustees are 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. Each Committee Chairman and the Lead Independent Trustee will serve a two year term expiring December 31, 2013 before rotating to serve as a Chairman of another Committee or as Lead Independent Trustee. The following table sets forth the compensation (including reimbursement for travel and out-of-pocket expenses) paid by the Trust and the First Trust Fund Complex to each of the Independent Trustees for the fiscal period from April 18, 2011 to December 31, 2011 and the calendar year ended December 31, 2011 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. TOTAL COMPENSATION FROM TOTAL COMPENSATION FROM THE FIRST TRUST FUND NAME OF TRUSTEE THE TRUST(1) COMPLEX(2) Richard E. Erickson $7,173 $177,025 Thomas R. Kadlec $7,233 $178,750 Robert F. Keith $7,173 $177,025 Niel B. Nielson $7,569 $187,707 -------------------- (1) The compensation paid by the Trust to the Independent Trustees for the fiscal period from April 18, 2011 to December 31, 2011 for services to the Funds of the Trust. (2) The total compensation paid to the Independent Trustees for the calendar year ended December 31, 2011 for services to the ten portfolios of First Defined Portfolio Fund, LLC and First Trust Series Fund, open-end funds, 14 closed-end funds and 60 series of the Trust, First Trust Exchange-Traded Fund, First Trust Exchange-Traded Fund II and First Trust Exchange-Traded AlphaDEX(R) Fund, 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, 2011: 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
-32- As of December 31, 2011, the Independent Trustees of the Trust and immediate family members did 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. As of April 1, 2012, the officers and Trustees, in the aggregate, owned less than 1% of the Shares of each Fund. The table set forth as Exhibit A shows the percentage ownership of each shareholder or "group" (as that term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) who, as of March 31, 2012, owned of record, or is known by the Trust to have owned of record or beneficially, 5% or more of the Shares of a Fund. A control person is one who owns, either directly or indirectly, more than 25% of the voting securities of a Fund or acknowledges the existence of control. A party that controls a Fund may be able to significantly influence the outcome of any item presented to shareholders for approval. Information as to beneficial ownership is based on the securities position listing reports as of March 31, 2012. 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, effective on April 18, 2011 (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 each 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 0.80% of its average daily net assets. -33- 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 are 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 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. AMOUNT OF MANAGEMENT FEES PAID FOR THE FISCAL PERIOD FROM APRIL 18, 2011 FUND TO DECEMBER 31, 2011 First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund $14,980 First Trust Europe AlphaDEX(R) Fund $15,600 First Trust Latin America AlphaDEX(R) $15,167 First Trust Brazil AlphaDEX(R) Fund $38,162 First Trust China AlphaDEX(R) Fund $15,089 -34- AMOUNT OF MANAGEMENT FEES PAID FOR THE FISCAL PERIOD FROM APRIL 18, 2011 FUND TO DECEMBER 31, 2011 First Trust Japan AlphaDEX(R) Fund $22,587 First Trust South Korea AlphaDEX(R) Fund $11,965 First Trust Developed Markets Ex-US AlphaDEX(R) Fund $53,236 First Trust Emerging Markets AlphaDEX(R) Fund $55,078 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)
-35- 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 Fund. 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 the fiscal period ended December 31, 2011, set forth in the table below: -36-
ACCOUNTS MANAGED BY INVESTMENT COMMITTEE REGISTERED INVESTMENT OTHER POOLED INVESTMENT COMPANIES VEHICLES NUMBER OF ACCOUNTS NUMBER OF ACCOUNTS OTHER ACCOUNTS NUMBER OF INVESTMENT COMMITTEE MEMBER ($ ASSETS) ($ ASSETS) ACCOUNTS ($ ASSETS) Robert F. Carey 63 ($12,369,507,818) 7 ($240,879,668) 3,226 ($770,180,762) Roger F. Testin 63 ($12,369,507,818) 7 ($240,879,668) 3,226 ($770,180,762) Jon C. Erickson 63 ($12,369,507,818) 7 ($240,879,668) 3,226 ($770,180,762) David G. McGarel 63 ($12,369,507,818) 7 ($240,879,668) 3,226 ($770,180,762) Daniel J. Lindquist 63 ($12,369,507,818) N/A 3,226 ($770,180,762) Stan Ueland 51 ($6,202,453,654) 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 -37- 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 continuing basis. First Trust seeks to allocate portfolio transactions equitably -38- 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. AGGREGATE AMOUNT OF BROKERAGE FUND COMMISSIONS FOR THE FISCAL PERIOD FROM APRIL 18, 2011 TO DECEMBER 31, 2011 First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund $3,266 First Trust Europe AlphaDEX(R) Fund $1,467 First Trust Latin America AlphaDEX(R) Fund $5,859 First Trust Brazil AlphaDEX(R) Fund $16,830 First Trust China AlphaDEX(R) Fund $1,604 First Trust Japan AlphaDEX(R) Fund $1,757 First Trust South Korea AlphaDEX(R) Fund $6,325 First Trust Developed Markets Ex-US AlphaDEX(R) Fund $9,083 First Trust Emerging Markets AlphaDEX(R) Fund $17,114 During the fiscal period from April 18, 2011 to December 31, 2011, the Funds did not acquire any securities of their regular brokers or dealers as defined in Rule 10b-1 under the 1940 Act or of the parents of the brokers or dealers. Administrator. Brown Brothers Harriman & Co. ("BBH") serves as Administrator for the Funds. Its principal address is 40 Water Street, Boston, MA 02109. BBH serves as Administrator for the Trust pursuant to an Administrative Agency Agreement. Under such agreement, BBH 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. BBH will generally assist in all aspects of the Trust's and the Funds' operations; supply and maintain office facilities (which may be in BBH'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 -39- 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 Administrative Agency Agreement between BBH 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 BBH in the performance of its duties,. This fee is subject to reduction for assets over $1 billion and is paid by First Trust out of the unitary fee. FOR THE FISCAL PERIOD FROM APRIL 18, 2011 TO FUND DECEMBER 31, 2011 First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund N/A First Trust Europe AlphaDEX(R) Fund N/A First Trust Latin America AlphaDEX(R) Fund N/A First Trust Brazil AlphaDEX(R) Fund N/A First Trust China AlphaDEX(R) Fund N/A First Trust Japan AlphaDEX(R) Fund N/A First Trust South Korea AlphaDEX(R) Fund N/A First Trust Developed Markets Ex-US AlphaDEX(R) Fund N/A First Trust Emerging Markets AlphaDEX(R) Fund N/A CUSTODIAN, TRANSFER AGENT, FUND ACCOUNTING AGENT, DISTRIBUTOR, INDEX PROVIDER AND EXCHANGE Custodian, Transfer Agent and Accounting Agent. BBH, as custodian for the Funds pursuant to a Custodian Agreement, holds each Fund's assets (which may be held through U.S. and non-U.S. sub-custodians and depositories). BBH also serves as transfer agent of the Funds pursuant to a Transfer Agency and Service Agreement. As the Funds' accounting agent, BBH calculates the NAV of Shares and calculates net income and realized capital gains or losses. BBH may be reimbursed by the Funds for its out-of-pocket expenses, which will be paid by First Trust. Distributor. First Trust Portfolios is the distributor (the "Distributor") and principal underwriter of the Shares of the Funds. The Distributor is an affiliate of First Trust. Its principal address is 120 East Liberty Drive, Suite -40- 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 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. For the fiscal period from April 18, 2011 to December 31, 2011, there were no underwriting commissions with respect to the sale of Fund Shares and First Trust Portfolios did not receive compensation on redemptions for the Funds for that period. 12b-1 Plan. The Trust has adopted a Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act (the "Plan") pursuant to which the Funds may reimburse the Distributor up to a maximum annual rate of 0.25% 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. With the exception of the Distributor and its affiliates, no "interested person" of the Trust (as that term is defined in the 1940 Act) and no Trustee of the Trust has a direct or indirect financial interest in the operation of the Plan or any related agreement. The Plan was adopted in order to permit the implementation of the Funds' method of distribution. However, no such fee is currently paid by the Funds and pursuant to a contractual agreement, the Funds will not pay 12b-1 fees any time before April 30, 2013. 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). -41- The Distributor may also enter into agreements with securities dealers ("Soliciting Dealers") who will solicit purchases of Creation Unit Aggregations of Fund Shares. Such Soliciting Dealers may also be Participating Parties (as defined in "Procedures for Creation of Creation Unit Aggregations" below) and DTC Participants (as defined in "DTC Acts as Securities Depository for Fund Shares" below). Index Provider. The Index that each 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 the Trust on behalf of 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 -42- ENTITY FROM THE USE OF THE DEFINED INDEX SERIES OR ANY DATA INCLUDED THEREIN. S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE DEFINED INDEX SERIES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P, ITS AFFILIATES AND THEIR THIRD PARTY LICENSORS HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. "AlphaDEX(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"). -43- Beneficial ownership of Shares is limited to DTC Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in Shares (owners of such beneficial interests are referred to herein as "Beneficial Owners") is shown on, and the transfer of ownership is effected only through, records maintained by DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from or through the DTC Participant a written confirmation relating to their purchase and sale of Shares. Conveyance of all notices, statements and other communications to Beneficial Owners is effected as follows. Pursuant to a letter agreement between DTC and the Trust, DTC is required to make available to the Trust upon request and for a fee to be charged to the Trust a listing of the Shares of the Funds held by each DTC Participant. The Trust shall inquire of each such DTC Participant as to the number of Beneficial Owners holding Shares, directly or indirectly, through such DTC Participant. The Trust shall provide each such DTC Participant with copies of such notice, statement or other communication, in such form, number and at such place as such DTC Participant may reasonably request, in order that such notice, statement or communication may be transmitted by such DTC Participant, directly or indirectly, to such Beneficial Owners. In addition, the Trust shall pay to each such DTC Participants a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, all subject to applicable statutory and regulatory requirements. Fund distributions shall be made to DTC or its nominee, as the registered holder of all Fund Shares. DTC or its nominee, upon receipt of any such distributions, shall immediately credit DTC Participants' accounts with payments in amounts proportionate to their respective beneficial interests in Shares of the Funds as shown on the records of DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a "street name," and will be the responsibility of such DTC Participants. The Trust has no responsibility or liability for any aspect of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such Shares, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests, or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants. DTC may decide to discontinue providing its service with respect to Shares at any time by giving reasonable notice to the Trust and discharging its 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. Intra-Day Portfolio Value. The price of a non-U.S. security that is primarily traded on a non-U.S. exchange shall be updated every 15 seconds throughout its trading day, provided, that upon the closing of such non-U.S. exchange the closing price of the security will be used throughout the remainder -44- of the business day where the markets remain open. These exchange rates may differ from those used by First Trust and consequently result in intra-day portfolio values that may vary. Furthermore, in calculating the intra-day portfolio values ("IPV") of each Fund's Shares, the IPV dissemination agent shall use the exchange rates throughout the day (9:00 a.m. to 4:15 p.m. Eastern Time) that it deems to be most appropriate. 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 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. 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. Information regarding how the Funds voted proxies relating to portfolio securities during the most recent fiscal period from April 18, 2011 to December 31, 2011, is available upon request and without charge on the Funds' website at http://www.ftportfolios.com, by calling (800) 621-1675 or by accessing the SEC's website at http://www.sec.gov. Quarterly Portfolio Schedule. The Trust is required to disclose, after its first and third fiscal quarters, the complete schedule of the Funds' portfolio holdings with the SEC on Form N-Q. Forms N-Q for the Trust are 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 -45- the Funds' website at http://www.ftportfolios.com. The Trust, First Trust, FTP and BBH 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, 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., -46- 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 each 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, 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 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 -47- 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. For non-U.S. Securities, Deposit Securities must be delivered to an account maintained at the applicable local subcustodian of the Trust on or before the International Contractual Settlement Date (as defined below). If a Deposit Security is an ADR or similar domestic instrument, it may be delivered to the Custodian. The Authorized Participant must also pay on or before the International Contractual Settlement Date immediately available or same-day funds estimated by Trust to be sufficient to pay the Cash Component next determined after acceptance of the Creation Order, together with the applicable Creation Transaction Fee (as defined below) and additional variable amounts, as described below. Orders must be transmitted by an Authorized Participant by telephone or other transmission method acceptable to the transfer agent pursuant to procedures set forth in the Participant Agreement (as described below). Severe economic or market disruptions or changes, or telephone or other communication failure may impede the ability to reach the transfer agent or an Authorized Participant. All orders from investors who are not Authorized Participants to create Creation Unit Aggregations shall be placed with an Authorized Participant, as applicable, in the form required by such Authorized Participant. In addition, the Authorized Participant may request the investor to make certain representations or enter into agreements with respect to the order, e.g., to provide for payments of cash, when required. Investors should be aware that their particular broker may not have executed a Participant Agreement and that, therefore, orders to create Creation Unit Aggregations of a Fund have to be placed by the investor's broker through an Authorized Participant that has executed a Participant Agreement. In such cases there may be additional charges to such investor. At any given time, there may be only a limited number of broker-dealers that have executed a Participant Agreement. Those placing orders for Creation Unit Aggregations through the Clearing Process should afford sufficient time in order to permit proper submission of the order to the 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 -48- 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. In order to redeem Creation Units of the Funds, an Authorized Participant must submit an order to redeem for one or more Creation Units. All such orders must be received by the Funds' transfer agent in proper form no later than the close of regular trading on the NYSE (ordinarily 4:00 p.m. Eastern Time) in order to receive that day's closing NAV per share. Orders must be placed in proper form by or through an Authorized Participant, which is a DTC Participant, i.e., a subcustodian of the Trust. Deposit Securities must be delivered to the Trust through DTC or NSCC, and Deposit Securities which are non-U.S. securities must be delivered to an account maintained at the applicable local subcustodian of the Trust on or before the International Contractual Settlement Date, as defined below. If a Deposit Security is an ADR or similar domestic instrument, it may be delivered to the Custodian. The Authorized Participant must also pay on or before the International Contractual Settlement Date immediately available or same-day funds estimated by Trust to be sufficient to pay the Cash Component next determined after acceptance of the Creation Order, together with the applicable Creation Transaction Fee and additional variable amounts, as described below. The "International Contractual Settlement Date" is the earlier of (i) the date upon which all of the required Deposit Securities, the Cash Component and any other cash amounts which may be due are delivered to the Funds or (ii) the latest day for settlement on the customary settlement cycle in the jurisdiction(s) where any of the securities of such Fund are customarily traded. A custom order may be placed by an Authorized Participant in the event that the Funds permit or requires the substitution of an amount of cash to be added to the Cash Component (if applicable) 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 any other relevant reason. The Authorized Participant must also make available no later than 2:00 p.m., Eastern Time, on the International Contractual Settlement Date, by means satisfactory to the Trust, immediately-available or same-day funds estimated by the Trust to be sufficient to pay the Cash Component next determined after acceptance of the purchase order, together with the applicable purchase transaction fee. Any excess funds will be returned following settlement of the issue of the Creation Unit Aggregation. A Creation Unit Aggregation will not be issued until the transfer of good title to the Trust of the portfolio of Deposit Securities, the payment of the Cash Component, the payment of any other cash amounts and the Creation Transaction Fee (as defined below) have been completed. When the required Deposit Securities which are U.S. securities must be delivered to the Trust through DTC or NSCC, and Deposit Securities which are non-U.S. securities have been delivered to the Custodian and each relevant subcustodian confirms to Custodian that the required Deposit Securities which are non-U.S. securities (or, when permitted in the sole discretion of Trust, the cash in lieu thereof) have been delivered to the account of the relevant subcustodian, the Custodian shall notify Distributor and the transfer agent which, acting on behalf of the Trust, will issue and cause the delivery of the Creation Unit Aggregations. The -49- Trust may in its sole discretion 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 which may not be available in sufficient quantity for delivery or for other similar reasons. If the Distributor, acting on behalf of the Trust, determines that a "cash in lieu" amount will be accepted, the Distributor will notify the Authorized Participant and the transfer agent, and the Authorized Participant shall deliver, on behalf of itself or the party on whose behalf it is acting, the "cash in lieu" amount, with any appropriate adjustments as advised by the Trust as discussed below. In the event that an order for a Creation Unit is incomplete on the International Contractual Settlement Date because certain or all of the Deposit Securities are missing, the Trust may issue a Creation Unit notwithstanding such deficiency in reliance on the undertaking of the Authorized Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by an Additional Cash Deposit with respect to undelivered Deposit Securities. The Trust may permit, in its discretion, the Authorized Participant to substitute a different security in lieu of depositing some or all of the Deposit Securities. Substitution of cash or a different security might be permitted or required, for example, because one or more Deposit Securities may be unavailable in the quantity needed or may not be eligible for trading by the Authorized Participant due to local trading restrictions or other restrictions. To the extent contemplated by the applicable Participant Agreement, Creation Unit Aggregations of the Funds will be issued to such Authorized Participant notwithstanding the fact that the corresponding Fund Deposits have not been received in part or in whole, in reliance on the undertaking of the Authorized Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by such Authorized Participant's delivery and maintenance of collateral consisting of cash in the form of U.S. dollars in immediately available funds having a value (marked to market daily) at least equal to 115% which First Trust may change from time to time of the value of the missing Deposit Securities. Such cash collateral must be delivered no later than 2:00 p.m., Eastern time, on the contractual settlement date. The Participant Agreement will permit the Funds to buy the missing Deposit Securities at any time and will subject the Authorized Participant to liability for any shortfall between the cost to the Trust of purchasing such securities and the value of the collateral. 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 the Funds 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 Funds; (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 Funds; (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, the Funds 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 -50- 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 must pay a creation transaction fee (the "Creation Transaction Fee") that is currently $3,500 for First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund, $4,000 for First Trust Europe AlphaDEX(R) Fund, $2,500 for First Trust Latin America AlphaDEX(R) Fund and First Trust Brazil AlphaDEX(R) Fund, $2,000 for First Trust China AlphaDEX(R) Fund, $1,000 for First Trust Japan AlphaDEX(R) Fund, $1,500 for First Trust South Korea AlphaDEX(R) Fund, $5,500 for First Trust Developed Markets Ex-US AlphaDEX(R) Fund and $7,000 for First Trust Emerging Markets AlphaDEX(R) Fund. The Creation Transaction Fee is applicable to each purchase transaction regardless of the number of Creation Units purchased in the transaction. The Creation Transaction Fee may vary and is based on the composition of the securities included in the Funds' portfolio and the countries in which the transactions are settled. The Creation Transaction Fee may increase or decrease as the Funds' portfolio is adjusted to conform to changes in the composition of the Index. The price for each Creation Unit will equal the daily NAV per Share times the number of Shares in a Creation Unit plus the fees described above and, if applicable, any operational processing and brokerage costs, transfer fees or stamp taxes. When a Fund permits an Authorized Participant to substitute cash or a different security in lieu of depositing one or more of the requisite Deposit Securities, the Authorized Participant may also be assessed an amount to cover the cost of purchasing the Deposit Securities and/or disposing of the substituted securities, including operational processing and brokerage costs, transfer fees, stamp taxes, and part or all of the spread between the expected bid and offer side of the market related to such Deposit Securities and/or substitute securities. Shares of a Fund may be issued in advance of receipt of all Deposit Securities subject to various conditions including a requirement to maintain on deposit with a Fund cash at least equal to 115% of the market value of the missing Deposit Securities. 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 -51- enough Shares in the secondary market to constitute a Creation Unit Aggregation in order to have such Shares redeemed by the Trust. A redeeming beneficial owner must maintain appropriate security arrangements with a broker-dealer, bank or other custody provider in each jurisdiction in which any of the portfolio securities are customarily traded. If such arrangements cannot be made, or it is not possible to effect deliveries of the portfolio securities in a particular jurisdiction or under certain other circumstances (for example, holders may incur unfavorable tax treatment in some countries if they are entitled to receive "in-kind" redemption proceeds), Fund Shares may be redeemed for cash at the discretion of First 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 customary 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 the Funds, 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 the applicable Redemption Transaction Fee as listed below and, if applicable, any operational processing and brokerage costs, transfer fees or stamp taxes. 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 plus, the applicable Redemption Transaction Fee and, if applicable, any operational processing and brokerage costs, transfer fees or stamp taxes is required to be made by or through an Authorized Participant by the redeeming shareholder. The right of redemption may be suspended or the date of payment postponed (i) for any period during which the NYSE is closed (other than customary weekend and holiday closings); (ii) for any period during which trading on the NYSE is suspended or restricted; (iii) for any period during which an emergency exists as a result of which disposal of the Shares of the Funds 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. Parties redeeming Creation Units must pay a redemption transaction fee (the "Redemption Transaction Fee") that is currently $3,500 for First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund, $4,000 for First Trust Europe AlphaDEX(R) Fund, $2,500 for First Trust Latin America AlphaDEX(R) Fund and First Trust Brazil AlphaDEX(R) Fund, $2,000 for First Trust China AlphaDEX(R) Fund, $1,000 for First Trust Japan AlphaDEX(R) Fund, $1,500 for First Trust South Korea AlphaDEX(R) Fund, $5,500 for First Trust Developed Markets Ex-US AlphaDEX(R) Fund and $7,000 for First Trust Emerging Markets -52- AlphaDEX(R) Fund. The Redemption Transaction Fee is applicable to each redemption transaction regardless of the number of Creation Units redeemed in the transaction. The Redemption Transaction Fee may vary and is based on the composition of the securities included in a Fund's portfolio and the countries in which the transactions are settled. The Redemption Transaction Fee may increase or decrease as a Fund's portfolio is adjusted to conform to changes in the composition of the Index. 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. Placement of Redemption Orders. Orders to redeem Creation Unit Aggregations must be delivered through an Authorized Participant that has executed a Participant Agreement. Investors other than Authorized Participants are responsible for making arrangements for a redemption request to be made through an Authorized Participant. An order to redeem Creation Unit Aggregations of a Fund is deemed received by the Trust on the Transmittal Date if: (i) such order is received by BBH (in its capacity as transfer agent) not later than the Closing Time on the Transmittal Date; (ii) such order is accompanied or followed by the requisite number of shares of a Fund specified in such order, which delivery must be made through DTC to BBH; and (iii) all other procedures set forth in the Participant Agreement are properly followed. Under the 1940 Act, a Fund would generally be required to make payment of redemption proceeds within seven days after a security is tendered is redemption. However, because the settlement of redemptions of Fund Shares is contingent not only on the settlement cycle of the United States securities markets, but also on delivery cycles of foreign markets, a Fund's redemption proceeds must be paid within the maximum number of calendar days required for such payment or satisfaction in the principal local foreign markets where transactions in portfolio securities customarily clear and settle, but no later than 12 calendar days following tender of a Creation Unit Aggregation. Due to the schedule of holidays in certain countries, however, the delivery of in-kind redemption proceeds for the Funds may take longer than three Business Days after the day on which the redemption request is received in proper form. In such cases, the local market settlement procedures will not commence until the end of the local holiday periods. See below for a list of the local holidays in the foreign countries relevant to the Funds. In connection with taking delivery of shares of Fund Securities upon redemption of shares of the Funds, a redeeming Beneficial Owner, or Authorized Participant acting on behalf of such Beneficial Owner must maintain appropriate security arrangements with a qualified broker-dealer, bank or other custody provider in each jurisdiction in which any of the Fund Securities are customarily traded, to which account such Fund Securities will be delivered. To the extent contemplated by an Authorized Participant's agreement, in the event the Authorized Participant has submitted a redemption request in proper form but is unable to transfer all or part of the Creation Unit Aggregation to be redeemed to the Funds' transfer agent, the transfer agent will nonetheless accept the redemption request in reliance on the undertaking by the Authorized Participant to deliver the missing shares as soon as possible. Such -53- undertaking shall be secured by the Authorized Participant's delivery and maintenance of collateral consisting of cash having a value (marked to market daily) at least equal to 115%, which First Trust may change from time to time, of the value of the missing shares. The current procedures for collateralization of missing shares require, among other things, that any cash collateral shall be in the form of U.S. dollars in immediately available funds and shall be held by BBH and marked to market daily, and that the fees of BBH and any sub-custodians in respect of the delivery, maintenance and redelivery of the cash collateral shall be payable by the Authorized Participant. The Authorized Participant's agreement will permit the Trust, on behalf of the affected Fund, to purchase the missing shares or acquire the Deposit Securities and the Cash Component underlying such shares at any time and will subject the Authorized Participant to liability for any shortfall between the cost to the Trust of purchasing such shares, Deposit Securities or Cash Component and the value of the collateral. The calculation of the value of the Fund Securities and the Cash Redemption Amount to be delivered/received upon redemption will be made by BBH 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 BBH by a DTC Participant not later than Closing Time on the Transmittal Date, and the requisite number of shares of the relevant Fund are delivered to BBH prior to the DTC Cut-Off-Time, then the value of the Fund Securities and the Cash Redemption Amount to be delivered will be determined by BBH on such Transmittal Date. If, however, a redemption order is submitted to BBH by a DTC Participant not later than the Closing Time on the Transmittal Date but either (i) the requisite number of Shares of the relevant Fund are not delivered by the DTC Cut-Off-Time, as described above, on such Transmittal Date, 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 that such order is deemed received by the Trust, i.e., the Business Day on which the shares of the relevant Fund are delivered through DTC to BBH by the DTC Cut-Off-Time on such Business Day pursuant to a properly submitted redemption order. If it is not possible to effect deliveries of the Fund Securities, the Trust may in its discretion exercise its option to redeem such Fund Shares in cash, and the redeeming Beneficial Owner will be required to receive its redemption proceeds in cash. In addition, an investor may request a redemption in cash that a Fund may, in its sole discretion, permit. In either case, the investor will receive a cash payment equal to the NAV of its Fund Shares based on the NAV of Shares of the relevant 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 Trust's brokerage and other transaction costs associated with the disposition of Fund Securities). A Fund may also, in its 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. -54- Redemptions of Fund Shares for Fund Securities will be subject to compliance with applicable federal and state securities laws and the Funds (whether or not it otherwise permits cash redemptions) reserve 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. Because the Portfolio Securities of the Funds may trade on the relevant exchange(s) on days that the listing exchange for a Fund is closed or are otherwise not Business Days for such Fund, shareholders may not be able to redeem their shares of such Fund, or purchase and sell shares of such Fund on the listing exchange for a Fund, on days when the NAV of such Fund could be significantly affected by events in the relevant foreign markets. REGULAR HOLIDAYS A Fund generally intends to effect deliveries of Creation Units and securities in its portfolio ("Portfolio Securities") on a basis of "T" plus three Business Days (i.e., days on which the NYSE is open). A Fund may effect deliveries of Creation Units and portfolio securities on a basis other than T plus three in order to accommodate local holiday schedules, to account for different treatment among non-U.S. and U.S. markets of dividend record dates and ex-dividend dates, or under certain other circumstances. The ability of the Trust to effect in-kind creations and redemptions within three Business Days of receipt of an order in good form is subject, among other things, to the condition that, within the time period from the date of the order to the date of delivery of the securities, there are no days that are holidays in the applicable foreign market. For every occurrence of one or more intervening holidays in the applicable non-U.S. market that are not holidays observed in the U.S. equity market, the redemption settlement cycle will be extended by the number of such intervening holidays. In addition to holidays, other unforeseeable closings in a non-U.S. market due to emergencies may also prevent the Trust from delivering securities within normal settlement period. The securities delivery cycles currently practicable for transferring Portfolio Securities to redeeming investors, coupled with non-U.S. market holiday schedules, will require a delivery process longer than seven calendar days for some Funds in certain circumstances. The holidays applicable to a Fund during such periods are listed below, as are instances where more than seven days will be needed to deliver redemption proceeds. Although certain holidays may occur on different dates in subsequent years, the number of days required to deliver redemption proceeds in any given year is not expected to exceed the maximum number of days listed below for a Fund. The proclamation of new holidays, the treatment by market participants of certain days as "informal holidays" (e.g., days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing -55- holidays, or changes in local securities delivery practices, could affect the information set forth herein at some time in the future. The dates of the regular holidays affecting the relevant securities markets from May 1, 2012 through May 1, 2013 of the below-listed countries are as follows: -56- ARGENTINA AUSTRALIA AUSTRIA BELGIUM --------- --------- ------- ------- May 1 December 25 May 1 May 1 May 25 December 26 May 17 May 17 June 18 January 1 May 28 May 27 July 9 January 28 June 7 May 28 August 20 March 29 August 15 July 21 October 15 April 1 October 26 August 15 November 26 April 25 November 1 November 1 December 8 December 8 November 11 December 24 December 25 December 25 December 25 December 26 January 1 January 1 January 1 April 1 February 11 April 1 May 1 February 12 May 1 March 29 April 1 April 2 May 1 BRAZIL CANADA CHILE CHINA ------ ------ ----- ----- May 1 May 21 May 1 May 1 June 7 July 1 May 21 June 22 September 7 July 2 July 2 June 23 October 12 September 3 July 16 June 24 November 2 October 8 August 15 September 30 November 15 December 25 September 17 October 1 December 25 December 26 September 18 October 2 December 31 January 1 September 19 October 3 January 1 March 29 October 15 October 4 February 12 April 1 November 1 October 5 February 13 December 8 October 6 March 29 December 25 October 7 May 1 January 1 January 1 March 29 February 11 May 1 April 4 May 1 -57- DENMARK FINLAND FRANCE GERMANY ------- ------- ------ ------- May 4 May 1 May 1 May 1 May 17 May 17 May 8 May 17 May 27 May 27 May 17 May 28 May 28 June 23 May 28 October 3 June 5 November 3 July 14 December 25 December 25 December 6 August 15 December 26 December 26 December 25 November 1 January 1 January 1 December 26 November 11 March 29 March 28 January 1 December 25 April 1 March 29 March 29 January 1 May 1 April 1 April 1 April 1 April 26 May 1 May 1 GREECE HONG KONG INDIA IRELAND ------ --------- ----- ------- May 1 May 1 May 1 May 7 June 4 June 23 May 6 June 4 August 15 July 1 August 10 August 6 October 28 July 2 August 15 October 29 December 25 October 1 September 19 December 25 December 26 October 2 October 2 December 26 January 1 October 23 October 24 January 1 March 18 December 25 November 11 March 29 March 25 December 26 November 28 April 1 May 1 January 1 December 25 February 11 March 27 February 12 March 29 March 20 April 23 March 29 May 1 April 1 April 4 May 1 -58- ISRAEL ITALY JAPAN MALAYSIA ------ ----- ----- -------- May 27 May 1 May 3 May 1 July 29 June 2 May 4 May 5 September 17 August 15 May 5 June 2 September 18 November 1 July 16 August 19 September 26 December 8 September 17 August 20 October 1 December 25 September 22 August 31 October 8 December 26 October 8 September 16 December 9 January 1 November 3 October 26 March 26 April 1 November 23 November 13 April 1 April 25 December 23 November 15 April 8 May 1 December 24 December 25 April 15 January 1 January 1 April 16 January 14 January 24 February 11 February 11 March 20 May 1 April 29 MEXICO NEW ZEALAND NETHERLANDS NORWAY ------ ----------- ----------- ------ May 1 June 4 May 17 May 1 July 1 October 22 May 27 May 17 September 16 December 25 May 28 May 27 November 19 December 26 December 25 May 28 December 1 January 1 December 26 December 25 December 25 January 2 January 1 December 26 January 1 February 6 March 29 January 1 February 4 March 29 April 1 March 28 February 5 April 1 April 30 March 29 March 18 April 25 April 1 March 21 May 1 May 1 -59- PORTUGAL SINGAPORE SOUTH AFRICA SOUTH KOREA -------- --------- ------------ ----------- May 1 May 1 May 1 May 5 June 7 May 5 June 16 June 6 June 10 August 9 August 9 August 15 August 15 August 19 September 24 September 29 October 5 August 20 December 16 September 30 November 1 October 26 December 17 October 1 December 1 November 13 December 25 October 3 December 8 December 25 December 26 December 25 December 25 January 1 January 1 January 1 January 1 February 11 March 21 February 11 March 29 February 12 March 29 March 1 April 25 March 29 April 1 May 1 May 1 May 1 SPAIN SWEDEN SWITZERLAND TAIWAN ----- ------ ----------- ------ May 1 May 1 May 1 May 1 October 12 May 17 May 17 June 23 November 1 May 27 May 27 September 3 December 6 June 6 May 28 September 30 December 8 June 23 June 7 October 10 December 25 November 3 August 1 January 1 January 1 December 25 August 15 February 11 March 29 December 26 November 1 February 12 May 1 January 1 December 8 February 13 March 29 December 25 February 28 April 1 December 26 April 4 May 1 January 1 May 1 January 2 April 15 -60- THAILAND UNITED KINGDOM UNITED STATES -------- -------------- ------------- May 5 May 7 May 28 May 7 June 4 July 4 June 4 June 5 September 3 August 2 December 25 October 8 August 12 December 26 November 12 August 13 January 1 November 22 October 23 March 29 December 25 December 5 January 1 December 10 January 21 December 31 February 18 January 1 April 5 April 15 April 16 April 17 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, -61- 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 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 a 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. Each Fund intends 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 -62- ordinary corporation on its taxable income (even if such income were distributed to its shareholders) and all distributions out of earnings and profits would be taxed to shareholders as ordinary income. DISTRIBUTIONS Dividends paid out of the Funds' investment company taxable income are generally taxable to a shareholder as ordinary income to the extent of the Fund's earnings and profits, whether paid in cash or reinvested in additional shares. However, certain ordinary income distributions received from a Fund may be taxed at capital gains tax rates. In particular, ordinary income dividends received by an individual shareholder from regulated investment companies such as the Funds are generally taxed at the same rates that apply to net capital gain, provided that certain holding period requirements are satisfied and provided the dividends are attributable to qualifying dividends received by 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 a 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 reported 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 a 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. -63- Shareholders will be notified annually as to the U.S. federal income tax status of distributions, and shareholders receiving distributions in the form of additional Shares will receive a report as to the value of those Shares. SALE OR EXCHANGE OF FUND SHARES Upon the sale or other disposition of Shares of the Funds, which a shareholder holds as a capital asset, such a shareholder may realize a capital gain or loss which will be long-term or short-term, depending upon the shareholder's holding period for the Shares. Generally, a shareholder's gain or loss will be a long-term gain or loss if the Shares have been held for more than one year. Any loss realized on a sale or exchange will be disallowed to the extent that Shares disposed of are replaced (including through reinvestment of dividends) within a period of 61 days beginning 30 days before and ending 30 days after disposition of Shares or to the extent that the shareholder, during such period, acquires or enters into an option or contract to acquire, substantially identical stock or securities. In such a case, the basis of the Shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a disposition of Fund Shares held by the shareholder for six months or less will be treated as a long-term capital loss to the extent of any distributions of long-term capital gain received by the shareholder with respect to such Shares. TAXES ON PURCHASE AND REDEMPTION OF CREATION UNITS If a shareholder exchanges equity securities for Creation Units the shareholder will generally recognize a gain or a loss. The gain or loss will be equal to the difference between the market value of the Creation Units at the time and the shareholder's aggregate basis in the securities surrendered and the Cash Component paid. If a shareholder exchanges Creation Units for equity securities, then the shareholder will generally recognize a gain or loss equal to the difference between the shareholder's basis in the Creation Units and the aggregate market value of the securities received and the Cash Redemption Amount. The Internal Revenue Service, however, may assert that a loss realized upon an exchange of securities for Creation Units or Creation Units for securities cannot be deducted currently under the rules governing "wash sales," or on the basis that there has been no significant change in economic position. NATURE OF FUND INVESTMENTS Certain of the Funds' investment practices are subject to special and complex federal income tax provisions that may, among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or 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. -64- 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 requirements 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 shareholders. A Fund will not be able to pass through to its shareholders 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, a 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. -65- 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 in this section concerning the potential imposition of withholding on distributions to non-U.S. persons, distributions after December 31, 2013, 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 purposes, 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 engaged (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. Dispositions of shares by such persons may be subject to such withholding after December 31, 2014. 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, 2013, 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. Dispositions of shares by such persons may be subject to such withholding after December 31, 2014. 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 properly reported by the Fund 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 -66- such shareholder realizes upon the sale or exchange of such shareholder's shares of the Funds in the United States will ordinarily be exempt from U.S. tax unless the gain is U.S. source income and such shareholder is physically present in the United States for more than 182 days during the taxable year and meets certain other requirements. In the case of dividends with respect to taxable years of a 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 a Fund which are properly reported by the Fund 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 sale 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: -67- (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 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 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, -68- restricted securities (securities which may not be publicly sold without registration under the 1933 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 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. Valuing the Funds' investments using fair value pricing will result in using prices for those investments that may differ from current market valuations. Use of fair value prices and certain current market valuations could result in a difference between the prices used to calculate the Funds' net asset value and the prices used by the Index, which, in turn, could result in a difference between a Fund's performance and the performance of the Index. Because foreign markets may be open on different days than the days during which a shareholder may purchase the Shares of a Fund, the value of a Fund's investments may change on the days when shareholders are not able to purchase the Shares of a Fund. The value of assets denominated in foreign currencies is converted into U.S. dollars using 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 a Fund's ability to track its respective Index. 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 quarterly. 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. -69- 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. 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. -70- EXHIBIT A
PERCENTAGE OF FUND NAME AND ADDRESS OF OWNER RECORD OWNERSHIP First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund Pershing, L.L.C. 22.93% Merrill Lynch, Pierce, Fenner & Smith Inc. 15.36% Morgan Stanley Smith Barney LLC 13.37% Schwab (Charles) & Co., Inc. 10.57% Ameriprise Enterprise Investment Services 10.26% National Financial Services Corporation 6.17% First Trust Europe AlphaDEX(R) Fund Morgan Stanley Smith Barney LLC 75.74% Merrill Lynch, Pierce, Fenner & Smith Inc. 8.81% Merrill Lynch Sfkpg 6.14% First Trust Latin America AlphaDEX(R) Fund Pershing, L.L.C. 25.77% Merrill Lynch, Pierce, Fenner & Smith Inc. 15.00% Scott & Stringfellow, Inc. 10.86% Morgan Stanley Smith Barney LLC 10.47% Merrill Lynch Sfkpg 5.83% First Trust Brazil AlphaDEX(R) Fund Merrill Lynch, Pierce, Fenner & Smith Inc. 40.26% Morgan Stanley Smith Barney LLC 16.67% National Financial Services Corporation 10.30% RBC 8.54% First Trust China AlphaDEX(R) Fund Merrill Lynch, Pierce, Fenner & Smith Inc. 56.58% Morgan Stanley Smith Barney LLC 15.61% Citigroup Global Markets, Inc. 8.16% First Trust Japan AlphaDEX(R) Fund Merrill Lynch, Pierce, Fenner & Smith Inc. 48.24% Pershing, L.L.C. 19.68% Morgan Stanley Smith Barney LLC 16.45% First Trust South Korea AlphaDEX(R) Fund First Clearing L.L.C. 45.68% Morgan Stanley Smith Barney LLC 33.11% PERCENTAGE OF FUND NAME AND ADDRESS OF OWNER RECORD OWNERSHIP First Trust Developed Markets Ex-US AlphaDEX(R) Fund First Clearing L.L.C. 37.45% UBS AG/London 17.45% Raymond James & Associates, Inc. 7.94% Merrill Lynch, Pierce, Fenner & Smith Inc. 6.30% First Trust Emerging Markets AlphaDEX(R) Fund First Clearing L.L.C. 26.44% RBC 12.24% Merrill Lynch, Pierce, Fenner & Smith Inc. 7.76% Citigroup Global Markets, Inc. 7.51% Morgan Stanley Smith Barney LLC 6.78% Schwab (Charles) & Co., Inc. 5.38% CIBC World Markets, Inc. 5.37% ----------------------------- Ameriprise Enterprise Investment Services, P.O. Box 9446, Minneapolis, MN 55440-9446 CIBC World Markets, Inc., 161 Bay Street, Toronto, ON, CA, M5J 2S8 Citigroup Global Markets, Inc., 333 W. 34th Street, New York, NY 10001 First Clearing L.L.C., 10700 Wheat First Drive, Glen Allen, VA 23060 Merrill Lynch, Pierce, Fenner & Smith Inc., World Financial Center, North Tower , New York, NY 10080 Merrill Lynch Sfkpg, 101 Hudson St., 9th Floor, Jersey City, NJ 07302 Morgan Stanley Smith Barney LLC, 1585 Broadway, New York, NY 10036 National Financial Services Corporation, 200 Liberty Street, New York City, NY 10281 Pershing, L.L.C., 1 Pershing Plaza, Jersey City, NJ 07399 Raymond James & Associates, Inc., 880 Carilion Parkway, PO Box 12479, St. Petersburg, FL 33716 RBC, 200 Bay Street, Royal Bank Plaza, Toronto, ON, CA, M5J 2J5 Schwab (Charles) & Co., Inc., 211 Main Street, San Francisco, CA 94105 Scott & Stringfellow, Inc., Riverfront Plaza-West Tower, 901 East Byrd Street, Richmond, VA 23219 UBS AG/London, 1 Finsbury Avenue, London, EC2M 2PP, United Kingdom
- 2 - First Trust Exchange-Traded AlphaDEX Fund II PART C - OTHER INFORMATION ITEM 28. EXHIBITS EXHIBIT NO. DESCRIPTION (a) (1) Declaration of Trust of the Registrant and Establishment and Designation of Series Attached Thereto as Schedule A. (1) (2) Amended and Restated Establishment and Designation of Series, dated September 19, 2011. (3) (b) By-Laws of the Registrant. (1) (c) Not Applicable. (d) Investment Management Agreement, dated April 8, 2011. (6) (e) Distribution Agreement, dated April 8, 2011. (6) (f) Not Applicable. (g) Custodian Agreement between the Registrant and Brown Brothers Harriman & Co., dated April 8, 2011. (6) (h) (1) Administrative Agency Agreement between the Registrant and Brown Brothers Harriman & Co., dated April 8, 2011. (6) (2) Form of Subscription Agreement. (2) (3) Form of Participant Agreement. (6) (i) (1) Opinion and Consent of Bingham McCutchen LLP dated April 7, 2011. (2) (2) Opinion and Consent of Chapman and Cutler LLP dated April 7, 2011. (2) (3) Opinion and Consent of Bingham McCutchen LLP dated January 25, 2012. (4) (4) Opinion and Consent of Chapman and Cutler LLP dated January 25, 2012. (4) (5) Opinion and Consent of Bingham McCutchen LLP dated February 6, 2012. (5) (6) Opinion and Consent of Chapman and Cutler LLP dated February 6, 2012. (5) (j) Consent of Independent Registered Public Accounting Firm. (6) (k) Not Applicable. (l) Not Applicable. (m) (1) 12b-1 Service Plan. (2) (2) Amended Exhibit A of the 12b-1 Service Plan, effective as of February 10, 2012. (6) (3) Letter Agreement regarding 12b-1 fees, dated April 30, 2012. (6) (n) Not Applicable. (o) Not Applicable. (p) (1) First Trust Advisors L.P., First Trust Portfolios L.P. Code of Ethics, amended on December 31, 2008. (2) (2) First Trust Funds Code of Ethics, amended on March 22, 2010. (2) (q) Powers of Attorney for Messrs. Bowen, Erickson, Kadlec and Keith authorizing James A. Bowen, Mark R. Bradley, W. Scott Jardine, Kristi A. Maher and Eric F. Fess to execute the Registration Statement. (1) __________________ (1) Incorporated by reference to the Registrant's Registration Statement on Form N-1A (File No. 333-171759) filed on January 19, 2011. (2) Incorporated by reference to the Registrant's Registration Statement on Form N-1A (File No. 333-171759) filed on April 8, 2011. (3) Incorporated by reference to the Registrant's Registration Statement on Form N-1A (File No. 333-171759) filed on January 11, 2012. (4) Incorporated by reference to the Registrant's Registration Statement on Form N-1A (File No. 333-171759) filed on January 25, 2012. (5) Incorporated by reference to the Registrant's Registration Statement on Form N-1A (File No. 333-171759) filed on February 6, 2012. (6) Filed herewith. ITEM 29. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT Not Applicable. ITEM 30. INDEMNIFICATION Section 9.5 of the Registrant's Declaration of Trust provides as follows: Section 9.5. Indemnification and Advancement of Expenses. Subject to the exceptions and limitations contained in this Section 9.5, every person who is, or has been, a Trustee, officer, or employee of the Trust, including persons who serve at the request of the Trust as directors, trustees, officers, employees or agents of another organization in which the Trust has an interest as a shareholder, creditor or otherwise (hereinafter referred to as a "Covered Person"), shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him or in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been such a Trustee, director, officer, employee or agent and against amounts paid or incurred by him in settlement thereof. No indemnification shall be provided hereunder to a Covered Person to the extent such indemnification is prohibited by applicable federal law. The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be such a Covered Person and shall inure to the benefit of the heirs, executors and administrators of such a person. Subject to applicable federal law, expenses of preparation and presentation of a defense to any claim, action, suit or proceeding subject to a claim for indemnification under this Section 9.5 shall be advanced by the Trust prior to final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he is not entitled to indemnification under this Section 9.5. To the extent that any determination is required to be made as to whether a Covered Person engaged in conduct for which indemnification is not provided as described herein, or as to whether there is reason to believe that a Covered Person ultimately will be found entitled to indemnification, the Person or Persons making the determination shall afford the Covered Person a rebuttable presumption that the Covered Person has not engaged in such conduct and that there is reason to believe that the Covered Person ultimately will be found entitled to indemnification. As used in this Section 9.5, the words "claim," "action," "suit" or "proceeding" shall apply to all claims, demands, actions, suits, investigations, regulatory inquiries, proceedings or any other occurrence of a similar nature, whether actual or threatened and whether civil, criminal, administrative or other, including appeals, and the words "liability" and "expenses" shall include without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities. ITEM 31. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER First Trust Advisors L.P. ("First Trust"), investment adviser to the Registrant, serves as adviser or subadviser to 14 mutual funds, 69 exchange-traded funds and 12 closed-end funds and is the portfolio supervisor of certain unit investment trusts. Its principal address is 120 East Liberty Drive, Wheaton, Illinois 60187. The principal business of certain of First Trust's principal executive officers involves various activities in connection with the family of unit investment trusts sponsored by First Trust Portfolios L.P. ("FTP"). FTP's principal address is 120 East Liberty Drive, Wheaton, Illinois 60187. Information as to other business, profession, vocation or employment during the past two years of the officers and directors of First Trust is as follows: NAME AND POSITION WITH FIRST TRUST EMPLOYMENT DURING PAST TWO YEARS James A. Bowen, Chief Executive Officer Chief Executive Officer (since December 2010) and President (prior to December 2010), FTP; Chairman of the Board of Directors, BondWave LLC and Stonebridge Advisors LLC Ronald D. McAlister, Managing Director Managing Director, FTP Mark R. Bradley, Chief Financial Chief Financial Officer and Chief Operating Officer/Chief Operating Officer Officer (since December 2010), FTP; Chief Financial Officer, BondWave LLC and Stonebridge Advisors LLC Robert F. Carey, Chief Investment Senior Vice President, FTP Officer and Senior Vice President W. Scott Jardine, General Counsel and Secretary and General Counsel, FTP; Secretary Secretary of BondWave LLC and Stonebridge Advisors LLC Kristi A. Maher, Deputy General Counsel Deputy General Counsel, FTP Erin Chapman, Assistant General Counsel Assistant General Counsel, FTP John Vasko, Assistant General Counsel Assistant General Counsel, FTP NAME AND POSITION WITH FIRST TRUST EMPLOYMENT DURING PAST TWO YEARS Amy Lum, Assistant General Counsel Assistant General Counsel (since November 2010), FTP; Of Counsel, The Law Offices of Beau T. Grieman (August 2009 to March 2010); Associate, Perkins Coie (April 2008 to August 2009) Lisa Weier, Assistant General Counsel Assistant General Counsel (since January 2011), FTP; Associate, Chapman and Cutler LLP Heidemarie Gregoriev Compliance Counsel, FTP R. Scott Hall, Managing Director Managing Director, FTP Andrew S. Roggensack, President Managing Director and President (since December 2010), FTP Kathleen Brown, Senior Vice President CCO and Senior Vice President, FTP and Chief Compliance Officer Elizabeth H. Bull, Senior Vice President Senior Vice President, FTP Christopher L. Dixon, Senior Vice Senior Vice President, FTP President Jane Doyle, Senior Vice President Senior Vice President, FTP James M. Dykas, Senior Vice President Senior Vice President and Controller and Controller (since December 2010), FTP Jon C. Erickson, Senior Vice President Senior Vice President, FTP Ken Fincher, Senior Vice President Senior Vice President, FTP Rosanne Gatta, Board Liaison Associate Board Liaison Associate (July 2010 to Present), FTA and FTP; Assistant Vice President (July 2010 to February 2011), PNC Global Investment Servicing Kenneth N. Hass, Senior Vice President Senior Vice President, FTP Jason T. Henry, Senior Vice President Senior Vice President, FTP Daniel J. Lindquist, Senior Vice Senior Vice President, FTP President David G. McGarel, Senior Vice President Senior Vice President, FTP Mitchell Mohr, Senior Vice President Senior Vice President, FTP Robert M. Porcellino, Senior Vice Senior Vice President, FTP President NAME AND POSITION WITH FIRST TRUST EMPLOYMENT DURING PAST TWO YEARS Alan M. Rooney, Senior Vice President Senior Vice President, FTP Roger F. Testin, Senior Vice President Senior Vice President, FTP Christina Knierim, Senior Vice President Vice President, FTP Todd Larson, Vice President Vice President, FTP Ronda L. Saeli-Chiappe, Vice President Vice President, FTP Stan Ueland, Vice President Vice President, FTP Katherine Urevig, Vice President Vice President, FTP Brad Bradley, Vice President Vice President, FTP Katie D. Collins, Assistant Vice Assistant Vice President, FTP President Chris Fallow, Assistant Vice President Assistant Vice President, FTP Kristen Johanneson, Assistant Vice Assistant Vice President, FTP President Coleen D. Lynch, Assistant Vice Assistant Vice President, FTP President Omar Sepulveda, Assistant Vice President Assistant Vice President, FTP John H. Sherren, Assistant Vice Assistant Vice President, FTP President Brian Wesbury, Chief Economist Senior Vice President, FTP Rob Stein, Senior Economist Vice President, FTP
ITEM 32. PRINCIPAL UNDERWRITER (a) FTP serves as principal underwriter of the shares of the Registrant, First Trust Exchange-Traded Fund, First Trust Exchange-Traded AlphaDEX(R) Fund, First Trust Exchange-Traded Fund II, First Trust Series Fund and the First Defined Portfolio Fund LLC. FTP serves as principal underwriter and depositor of the following investment companies registered as unit investment trusts: the First Trust Combined Series, FT Series (formerly known as the First Trust Special Situations Trust), the First Trust Insured Corporate Trust, the First Trust of Insured Municipal Bonds, and the First Trust GNMA. The name of each director, officer and partner of FTP is provided below. (b) Positions and Offices with Underwriter. NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND The Charger Corporation General Partner None Grace Partners of DuPage L.P. Limited Partner None James A. Bowen Chief Executive Officer Trustee and Chairman of the Board Mark R. Bradley Chief Financial Officer/Chief President and Chief Executive Operating Officer Officer James M. Dykas Senior Vice President/Controller Treasurer, Chief Financial Officer and Chief Accounting Officer Frank L. Fichera Managing Director None Russell J. Graham Managing Director None R. Scott Hall Managing Director None Ronald D. McAlister Managing Director None Richard A. Olson Managing Director None Andrew S. Roggensack Managing Director/President None W. Scott Jardine Secretary and General Counsel Secretary Kristi A. Maher Deputy General Counsel Chief Compliance Officer and Assistant Secretary Erin Chapman Assistant General Counsel Assistant Secretary John Vasko Assistant General Counsel None Amy Lum Assistant General Counsel None Lisa Weier Assistant General Counsel None Heidemarie Gregoriev Compliance Counsel None Dan Affeto Senior Vice President None Bob Bartel Senior Vice President None Elizabeth H. Bull Senior Vice President None NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND Robert F. Carey Senior Vice President None Patricia L. Costello Senior Vice President None Christopher L. Dixon Senior Vice President None Jane Doyle Senior Vice President None Jon C. Erickson Senior Vice President None Ken Fincher Senior Vice President None Rosanne Gatta Board Liaison Associate Assistant Secretary Kenneth N. Hass Senior Vice President None Jason T. Henry Senior Vice President None Rich Jaeger Senior Vice President None Christian D. Jeppesen Senior Vice President None Christopher A. Lagioia Senior Vice President None Daniel J. Lindquist Senior Vice President Vice President David G. McGarel Senior Vice President None Mark R. McHenney Senior Vice President None Mitchell Mohr Senior Vice President None Paul E. Nelson Senior Vice President None Steve R. Nelson Senior Vice President None Robert M. Porcellino Senior Vice President None Steven R. Ritter Senior Vice President None Alan Rooney Senior Vice President None Francine Russell Senior Vice President None Brad A. Shaffer Senior Vice President None Brian Sheehan Senior Vice President None NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND Andrew C. Subramanian Senior Vice President None Mark P. Sullivan Senior Vice President None Roger F. Testin Senior Vice President Vice President Gregory E. Wearsch Senior Vice President None Patrick Woelfel Senior Vice President None Kathleen Brown Senior Vice President; Chief None Compliance Officer Jonathan Ackerhalt Vice President None Dan Affetto Vice President None Lance Allen Vice President None Jeff Ambrose Vice President None Kyle Baker Vice President None Carlos Barbosa Vice President None Andrew Barnum Vice President None Michael Bean Vice President None Dan Blong Vice President None Bill Braasch Vice President None Cory Bringle Vice President None Mike Britt Vice President None Alex Brozyna Vice President None Nathan S. Cassel Vice President None Joshua Crosley Vice President None Michael Dawson Vice President None Michael Darr Vice President None NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND Daren J. Davis Vice President None Michael DeBella Vice President None Sean Degnan Vice President None Joel D. Donley Vice President None Brett Egner Vice President None Stacy Eppen Vice President None Ben Ferwerdo Vice President None Don Fuller Vice President None Joann Godbout Vice President None Matt D. Graham Vice President None William M. Hannold Vice President None Mary Jane Hansen Vice President None Gaby Harman Vice President None Ryan Issakainen Vice President None Rich Jacquemart Vice President None Rick Johnson Vice President None Greg Keefer Vice President None Tom Knickerbocker Vice President None Christina Knierim Vice President None Thomas E. Kotcher Vice President None Todd Larson Vice President None NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND Daniel Lavin Vice President None Michael P. Leyden Vice President None Keith L. Litavsky Vice President None Eric Maisel Vice President None Grant Markgraf Vice President None Stephanie L. Martin Vice President None Marty McFadden Vice President None Nate Memmott Vice President None Sean Moriarty Vice President None John O'Sullivan Vice President None David Pagano Vice President None Brian K. Penney Vice President None Blair R. Peterson Vice President None Jason Peterson Vice President None Craig Pierce Vice President None Marisa Prestigiacomo Vice President None Craig Prichard Vice President None David A. Rieger Vice President None James Rowlette Vice President None Ronda L. Saeli-Chiappe Vice President None Jeffrey M. Samuel Vice President None Debra K. Scherbring Vice President None NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND Nim Short Vice President None Edward J. Sistowicz Vice President None Cal Smith Vice President None Eric Stoiber Vice President None Terry Swagerty Vice President None Brian Taylor Vice President None Kerry Tazakine Vice President None Timothy Trudo Vice President None Stanley Ueland Vice President Assistant Vice President Bryan Ulmer Vice President None Katherine Urevig Vice President None Barbara E. Vinson Vice President None Dan Waldron Vice President None Lewin M. Williams Vice President None Jeffrey S. Barnum Assistant Vice President None Toby A. Bohl Assistant Vice President None Brad Bradley Assistant Vice President None Steve Claiborne Assistant Vice President None Katie D. Collins Assistant Vice President None Ann Marie Giudice Assistant Vice President/Treasurer None Debbie Del Giudice Assistant Vice President None Chris Fallow Assistant Vice President None NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND BUSINESS ADDRESS* WITH UNDERWRITER OFFICES WITH FUND Ken Harrison Assistant Vice President None Anita K. Henderson Assistant Vice President None James V. Huber Assistant Vice President None Kristen Johanneson Assistant Vice President None Daniel C. Keller Assistant Vice President None Coleen D. Lynch Assistant Vice President Assistant Vice President Robert J. Madeja Assistant Vice President None David M. McCammond-Watts Assistant Vice President None Michelle Parker Assistant Vice President None Steve Schwarting Assistant Vice President None Omar Sepulveda Assistant Vice President None John H. Sherren Assistant Vice President None Lee Sussman Assistant Vice President None Christopher J. Thill Assistant Vice President None Dave Tweeten Assistant Vice President None Thomas G. Wisnowski Assistant Vice President None
* All addresses are 120 East Liberty Drive, Wheaton, Illinois 60187, unless otherwise noted. (c) Not Applicable. ITEM 33. LOCATION OF ACCOUNTS AND RECORDS First Trust, 120 East Liberty Drive, Wheaton, Illinois 60187, maintains the Registrant's organizational documents, minutes of meetings, contracts of the Registrant and all advisory material of the investment adviser. ITEM 34. MANAGEMENT SERVICES Not Applicable. ITEM 35. UNDERTAKINGS Not Applicable. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement under rule 485(b) under the Securities Act and has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized in the City of Wheaton, and State of Illinois on the 30th day of April, 2012. FIRST TRUST EXCHANGE-TRADED ALPHADEX FUND II By: /s/ Mark R. Bradley ----------------------------------------- Mark R. Bradley, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated:
SIGNATURE TITLE DATE President and Chief Executive April 30, 2012 /s/ Mark R. Bradley Officer ------------------------------------- Mark R. Bradley Treasurer, Chief Financial Officer April 30, 2012 /s/ James M. Dykas and Chief Accounting Officer ------------------------------------- James M. Dykas ) James A. Bowen* Trustee ) ) ) Richard E. Erickson* Trustee ) ) ) Thomas R. Kadlec* Trustee ) BY: /s/ W. Scott Jardine ) ------------------------------- ) W. Scott Jardine Robert F. Keith* Trustee ) Attorney-In-Fact ) April 30, 2012 ) Niel B. Nielson* Trustee ) )
* Original powers of attorney authorizing James A. Bowen, W. Scott Jardine, Mark R. Bradley, Eric F. Fess and Kristi A. Maher to execute Registrant's Registration Statement, and Amendments thereto, for each of the trustees of the Registrant on whose behalf this Registration Statement is filed, are incorporated by reference herein. INDEX TO EXHIBITS (d) Investment Management Agreement, dated April 8, 2011. (e) Distribution Agreement, dated April 8, 2011. (g) Custodian Agreement between the Registrant and Brown Brothers Harriman & Co., dated April 8, 2011. (h)(1) Administrative Agency Agreement between the Registrant and Brown Brothers Harriman & Co., dated April 8, 2011. (h)(3) Form of Participant Agreement. (j) Consent of Independent Registered Public Accounting Firm. (m)(2) Amended Exhibit A of the 12b-1 Service Plan, effective as of February 10, 2012. (m)(3) Letter Agreement regarding 12b-1 fees, dated April 30, 2012. EX-99.D ADVSR CONTR 2 exhibit_d.txt INVESTMENT MANAGEMENT AGREEMENT INVESTMENT MANAGEMENT AGREEMENT INVESTMENT MANAGEMENT AGREEMENT made this 8th day of April, 2011, by and between FIRST TRUST EXCHANGE-TRADED ALPHADEX FUND II, a Massachusetts business trust (the "Trust"), and FIRST TRUST ADVISORS L.P., an Illinois limited partnership (the "Adviser") registered under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). WHEREAS, the Trust is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end management investment company; WHEREAS, the Trust is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; WHEREAS, the Trust intends to offer shares in series set forth on Schedule A attached hereto and any other series as to which this Agreement may hereafter be made applicable and set forth on Schedule A, which may be amended from time to time (each such series being herein referred to as a "Fund," and collectively as the "Funds"); and WHEREAS, the Trust desires to retain the Adviser as investment adviser, to furnish certain investment advisory and portfolio management services to the Trust with respect to the Funds, and the Adviser is willing to furnish such services. WITNESSETH: In consideration of the mutual covenants hereinafter contained, it is hereby agreed by and between the parties hereto as follows: 1. The Trust hereby engages the Adviser to act as the investment adviser for, and to manage the investment and reinvestment of the assets of, each Fund in accordance with each Fund's investment objective(s) and policies and limitations, and to administer each Fund's affairs to the extent requested by and subject to the supervision of the Board of Trustees of the Trust for the period and upon the terms herein set forth. The investment of each Fund's assets shall be subject to the Fund's policies, restrictions and limitations with respect to securities investments as set forth in the Fund's then current registration statement under the l940 Act, and all applicable laws and the regulations of the Securities and Exchange Commission relating to the management of registered open-end management investment companies. The Adviser accepts such employment and agrees during such period to render such services, to furnish office facilities and equipment and clerical, bookkeeping and administrative services (other than such services, if any, provided by the Funds' transfer agent, administrator or other service providers) for the Funds, to permit any of its officers or employees to serve without compensation as trustees or officers of the Trust if elected or appointed to such positions, and to assume the obligations herein set forth for the compensation herein provided. The Adviser shall at its own expense furnish all executive and other personnel, office space, and office facilities required to render the investment management and administrative services set forth in this Agreement. In the event that the Adviser pays or assumes any expenses of a Fund not required to be paid or assumed by the Adviser under this Agreement, the Adviser shall not be obligated hereby to pay or assume the same or similar expense in the future; provided, that nothing contained herein shall be deemed to relieve the Adviser of any obligation to a Fund under any separate agreement or arrangement between the parties. 2. The Adviser shall, for all purposes herein provided, be deemed to be an independent contractor and, unless otherwise expressly provided or authorized, shall neither have the authority to act for nor represent the Trust in any way, nor otherwise be deemed an agent of the Trust. 3. For the services and facilities described in Section 1, each Fund will pay to the Adviser, at the end of each calendar month, and the Adviser agrees to accept as full compensation therefor, a fee equal to the annual rate of such Fund's average daily net assets as set forth on Schedule A so long as the Adviser has not waived all or a portion of such compensation. For the month and year in which this Agreement becomes effective, or terminates, there shall be an appropriate proration on the basis of the number of days that the Agreement shall have been in effect during the month and year, respectively. The services of the Adviser to the Trust under this Agreement are not to be deemed exclusive, and the Adviser shall be free to render similar services or other services to others so long as its services hereunder are not impaired thereby. 4. During the term of this Agreement, the Adviser shall pay all of the expenses of each Fund of the Trust (including the cost of transfer agency, custody, fund administration, legal, audit and other services and license fees) but excluding the fee payment under this 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. 5. The Adviser shall arrange for suitably qualified officers or employees of the Adviser to serve, without compensation from the Trust, as trustees, officers or agents of the Trust, if duly elected or appointed to such positions, and subject to their individual consent and to any limitations imposed by law. 6. For purposes of this Agreement, brokerage commissions paid by a Fund upon the purchase or sale of a Fund's portfolio securities shall be considered a cost of securities of the Fund and shall be paid by the Fund. 7. The Adviser is authorized to select the brokers or dealers that will execute the purchases and sales of a Fund's securities on behalf of the Fund, and is directed to use its commercially reasonable efforts to obtain best execution, which includes most favorable net results and execution of the Fund's orders, taking into account all appropriate - 2 - factors, including price, dealer spread or commission, size and difficulty of the transaction and research or other services provided. Subject to approval by the Trust's Board of Trustees and to the extent permitted by and in conformance with applicable law and the rules and regulations thereunder (including Rule 17e-1 of the 1940 Act), the Adviser may select brokers or dealers affiliated with the Adviser. It is understood that the Adviser will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust, or be in breach of any obligation owing to the Trust under this Agreement, or otherwise, solely by reason of its having caused a Fund to pay a member of a securities exchange, a broker or a dealer a commission for effecting a securities transaction for the Fund in excess of the amount of commission another member of an exchange, broker or dealer would have charged if the Adviser determines in good faith that the commission paid was reasonable in relation to the brokerage or research services provided by such member, broker or dealer, viewed in terms of that particular transaction or the Adviser's overall responsibilities with respect to its accounts, including the Fund, as to which it exercises investment discretion. In addition, the Adviser may, to the extent permitted by applicable law and the rules and regulations thereunder, aggregate purchase and sale orders of securities with similar orders being made simultaneously for other accounts managed by the Adviser or its affiliates, if in the Adviser's reasonable judgment such aggregation shall result in an overall economic benefit to the Fund, taking into consideration the selling or purchase price, brokerage commissions and other expenses. In the event that a purchase or sale of an asset of a Fund occurs as part of any aggregate sale or purchase orders, the objective of the Adviser and any of its affiliates involved in such transaction shall be to allocate the securities so purchased or sold, as well as expenses incurred in the transaction, among the Fund and other accounts in an equitable manner. Nevertheless, each Fund acknowledges that under some circumstances, such allocation may adversely affect the Fund with respect to the price or size of the securities positions obtainable or salable. Whenever a Fund and one or more other investment advisory clients of the Adviser have available funds for investment, investments suitable and appropriate for each will be allocated in a manner believed by the Adviser to be equitable to each, although such allocation may result in a delay in one or more client accounts being fully invested that would not occur if such an allocation were not made. Moreover, it is possible that due to differing investment objectives or for other reasons, the Adviser and its affiliates may purchase securities of an issuer for one client and at approximately the same time recommend selling or sell the same or similar types of securities for another client. The Adviser will not arrange purchases or sales of securities between a Fund and other accounts advised by the Adviser or its affiliates unless (a) such purchases or sales are in accordance with applicable law and the rules and regulations thereunder (including Rule 17a-7 of the 1940 Act) and the Trust's policies and procedures, (b) the Adviser determines the purchase or sale is in the best interests of the applicable Fund, and (c) the Trust's Board of Trustees has approved these types of transactions. To the extent a Fund seeks to adopt, amend or eliminate any objectives, policies, restrictions or procedures in a manner that modifies - 3 - or restricts the Adviser's authority regarding the execution of the Fund's portfolio transactions, the Fund agrees to use commercially reasonable efforts to consult with the Adviser regarding the modifications or restrictions prior to such adoption, amendment or elimination. The Adviser will communicate to the officers and trustees of the Trust such information relating to transactions for the Funds as they may reasonably request. In no instance will portfolio securities be purchased by or sold to the Adviser or any affiliated person of either the Trust or the Adviser, except as may be permitted under the 1940 Act, the rules and regulations thereunder or any applicable exemptive orders. The Adviser further agrees that it: (a) will use the same degree of skill and care in providing such services as it uses in providing services to other fiduciary accounts for which it has investment responsibilities; (b) will (i) conform in all material respects to all applicable rules and regulations of the Securities and Exchange Commission, (ii) comply in all material respects with all policies and procedures adopted by the Board of Trustees for the Trust and communicated to the Adviser and, (iii) conduct its activities under this Agreement in all material respects in accordance with any applicable regulations of any governmental authority pertaining to its investment advisory activities; (c) will report regularly to the Board of Trustees of the Trust (generally on a quarterly basis) and will make appropriate persons available for the purpose of reviewing with representatives of the Board of Trustees on a regular basis at reasonable times the management of each Fund, including, without limitation, review of the general investment strategies of each Fund, the performance of each Fund's investment portfolio in relation to relevant standard industry indices and general conditions affecting the marketplace and will provide various other reports from time to time as reasonably requested by the Board of Trustees of the Trust; and (d) will prepare and maintain such books and records with respect to each Fund's securities and other transactions as required under applicable law and will prepare and furnish the Trust's Board of Trustees such periodic and special reports as the Board of Trustees may reasonably request. The Adviser further agrees that all records which it maintains for each Fund are the property of the Fund and the Adviser will surrender promptly to the Fund any such records upon the request of the Fund (provided, however, that the Adviser shall be permitted to retain copies thereof); and shall be permitted to retain originals (with copies to the Fund) to the extent required under Rule 204-2 of the Advisers Act or other applicable law and the rules and regulations thereunder. - 4 - 8. Subject to applicable statutes and regulations, it is understood that officers, trustees, or agents of the Trust are, or may be, interested persons (as such term is defined in the 1940 Act and rules and regulations thereunder) of the Adviser as officers, directors, agents, shareholders or otherwise, and that the officers, directors, shareholders and agents of the Adviser may be interested persons of the Trust otherwise than as trustees, officers or agents. 9. The Adviser shall not be liable for any loss sustained by reason of the purchase, sale or retention of any security, whether or not such purchase, sale or retention shall have been based upon the investigation and research made by any other individual, firm or corporation, if such recommendation shall have been selected with due care and in good faith, except loss resulting from willful misfeasance, bad faith, or gross negligence on the part of the Adviser in the performance of its obligations and duties, or by reason of its reckless disregard of its obligations and duties under this Agreement. 10. Subject to obtaining the initial and periodic approvals required under Section 15 of the 1940 Act, the Adviser may retain one or more sub-advisers at the Adviser's own cost and expense for the purpose of furnishing one or more of the services described in Section 1 hereof with respect to a Fund. Retention of a sub-adviser shall in no way reduce the responsibilities or obligations of the Adviser under this Agreement and the Adviser shall be responsible to such Fund for all acts or omissions of any sub-adviser in connection with the performance of the Adviser's duties hereunder. 11. The Trust acknowledges that the Adviser now acts, and intends in the future to act, as an investment adviser to other managed accounts and as investment adviser or investment sub-adviser to one or more other investment companies that are not series of the Trust. In addition, the Trust acknowledges that the persons employed by the Adviser to assist in the Adviser's duties under this Agreement will not devote their full time to such efforts. It is also agreed that the Adviser may use any supplemental research obtained for the benefit of the Trust in providing investment advice to its other investment advisory accounts and for managing its own accounts. 12. This Agreement shall be effective on the date provided on Schedule A for each respective Fund, provided it has been approved in the manner required by the 1940 Act. This Agreement shall continue in effect until the two-year anniversary of the date of its effectiveness, unless and until terminated by either party as hereinafter provided, and shall continue in force from year to year thereafter, but only as long as such continuance is specifically approved, at least annually, in the manner required by the 1940 Act. This Agreement shall automatically terminate in the event of its assignment, and may be terminated at any time without the payment of any penalty as to a Fund by such Fund or by the Adviser upon sixty (60) days' written notice to the other party. Each Fund may effect termination by action of the Board of Trustees or by vote of a majority of the outstanding voting securities of the Fund, accompanied by appropriate notice. This Agreement may be terminated, at any time, without the payment of any penalty, by the Board of Trustees of the Trust, or by vote of a majority of the outstanding voting securities of the Trust, in the event - 5 - that it shall have been established by a court of competent jurisdiction that the Adviser, or any officer or director of the Adviser, has taken any action which results in a breach of the material covenants of the Adviser set forth herein. Termination of this Agreement shall not affect the right of the Adviser to receive payments on any unpaid balance of the compensation, described in Section 3, earned prior to such termination and for any additional period during which the Adviser serves as such for the Fund, subject to applicable law. The terms "assignment" and "vote of the majority of outstanding voting securities" shall have the same meanings set forth in the 1940 Act and the rules and regulations thereunder. 13. This Agreement may be amended or modified only by a written instrument executed by both parties. 14. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule, or otherwise, the remainder shall not be thereby affected. 15. Any notice under this Agreement shall be in writing, addressed and delivered or mailed, postage prepaid, to the other party at such address as such other party may designate for receipt of such notice. 16. All parties hereto are expressly put on notice of the Trust's Declaration of Trust and all amendments thereto, a copy of which is on file with the Secretary of the Commonwealth of Massachusetts, and the limitation of shareholder and trustee liability contained therein. This Agreement is executed on behalf of the Trust by the Trust's officers as officers and not individually and the obligations imposed upon the Trust by this Agreement are not binding upon any of the Trust's trustees, officers or shareholders individually but are binding only upon the assets and property of the subject Fund, and persons dealing with the Trust must look solely to the assets of the respective Fund for the enforcement of any claims. 17. This Agreement shall be construed in accordance with applicable federal law and (except as to Section 16 hereof which shall be construed in accordance with the laws of Massachusetts) the laws of the State of Illinois. - 6 - IN WITNESS WHEREOF, the Trust and the Adviser have caused this Agreement to be executed on the day and year above written. FIRST TRUST EXCHANGE-TRADED ALPHADEX FUND II By: /s/ James A. Bowen ---------------------------------- Name: James A. Bowen Title: President ATTEST: /s/ Mark R. Bradley --------------------------- Name: Mark R. Bradley Title: CFO FIRST TRUST ADVISORS L.P. By: /s/ James A. Bowen ---------------------------------- Name: James A. Bowen Title: CEO ATTEST: /s/ Mark R. Bradley --------------------------- Name: Mark R. Bradley Title: CFO - 7 - SCHEDULE A FUNDS (as of __________) ANNUAL RATE OF AVERAGE DAILY Series NET ASSETS EFFECTIVE DATE ----------------------------------------------------- -------------- ----------------- First Trust Developed Markets Ex-US AlphaDEX Fund 0.80% April 8, 2011 First Trust Emerging Markets AlphaDEX Fund 0.80% April 8, 2011 First Trust Asia Pacific Ex-Japan AlphaDEX Fund 0.80% April 8, 2011 First Trust Europe AlphaDEX Fund 0.80% April 8, 2011 First Trust Latin America AlphaDEX Fund 0.80% April 8, 2011 First Trust Brazil AlphaDEX Fund 0.80% April 8, 2011 First Trust China AlphaDEX Fund 0.80% April 8, 2011 First Trust Japan AlphaDEX Fund 0.80% April 8, 2011 First Trust South Korea AlphaDEX Fund 0.80% April 8, 2011 First Trust Australia AlphaDEX Fund 0.80% February 10, 2012 First Trust Canada AlphaDEX Fund 0.80% February 10, 2012 First Trust Germany AlphaDEX Fund 0.80% February 10, 2012 First Trust Hong Kong AlphaDEX Fund 0.80% February 10, 2012 First Trust Switzerland AlphaDEX Fund 0.80% February 10, 2012 First Trust Taiwan AlphaDEX Fund 0.80% February 10, 2012 First Trust United Kingdom AlphaDEX Fund 0.80% February 10, 2012 First Trust Developed Markets Small Cap AlphaDEX Fund 0.80% February 10, 2012 First Trust Emerging Markets Small Cap AlphaDEX Fund 0.80% February 10, 2012 First Trust Global Commodity AlphaDEX Fund 0.80% First Trust Dividend AlphaDEX Fund 0.70% First Trust International Dividend AlphaDEX Fund 0.80% First Trust Emerging Markets Dividend AlphaDEX Fund 0.80% First Trust Global Agriculture AlphaDEX Fund 0.70%
EX-99.E UNDR CONTR 3 exhibit_e.txt DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II April 8, 2011 First Trust Portfolios L.P. 120 East Liberty Drive, Suite 400 Wheaton, Illinois 60187 To Whom It May Concern: This is to confirm that, in consideration of the agreements hereinafter contained, the above-named investment company (the "Trust") has agreed that you shall be, during the term of this agreement, the distributor of shares of each Index Series of the Trust set forth on Exhibit A hereto, as such Exhibit may be revised from time to time (each, an "Index Series"). For purposes of this agreement the term "Shares" shall mean the authorized shares of the relevant Index Series. 1. SERVICES AS DISTRIBUTOR 1.1. You will act as an agent of the Trust for the distribution of Shares in Creation Units (as defined herein) covered by, and in accordance with, the registration statement and prospectus then in effect under the Securities Act of 1933, as amended (the "1933 Act"), and will transmit promptly any orders received by you for purchase or redemption of Shares in Creation Units to the transfer agent for the Trust as identified in the Trust's prospectus. You shall deliver or cause the delivery of a prospectus to persons purchasing Shares in Creation Units and shall maintain records of both orders placed with you and confirmations of acceptance furnished by you. You represent and warrant that you are a broker-dealer registered under the Securities Exchange Act of 1934 (the "1934 Act") and a member of the National Association of Securities Dealers, Inc. You agree to comply with all of the applicable terms and provisions of the 1934 Act. 1.2. You agree to use your best efforts to perform the services contemplated herein on a continuous basis. It is contemplated that you may enter into "Participant Agreements" with broker-dealers who agree to solicit orders for Shares. In addition, you may enter into sales or servicing agreements with securities dealers, financial institutions and other industry professionals, such as investment advisers, accountants and estate planning firms. In entering into sales or servicing agreements, you will act only on your own behalf as principal. 1.3. You shall act as distributor of Shares in Creation Units in compliance in all material respects with all applicable laws, rules and regulations, including, without limitations, all rules and regulations made or adopted pursuant to the Investment Company Act of 1940, as amended (the "1940 Act"), by the Securities and Exchange Commission or any securities association registered under the 1934 Act. 1.4. Whenever the parties hereto, in their collective judgment, mutually agree that such action is warranted by unusual market, economic or political conditions, or by abnormal circumstances of any kind deemed by them to render sales of a Trust's Shares in Creation Units not in the best interest of the Trust, the parties hereto may agree to decline to accept any orders for, or make any sales of, any Shares in Creation Units until such time as the parties deem it advisable to accept such orders and to make such sales. 1.5. The Trust agrees to pay all appropriate costs and expenses, including but not limited to, all expenses in connection with the registration of Shares under the 1933 Act and all expenses in connection with maintaining facilities for the issue and transfer of Shares in Creation Units and for supplying information, prices and other data to be furnished by the Trust hereunder, and all expenses in connection with the preparation and printing of the Trust's prospectuses and statements of additional information for regulatory purposes and for distribution to shareholders; provided, however, that the Trust shall not pay any of the costs of advertising or promotion for the sale of Shares, except as such payments may be made pursuant to Rule 12b-1 of the 1940 Act. 1.6. The Trust agrees to execute any and all documents and to furnish any and all information and otherwise to take all actions which may be reasonably necessary in the discretion of the Trust's officers in connection with the qualification of Shares for sale in Creation Units in such states as you may designate to the Trust and the Trust may approve, and the Trust agrees to pay all expenses which may be incurred in connection with such qualification. You shall pay all expenses connected with your own qualification as a dealer under state or Federal laws and, except as otherwise specifically provided in this agreement, all other expenses incurred by you in connection with the sale of Shares in Creation Units as contemplated in this agreement. 1.7. The Trust shall furnish you from time to time, for use in connection with the sale of Shares in Creation Units, such information with respect to the Trust or any relevant Index Series and the Shares as you may reasonably request, all of which shall be signed by one or more of the Trust's duly authorized officers; and the Trust warrants that the statements contained in any such information, when so signed by the Trust's officers, shall be true and correct. The Trust also shall furnish you upon request with: (a) semi-annual reports and annual audited reports of the Trust's books and accounts made by independent public accountants regularly retained by the Trust, (b) quarterly earnings statements prepared by the Trust, (c) a monthly itemized list of the securities in the Trust's or, if applicable, each Index Series' portfolio, (d) monthly balance sheets as soon as practicable after the end of each month, and (e) from time to time such additional information regarding the Trust's financial condition as you may reasonably request. - 2 - 1.8. The Trust represents to you that all registration statements and prospectuses filed by the Trust with the Securities and Exchange Commission under the 1933 Act and the 1940 Act, with respect to the Shares have been prepared in conformity with the requirements of said Acts and rules and regulations of the Securities and Exchange Commission thereunder. As used in this agreement the terms "registration statement" and "prospectus" shall mean any registration statement and prospectus, including the statement of additional information incorporated by reference therein, filed with the Securities and Exchange Commission and any amendments and supplements thereto which at any time shall have been filed with said Commission. The Trust represents and warrants to you that any registration statement and prospectus, when such registration statement becomes effective, will contain all statements required to be stated therein in conformity with said Acts and the rules and regulations of said Commission; that all statements of fact contained in any such registration statement and prospectus will be true and correct when such registration statement becomes effective; and that neither any registration statement nor any prospectus when such registration statement becomes effective will include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Trust may, but shall not be obligated to, propose from time to time such amendment or amendments to any registration statement and such supplement or supplements to any prospectus as it may deem necessary or advisable. If the Trust shall not propose such amendment or amendments and/or supplement or supplements within fifteen days after receipt by the Trust of a written request from you to do so, you may, at your option, terminate this agreement or decline to make offers of the Trust's securities until such amendments are made. The Trust will give you reasonable notice in advance of its filing of any amendment to any registration statement or supplement to any prospectus; provided, however, that nothing contained in this agreement shall in any way limit the Trust's right to file at any time such amendments to any registration statement and/or supplements to any prospectus, of whatever character, as the Trust may deem advisable, such right being in all respects absolute and unconditional. 1.9. The Trust authorizes you and any dealers with whom you have entered into Participant Agreements to use any prospectus in the form most recently furnished by the Trust in connection with the sale of Shares in Creation Units. The Trust agrees to indemnify, defend and hold you, your several officers and directors, and any person who controls you within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any reasonable counsel fees incurred in connection therewith) which you, your officers and directors, or any such controlling persons, may incur under the 1933 Act, the 1940 Act or common law or otherwise, (a) arising out of or on the basis of any untrue statement, or alleged untrue statement, of a material fact required to be stated in either any registration statement or any prospectus or any statement of additional information, or (b) arising out of or based upon any omission, or alleged omission, to state a material fact required to be stated in any registration statement, any prospectus or any statement of additional information or necessary to make the statements in any of them not misleading, or (c) arising out of breach of any obligation, representation or warranty pursuant to this Agreement by the Trust, or (d) the Trust's failure to comply with applicable securities laws, except that the Trust's agreement to indemnify you, your officers or directors, and any such controlling person will not be deemed to cover any such claim, demand, liability or expense to the extent that it arises - 3 - out of or is based upon any such untrue statement, alleged untrue statement, omission or alleged omission made in any registration statement, any prospectus or any statement of additional information in reliance upon information furnished by you, your officers, directors or any such controlling person to the Trust or its representatives for use in the preparation thereof, and except that the Trust's agreement to indemnify you and the Trust's representations and warranties set out in paragraph 1.8 of this Agreement will not be deemed to cover any liability to the Trusts or their shareholders to which you would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of your duties, or by reason of your reckless disregard of your obligations and duties under this Agreement ("Disqualifying Conduct"). The Trust's agreement to indemnify you, your officers and directors, and any such controlling person, as aforesaid, is expressly conditioned upon the Trust's being notified of any action brought against you, your officers or directors, or any such controlling person, such notification to be given by letter, by facsimile or by telegram addressed to the Trust at its address set forth above within a reasonable period of time after the summons or other first legal process shall have been served. The failure so to notify the Trust of any such action shall not relieve the Trust from any liability which the Trust may have to the person against whom such action is brought by reason of any such untrue, or alleged untrue, statement or omission, or alleged omission, otherwise than on account of the Trust's indemnity agreement contained in this paragraph 1.9. The Trust will be entitled to assume the defense of any suit brought to enforce any such claim, demand or liability, but, in such case, such defense shall be conducted by counsel of good standing chosen by the Trust and approved by you. In the event the Trust elects to assume the defense of any such suit and retain counsel of good standing approved by you, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them; but in case the Trust does not elect to assume the defense of any such suit, the Trust will reimburse you, your officers and directors, or the controlling person or persons named as defendant or defendants in such suit, for the reasonable fees and expenses of any counsel retained by you or them. The Trust's indemnification agreement contained in this paragraph 1.9 and the Trust's representations and warranties in this Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of you, your officers and directors, or any controlling person, and shall survive the delivery of any Shares. This agreement of indemnity will inure exclusively to your benefit, to the benefit of your several officers and directors, and their respective estates, and to the benefit of any controlling persons or other affiliates, and their successors. The Trust agrees promptly to notify you of the commencement of any litigation or proceedings against the Trust or any of its officers or Board members in connection with the issue and sale of Shares. 1.10. You agree to indemnify, defend and hold the Trust, its several officers and Board members, and any person who controls the Trust within the meaning of Section 15 of the 1933 Act, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Trust, its officers or Board members, or any such controlling person, may incur under the 1933 Act, the 1940 Act, or under common law or otherwise, but only to the extent that such liability or expense incurred by the Trust, its officers or Board members, or such controlling person resulting from such claims or demands, (a) shall arise out of or be based upon any information, statements or representations made or provided by you in any sales literature or advertisements, or any Disqualifying - 4 - Conduct by you in connection with the offering and sale of any Shares, (b) shall arise out of or be based upon any untrue, or alleged untrue, statement of a material fact contained in information furnished in writing by you to the Trust specifically for use in the Trust's registration statement and used in the answers to any of the items of the registration statement or in the corresponding statements made in the prospectus or statement of additional information, or shall arise out of or be based upon any omission, or alleged omission, to state a material fact in connection with such information furnished in writing by you to the Trust and required to be stated in such answers or necessary to make such information not misleading, (c) arising out of your breach of any obligation, representation or warranty pursuant to this Agreement, or (d) your failure to comply with applicable securities laws. Your agreement to indemnify the Trust, its officers and Board members, and any such controlling person, as aforesaid, is expressly conditioned upon your being notified of any action brought against the Trust, its officers or Board members, or any such controlling person, such notification to be given by letter, by facsimile or by telegram addressed to you at your address set forth above within a reasonable period of time after the summons or other first legal process shall have been served. The failure so to notify you of any such action shall not relieve you from any liability which you may have to the Trust, its officers or Board members, or to such controlling person by reason of any such untrue, or alleged untrue, statement or omission, or alleged omission, otherwise than on account of your indemnity agreement contained in this paragraph. You will be entitled to assume the defense of such action, but, in such case, such defense shall be conducted by counsel of good standing chosen by you and approved by an executive officer of the Trust, if such action is based solely upon such alleged misstatement or omission on your part, and in any other event Trust, its officers or Board members, or such controlling person shall each have the right to participate in the defense or preparation of the defense of any such action. This agreement of indemnity will inure exclusively to the Trust's benefit, to the benefit of the Trust's officers and Board members, and their respective estates, and to the benefit of any controlling persons and their successors. You agree promptly to notify the Trust of the commencement of any litigation or proceedings against you or any of your officers or directors in connection with the issue and sale of Shares. 1.11. No Shares shall be offered by either you or the Trust under any of the provisions of this agreement and no orders for the purchase or sale of such Shares hereunder shall be accepted by the Trust if and so long as the effectiveness of the registration statement then in effect or any necessary amendments thereto shall be suspended under any of the provisions of the 1933 Act or if and so long as a current prospectus as required by Section 10 of said 1933 Act is not on file with the Securities and Exchange Commission; provided, however, that nothing contained in this paragraph 1.11 shall in any way restrict or have any application to or bearing upon the Trust's obligation to redeem or repurchase any Shares from any shareholder in accordance with the provisions of the Trust's prospectus or charter documents. 1.12. The Trust agrees to advise you immediately in writing of the occurrence of any of the following events, as soon as any such event comes to the attention of the Trust: (a) any request by the Securities and Exchange Commission for amendments to the registration statement or prospectus then in effect or for additional information; - 5 - (b) the event of the issuance by the Securities and Exchange Commission of any stop order suspending the effectiveness of the registration statement or prospectus then in effect or the initiation of any proceeding for that purpose; (c) the happening of any event which makes untrue any statement of a material fact made in the registration statement or prospectus then in effect or which requires the making of a change in such registration statement or prospectus in order to make the statements therein not misleading; and (d) all actions of the Securities and Exchange Commission with respect to any amendments to any registration statement or prospectus which may from time to time be filed with the Securities and Exchange Commission. 2. OFFERING CREATION UNITS Shares in Creation Units of each Index Series will be offered for sale by you at a price per Creation Unit in the manner set forth in the then-current prospectus, based on a net asset value determined in accordance with the Trust's prospectus and charter documents. Any payments to dealers shall be governed by a separate agreement between you and such dealer and the Trust's then-current prospectus. You will accept as compensation for the performance of your obligations hereunder such compensation, if any, as may be provided for in any plan of distribution adopted by the Trust with respect to the Trust or any Index Series pursuant to Rule 12b-1 under the 1940 Act. 3. TERM This Agreement shall become effective with respect to each Index Series of the Trust as of the date set forth in Exhibit A attached hereto and will continue for an initial two-year term from the date of effectiveness and is renewable annually thereafter so long as such continuance is specifically approved (a) by the Trust's Board on behalf of each Index Series or (b) by a vote of a majority (as defined in the 1940 Act) of the Shares of the Trust or the relevant Index Series, as the case may be, provided that in either event its continuance also is approved by a majority of the Board members who are not "interested persons" (as defined in the 1940 Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This agreement may be terminated in respect of an Index Series at any time, without the payment of any penalty, (i) by vote of a majority of the Trustees who are not interested persons of the Trust (as defined under the 1940 Act) or (ii) by vote of a majority (as defined under the 1940 Act) of the outstanding voting securities of the relevant Index Series, on at least 60 days' written notice to you. This agreement may also be terminated at any time by you, without the payment of any penalty, upon 60 days' notice by you and will terminate automatically in the event of its assignment (as defined under the 1940 Act). - 6 - 4. MISCELLANEOUS 4.1. The Trust recognizes that your directors, officers and employees may from time to time serve as directors, trustees, officers and employees of corporations and business trusts (including other investment companies), and that you or your affiliates may enter into distribution or other agreements with such other corporations and trusts. 4.2. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which an enforcement of the change, waiver, discharge or termination is sought. 4.3. This Agreement shall be governed by the laws of the State of New York, without regard to principles of conflicts of laws. 4.4. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule, or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. Please confirm that the foregoing is in accordance with your understanding and indicate your acceptance hereof by signing below, whereupon it shall become a binding agreement between us. Very truly yours, FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II By /s/ Mark R. Bradley --------------------------------------------- Mark R. Bradley, COO ACCEPTED: FIRST TRUST PORTFOLIOS L.P. By /s/ Mark R. Bradley ----------------------------- Mark R. Bradley, COO - 7 - EXHIBIT A INDEX SERIES OF THE FUND AS OF ________ --------------------------------------------------------------------------------------- INDEX SERIES EFFECTIVE DATE ------------ -------------- ------------------------------------------------------------- ------------------------- First Trust Developed Markets Ex-US AlphaDEX(R) Fund April 8, 2011 ------------------------------------------------------------- ------------------------- First Trust Emerging Markets AlphaDEX(R) Fund April 8, 2011 ------------------------------------------------------------- ------------------------- First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund April 8, 2011 ------------------------------------------------------------- ------------------------- First Trust Europe AlphaDEX(R) Fund April 8, 2011 ------------------------------------------------------------- ------------------------- First Trust Latin America AlphaDEX(R) Fund April 8, 2011 ------------------------------------------------------------- ------------------------- First Trust Brazil AlphaDEX(R) Fund April 8, 2011 ------------------------------------------------------------- ------------------------- First Trust China AlphaDEX(R) Fund April 8, 2011 ------------------------------------------------------------- ------------------------- First Trust Japan AlphaDEX(R) Fund April 8, 2011 ------------------------------------------------------------- ------------------------- First Trust South Korea AlphaDEX(R) Fund April 8, 2011 ------------------------------------------------------------- ------------------------- First Trust Australia AlphaDEX(R) Fund February 10, 2012 ------------------------------------------------------------- ------------------------- First Trust Canada AlphaDEX(R) Fund February 10, 2012 ------------------------------------------------------------- ------------------------- First Trust Germany AlphaDEX(R) Fund February 10, 2012 ------------------------------------------------------------- ------------------------- First Trust Hong Kong AlphaDEX(R) Fund February 10, 2012 ------------------------------------------------------------- ------------------------- First Trust Switzerland AlphaDEX(R) Fund February 10, 2012 ------------------------------------------------------------- ------------------------- First Trust Taiwan AlphaDEX(R) Fund February 10, 2012 ------------------------------------------------------------- ------------------------- First Trust United Kingdom AlphaDEX(R) Fund February 10, 2012 ------------------------------------------------------------- ------------------------- First Trust Developed Markets Small Cap AlphaDEX(R) Fund February 10, 2012 ------------------------------------------------------------- ------------------------- First Trust Emerging Markets Small Cap AlphaDEX(R) Fund February 10, 2012 ------------------------------------------------------------- ------------------------- First Trust Global Commodity AlphaDEX(R) Fund ------------------------------------------------------------- ------------------------- First Trust Dividend AlphaDEX(R) Fund ------------------------------------------------------------- ------------------------- First Trust International Dividend AlphaDEX(R) Fund ------------------------------------------------------------- ------------------------- First Trust Emerging Markets Dividend AlphaDEX(R) Fund ------------------------------------------------------------- ------------------------- First Trust Global Agriculture AlphaDEX(R) Fund ---------------------------------------------------------------------------------------
EX-99.G CUST AGREEMT 4 exhibit_g.txt CUSTODIAN AGREEMENT CUSTODIAN AGREEMENT THIS AGREEMENT, dated as of April 8, 2011, between First Trust Exchange-Traded AlphaDEX(R) Fund II, a business trust organized under the laws of the Commonwealth of Massachusetts and registered with the Securities and Exchange Commission under the Investment Company Act of 1940 as amended ("the 1940 ACT") (the TRUST), and BROWN BROTHERS HARRIMAN & CO., a limited partnership formed under the laws of the State of New York (BBH&CO. or the CUSTODIAN). W I T N E S S E T H: WHEREAS, the Trust is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Trust, so authorized, intends that this Agreement be applicable to each of its series as set forth on Schedule A (each such series together with all other series subsequently established by the Trust and made subject to this Agreement by amendment hereof, being referred to as a "Fund" and collectively as the "Funds"); and WHEREAS, the Trust desires to retain the Custodian to provide for the Funds the services described herein, and the Custodian is willing to provide such services, all as more fully set forth below; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Fund and BBH&Co. hereby agree, as follows: 1. APPOINTMENT OF CUSTODIAN. The Trust hereby appoints BBH&Co. as the Trust's Custodian, and BBH&Co. hereby accepts such appointment and agrees to establish and maintain one or more accounts for each Fund in which Custodian will hold Investments as provided herein. Custodian shall maintain books and records, segregating the assets of each Fund from the assets of any other Fund. All Investments of the Fund delivered to the Custodian or its agents or Subcustodians shall be dealt with as provided in this Agreement. The duties of the Custodian with respect to the Fund's Investments shall be only as set forth expressly in this Agreement which duties are generally comprised of safekeeping and various administrative duties that will be performed in accordance with Instructions and as reasonably required to effect Instructions. 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE FUND. The Trust hereby represents, warrants and covenants each of the following: 2.1. This Agreement has been, and at the time of delivery of each Instruction such Instruction will have been, duly authorized, executed and delivered by the Trust. Neither this Agreement nor any Instruction issued thereunder violates any Applicable Law or conflicts with or constitutes a default under a Fund's prospectus, articles of organization or other constitutive document or any agreement, judgment, order or decree to which a Fund is a party or by which it or its Investments is bound. 2.2. By providing an Instruction with respect to the first acquisition of an Investment in a jurisdiction other than the United States of America, a Fund shall be deemed to have confirmed to the Custodian that a Fund has (a) assessed and accepted all material Country or Sovereign Risks and accepted responsibility for their occurrence, (b) made all determinations required to be made by a Fund under the 1940 Act, and (iii) appropriately and adequately disclosed to its shareholders, other investors and all persons who have rights in or to such Investments, all material investment risks, including those relating to the custody and settlement infrastructure or the servicing of securities in such jurisdiction. 2.3. The Trust shall safeguard and shall solely be responsible for the safekeeping of any testkeys, identification codes, passwords, other security devices or statements of account with which the Custodian provides it. If the Fund uses any on-line or similar communications service made available by the Custodian, the Trust shall be solely responsible for ensuring the security of its access to the service and for the use of the service, and shall only attempt to access the service and the Custodian's computer systems as directed by the Custodian. If the Custodian provides any computer software to the Trust relating to the services described in this Agreement, the Trust will only use the software for the purposes for which the Custodian provided the software to the Trust, and will abide by the license agreement accompanying the software and any other security policies which the Custodian provides to the Trust. 2.4. By providing an Instruction in respect of an Investment (which Instruction may relate to among other things, the execution and/or settlement of trades), the Trust hereby (i) authorizes BBH&Co. to complete such documentation as may be required or appropriate for the execution of the Instruction, and agrees to be contractually bound to the terms of such documentation "as is" without recourse against BBH&Co.; (ii) represents, warrants and covenants that it has accepted and agreed to comply with all Applicable Law, terms and conditions to which it and/or its Investment may be bound, including without limitation, requirements imposed by the Investment prospectus or offering circular, subscription agreement, any application or other documentation relating to an Investment (e.g., compliance with suitability requirements and eligibility restrictions); (iii) acknowledges and agrees that BBH&Co. will not be responsible for the accuracy of any information provided to it by or on behalf of a Fund, or for any underlying commitment or obligation inherent to an Investment; (iv) except as otherwise provided for in Section 2.4.1, represents, warrants and covenants that it will not effect any sale, transfer or disposition of Investment(s) held in BBH&Co.'s name by any means other than the issuance of an Instruction by a Fund to BBH&Co.; (v) acknowledges that collective investment schemes (and/or their agent(s)) in which a Fund invests may pay to BBH&Co. certain fees (including without limitation, shareholder servicing and/or trailer fees) in respect of a Fund's investments in such schemes; (vi) agrees that BBH&Co. shall have no obligation or responsibility whatsoever to respond to, or provide capital in connection with any capital calls, letters of intent of other requirements as set out in the prospectus or offering circular of an Investment; (vii) represents, warrants and covenants that it will provide BBH&Co. with such information as is necessary or appropriate to enable BBH&Co.'s performance pursuant to an Instruction or under this Agreement; (viii) represents that it is not a "Plan" (which term includes (1) employee benefit plans that are subject to the United States ("US") Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or plans, individual retirement accounts and other arrangements that are subject to Section 4975 of the US Internal Revenue Code of 1986, as amended (the "Code"), (2) plans, individual retirement accounts and other arrangements that are subject to the prohibited transaction provisions of Section 406 of ERISA or Section 4975 of the Code, and (3) entities the underlying assets of which are considered to include "plan assets" of such plans, accounts and arrangements), or an entity purchasing shares on behalf of, or with the "plan assets" of, a Plan; (ix) undertakes to inform BBH&Co. and to keep the same updated as to the status under ERISA or Section 4975 of the Code, each as amended, of the beneficial investor to the Investment, and as to any tax withholding or benefit to which an Investment may be subject; (x) acknowledges that BBH&Co. shall have no obligation to fund any order placed by the Fund for which the Fund does not have sufficient cash on deposit with BBH&Co.; and (xi) agrees that BBH&Co. shall be held harmless for the acts, omissions or any unlawful activity of any agent of the Fund, or any transfer agent or other agent of an Investment in which the Fund may invest. 2.4.1 To the extent that a Fund holds Investments in an account opened in the name of BBH&Co. as custodian for and at the direction of a Fund, and a Fund requests that BBH&Co. provide a Fund with the capability to place orders and execute trades in fund shares directly with such fund companies and/or their transfer agents which shall be settled in an account established with each such fund company or its transfer agent, the Fund hereby acknowledges that BBH&Co. is under no obligation to agree to such arrangement but if BBH&Co. so agrees, the Fund (i) acknowledges that all relevant terms under Section 2.4 above apply thereto, (ii) authorizes BBH&Co. as custodian, to grant a limited power of attorney to the Fund or its designated agent to enable the Fund to so execute, (iii) agrees to ensure that any instructions issued by the Fund or its designated agent shall also be concurrently submitted to BBH&Co., and (iv) shall adhere to any BBH&Co. procedures established with each such fund or its transfer agent with respect thereto including, but not limited to, the terms of the limited power of attorney. The Fund also acknowledges and agrees that (1) BBH&Co. is acting solely in its capacity as custodian and is not acting as a broker or introducing broker on behalf of the Fund, (2) BBH&Co. is not - 2 - receiving compensation in connection with the Fund's execution hereunder of trades with each such fund other than its usual and customary custody fees and transaction charges, (3) it will provide such account opening information to each such fund and/or transfer agent as and when requested by such fund and/or transfer agent, and (4) BBH&Co. is not responsible for (a) providing information published by the relevant distributor of each such fund including, but not limited to, the prospectus for each such Investment in a fund or for resolving execution queries or complaints relative to any such Investment, and (b) assessing the suitability of any such Investment executed directed by the Fund. 3. REPRESENTATION AND WARRANTY OF BBH&CO. BBH&Co. hereby represents and warrants that this Agreement has been duly authorized, executed and delivered by BBH&Co. and does not and will not violate any Applicable Law or conflict with or constitute a default under BBH&Co.'s limited partnership agreement or any agreement, instrument, judgment, order or decree to which BBH&Co. is a party or by which it is bound. 4. INSTRUCTIONS. Unless otherwise explicitly indicated herein, the Custodian shall perform its duties pursuant to Instructions. As used herein, the term INSTRUCTION shall mean a directive initiated by the Fund, acting through its board of directors or trustees or other Authorized Person, which directive shall conform to the requirements of this Section 4. 4.1. AUTHORIZED PERSONS. For purposes hereof, an AUTHORIZED PERSON shall be a person or entity authorized to give Instructions to the Custodian by written notices or otherwise for or on behalf of the Fund in accordance with procedures delivered to and acknowledged by the Custodian. The Custodian may treat any Authorized Person as having the full authority of the Fund to issue Instructions hereunder unless the notice of authorization contains explicit limitations as to said authority. The Custodian shall be entitled to rely upon the authority of Authorized Persons until it receives appropriate written notice from the Fund to the contrary. 4.2. FORM OF INSTRUCTION. Each Instruction shall be transmitted by such secured or authenticated electro-mechanical means as the Custodian shall make available to the Fund from time to time unless the Fund shall elect to transmit such Instruction in accordance with Subsections 4.2.1 through 4.2.3 of this Section. 4.2.1 FUND DESIGNATED SECURED-TRANSMISSION METHOD. Instructions may be transmitted through a secured or tested electro-mechanical means identified by the Fund or by an Authorized Person entitled to give Instruction and acknowledged and accepted by the Custodian, it being understood that such acknowledgment shall authorize the Custodian to accept such means of delivery but shall not represent a judgment by the Custodian as to the reasonableness or security of the means utilized by the Authorized Person. 4.2.2 WRITTEN INSTRUCTIONS. Instructions may be transmitted in a writing that bears the manual signature of Authorized Persons. 4.2.3 OTHER FORMS OF INSTRUCTION. Instructions may also be transmitted by another means determined by the Fund or Authorized Persons and acknowledged and accepted by the Custodian (subject to the same limits as to acknowledgements as are contained in Subsection 4.2.1, above) including Instructions given orally or by SWIFT or telefax (whether tested or untested). When an Instruction is given by means established under Subsections 4.2.1 through 4.2.3, it shall be the responsibility of the Custodian to use reasonable care to adhere to any security or other procedures established in writing between the Custodian and the Authorized Person with respect to such means of Instruction, but the Authorized Person shall be solely responsible for determining that the particular means chosen is reasonable under the circumstances. Oral Instructions shall be binding upon the Custodian only if and when the Custodian takes action with respect thereto. With respect to - 3 - telefax instructions, the parties agree and acknowledge that receipt of legible instructions cannot be assured, that the Custodian cannot verify that authorized signatures on telefax instructions are original or properly affixed, and that the Custodian shall not be liable for losses or expenses incurred through actions taken in reasonable reliance on inaccurately stated, illegible or unauthorized telefax instructions. The provisions of Section 4A of the Uniform Commercial Code shall apply to Funds Transfers performed in accordance with Instructions. The Funds Transfer Services Schedule and the Electronic and Online Services Schedule to this Agreement shall each comprise a designation of a means of delivering Instructions for purposes of this Section 4.2. 4.3. COMPLETENESS AND CONTENTS OF INSTRUCTIONS. The Authorized Person shall be responsible for assuring the adequacy and accuracy of Instructions. Particularly, upon any acquisition or disposition or other dealing in the Fund's Investments and upon any delivery and transfer of any Investment or moneys, the person initiating the Instruction shall give the Custodian an Instruction with appropriate detail, including, without limitation: 4.3.1 The transaction date and the date and location of settlement; 4.3.2 The specification of the type of transaction; 4.3.3 A description of the Investments or moneys in question, including, as appropriate, quantity, price per unit, amount of money to be received or delivered and currency information. Where an Instruction is communicated by electronic means, or otherwise where an Instruction contains an identifying number such as a CUSIP, SEDOL or ISIN number, the Custodian shall be entitled to rely on such number as controlling notwithstanding any inconsistency contained in the Instruction, particularly with respect to Investment description; and 4.3.4 The name of the broker or similar entity concerned with execution of the transaction. If the Custodian determines that an Instruction is either unclear or incomplete, the Custodian may give prompt notice of such determination to the Fund, and the Fund shall thereupon amend or otherwise reform the Instruction. In such event, the Custodian shall have no obligation to take any action in response to the Instruction initially delivered until the redelivery of an amended or reformed Instruction. 4.4. TIMELINESS OF INSTRUCTIONS. In giving an Instruction, the Fund shall take into consideration delays which may occur due to the involvement of a Subcustodian or agent, differences in time zones, and other factors particular to a given market, exchange or issuer. When the Custodian has established specific timing requirements or deadlines with respect to particular classes of Instruction, or when an Instruction is received by the Custodian at such a time that it could not reasonably be expected to have acted on such instruction due to time zone differences or other factors beyond its reasonable control, the execution of any Instruction received by the Custodian after such deadline or at such time (including any modification or revocation of a previous Instruction) shall be at the risk of the Fund. 5. SAFEKEEPING OF FUND ASSETS. The Custodian shall hold Investments delivered to it or Subcustodians for the Fund in accordance with the provisions of this Section. The Custodian shall not be responsible for (a) the safekeeping of Investments not delivered or that are not caused to be issued to it or its Subcustodians; or, (b) pre-existing faults or defects in Investments that are delivered to the Custodian or its Subcustodians. The Custodian is hereby authorized to hold with itself or a Subcustodian, and to record in one or more accounts, all Investments delivered to and accepted by the Custodian, any Subcustodian or their respective agents pursuant to an Instruction or in consequence of any corporate action or income event. The Custodian shall hold Investments for the account of the Fund and shall segregate Investments from assets belonging to the Custodian and shall cause its Subcustodians to segregate Investments from assets belonging to the Subcustodian in an account held for the Fund or in an account maintained by the Subcustodian generally for non-proprietary assets of the Custodian. - 4 - 5.1. USE OF SECURITIES DEPOSITORIES. The Custodian may deposit and maintain Investments in any Securities Depository, either directly or through one or more Subcustodians appointed by the Custodian. Investments held in a Securities Depository shall be held (a) subject to the agreement, rules, statement of terms and conditions or other document or conditions effective between the Securities Depository and the Custodian or the Subcustodian, as the case may be, and (b) in an account for the Fund or in bulk segregation in an account maintained for the non-proprietary assets of the entity holding such Investments in the Depository. If market practice or the rules and regulations of the Securities Depository prevent the Custodian, the Subcustodian or (any agent of either) from holding its client assets in such a separate account, the Custodian, the Subcustodian or other agent shall as appropriate segregate such Investments for benefit of the Fund or for benefit of clients of the Custodian generally on its own books. 5.2. CERTIFICATED ASSETS. Investments which are certificated may be held in registered or bearer form: (a) in the Custodian's vault; (b) in the vault of a Subcustodian or agent of the Custodian or a Subcustodian; or (c) in an account maintained by the Custodian, Subcustodian or agent at a Securities Depository; all in accordance with customary market practice in the jurisdiction in which any Investments are held. 5.3. REGISTERED ASSETS. Investments which are registered may be registered in the name of the Custodian, a Subcustodian, or in the name of the Fund or a nominee for any of the foregoing, and may be held in any manner set forth in Section 5.2 above with or without any identification of fiduciary capacity in such registration. 5.4. BOOK ENTRY ASSETS. Investments which are represented by book-entry may be so held in an account maintained by the Book-entry Agent on behalf of the Custodian, a Subcustodian or another Agent of the Custodian, or a Securities Depository. 5.5. REPLACEMENT OF LOST INVESTMENTS. In the event of a loss of Investments for which loss the Custodian is responsible under the terms of this Agreement, the Custodian shall replace such Investment, or in the event that such replacement cannot be effected, the Custodian shall pay to the Fund the fair market value of such Investment based on the last available price as of the close of business in the relevant market on the date that a claim was first made to the Custodian with respect to such loss, or such other lesser amount as shall be agreed by the parties. 6. ADMINISTRATIVE DUTIES OF THE CUSTODIAN. The Custodian shall perform the following administrative duties with respect to Investments of the Fund. 6.1. PURCHASE OF INVESTMENTS. Pursuant to Instruction, Investments purchased for the account of the Fund shall be paid for (a) against delivery thereof to the Custodian or a Subcustodian, as the case may be, either directly or through a Clearing Corporation or a Securities Depository (in accordance with the rules of such Securities Depository or such Clearing Corporation), or (b) otherwise in accordance with an Instruction, Applicable Law, generally accepted trade practices, or the terms of the instrument representing such Investment. 6.2. SALE OF INVESTMENTS. Pursuant to Instruction, Investments sold for the account of the Fund shall be delivered (a) against payment therefor in cash, by check or by bank wire transfer, (b) by credit to the account of the Custodian or the applicable Subcustodian, as the case may be, with a Clearing Corporation or a Securities Depository (in accordance with the rules of such Securities Depository or such Clearing Corporation), or (c) otherwise in accordance with an Instruction, Applicable Law, generally accepted trade practices, or the terms of the instrument representing such Investment. 6.3. DELIVERY AND RECEIPT IN CONNECTION WITH BORROWINGS OF THE FUND OR OTHER COLLATERAL AND MARGIN REQUIREMENTS. Pursuant to Instruction, the Custodian may deliver or receive Investments or cash of the Fund in connection with borrowings or loans by the Fund and other collateral and margin requirements. 6.4. FUTURES AND OPTIONS. If, pursuant to an Instruction, the Custodian shall become a party to an agreement with the Fund and a futures - 5 - commission merchant regarding margin (Tri-Party Agreement), the Custodian shall (a) receive and retain, to the extent the same are provided to the Custodian, confirmations or other documents evidencing the purchase or sale by the Fund of exchange-traded futures contracts and commodity options, (b) when required by such Tri-Party Agreement, deposit and maintain in an account opened pursuant to such Agreement (Margin Account), segregated either physically or by book-entry in a Securities Depository for the benefit of any futures commission merchant, such Investments as the Fund shall have designated as initial, maintenance or variation "margin" deposits or other collateral intended to secure the Fund's performance of its obligations under the terms of any exchange-traded futures contracts and commodity options; and (c) thereafter pay, release or transfer Investments into or out of the margin account in accordance with the provisions of such Agreement. Alternatively, the Custodian may deliver Investments, in accordance with an Instruction, to a futures commission merchant for purposes of margin requirements in accordance with Rule 17f-6 under the 1940 Act. The Custodian shall in no event be responsible for the acts and omissions of any futures commission merchant to whom Investments are delivered pursuant to this Section; for the sufficiency of Investments held in any Margin Account; or, for the performance of any terms of any exchange-traded futures contracts and commodity options. 6.5. CONTRACTUAL OBLIGATIONS AND SIMILAR INVESTMENTS. From time to time, the Fund's Investments may include Investments that are not ownership interests as may be represented by certificate (whether registered or bearer), by entry in a Securities Depository or by Book-Entry Agent, registrar or similar agent for recording ownership interests in the relevant Investment. If the Fund shall at any time acquire such Investments, including without limitation deposit obligations, loan participations, repurchase agreements and derivative arrangements, the Custodian shall (a) receive and retain, to the extent the same are provided to the Custodian, confirmations or other documents evidencing the arrangement; and (b) perform on the Fund's account in accordance with the terms of the applicable arrangement, but only to the extent directed to do so by Instruction. The Custodian shall have no responsibility for agreements running to the Fund as to which it is not a party other than to retain, to the extent the same are provided to the Custodian, documents or copies of documents evidencing the arrangement and, in accordance with Instruction, to include such arrangements in reports made to the Fund. 6.6. EXCHANGE OF SECURITIES. Unless otherwise directed by Instruction, the Custodian shall: (a) exchange securities held for the account of the Fund for other securities in connection with any reorganization, recapitalization, conversion, stock split, change of par value of shares or similar event, and (b) deposit any such securities in accordance with the terms of any reorganization or protective plan. 6.7. SURRENDER OF SECURITIES. Unless otherwise directed by Instruction, the Custodian may surrender securities: (a) in temporary form for definitive securities; (b) for transfer into the name of an entity allowable under Section 5.3; and (c) for a different number of certificates or instruments representing the same number of shares or the same principal amount of indebtedness. 6.8. RIGHTS, WARRANTS, ETC. Pursuant to Instruction, the Custodian shall (a) deliver warrants, puts, calls, rights or similar securities to the issuer or trustee thereof, or to any agent of the issuer or trustee, for purposes of exercising such rights or selling such securities, and (b) deliver securities in response to any tender offer. 6.9. MANDATORY CORPORATE ACTIONS. Unless otherwise directed by Instruction, the Custodian shall: (a) comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions or similar rights of securities ownership affecting securities held on the Fund's account and promptly notify the Fund of such action; and (b) collect all stock dividends, rights and other items of like nature with respect to such securities. 6.10. INCOME COLLECTION. Unless otherwise directed by Instruction, the Custodian shall collect any amount due and payable to the Fund with respect to Investments and promptly credit the amount collected to a Principal or Agency Account; provided, however, that the Custodian shall not be responsible for: (a) the collection of amounts due and payable with respect to Investments that are in default or (b) the - 6 - collection of cash or share entitlements with respect to Investments that are not registered in the name of the Custodian or its Subcustodians. The Custodian is hereby authorized to endorse and deliver any instrument required to be so endorsed and delivered to effect collection of any amount due and payable to the Fund with respect to Investments. 6.11. CORPORATE ACTION INFORMATION. In fulfilling the duties set forth in Sections 6.6 through 6.10 above, the Custodian shall provide to the Fund such material information pertaining to a corporate action which the Custodian actually receives; provided that the Custodian shall not be responsible for the completeness or accuracy of such information. Information relative to any pending corporate action made available to the Fund via any of the services described in the Electronic and Online Services Schedule shall constitute the delivery of such information by the Custodian. Any advance credit of cash or shares expected to be received as a result of any corporate action shall be subject to actual collection and may be reversed by the Custodian. 6.12. PROXY MATERIALS. The Custodian shall deliver, or cause to be delivered, to the Fund proxy forms, notices of meeting, and any other notices or announcements materially affecting or relating to Investments received by the Custodian. Information relative to any pending corporate action made available to the Fund via any of the services described in the Electronic and Online Services Schedule shall constitute the delivery of such information by the Custodian. 6.13. OWNERSHIP CERTIFICATES AND DISCLOSURE OF THE FUND'S INTEREST. The Custodian is hereby authorized to execute on behalf of the Fund ownership certificates, affidavits or other disclosure required under Applicable Law or established market practice in connection with the receipt of income, capital gains or other payments by the Fund with respect to Investments, or in connection with the sale, purchase or ownership of Investments. With respect to securities issued in the United States of America, the Custodian [XX] may [ ] may not release the identity of the Fund to an issuer which requests such information pursuant to the Shareholder Communications Act of 1985 for the specific purpose of direct communications between such issuer and the Fund. IF NO BOX IS CHECKED, THE CUSTODIAN SHALL RELEASE SUCH INFORMATION UNTIL IT RECEIVES CONTRARY INSTRUCTIONS FROM THE FUND. With respect to securities issued outside of the United States of America, information shall be released in accordance with law or custom of the particular country in which such security is located. 6.14. TAXES. The Custodian shall, where applicable, assist the Fund in the reclamation of taxes withheld on dividends and interest payments received by the Fund. In the performance of its duties with respect to tax withholding and reclamation, the Custodian shall be entitled to rely on the advice of counsel and upon information and advice regarding the Fund's tax status that is received from or on behalf of the Fund without duty of separate inquiry. 6.15. OTHER DEALINGS. The Custodian shall otherwise act as directed by Instruction, including without limitation effecting the free payments of moneys or the free delivery of securities, provided that such Instruction shall indicate the purpose of such payment or delivery and that the Custodian shall record the party to whom the payment or delivery is made. 6.16. NONDISCRETIONARY DETAILS AND MINOR EXPENSES. The Custodian shall attend to all nondiscretionary details in connection with the sale or purchase or other administration of Investments, except as otherwise directed by Instruction, and may make payments to itself or others for minor expenses of administering Investments under this Agreement, provided that the Fund shall have the right to request an accounting with respect to such expenses. 6.17. USE OF AGENTS. The Custodian may at any time in its discretion appoint (and may at any time remove) agents (other than Subcustodians) to carry out some or all of the administrative provisions of this Agreement (AGENTS), provided, however, that the appointment of an Agent shall not relieve the Custodian of its administrative obligations under this Agreement. - 7 - 7. CASH ACCOUNTS, DEPOSITS AND MONEY MOVEMENTS. Subject to the terms and conditions set forth in this Section 7, the Fund hereby authorizes the Custodian to open and maintain, with itself or with Subcustodians, cash accounts in United States Dollars, in such other currencies as are the currencies of the countries in which the Fund maintains Investments or in such other currencies as the Fund shall from time to time request by Instruction. Notwithstanding anything in this Agreement to the contrary, the Fund shall be liable as principal for any overdrafts occurring in any cash accounts. 7.1. TYPES OF CASH ACCOUNTS. Cash accounts opened on the books of the Custodian (PRINCIPAL ACCOUNTS) shall be opened in the name of the Fund. Such accounts collectively shall be a deposit obligation of the Custodian and shall be subject to the terms of this Section 7 and the general liability provisions contained in Section 9. Cash accounts opened on the books of a Subcustodian may be opened in the name of the Fund or the Custodian or in the name of the Custodian for its customers generally (AGENCY ACCOUNTS). Such deposits shall be obligations of the Subcustodian and shall be treated as an Investment of the Fund. Accordingly, the Custodian shall be responsible for exercising reasonable care in the administration of such accounts, but shall not be liable for their repayment in the event the Subcustodian, by reason of its bankruptcy, insolvency or otherwise, fails to make repayment. In connection with the services provided hereunder, the Custodian is hereby directed to open cash accounts on its books and records from time to time for the purposes of receiving subscriptions and/or processing redemptions on behalf of the Fund, and/or for the purposes of aggregating, netting and/or clearing transactions (including, without limitation foreign exchange, repurchase agreements, capital stock activity, expense payment) or other administrative purposes on behalf of the Fund or the Fund and affiliated funds (each an "Account"). Each such Account shall be subject to the terms and conditions of this Agreement (including, without limitation Section 7.6) and the Fund shall be liable for the satisfaction of its own obligations in connection with each Account; provided however, the Fund shall not be liable for the obligations of any other affiliated fund thereunder. 7.1.1 ADMINISTRATIVE ACCOUNTS. In connection with the services provided hereunder, the Custodian is hereby directed to open cash accounts on its books and records from time to time for the purposes of receiving subscriptions and/or processing redemptions on behalf of the Fund and/or for the purposes of aggregating, netting and/or clearing transactions (including, without limitation foreign exchange, repurchase agreements, capital stock activity, expense payment) or other administrative purposes, each on behalf of the Fund (each an "Account"). Each such Account shall be subject to the terms and conditions of this Agreement and the Fund shall be liable for the satisfaction of its obligations in connection with each Account. 7.2. PAYMENTS AND CREDITS WITH RESPECT TO THE CASH ACCOUNTS. The Custodian shall make payments from or deposits to any of the cash accounts in the course of carrying out its administrative duties, including but not limited to income collection with respect to the Fund's Investments, and otherwise in accordance with Instructions. The Custodian and its Subcustodians shall be required to credit amounts to the cash accounts only when moneys are actually received in cleared funds in accordance with banking practice in the country and currency of deposit. Any credit made to any Principal or Agency Account before actual receipt of cleared funds shall be provisional and may be reversed by the Custodian in the event such payment is not actually collected. Unless otherwise specifically agreed in writing by the Custodian or any Subcustodian, all deposits shall be payable only at the branch of the Custodian or Subcustodian where the deposit is made or carried. 7.3. CURRENCY AND RELATED RISKS. The Fund bears the risks of holding or transacting in any currency, including any mark to market exposure associated with a foreign exchange transaction undertaken with the Custodian. The Custodian shall not be liable for any loss or damage arising from the applicability of any law or regulation now or hereafter in effect, or from the occurrence of any event, which may delay or affect the transferability, convertibility or availability of any currency in the country (a) in which such Principal or Agency Accounts are maintained or (b) in which such currency is issued, and in no event shall the Custodian be obligated to make payment of a deposit denominated in a currency during the period during which its transferability, convertibility or availability has been affected by - 8 - any such law, regulation or event. Without limiting the generality of the foregoing, neither the Custodian nor any Subcustodian shall be required to repay any deposit made at a foreign branch of either the Custodian or Subcustodian if such branch cannot repay the deposit due to a cause for which the Custodian would not be responsible in accordance with the terms of Section 9 of this Agreement unless the Custodian or such Subcustodian expressly agrees in writing to repay the deposit under such circumstances. All currency transactions in any account opened pursuant to this Agreement are subject to exchange control regulations of the United States and of the country where such currency is the lawful currency or where the account is maintained. Any taxes, costs, charges or fees imposed on the convertibility of a currency held by the Fund shall be for the account of the Fund. 7.4. FOREIGN EXCHANGE TRANSACTIONS. The Custodian shall, subject to the terms of this Section, settle foreign exchange transactions (including contracts, futures, options and options on futures) on behalf and for the account of the Fund with such currency brokers or banking institutions, including Subcustodians, as the Fund may direct pursuant to Instructions. The Custodian may act as principal in any foreign exchange transaction with the Fund in accordance with Section 7.4.2 of this Agreement. The obligations of the Custodian in respect of all foreign exchange transactions (whether or not the Custodian shall act as principal in such transaction) shall be contingent on the free, unencumbered transferability of the currency transacted on the actual settlement date of the transaction. 7.4.1 THIRD PARTY FOREIGN EXCHANGE TRANSACTIONS. The Custodian shall process foreign exchange transactions (including without limitation contracts, futures, options, and options on futures), where any third party acts as principal counterparty to the Fund on the same basis it performs duties as agent for the Fund with respect to any other of the Fund's Investments. Accordingly the Custodian shall only be responsible for delivering or receiving currency on behalf of the Fund in respect of such contracts pursuant to Instructions. The Custodian shall not be responsible for the failure of any counterparty (including any Subcustodian) in such agency transaction to perform its obligations thereunder. The Custodian (a) shall transmit cash and Instructions to and from the currency broker or banking institution with which the Fund has executed a foreign exchange contract or option, (b) may make free outgoing payments of cash in the form of Dollars or foreign currency without receiving confirmation of a foreign exchange contract or option or confirmation that the countervalue currency completing the foreign exchange contract has been delivered or received or that the option has been delivered or received, (c) may, in connection with cash payments made to third party currency brokers/dealers for settlement of the Fund's foreign exchange spot or forward transactions, foreign currency swap transactions and similar foreign exchange transactions, process settlements using the facilities of the CLS Bank according to CLS Bank's standard terms and conditions, and (d) shall hold in safekeeping all confirmations, certificates and other documents and agreements received by the Custodian and evidencing or relating to such foreign exchange transactions. The Fund accepts full responsibility for its use of third-party foreign exchange dealers and for execution of the foreign exchange contracts and options and understands that the Fund shall be responsible for any and all costs and interest charges which may be incurred by the Fund or the Custodian as a result of the failure or delay of third parties to deliver foreign exchange. 7.4.2 FOREIGN EXCHANGE WITH THE CUSTODIAN AS PRINCIPAL. The Custodian, as principal, may enter into foreign exchange transactions with the Fund as the Custodian and the Fund may agree from time to time. In this event, the foreign exchange transaction will be performed in accordance with the particular agreement of the parties, or in the event a principal foreign exchange transaction is initiated by Instruction in the absence of a specific agreement, in accordance with the usual commercial terms of the Custodian and the Online Terms and Conditions described in Section 12.13 of this Agreement. . 7.5. DELAYS. If no event of Force Majeure shall have occurred and be continuing and in the event that a delay shall have been caused by the negligence or willful misconduct of the Custodian in carrying - 9 - out an Instruction to credit or transfer cash, the Custodian shall be liable to the Fund: (a) with respect to Principal Accounts, for interest to be calculated at the rate customarily paid on such deposit and currency by the Custodian on overnight deposits at the time the delay occurs for the period from the day when the transfer should have been effected until the day it is in fact effected; and, (b) with respect to Agency Accounts, for interest to be calculated at the rate customarily paid on such deposit and currency by the Subcustodian on overnight deposits at the time the delay occurs for the period from the day when the transfer should have been effected until the day it is in fact effected. The Custodian shall not be liable for delays in carrying out Instructions to transfer cash which are not due to the Custodian's own negligence or willful misconduct. 7.6. ADVANCES. If, for any reason in connection with this Agreement the Custodian or any Subcustodian makes an Advance to facilitate settlement or otherwise for the benefit of the Fund (whether or not any Principal or Agency Account shall be overdrawn either during, or at the end of, any Business Day), the Fund hereby does: 7.6.1 acknowledge that the Fund shall have no right, title or interest in or to any Investments purchased with such Advance or proceeds of such Investments, and that any credit to an account of Fund shall be provisional, until: (a) the debit of the Principal or Agency Account by Custodian for an amount equal to Advance Costs; and/or (b) if such debit produces an overdraft in such account, reimbursement to the Custodian or Subcustodian for the amount of such overdraft; 7.6.2 acknowledge that the Custodian has an automatically perfected statutory security interest in Investments purchased with any such Advance pursuant to Section 9-206 of the Uniform Commercial Code as in effect in the State of New York from time to time; 7.6.3 in addition, in order to secure the obligations of the Fund to pay or perform any and all obligations of the Fund pursuant to this Agreement, including without limitation to repay any Advance made pursuant to this Agreement, grant to the Custodian a security interest in all Investments and proceeds thereof (as defined in the Uniform Commercial Code as currently in effect in the State of New York); and agree to take, and agree that the Custodian may take, in respect of the security interest referenced above, any further actions that the Custodian may reasonably require. 7.7. CUSTODIAN'S RIGHTS Neither the Custodian nor any Subcustodian shall be obligated to make any Advance or to allow an Advance to occur to the Fund, and in the event that the Custodian or any Subcustodian does make or allow an Advance, any such Advance and any transaction giving rise to such Advance shall be for the account and risk of the Fund and shall not be deemed to be a transaction undertaken by the Custodian for its own account and risk. If such Advance shall have been made or allowed by a Subcustodian or any other person, the Custodian may assign all or part of its security interest referenced above and any other rights granted to the Custodian hereunder to such Subcustodian or other person. If the Fund shall fail to repay the Advance Costs when due, the Custodian or its assignee, as the case may be, shall be entitled to a portion of the available cash balance in any Agency or Principal Account equal to such Advance Costs, and the Fund authorizes the Custodian, on behalf of the Fund, to pay an amount equal to such Advance Costs irrevocably to such Subcustodian or other person, and to dispose of any property in such Account to the extent necessary to make such payment. Any Investments credited to accounts subject to this Agreement created pursuant hereto shall be treated as financial assets credited to securities accounts under Articles 8 and 9 of the Uniform Commercial Code as in effect in the State of New York from time to time. Accordingly, the Custodian and any Subcustodian shall have the rights and benefits of a secured creditor that is a securities intermediary under such Articles 8 and 9. 7.8. INTEGRATED ACCOUNT. For purposes hereof, deposits maintained in all Principal Accounts (whether or not denominated in Dollars) shall collectively constitute a single and indivisible current account with respect to the Fund's obligations to the Custodian or its assignee, and balances in the Principal Accounts shall be available for satisfaction of the Fund's obligations under this Section 7. The - 10 - Custodian shall further have a right of offset against the balances in any Agency Account maintained hereunder to the extent that the aggregate of all Principal Accounts is overdrawn. 8. Subcustodians and Securities Depositories. Subject to the provisions hereinafter set forth in this Section 8, the Fund hereby authorizes the Custodian to utilize Securities Depositories to act on behalf of the Fund and to appoint from time to time and to utilize Subcustodians. With respect to securities and funds held by a Subcustodian, either directly or indirectly (including by a Securities Depository or Clearing Corporation), notwithstanding any provisions of this Agreement to the contrary, payment for securities purchased and delivery of securities sold may be made prior to receipt of securities or payment, respectively, and securities or payment may be received in a form in accordance with (a) governmental regulations, (b) rules of Securities Depositories and Clearing Agencies, (c) generally accepted trade practice in the applicable local market, (d) the terms and characteristics of the particular Investment, or (e) the terms of Instructions. 8.1. DOMESTIC SUBCUSTODIANS AND SECURITIES DEPOSITORIES. The Custodian may deposit and/or maintain, either directly or through one or more Agents appointed by the Custodian, Investments of the Fund in any Securities Depository in the United States, including The Depository Trust Company, provided such Depository meets applicable requirements of the Federal Reserve Bank or of the Securities and Exchange Commission. The Custodian may, from time to time, appoint any bank as defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder to act on behalf of the Fund as a Subcustodian for purposes of holding Investments of the Fund in the United States. 8.2. FOREIGN SUBCUSTODIANS AND SECURITIES DEPOSITORIES. Unless instructed otherwise by the Fund, the Custodian may deposit and/or maintain non-U.S. Investments of the Fund in any non-U.S. Securities Depository provided such Securities Depository meets the requirements of an "eligible securities depository" under Rule 17f-7 promulgated under the 1940 Act, or any successor rule or regulation ("Rule 17f-7") or which by order of the Securities and Exchange Commission is exempted therefrom. Prior to the time that securities are placed with such depository, but subject to the provisions of Section 8.2.4 below, the Custodian shall have prepared an assessment of the custody risks associated with maintaining assets with the Securities Depository and shall have established a system to monitor such risks on a continuing basis in accordance with subsection 8.2.3 of this Section. Additionally, the Custodian may, from time to time, appoint (a) any bank, trust company or other entity meeting the requirements of an "eligible foreign custodian" under Rule 17f-5 or which by order of the Securities and Exchange Commission is exempted therefrom, or (b) any bank as defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act on behalf of the Fund as a Subcustodian for purposes of holding Investments of the Fund outside the United States. 8.3. DELEGATION OF BOARD REVIEW OF SUBCUSTODIANS. From time to time, the Custodian may agree to perform certain reviews of Subcustodians and of Subcustodian Contracts as the delegate of the Fund's Board. In such event, the Custodian's duties and obligations with respect to this delegated review will be performed in accordance with the terms of the attached 17f-5 Delegation Schedule to this Agreement. 8.4. BOARD APPROVAL OF FOREIGN SUBCUSTODIANS. Unless and except to the extent that the Board has delegated to the Custodian and the Custodian has accepted delegation of review of certain matters concerning the appointment of Subcustodians pursuant to Subsection 8.3, the Custodian shall, prior to the appointment of any Subcustodian for purposes of holding Investments of the Fund outside the United States, obtain written confirmation of the approval of the Board of Trustees or Directors of the Fund with respect to (a) the identity of a Subcustodian, and (b) the Subcustodian agreement which shall govern such appointment, such approval to be signed by an Authorized Person. An Instruction to open an account in a given country shall comprise authorization of the Custodian to hold assets in such country in accordance with the terms of this Agreement. The Custodian shall not be required to make independent inquiry as to the authorization of the Fund to invest in such country. 8.5. MONITORING AND RISK ASSESSMENT OF SECURITIES DEPOSITORIES. Prior to the placement of any assets of the Fund with a non-U.S. Securities - 11 - Depository, the Custodian: (a) shall provide to the Fund or its authorized representative an assessment of the custody risks associated with maintaining assets within such Securities Depository; and (b) shall have established a system to monitor the custody risks associated with maintaining assets with such Securities Depository on a continuing basis and to promptly notify the Fund or its Investment Adviser of any material changes in such risk. In performing its duties under this subsection, the Custodian shall use reasonable care and may rely on such reasonable sources of information as may be available including but not limited to: (i) published ratings; (ii) information supplied by a Subcustodian that is a participant in such Securities Depository; (iii) industry surveys or publications; (iv) information supplied by the depository itself, by its auditors (internal or external) or by the relevant Foreign Financial Regulatory Authority. It is acknowledged that information procured through some or all of these sources may not be independently verifiable by the Custodian and that direct access to Securities Depositories is limited under most circumstances. Accordingly, the Custodian shall not be responsible for errors or omissions in its duties hereunder provided that it has performed its monitoring and assessment duties with reasonable care. The risk assessment shall be provided to the Fund or its Investment Advisor by such means as the Custodian shall reasonably establish. Advices of material change in such assessment may be provided by the Custodian in the manner established as customary between the Fund and the Custodian for transmission of material market information. 8.6. RESPONSIBILITY FOR SUBCUSTODIANS. Except as provided in the last sentence of this Section 8.6, the Custodian shall be liable to the Fund for any loss or damage to the Fund caused by or resulting from the acts or omissions of any Subcustodian to the extent that such acts or omissions would be deemed to be negligence, gross negligence or willful misconduct in accordance with the terms of the relevant subcustodian agreement under the laws, circumstances and practices prevailing in the place where the act or omission occurred. With respect to any losses incurred by the Trust or any Fund as a result of the acts or any failures to act by any Subcustodian, Custodian shall take appropriate action to recover any losses from such Subcustodian. The liability of the Custodian in respect of the countries and Subcustodians designated by the Custodian, from time to time on the Global Custody Network Listing shall be subject to the additional condition that the Custodian actually recovers such loss or damage from the Subcustodian. 8.7. NEW COUNTRIES. The Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held in a country in which no Subcustodian is authorized to act in order that the Custodian shall, if it deems appropriate to do so, have sufficient time to establish a subcustodial arrangement in accordance herewith. In the event, the Custodian is unable to establish such arrangements prior to the time the investment is to be acquired, the Custodian is authorized to designate at its discretion a local safekeeping agent, and the use of the local safekeeping agent shall be at the sole risk of the Fund, and accordingly the Custodian shall be responsible to the Fund for the actions of such agent if and only to the extent the Custodian shall have recovered from such agent for any damages caused the Fund by such agent. 9. RESPONSIBILITY OF THE CUSTODIAN. In performing its duties and obligations hereunder, the Custodian shall use reasonable care under the facts and circumstances prevailing in the market where performance is effected. Subject to the specific provisions of this Section, the Custodian shall be liable for any direct damage incurred by the Fund in consequence of the Custodian's negligence, bad faith or willful misconduct. In no event shall the Custodian be liable hereunder for any special, indirect, punitive or consequential damages arising out of, pursuant to or in connection with this Agreement even if the Custodian has been advised of the possibility of such damages. It is agreed that the Custodian shall have no duty to assess the risks inherent in the Fund's Investments or to provide investment advice with respect to such Investments and that the Fund as principal shall bear any risks attendant to particular Investments such as failure of counterparty or issuer. 9.1. LIMITATIONS OF PERFORMANCE. The Custodian shall not be responsible under this Agreement for any failure to perform its duties, and shall not be liable hereunder for any loss or damage in association with such failure to perform for or in consequence of the following causes: - 12 - 9.1.1 FORCE MAJEURE. Force Majeure shall mean any circumstance or event which is beyond the reasonable control of the Custodian, a Subcustodian or any agent of the Custodian or a Subcustodian and which adversely affects the performance by the Custodian of its obligations hereunder, by the Subcustodian of its obligations under its Subcustody Agreement or by any other Agent of the Custodian or the Subcustodian, including any event caused by, arising out of or involving (a) an act of God, (b) accident, fire, water or wind damage or explosion, (c) any computer, system or other equipment failure or malfunction caused by any computer virus or the malfunction or failure of any communications medium, (d) any interruption of the power supply or other utility service, (e) any strike or other work stoppage, whether partial or total, (f) any delay or disruption resulting from or reflecting the occurrence of any Country or Sovereign Risk, (g) any disruption of, or suspension of trading in, the securities, commodities or foreign exchange markets, whether or not resulting from or reflecting the occurrence of any Country or Sovereign Risk, (h) any encumbrance on the transferability of a currency or a currency position on the actual settlement date of a foreign exchange transaction, whether or not resulting from or reflecting the occurrence of any Country or Sovereign Risk, or (i) any other cause similarly beyond the reasonable control of the Custodian. 9.1.2 COUNTRY RISK. Country Risk shall mean, with respect to the acquisition, ownership, settlement or custody of Investments in a jurisdiction, all risks relating to, or arising in consequence of, systemic and markets factors affecting the acquisition, payment for or ownership of Investments including (a) the prevalence of crime and corruption, (b) the inaccuracy or unreliability of business and financial information, (c) the instability or volatility of banking and financial systems, or the absence or inadequacy of an infrastructure to support such systems, (d) custody and settlement infrastructure of the market in which such Investments are transacted and held, (e) the acts, omissions and operation of any Securities Depository, (f) the risk of the bankruptcy or insolvency of banking agents, counterparties to cash and securities transactions, registrars or transfer agents, and (g) the existence of market conditions which prevent the orderly execution or settlement of transactions or which affect the value of assets. 9.1.3 SOVEREIGN RISK. Sovereign Risk shall mean, in respect of any jurisdiction, including the United States of America, where Investments are acquired or held hereunder or under a Subcustody Agreement, (a) any act of war, terrorism, riot, insurrection or civil commotion, (b) the imposition of any investment, repatriation or exchange control restrictions by any Governmental Authority, (c) the confiscation, expropriation or nationalization of any Investments by any Governmental Authority, whether de facto or de jure, (d) any devaluation or revaluation of the currency, (e) the imposition of taxes, levies or other charges affecting Investments, (f) any change in the Applicable Law, or (g) any other economic or political risk incurred or experienced. 9.2. LIMITATIONS ON LIABILITY. The Custodian shall not be liable for any loss, claim, damage or other liability arising from the following causes: 9.2.1 FAILURE OF THIRD PARTIES. The failure of any third party including: (a) any issuer of Investments or Book-Entry Agent or other agent of an issuer; (b) any counterparty with respect to any Investment, including any issuer of exchange-traded or other futures, option, derivative or commodities contract; (c) failure of an Investment Advisor, foreign custody manager or other agent of the Fund; or (d) failure of other third parties similarly beyond the control or choice of the Custodian. 9.2.2 INFORMATION SOURCES. The Custodian may rely upon information received from issuers of Investments or agents of such issuers, information received from Subcustodians and from other commercially reasonable sources such as commercial data bases and the like, but shall not be responsible for specific inaccuracies in such information, provided that the Custodian has relied upon such information in good faith, or for the - 13 - failure of any commercially reasonable information provider. 9.2.3 RELIANCE ON INSTRUCTION. Action by the Custodian or the Subcustodian in accordance with an Instruction, even when such action conflicts with, or is contrary to any provision of, the Fund's declaration of trust, certificate of incorporation or by-laws or other constitutive document, Applicable Law, or actions by the trustees, directors or shareholders of the Fund. 9.2.4 RESTRICTED SECURITIES. The limitations inherent in the rights, transferability or similar investment characteristics of a given Investment of the Fund. 10. INDEMNIFICATION. The Trust on behalf of the applicable Fund agrees to indemnify Custodian and hold Custodian harmless from and against any and all losses sustained or incurred by or asserted against Custodian by reason of or as a result of any action or inaction, or arising out of Custodian's performance hereunder, including reasonable fees and expenses of counsel incurred by Custodian in a successful defense of claims by the Trust on behalf of the applicable Fund; provided, however, that the Trust on behalf of the applicable Fund shall not indemnify Custodian for those losses arising out of Custodian's own negligence or willful misconduct. This indemnity shall be a continuing obligation of the Trust on behalf of the applicable Fund, its successors and assigns, notwithstanding the termination of this Agreement. 11. REPORTS AND RECORDS. The Custodian shall: 11.1. create and maintain records relating to the performance of its obligations under this Agreement; 11.2. make available to the Fund, its auditors, agents and employees, upon reasonable request and during normal business hours of the Custodian, all records maintained by the Custodian pursuant to Section 11.1 above, subject, however, to all reasonable security requirements of the Custodian then applicable to the records of its custody customers generally; and 11.3. make available to the Fund all Electronic Reports; it being understood that the Custodian shall not be liable hereunder for the inaccuracy or incompleteness thereof or for errors in any information included therein. 11.4. The Fund shall examine all records, however produced or transmitted, promptly upon receipt and notify the Custodian promptly of any discrepancy or error. Unless the Fund delivers written notice of any such discrepancy or error within a reasonable time after its receipt of the records, the records shall be deemed to be true and accurate. 11.5. The Fund acknowledges that the Custodian obtains information on the value of assets from outside sources which may be utilized in certain reports made available to the Fund. The Custodian deems such sources to be reliable but the Fund acknowledges and agrees that the Custodian does not verify such information nor make any representations or warrantees as to its accuracy or completeness and accordingly shall be without liability in selecting and using such sources and furnishing such information. 12. MISCELLANEOUS. 12.1. POWERS OF ATTORNEY, ETC. The Fund will promptly execute and deliver, upon request, such proxies, powers of attorney or other instruments as may be necessary or desirable for the Custodian to provide, or to cause any Subcustodian to provide, custody services. 12.2. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire understanding and agreement of the parties hereto and supersedes any other oral or written agreements heretofore in effect between the Fund and the Custodian with respect to the subject matter hereof. No provision of this Agreement may be amended or terminated except by a statement in writing signed by the party against which enforcement of the amendment or termination is sought, provided, however, that an Instruction shall, whether or not such Instruction shall - 14 - constitute a waiver, amendment or modification for purposes hereof, be deemed to have been accepted by the Custodian when it commences actions pursuant thereto or in accordance therewith. In the event of a conflict between the terms of this Agreement and the terms of a service level agreement or other operating agreement in place between the parties from time to time, the terms of this Agreement shall control. 12.3. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the Custodian/Administrator and the Fund and their successors and assignees, provided that the Fund may not assign this Agreement without the prior written consent of the Custodian. Each party agrees that only the parties to this Agreement and/or their successors in interest shall have a right to enforce the terms of this Agreement. Accordingly, no client of the Fund or other third party shall have any rights under this Agreement and such rights are explicitly disclaimed by the parties. 12.4. GOVERNING LAW, JURISDICTION AND VENUE. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE. THE PARTIES HERETO IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE FEDERAL COURTS LOCATED IN NEW YORK CITY. THE FUND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING IN ANY OF THE AFORESAID COURTS AND ANY CLAIM THAT ANY SUCH ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. FURTHERMORE, EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT THAT IT MAY HAVE TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 12.5. NOTICES. Notices and other writings contemplated by this Agreement, other than Instructions, shall be delivered (a) by hand, (b) by first class registered or certified mail, postage prepaid, return receipt requested, (c) by a nationally recognized overnight courier, or (d) by facsimile transmission, provided that any notice or other writing sent by facsimile transmission shall also be mailed, postage prepaid, to the party to whom such notice is addressed. All such notices shall be addressed, as follows: If to the Fund: c/o First Trust Advisors L.P. 120 E. Liberty Dr., Suite 400 Wheaton, IL 60187 Attn: General Counsel Telephone: (630) 765-8798 Facsimile (630) 517-7437 Email: sjardine@ftportfolios.com If to the Custodian: Brown Brothers Harriman & Co. 40 Water Street Boston, Massachusetts 02109 Telephone: (617) 772-1818 Facsimile: (617) 772-2263 Attn: Head of Investor Services or such other address as the Fund or the Custodian may have designated in writing to the other. Notices given by the Custodian pursuant to Section 12.13 may also be given by electronic mail to the email address of any Authorized Person. The Fund agrees that such notices given by electronic mail shall be conclusively presumed to have been delivered and received by the Fund as of the date such electronic mail was sent by the Custodian, as recorded by the Custodian's systems. 12.6. HEADINGS. Paragraph headings included herein are for convenience of - 15 - reference only and shall not modify, define, expand or limit any of the terms or provisions hereof. 12.7. SEVERABILITY. In the event any provision of this Agreement is determined to be void or unenforceable, such determination shall not affect the remainder of this Agreement, which shall continue to be in force. 12.8. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. This Agreement shall become effective when one or more counterparts have been signed and delivered by the Fund and the Custodian. A photocopy or telefax of the Agreement shall be acceptable evidence of the existence of the Agreement and the Custodian shall be protected in relying on the photocopy or telefax until the Custodian has received the original of the Agreement. 12.9. CONFIDENTIALITY. The parties hereto agree that each shall treat confidentially the terms and conditions of this Agreement and all information provided by each party to the other regarding its business and operations. All confidential information provided by a party hereto shall be used by any other party hereto solely for the purpose of rendering or obtaining services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party without the prior consent of such providing party. The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, or that is required to be disclosed by or to any bank examiner of the Custodian or any Subcustodian, any Regulatory Authority, any auditor of the parties hereto, or by judicial or administrative process or otherwise by Applicable Law. 12.10. TAPE-RECORDING. The Fund on behalf of itself and its Customers authorizes the Custodian to tape record any and all telephonic or other oral instructions given to the Custodian by or on behalf of the Fund, including from any Authorized Person. This authorization will remain in effect until and unless revoked by the Fund in writing. The Fund further agrees to solicit valid written or other consent from any of its employees with respect to telephone communications to the extent such consent is required by applicable law. 12.11. COUNSEL/CERTIFIED PUBLIC ACCOUNTANT. In fulfilling its duties hereunder, the Custodian shall be entitled to receive and act upon the advice of (i) counsel and/or a certified public accountant regularly retained by the Custodian in respect of such matters, (ii) counsel and/or a certified public accountant for the Fund or (iii) such counsel or certified public accountant as the Fund and the Custodian may agree upon, with respect to all matters, and the Custodian shall be without liability for any action reasonably taken or omitted pursuant to such advice. 12.12. CONFLICT. Nothing contained in this Agreement shall prevent the Custodian and its associates from (i) dealing as a principal or an intermediary in the sale, purchase or loan of the Fund's Investments to, or from the Custodian or its associates; (ii) acting as a custodian, a subcustodian, a trustee, an agent, securities dealer, an investment manager or in any other capacity for any other client whose interests may be adverse to the interest of the Fund; or (iii) buying, holding, lending, and dealing in any way in any assets for the benefit of its own account, or for the account of any other client whose interests may be adverse to the Fund notwithstanding that the same or similar assets may be held or dealt in by, or for the account of the Fund by the Custodian. The Fund hereby voluntarily consents to, and waives any potential conflict of interest between the Custodian and/or its associates and the Fund, and agrees that: (a) the Custodian's and/or its associates' engagement in any such transaction shall not disqualify the Custodian from continuing to perform as the custodian of the Fund under this Agreement; (b) the Custodian and/or its associates shall not be under any duty to disclose any information in connection with any such transaction to the Fund; (c) the Custodian and/or its associates shall not be liable to account to the Fund for any profits or benefits made or derived by or in connection with any such transaction; and 12.13. Online TERMS AND CONDITIONS. Foreign exchange services provided under or otherwise referenced in this Agreement will be performed - 16 - and subject to the terms and conditions posted on the Custodian's website at http://www.bbh.com/fx/termsandconditions/StandardTerms.pdf (the "FX Online Terms and Conditions"), which terms are available in hardcopy upon request, and which terms may be updated from time to time. The Custodian shall provide notice of any change to the FX Online Terms and Conditions to the Fund at least ten business days prior to their taking effect, unless the Custodian determines that the circumstances require that a shorter period apply. Foreign exchange transactions that occur or are placed on or after the effective date of such changes, as stated in the applicable notice, shall be governed by the modified FX Online Terms and Conditions. 12.14. (a) It is expressly acknowledged and agreed that the obligations of the Trust (and Funds thereof) hereunder shall not be binding upon any of the shareholders, Trustees, officers, employees or agents of the Trust (and Funds thereof), personally, but shall bind only the trust property of the Trust and the applicable Fund as provided in the Trust's Declaration of Trust. The execution and delivery of this Agreement have been authorized by the Trustees of the Trust and signed by an officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust and the applicable Fund as provided in the Trust's Declaration of Trust. (b) This Agreement is an agreement entered into between the Custodian and the Trust with respect to each Fund. With respect to any obligation of the Trust on behalf of any Fund arising out of this Agreement, the Custodian shall look for payment of such obligation solely to the assets for the Fund to which such obligation relates with the same effect as if the Custodian had separately contracted with the Trust by separate written instrument with respect to each Fund. (c) As used herein, the "applicable Fund" shall be each Fund in respect of which any amount due the Custodian arises, and if any amount due the Custodian arises in respect of more than one Fund, the same shall be allocated by the Custodian among such Funds in accordance with Section 12.14(b). Any amounts due the Custodian which may not be allocated in accordance with the preceding sentence shall constitute General Liabilities as defined in the Trust's Declaration of Trust and allocated by the Trust and paid in accordance with the provisions thereof. 13. DEFINITIONS. The following defined terms will have the respective meanings set forth below. 13.1. ADVANCE(S) shall mean any extension of credit by or through the Custodian or by or through any Subcustodian and shall include, without limitation, amounts due to the Custodian as the principal counterparty to any foreign exchange transaction with the Fund as described in Section 7.4.2 hereof, or paid to third parties for account of the Fund or in discharge of any expense, tax or other item payable by the Fund. 13.2. ADVANCE COSTs shall mean any Advance, interest on the Advance and any related expenses, including without limitation any mark to market loss of the Custodian or Subcustodian on any Investment to which Section 7.6.1 applies. 13.3. AGENCY ACCOUNT(S) shall mean any deposit account opened on the books of a Subcustodian or other banking institution in accordance with Section 7.1 hereof. 13.4. AGENT(S) shall have the meaning set forth in the last sentence of Section 6 hereof. 13.5. APPLICABLE LAW shall mean with respect to each jurisdiction, all (a) laws, statutes, treaties, regulations, guidelines (or their equivalents); (b) orders, interpretations, licenses and permits; and (c) judgments, decrees, injunctions, writs, orders and similar actions by a court of competent jurisdiction; compliance with which is required or customarily observed in such jurisdiction. 13.6. AUTHORIZED PERSON(S) shall mean any person or entity authorized to give Instructions on behalf of the Fund in accordance with Section 4.1 hereof. - 17 - 13.7. BOOK-ENTRY AGENT(S) shall mean an entity acting as agent for the issuer of Investments for purposes of recording ownership or similar entitlement to Investments, including without limitation a transfer agent or registrar. 13.8. CLEARING CORPORATION shall mean any entity or system established for purposes of providing securities settlement and movement and associated functions for a given market(s). 13.9. DELEGATION SCHEDULE shall mean any separate schedule entered into between the Custodian and the Fund or its authorized representative with respect to certain matters concerning the appointment and administration of Subcustodians delegated to the Custodian pursuant to Rule 17f-5 under the 1940 Act. 13.10. ELECTRONIC AND ONLINE SERVICES SCHEDULE shall mean any separate agreement entered into between the Custodian and the Fund or its authorized representative with respect to certain matters concerning certain electronic and online services as described therein and as may be made available from time to time by the Custodian to the Fund. 13.11. ELECTRONIC REPORTS shall mean any reports prepared by the Custodian and remitted to the Fund or its authorized representative via the internet or electronic mail. 13.12. FOREIGN CUSTODY MANAGER shall mean the Fund's foreign custody manager appointed pursuant to Rule 17f-5 of the 1940 Act. 13.13. FOREIGN FINANCIAL REGULATORY AUTHORITY shall have the meaning given by Section 2(a)(50) of the 1940 Act. 13.14. FUNDS TRANSFER SERVICES SCHEDULE shall mean any separate schedule entered into between the Custodian and the Fund or its authorized representative with respect to certain matters concerning the processing of payment orders from Principal Accounts of the Fund. 13.15. GLOBAL CUSTODY NETWORK LISTING shall mean the Countries and Subcustodians approved for Investments in non-U.S. Markets. 13.16. INSTRUCTION(S) shall have the meaning assigned in Section 4 hereof. 13.17. INVESTMENT ADVISOR shall mean any person or entity who is an Authorized Person to give Instructions with respect to the investment and reinvestment of the Fund's Investments. 13.18. INVESTMENT(S) shall mean any investment asset of the Fund, including without limitation securities, bonds, notes, and debentures as well as receivables, derivatives, contractual rights or entitlements and other intangible assets, but shall not include any Principal Account. 13.19. MARGIN ACCOUNT shall have the meaning set forth in Section 6.4 hereof. 13.20. PRINCIPAL ACCOUNT(S) shall mean deposit accounts of the Fund carried on the books of BBH&Co. as principal in accordance with Section 7 hereof. 13.21. SAFEKEEPING ACCOUNT shall mean an account established on the books of the Custodian or any Subcustodian for purposes of segregating the interests of the Fund (or clients of the Custodian or Subcustodian) from the assets of the Custodian or any Subcustodian. 13.22. SECURITIES DEPOSITORY shall mean a central or book entry system or agency established under Applicable Law for purposes of recording the ownership and/or entitlement to investment securities for a given market that, if a foreign Securities Depository, meets the definitional requirements of Rule 17f-7 under the 1940 Act. - 18 - 13.23. SUBCUSTODIAN(S) shall mean each foreign bank appointed by the Custodian pursuant to Section 8 hereof, but shall not include Securities Depositories. 13.24. TRI-PARTY AGREEMENT shall have the meaning set forth in Section 6.4 hereof. 13.25. 1940 ACT shall mean the Investment Company Act of 1940. 14. COMPENSATION. The Fund agrees to pay to the Custodian (a) a fee in an amount set forth in the fee letter between the Fund and the Custodian in effect on the date hereof or as amended from time to time, and (b) all out-of-pocket expenses incurred by the Custodian, including the fees and expenses of all Subcustodians and other amounts paid by the Custodian to a third party for account or benefit of the Fund, and payable from time to time. Amounts payable by the Fund under and pursuant to this Section 14 shall be payable by wire transfer to the Custodian at BBH&Co. in New York, New York. 15. TERMINATION. This Agreement may be terminated by either party in accordance with the provisions of this Section. The provisions of this Agreement and any other rights or obligations incurred or accrued by any party hereto prior to termination of this Agreement shall survive any termination of this Agreement. 15.1. TERM, NOTICE AND EFFECT. This Agreement shall have an initial term of one (1) years from the date hereof. Thereafter, this Agreement shall automatically renew for successive one (1) year periods unless either party terminates this Agreement by written notice effective no sooner than seventy-five (75) days following the date that notice to such effect shall be delivered to the other party at its address set forth in Section 12.5 hereof. Notwithstanding the foregoing provisions, either party may terminate this Agreement at any time (a) for cause, which is a material breach of the Agreement not cured within 60 days, in which case termination shall be effective upon written receipt of notice by the non-terminating party, or (b) upon thirty (30) days written notice to the other party in the event that either party is adjudged bankrupt or insolvent, or there shall be commenced against such party a case under any applicable bankruptcy, insolvency, or other similar law now or hereafter in effect. 15.2. NOTICE AND SUCCESSION. In the event a termination notice is given by a party hereto, all reasonable costs and expenses associated with any required systems, facilities, procedures, personnel, and other resourced modifications as well as the movement of records and materials and the conversion thereof shall be paid by the Fund for which Services shall cease to be performed hereunder. Furthermore, to the extent that it appears impracticable given the circumstances to effect an orderly delivery of the necessary and appropriate records of BBH to a successor within the time specified in the notice of termination as aforesaid, BBH and the Fund agree that this Agreement shall remain in full force and effect for such reasonable period as may be required to complete necessary arrangements with a successor. 15.3. SUCCESSOR CUSTODIAN. In the event of the appointment of a successor custodian, it is agreed that the Investments of the Fund held by the Custodian or any Subcustodian shall be delivered to the successor custodian in accordance with reasonable Instructions. The Custodian agrees to cooperate with the Fund in the execution of documents and performance of other actions necessary or desirable in order to facilitate the succession of the new custodian. If no successor custodian shall be appointed, the Custodian shall in like manner transfer the Fund's Investments in accordance with Instructions. 15.4. DELAYED SUCCESSION. If no Instruction has been given as of the effective date of termination, Custodian may at any time on or after such termination date and upon ten (10) consecutive calendar days written notice to the Fund either (a) deliver the Investments of the Fund held hereunder to the Fund at the address designated for receipt of notices hereunder; or (b) deliver any investments held hereunder to a bank or trust company having a capitalization of $2,000,000 USD equivalent and operating under the Applicable Law of the jurisdiction where such Investments are located, such delivery to be at the risk of the Fund. In the event that Investments or moneys of the Fund remain in the custody of the Custodian or its Subcustodians after the date of termination owing to the failure of the Fund to issue Instructions with respect to their disposition or owing to the fact that such disposition could not be accomplished in accordance with such Instructions despite diligent efforts of the - 19 - Custodian, the Custodian shall be entitled to compensation for its services with respect to such Investments and moneys during such period as the Custodian or its Subcustodians retain possession of such items and the provisions of this Agreement shall remain in full force and effect until disposition in accordance with this Section is accomplished. 16. COMPLIANCE POLICIES AND PROCEDURES. To assist the Fund in complying with Rule 38a-1 of the 1940 Act, BBH&Co. represents that it has adopted written policies and procedures reasonably designed to prevent violation of the federal securities laws in fulfilling its obligations under the Agreement and that it has in place a compliance program to monitor its compliance with those policies and procedures. BBH&Co will upon request provide the Fund with information about our compliance program as mutually agreed. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as of the date first above written. The undersigned acknowledges that (I/we) have received a copy of this document. BROWN BROTHERS HARRIMAN & CO. First Trust Exchange-Traded AlphaDEX(R) Fund II By: /s/ Hugh B. Bolton By: /s/ Mark R. Bradley ----------------------------------- ---------------------------------- Name: Hugh B. Bolton Name: Mark R. Bradley Title: Senior Vice President Title: Chief Financial Officer Date: April 8, 2011 Brown Brothers Harriman & Co. ("BBH&Co.") is a limited partnership organized under the laws of the United States of America ("US") and is subject to the US Treasury Regulations set forth under 31 CFR 500, et seq. BBH&Co. may not establish any relationship with any Prohibited Person or Entity as such term is defined under the regulations. No customer of BBH&Co. may be owned or controlled by an entity or person: (i) that is listed in the Annex to, or is otherwise subject to the provisions of Executive Order 13224, issued on September 24, 2001 ("EO13224") www.treasury.gov/offices/enforcement/ofac/programs/terror/terror.pdf; (ii) whose name appears on the United States Treasury Department's Office of Foreign Assets Control ("OFAC") most current list of "Specifically Designated National and Blocked Persons" (which list may be published from time to time in various mediums including, but not limited to, the OFAC website; (iii) who commits, threatens to commit or supports "terrorism", as such term is defined in EO13224; or (iv) who is otherwise affiliated with any entity or person listed above (any and all parties or persons described in clauses (i) through (iv) above are herein referred to as a "Prohibited Person"). - 20 - SCHEDULE A 1. First Trust Developed Markets ex-US AlphaDEX Fund 2. First Trust Emerging Markets AlphaDEX Fund 3. First Trust Asia Pacific ex-Japan AlphaDEX Fund 4. First Trust Europe AlphaDEX Fund 5. First Trust Latin America AlphaDEX Fund 6. First Trust Brazil AlphaDEX Fund 7. First Trust China AlphaDEX Fund 8. First Trust Japan AlphaDEX Fund 9. First Trust South Korea AlphaDEX Fund 10. First Trust Australia AlphaDEX Fund 11. First Trust Canada AlphaDEX Fund 12. First Trust Germany AlphaDEX Fund 13. First Trust Hong Kong AlphaDEX Fund 14. First Trust India AlphaDEX Fund 15. First Trust Switzerland AlphaDEX Fund 16. First Trust Taiwan AlphaDEX Fund 17. First Trust United Kingdom AlphaDEX Fund 18. First Trust Global Commodity AlphaDEX Fund 19. First Trust Developed Markets Small Cap AlphaDEX Fund 20. First Trust Emerging Markets Small Cap AlphaDEX Fund - 21 - FUNDS TRANSFER SERVICES SCHEDULE ("FTSS") In accordance with Section 4.2 of the Custodian Agreement, the Fund acknowledges the following terms and conditions in respect of all funds transfers affected by the Custodian. References to UCC 4A shall mean Article 4A of the Uniform Commercial Code as currently in effect in the State of New York. Terms not otherwise defined herein shall have the meanings accorded to them in the Custodian Agreement. 1. Transmission of Payment Orders. Each FT Instruction shall be transmitted by such secured or authenticated means and subject to such security procedures as the Custodian shall make available to the Fund from time to time (such transmission method and security procedures, a CUSTODIAN DESIGNATED SECURITY PROCEDURE), unless the Fund shall elect to transmit such FT Instruction in accordance with a Fund Designated Security Procedure (as defined in Section 4 below). The Fund acknowledges and agrees that the Custodian will use the security procedures referenced in Sections 3 and 4 below solely to authenticate a FT Instruction, as set forth herein, and not to detect any errors or omissions therein. 2. Custodian Designated Security Procedure. The Custodian will make the following Custodian Designated Security Procedures available to the Fund for use in communicating FT Instructions to the Custodian: o BBH Worldview(R) Payment Products. The Custodian offers to the Fund use of its BBH Worldview Payment Products ("BBH Worldview"), which are Custodian proprietary on-line payment order authorization facilities with built-in authentication procedures. The Custodian and the Fund shall each be responsible for maintaining the confidentiality of passwords or other codes used by them in connection with BBH Worldview. The Custodian will act on FT Instructions received through BBH Worldview without duty of further confirmation unless the Fund notifies the Custodian that its password is not secure. The Fund agrees that access to, and use of, BBH Worldview shall be governed by an Electronic and On-line Services Schedule, which the Fund will execute prior to access to BBH Worldview. o SWIFT Transmission. The Custodian and the Fund shall comply with SWIFT's authentication procedures. The Custodian will act on FT Instructions received via SWIFT provided the instruction is authenticated by the SWIFT system. o Written Instructions. Instructions may be transmitted in an original writing that bears the manual signature of an Authorized Person(s). 3. Fund Designated Security Procedure. FT Instructions may be transmitted through such other means, and subject to such additional security procedures, as may be elected by the Fund (or by an Authorized Person entitled to give Instructions) and acknowledged and accepted by the Custodian (the transmission methods and security procedures referenced below, as may be supplemented by such additional security procedures, each a FUND DESIGNATED SECURITY PROCEDURE); it being understood that the Custodian's acknowledgment shall authorize it to accept such means of delivery but shall not represent a judgment by the Custodian as to the reasonableness or security of the means utilized by the Fund. o Computer Transmission. The Custodian is able to accept transmissions sent from the Fund's computer facilities to the Custodian's computer facilities. If the Fund determines to use its proprietary transmission or other electronic transmission method, it must provide Custodian sufficient notice and information to allow testing or other confirmation that FT Instructions received via the Fund Designated Security Procedure can be processed in good time and order. The Custodian may require the Fund to execute additional documentation prior to the use of such transmission method. o Facsimile Transmission. A FT Instruction transmitted to the Custodian by facsimile transmission must be transmitted by the Fund to a telephone number specified from time to time by the Custodian for such purposes. The Custodian will then follow one of the procedures below: - 22 - 1. If the facsimile requests a non-repetitive order, the Custodian will call the Fund and request to speak to a person authorized to validate orders on behalf of the Fund, and confirm the authorization and details of the payment order (a CALLBACK); 2. If the facsimile FT Instruction pertains to a repetitive payment order (see Section 7 below), the Custodian may (at its sole discretion) perform a Callback. The Fund acknowledges that prior to its issuance of any repetitive payment order, it must (a) request that the appropriate repetitive payment order process be approved and set up at the Custodian, and (b) complete such documentation as may be required by the Custodian, including a PPO (as defined in Section 7). The Custodian shall rely on the purported identity of the originator but due to the lack of reliability of a facsimile signature, it will not perform signature verification on facsimiles. o Telephonic. The Fund may call a telephonic payment order into the Custodian at the telephone number designated from time-to-time by the Custodian for that purpose. The caller shall identify herself/himself as an Authorized Person. The Custodian shall obtain the FT Instruction details from the caller. The Custodian shall then follow one of the procedures below: i. If the telephonic FT Instruction pertains to a non-repetitive payment order, the Custodian will perform a Callback; or ii. If the telephonic FT Instruction pertains to a repetitive payment order (see Section 7 below), the Custodian may (at its sole discretion) perform a Callback. The Fund acknowledges that prior to its issuance of any repetitive payment order, it must (a) request that the appropriate repetitive payment order process be approved and set up at the Custodian, and (b) complete such documentation as may be required by the Custodian, including a PPO. In electing to transmit a FT Instruction via a Fund Designated Security Procedure, the Fund (i) agrees to be bound by the transaction(s) or payment order(s) specified on said FT Instruction, whether or not authorized, and accepted by the Custodian in compliance with such Fund Designated Security Procedure, and (ii) accepts the risk associated with such Fund Designated Security Procedure and confirms it is commercially reasonable for the transmission and authentication of the FT Instruction. The parties agree that the Fund's transmission of a FT Instruction by means of any of the above Fund Designated Security Procedures and the Custodian's acceptance and execution of such FT Instruction shall constitute a FT Instruction sent via a Fund Designated Security Procedure and governed by the terms of this FTSA. 4. Rejection of Payment Orders; Rescission of Designated Security Procedure. The Custodian shall give the Fund timely notice of the Custodian's rejection of a FT Instruction. Such notice may be given in writing, via a Custodian Designated Security Procedure or any Fund Designated Security Procedure used by the Fund, or orally by telephone, each of which is hereby deemed commercially reasonable. In the event the Custodian fails to execute a properly executable FT Instruction and fails to give the Fund notice of the Custodian's non-execution, the Custodian shall be liable only for the Fund's actual damages and only to the extent that such damages are recoverable under UCC 4A. The Custodian, after providing prior written notice, may decide to no longer accept a particular Fund or Custodian Designated Security Procedure, or to do so only on revised terms, in the event that it determines that such agreed or established method of transmission represents a security risk or is attendant to any general change in the Custodian's policy regarding FT Instructions. Notwithstanding anything in this FTSA and the Agreement to the contrary, the Custodian shall in no event be liable for any consequential, indirect, special or punitive damages under this FTSA, whether or not such damages relate to services covered by UCC 4A, even if the Custodian was advised of the possibility of such damages. 5. Cancellation of Payment Orders. The Fund may cancel a FT Instruction but the Custodian shall have no liability for the Custodian's failure to act on a cancellation FT Instruction unless the Custodian has received such cancellation FT Instruction at a time and in a manner affording the Custodian reasonable - 23 - opportunity to act prior to the Custodian's execution of the original FT Instruction. Any cancellation FT Instruction shall be sent and confirmed by such means as is set forth in Section 3 or 4 above. 6. Preauthorized Repetitive Payment Orders. The Fund may establish with the Custodian a process to preauthorize certain repetitive payments or transfers. The Fund will execute all documentation required by the Custodian, including a separate Preauthorized Repetitive Payment Order (PPO) form. The PPO shall be delivered to the Custodian in writing or by another Custodian Designated Security Procedure or Fund Designated Security Procedure, and will become effective after the Custodian shall have had a reasonable opportunity to act thereon (or if later, two (2) banking days after receipt by the Custodian). The PPO may take the form of either: (i) A standing instruction in which the Fund provides in the PPO all required information for a FT Instruction (except for the transfer date and amount) on a "standing instructions" basis. The Fund may from time-to-time instruct the Custodian to make a payment under the PPO, in writing or another Custodian Designated Security Procedure or Fund Designated Security Procedure, which instruction shall reference the repetitive line number (a number assigned to it by the Custodian after execution of the PPO), details of the payment, the transfer date and the amount of the transfer; or (ii) A recurring instruction in which the Fund supplies all required information for a FT Instruction with an instruction to process such payments with a specific frequency. 7. Responsibility for the Detection of Errors in Payment Orders; Liability of the Parties. The purpose of any Fund Designated Security Procedure or Custodian Designated Security Procedure is to confirm the authenticity of any FT Instruction and is not designed to detect errors or omissions in such FT Instructions. Therefore, the Custodian is not responsible for detecting any Fund error or omission contained in any FT Instruction received by the Custodian. In the event that the FT Instruction either (i) identifies the beneficiary by both a name and an identifying or Fund account number and the name and number identify different persons or entities, or (ii) identifies any Fund by both a name and an identifying number and the number identifies a person or entity different from the Fund identified by name, execution of the relevant payment order, payment to the beneficiary, cancellation of the payment order or actions taken by the Custodian or any Fund in respect of such payment order may be made solely on the basis of the number. The Custodian shall not be liable for interest on the amount of any FT Instruction that was not authorized or was erroneously executed unless the Fund so notifies the Custodian within thirty (30) days following the Fund's receipt of notice that such FT Instruction was processed. Any compensation payable in the form of interest shall be payable in accordance with UCC 4A. If a FT Instruction in the name of the Fund and accepted by the Custodian was not authorized by the Fund, the liability of the parties will be governed by the applicable provisions of UCC 4A. - 24 - ELECTRONIC AND ON-LINE SERVICES SCHEDULE This Electronic and On-Line Services Schedule (this SCHEDULE) to a Custodian Agreement dated as of April __, 2011 (as amended from time to time hereafter, the AGREEMENT) by and between Brown Brothers Harriman & Co. (WE, US OUR) and First Trust Exchange-Traded AlphaDEX(R) Fund II (YOU, YOUR), provides general provisions governing your use of and access to the Services (as hereinafter defined) provided to you by us via the Internet (at www.bbhco.com or such other URL as we may instruct you to use to access our products) and via a direct dial-up connection between your computer and our computers, as of ________________, _____, 2011 (the EFFECTIVE DATE). Use of the Services constitutes acceptance of the terms and conditions of this Schedule, any Appendices hereto, the Terms and Conditions posted on our web site, and any terms and conditions specifically governing a particular Service or our other products, which may be set forth in the Agreement or in a separate related agreement (collectively, the RELATED AGREEMENTS). 1. GENERAL TERMS. You will be granted access to our suite of online products, which may include, but shall not be limited to the following services via the Internet or dial-up connection (each separate service is a SERVICE; collectively referred to as the SERVICES): 1.1. BBH WorldView(R), a system for effectuating securities and fund trade instruction and execution, processing and handling instructions, and for the input and retrieval of other information; 1.2. F/X WorldView, a system for executing foreign exchange trades; 1.3. Fund WorldView, a system for receiving fund and prospectus information; 1.4. BBHCOnnect, a system for placing securities trade instructions and following the status and detail of trades; 1.5. ActionViewSM, a system for receiving certain corporate action information; and, 1.6. Such other services as we shall from time to time offer. 2. SECURITY / PASSWORDS. 2.1. A digital certificate and/or an encryption key may be required to access certain Services. You may apply for a digital certificate and/or an encryption key by following the procedures set forth at http://www.bbh.com/certs/. You also will need an identification code (ID) and password(s) (PASSWORD) to access the Services. 2.2. You agree to safeguard your digital certificate and/or encryption key, ID, and Password and not to give or make available, intentionally or otherwise, your digital certificate, ID, and/or Password to any unauthorized person. You must immediately notify us in writing if you believe that your digital certificate and/or encryption key, Password, or ID has been compromised or if you suspect unauthorized access to your account by means of the Services or otherwise, or when a person to whom a digital certificate and/or an encryption key, Password, or ID has been assigned leaves or is no longer permitted to access the Services. 2.3. We will not be responsible for any breach of security, or for any unauthorized trading or theft by any third party, caused by your failure (be it intentional, unintentional, or negligent) to maintain the confidentiality of your ID and/or Password and/or the security of your digital certificate and/or encryption key. 3. INSTRUCTIONS. 3.1. Proper instructions under this Schedule shall be provided as designated in the Related Agreements (INSTRUCTIONS). 3.2. The following additional provisions apply to Instructions provided via the Services: a. Instructions sent by electronic mail will not be accepted or acted upon. b. You authorize us to act upon Instructions received through the Services utilizing your digital certificate, ID, and/or Password as though they were duly authorized written instructions, without any duty of verification or inquiry on our part, and agree to hold us harmless for any losses you experience as a result. c. From time to time, the temporary unavailability of third party telecommunications or computer systems required by the Services may result in a delay in processing Instructions. In such an event, we shall not be liable to you or any third party for any liabilities, losses, claims, costs, damages, penalties, fines, obligations, or expenses of any kind - 25 - (including without limitation, reasonable attorneys', accountants', consultants', or experts' fees and disbursements) that you experience due to such a delay. 4. ELECTRONIC DOCUMENTS. We may make periodic statements, disclosures, notices, and other documents available to you electronically, and, subject to any delivery and receipt verification procedures required by law, you agree to receive such documents electronically and to check the statements for accuracy. If you believe any such statement contains incorrect information, you must follow the procedures set forth in the Related Agreement(s). 5. MALICIOUS CODE. You understand and agree that you will be responsible for the introduction (by you, your employees, agents, or representatives) into the Services, whether intentional or unintentional, of (i) any virus or other code, program, or sub-program that damages or interferes with the operation of the computer system containing the code, program or sub-program, or halts, disables, or interferes with the operation of the Services themselves; or (ii) any device, method, or token whose knowing or intended purpose is to permit any person to circumvent the normal security of the Services or the system containing the software code for the Services (MALICIOUS CODE). You agree to take all necessary actions and precautions to prevent the introduction and proliferation of any Malicious Code into those systems that interact with the Services. 6. INDEMNIFICATION. For avoidance of doubt, you hereby agree that the provisions in the Related Agreement(s) related to your indemnification of us and any limitations on our liability and responsibilities to you shall be applicable to this Agreement, and are hereby expressly incorporated herein. You agree that the Services are comprised of telecommunications and computer systems, and that it is possible that Instructions, information, transactions, or account reports might be added to, changed, or omitted by electronic or programming malfunction, unauthorized access, or other failure of the systems which comprise the Services, despite the security features that have been designed into the Services. You agree that we will not be liable for any action taken or not taken in complying with the terms of this Schedule, except for our willful misconduct or gross negligence. The provisions of this paragraph shall survive the termination of this Schedule and the Related Agreements. 7. PAYMENT. You may be charged for services hereunder as set forth in a fee schedule from time to time agreed by us. 8. TERM/TERMINATION. 8.1. This Schedule is effective as of the date you sign it or first use the Services, whichever is first, and continues in effect until such time as either you or we terminate the Schedule in accordance with this Section 8 and/or until your off-line use of the Services is terminated. 8.2. We may terminate your access to the Services at any time, for any reason, with five (5) business days prior notice; provided that we may terminate your access to the Services with no prior notice (i) if your account with us is closed, (ii) if you fail to comply with any of the terms of this Agreement, (iii) if we believe that your continued access to the Services poses a security risk, or (iv) if we believe that you are violating or have violated applicable laws, and we will not be liable for any loss you may experience as a result of such termination. You may terminate your access to the Services at any time by giving us ten (10) business days notice. Upon termination, we will cancel all your Passwords and IDs and any in-process or pending Instructions will be carried out or cancelled, at our sole discretion. 9. MISCELLANEOUS. 9.1. NOTICES. All notices, requests, and demands (other than routine operational communications, such as Instructions) shall be in such form and effect as provided in the Related Agreement(s). 9.2. INCONSISTENT PROVISIONS. Each Service may be governed by separate terms and conditions in addition to this Schedule and the Related Agreement(s). Except where specifically provided to the contrary in this Schedule, in the event that such separate terms and conditions conflict with this Schedule and the Related Agreement(s), the provisions of this Schedule shall prevail to the extent this Schedule applies to the transaction in question. 9.3. BINDING EFFECT; ASSIGNMENT; SEVERABILITY. This Schedule shall be binding on you, your employees, officers and agents. We may assign or delegate our rights and duties under this Schedule at any time - 26 - without notice to you. Your rights under this Schedule may not be assigned without our prior written consent. In the event that any provision of this Schedule conflicts with the law under which this Schedule is to be construed or if any such provision is held invalid or unenforceable by a court with jurisdiction over you and us, such provision shall be deemed to be restated to effectuate as nearly as possible the purposes of the Schedule in accordance with applicable law. The remaining provisions of this Schedule and the application of the challenged provision to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each such provision shall be valid and enforceable to the full extent permitted by law. 9.4. CHOICE OF LAW; JURY TRIAL. This Schedule shall be governed by and construed, and the legal relations between the parties shall be determined, in accordance with the laws of the State of New York, without giving effect to the principles of conflicts of laws. Each party agrees to waive its right to trial by jury in any action or proceeding based upon or related to this Agreement. The parties agree that all actions and proceedings based upon or relating to this Schedule shall be litigated exclusively in the federal and state courts located within New York City, New York. The undersigned acknowledges that (I/we) have received a copy of this document. FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II ("YOU") By: /s/ Mark R. Bradley ------------------------------ Name: Mark R. Bradley Title: Chief Financial Officer Date: April 8, 2011 - 27 - 17F-5 DELEGATION SCHEDULE By its execution of this Delegation Schedule dated as of April 8, 2011, between FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II, a Massachusetts business trust registered with the Securities and Exchange Commission (the COMMISSION) under the Investment Company Act of 1940, as amended (the 1940 ACT), acting through its Board of Directors/Trustees or its duly appointed representative (the "Trust" on behalf of each series listed on Appendix A hereto each a "FUND" and collectively, the "FUNDS"), hereby appoints BROWN BROTHERS HARRIMAN & CO., a New York limited partnership with an office in Boston, Massachusetts (the DELEGATE) as its delegate to perform certain functions with respect to the custody of each Fund's Assets outside the United States. 1. Maintenance of Fund's Assets Abroad. The Trust, acting through its Board or its duly authorized representative, hereby instructs the Delegate pursuant to the terms of the Custodian Agreement dated as of the date hereof executed by and between the Trust and the Delegate (the CUSTODIAN AGREEMENT) to place and maintain each Fund's Assets in countries outside the United States in accordance with Instructions received from the Fund's Investment Advisor. Such instruction shall constitute an Instruction under the terms of the Custodian Agreement. The Trust acknowledges that (a) the Delegate shall perform services hereunder only with respect to the countries where it accepts delegation as Foreign Custody Manager as indicated on the Delegate's Global Custody Network Listing; (b) depending on conditions in the particular country, advance notice may be required before the Delegate shall be able to perform its duties hereunder in or with respect to such country (such advance notice to be reasonable in light of the specific facts and circumstances attendant to performance of duties in such country); and (c) nothing in this Delegation Schedule shall require the Delegate to provide delegated or custodial services in any country, and there may from time to time be countries as to which the Delegate determines it will not provide delegation services. 2. Delegation. Pursuant to the provisions of Rule 17f-5 under the 1940 Act as amended, the Board hereby delegates to the Delegate, and the Delegate hereby accepts such delegation and agrees to perform only those duties set forth in this Delegation Schedule concerning the safekeeping of each Fund's Assets in each of the countries as to which it acts as the Board's delegate. The Delegate is hereby authorized to take such actions on behalf of or in the name of each Fund as are reasonably required to discharge its duties under this Delegation Schedule, including, without limitation, to cause each Fund's Assets to be placed with a particular Eligible Foreign Custodian in accordance herewith. The Trust confirms to the Delegate that the Trust or its Investment Adviser has considered the Sovereign Risk and prevailing Country Risk as part of its continuing investment decision process, including such factors as may be reasonably related to the systemic risk of maintaining each Fund's Assets in a particular country, including, but not limited to, financial infrastructure, prevailing custody and settlement systems and practices (including the use of any Securities Depository in the context of information provided by the Custodian in the performance of its duties as required under Rule 17f-7 and the terms of the Custodian Agreement governing such duties), and the laws relating to the safekeeping and recovery of the Fund's Assets held in custody pursuant to the terms of the Custodian Agreement. 3. Selection of Eligible Foreign Custodian and Contract Administration. The Delegate shall perform the following duties with respect to the selection of Eligible Foreign Custodians and administration of certain contracts governing each Fund's foreign custodial arrangements: (a) Selection of Eligible Foreign Custodian. The Delegate shall place and maintain each Fund's Assets with an Eligible Foreign Custodian, provided that the Delegate shall have determined that the Fund's Assets will be subject to reasonable care based on the standards applicable to custodians in the relevant market after considering factors relevant to the safekeeping of such assets including without limitation: (i) The Eligible Foreign Custodian's practices, procedures, and internal controls, including, but not limited to, the physical protections available for certificated securities (if applicable), the controls and procedures for dealing with any Securities Depository, the method of keeping custodial records, and the security and data protection practices; (ii) Whether the Eligible Foreign Custodian has the requisite financial strength to provide reasonable care for the Fund's Assets; (iii) The Eligible Foreign Custodian's general reputation and standing; and (iv) Whether the Fund will have jurisdiction over and be able to enforce judgments against the Eligible Foreign Custodian, such as by virtue of the existence of any offices of such Eligible Foreign - 28 - Custodian in the United States or such Eligible Foreign Custodian's appointment of an agent for service of process in the United States or consent to jurisdiction in the United States. The Delegate shall be required to make the foregoing determination to the best of its knowledge and belief based only on information reasonably available to it. (b) Contract Administration. The Delegate shall cause that the foreign custody arrangements with an Eligible Foreign Custodian shall be governed by a written contract that the Delegate has determined will provide reasonable care for Fund assets based on the standards applicable to custodians in the relevant market. Each such contract shall, except as set forth in the last paragraph of this subsection (b), include provisions that provide: (i) For indemnification or insurance arrangements (or any combination of the foregoing) such that the Fund will be adequately protected against the risk of loss of assets held in accordance with such contract; (ii) That the Fund's Assets will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the Eligible Foreign Custodian or its creditors except a claim of payment for their safe custody or administration or, in the case of cash deposits, liens or rights in favor of creditors of such Custodian arising under bankruptcy, insolvency or similar laws; (iii) That beneficial ownership of the Fund's Assets will be freely transferable without the payment of money or value other than for safe custody or administration; (iv) That adequate records will be maintained identifying the Fund's Assets as belonging to the Fund or as being held by a third party for the benefit of the Fund; (v) That the Fund's independent public accountants will be given access to those records described in (iv) above or confirmation of the contents of such records; and (vi) That the Delegate will receive sufficient and timely periodic reports with respect to the safekeeping of the Fund's Assets, including, but not limited to, notification of any transfer to or from the Fund's account or a third party account containing the Fund's Assets. Such contract may contain, in lieu of any or all of the provisions specified in this Section 3(b), such other provisions that the Delegate determines will provide, in their entirety, the same or a greater level of care and protection for the Fund's Assets as the specified provisions, in their entirety. (c) Limitation to Delegated Selection. Notwithstanding anything in this Delegation Schedule to the contrary, the duties under this Section 3 shall apply only to Eligible Foreign Custodians selected by the Delegate and shall not apply to Securities Depositories or to any Eligible Foreign Custodian that the Delegate is directed to use pursuant to Section 7 of this Delegation Schedule. 4. Monitoring. The Delegate shall establish a system to monitor at reasonable intervals (but at least annually) the appropriateness of maintaining the Fund's Assets with each Eligible Foreign Custodian that has been selected by the Delegate pursuant to Section 3 of this Delegation Schedule. The Delegate shall monitor the continuing appropriateness of placement of the Fund's Assets in accordance with the criteria established under Section 3(a) of this Delegation Schedule. The Delegate shall monitor the continuing appropriateness of the contract governing the Fund's arrangements in accordance with the criteria established under Section 3(b) of this Delegation Schedule. 5. Reporting. At least annually and more frequently as mutually agreed between the parties, the Delegate shall provide to the Board written reports specifying placement of the Fund's Assets with each Eligible Foreign Custodian selected by the Delegate pursuant to Section 3 of this Delegation Schedule and shall promptly report on any material changes to such foreign custody arrangements. Delegate will prepare such a report with respect to any Eligible Foreign Custodian that the Delegate has been instructed to use pursuant to Section 7 of this Delegation Schedule only to the extent specifically agreed with respect to the particular situation. 6. Withdrawal of Fund's Assets. If the Delegate determines that an arrangement with a specific Eligible Foreign Custodian selected by the Delegate under Section 3 of this Delegation Schedule no longer meets the requirements of said Section, Delegate shall withdraw the Fund's Assets from the non-complying - 29 - arrangement as soon as reasonably practicable; provided, however, that if in the reasonable judgment of the Delegate, such withdrawal would require liquidation of any of the Fund's Assets or would materially impair the liquidity, value or other investment characteristics of the Fund's Assets, it shall be the duty of the Delegate to provide information regarding the particular circumstances and to act only in accordance with Instructions of the Fund or its Investment Advisor with respect to such liquidation or other withdrawal. 7. Direction as to Eligible Foreign Custodian. Notwithstanding this Delegation Schedule, the Fund, acting through its Board, its Investment Advisor or its other Authorized Representative, may direct the Delegate to place and maintain the Fund's Assets with a particular Eligible Foreign Custodian, including without limitation with respect to investment in countries as to which the Custodian will not provide delegation services. In such event, the Delegate shall be entitled to rely on any such instruction as an Instruction under the terms of the Custodian Agreement and shall have no duties under this Delegation Schedule with respect to such arrangement save those that it may undertake specifically in writing with respect to each particular instance. 8. Standard of Care. In carrying out its duties under this Delegation Schedule, the Delegate agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for safekeeping the Fund's Assets would exercise. 9. Representations. The Delegate hereby represents and warrants that it is a U.S. Bank and that this Delegation Schedule has been duly authorized, executed and delivered by the Delegate and is a legal, valid and binding agreement of the Delegate. The Fund hereby represents and warrants that its Board of Directors has determined that it is reasonable to rely on the Delegate to perform the delegated responsibilities provided for herein and that this Delegation Schedule has been duly authorized, executed and delivered by the Fund and is a legal, valid and binding agreement of the Fund. 10. Effectiveness; termination. This Delegation Schedule shall be effective as of the date on which this Delegation Schedule shall have been accepted by the Delegate, as indicated by the date set forth below the Delegate's signature. This Delegation Schedule may be terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Such termination shall be effective on the 30th calendar day following the date on which the non-terminating party shall receive the foregoing notice. The foregoing to the contrary notwithstanding, this Delegation Schedule shall be deemed to have been terminated concurrently with the termination of the Custodian Agreement. 11. Notices. Notices and other communications under this Delegation Schedule are to be made in accordance with the arrangements designated for such purpose under the Custodian Agreement unless otherwise indicated in a writing referencing this Delegation Schedule and executed by both parties. 12. Definitions. Capitalized terms not otherwise defined in this Delegation Schedule have the following meanings: a. Country Risk - shall have the meaning set forth in Section 9.1.2 of the Custodian Agreement. b. Eligible Foreign Custodian - shall have the meaning set forth in Rule 17f-5(a)(1) of the 1940 Act and shall also include a U.S. Bank. c. Fund's Assets - shall mean any of the Fund's investments (including foreign currencies) for which the primary market is outside the United States, and such cash and cash equivalents as are reasonably necessary to effect the Fund's transactions in such investments. d. Instructions - shall have the meaning set forth in the Custodian Agreement. e. Securities Depository - shall have the meaning set forth in Rule 17f-7 of the 1940 Act. f. Sovereign Risk - shall have the meaning set forth in Section 9.1.3 of the Custodian Agreement. - 30 - g . U.S. Bank - shall mean a bank which qualifies to serve as a custodian of assets of investment companies under Section 17(f) of the 1940 Act. 13. Governing Law and Jurisdiction. This Delegation Schedule shall be construed in accordance with the laws of the State of New York. The parties hereby submit to the exclusive jurisdiction of the Federal courts sitting in the State of New York or the Commonwealth of Massachusetts or of the state courts of either such State or such Commonwealth. 14. Fees. Delegate shall perform its functions under this Delegation Schedule for the compensation determined under the Custodian Agreement. 15. Integration. This Delegation Schedule sets forth all of the Delegate's duties with respect to the selection and monitoring of Eligible Foreign Custodians, the administration of contracts with Eligible Foreign Custodians, the withdrawal of assets from Eligible Foreign Custodians and the issuance of reports in connection with such duties. The terms of the Custodian Agreement shall apply generally as to matters not expressly covered in this Delegation Schedule, including dealings with the Eligible Foreign Custodians in the course of discharge of the Delegate's obligations under the Custodian Agreement. 16. (a). It is expressly acknowledged and agreed that the obligations of the Trust (and Funds thereof) hereunder shall not be binding upon any of the shareholders, Trustees, officers, employees or agents of the Trust (and Funds thereof), personally, but shall bind only the trust property of the Trust and the applicable Fund as provided in the Trust's Declaration of Trust. The execution and delivery of this Agreement have been authorized by the Trustees of the Trust and signed by an officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust and the applicable Fund as provided in the Trust's Declaration of Trust. (b) This Agreement is an agreement entered into between the Delegate and the Trust with respect to each Fund. With respect to any obligation of the Trust on behalf of any Fund arising out of this Agreement, the Delegate shall look for payment of such obligation solely to the assets for the Fund to which such obligation relates with the same effect as if the Delegate had separately contracted with the Trust by separate written instrument with respect to each Fund. (c) As used herein, the "applicable Fund" shall be each Fund in respect of which any amount due the Delegate arises, and if any amount due the Delegate arises in respect of more than one Fund, the same shall be allocated by the Delegate among such Funds in accordance with Section 16(b). Any amounts due the Delegate which may not be allocated in accordance with the preceding sentence shall constitute General Liabilities as defined in the Trust's Declaration of Trust and allocated by the Trust and paid in accordance with the provisions thereof. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as of the date first above written. The undersigned acknowledges that (I/we) have received a copy of this document. BROWN BROTHERS HARRIMAN & CO. FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II By: /s/ Hugh B. Bolton By: /s/ Mark R. Bradley ----------------------------------- ---------------------------------- Name: Hugh B. Bolton Name: Mark R. Bradley Title: Senior Vice President Title: Chief Financial Officer - 31 - SCHEDULE A TO THE CUSTODIAN AGREEMENT BETWEEN FIRST TRUST EXCHANGE-TRADED ALPHADEX FUND II and BROWN BROTHERS HARRIMAN & CO. Dated as of 4/27/2012 The following is a list of Funds/Portfolios for which the Custodian shall serve under a Custodian Agreement dated as of 4/08/2011 "the Agreement": FIRST TRUST DEVELOPED MARKETS EX-US AlphaDEX FUND FIRST TRUST EMERGING MARKETS AlphaDEX FUND FIRST TRUST ASIA PACIFIC EX-JAPAN AlphaDEX FUND FIRST TRUST EUROPE AlphaDEX FUND FIRST TRUST LATIN AMERICA AlphaDEX FUND FIRST TRUST BRAZIL AlphaDEX FUND FIRST TRUST CHINA AlphaDEX FUND FIRST TRUST JAPAN AlphaDEX FUND FIRST TRUST SOUTH KOREA AlphaDEX FUND FIRST TRUST GERMANY AlphaDEX FUND FIRST TRUST CANADA AlphaDEX FUND FIRST TRUST AUSTRALIA AlphaDEX FUND FIRST TRUST UNITED KINGDOM AlphaDEX FUND FIRST TRUST TAIWAN AlphaDEX FUND FIRST TRUST HONG KONG AlphaDEX FUND FIRST TRUST SWITZERLAND AlphaDEX FUND FIRST TRUST DEVELOPED MARKETS EX-US SMALL CAP AlphaDEX FUND FIRST TRUST EMERGING MARKETS SMALL CAP AlphaDEX FUND IN WITNESS WHEREOF, each of the parties hereto has caused this to be executed in its name and on behalf of each such Fund/Portfolio. FIRST TRUST EXCHANGE-TRADED AlphaDEX FUND II BY: /s/ Mark R. Bradley ---------------------------- NAME: Mark R. Bradley TITLE: President EX-99.H OTH MAT CONT 5 exhibit_h1.txt ADMINISTRATIVE AGENCY AGREEMENT ADMINISTRATIVE AGENCY AGREEMENT THIS AGREEMENT is made as of April 8, 2011, by and between BROWN BROTHERS HARRIMAN & CO., a limited partnership organized under the laws of the State of New York (the "ADMINISTRATOR"), and First Trust Exchange-Traded AlphaDEX(R) Fund II, a Massachusetts business trust (the "FUND" on behalf of each series listed on Appendix A to this Agreement each a "PORTFOLIO" and collectively, the "PORTFOLIOS") and registered with the Securities and Exchange Commission under the Investment Company Act of 1940 ("the 1940 ACT"). WITNESSETH: WHEREAS, the Fund is registered with the United States Securities and Exchange Commission as a management investment company under the 1940 Act; and WHEREAS, the Fund desires to retain the Administrator to render certain services to the Fund and each Portfolio, and the Administrator is willing to render such services. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows: 1. APPOINTMENT OF ADMINISTRATOR. The Fund hereby employs and appoints the Administrator to act as its administrative agent on the terms set forth in this Agreement, and the Administrator accepts such appointment. 2. DELIVERY OF DOCUMENTS. The Fund will on a continuing basis provide the Administrator with: 2.1 properly certified or authenticated copies of resolutions of the Fund's Board of Trustees authorizing the appointment of the Administrator as administrative agent of the Fund and approving this Agreement; 2.2 a copy of the Fund's most recent registration statement; 2.3 copies of all agreements between the Fund and its service providers, including without limitation, advisory, distribution and administration agreements and distribution and/or shareholder servicing plans; 2.4 a copy of the Fund's valuation procedures; 2.5 a copy of the Fund's Declaration of Trust and By-laws; 2.6 any other documents or resolutions (including but not limited to directions or resolutions of the Fund's Board of Trustees) which relate to or affect the Administrator's performance of its duties hereunder or which the Administrator may at any time reasonably request; and 2.7 copies of any and all amendments or supplements to the foregoing. 3. DUTIES AS ADMINISTRATOR. Subject to the supervision and direction of the Fund's Board of Trustees, the Administrator will perform the administrative services described in Appendix B hereto. Additional services may be provided by the Administrator upon the request of the Fund as mutually agreed from time to time. In performing its duties and obligations hereunder, the Administrator will act in accordance with the Fund's instructions as defined in Section 5 ("Instructions"). It is agreed and understood that the Administrator shall not be responsible for the Fund's compliance with any applicable documents, laws or regulations, or for losses, costs or expenses arising out of the Fund's failure to comply with said documents, laws or regulations or the Fund's failure or inability to correct any non-compliance therewith. The Administrator shall in no event be required to take any action, which is in contravention of any applicable law, rule or regulation or any order or judgment of any court of competent jurisdiction. 3.1 RECORDS. The Administrator will maintain and retain such records as required by the 1940 Act and other applicable federal securities laws and created pursuant to the performance of the Administrator's obligations under this Agreement. The Administrator will maintain such other records as requested by the Fund and received by the Administrator. The Administrator shall not be responsible for the accuracy and completeness of any records not created by the Administrator. The Administrator acknowledges that the records maintained and preserved by the Administrator pursuant to this Agreement are the property of the Fund and will be, at the Fund's expense, surrendered promptly upon reasonable request. In performing its obligations under this Section, the Administrator may utilize micrographic and electronic storage media as well as independent third party storage facilities. 4. DUTIES OF THE FUND. The Fund shall notify the Administrator promptly of any matter affecting the performance by the Administrator of its services under this Agreement and where the Administrator is providing fund accounting services pursuant to this Agreement shall promptly notify the Administrator as to the accrual of liabilities of the Fund, liabilities of the Fund not appearing on the books of account kept by the Administrator as to the existence, status and proper treatment of reserves, if any, authorized by the Fund. Where the Administrator is providing portfolio compliance monitoring services pursuant to this Agreement, the Fund agrees to notify the Administrator in the event the Fund or any officer, employee or agent of the Fund detects a possible non-compliance of the Fund with its investment restrictions, policies and limitations. The Fund agrees to provide such information to the Administrator as may be requested under the banking and securities laws of the United States or other jurisdictions relating to "Know Your Customer" and money laundering prevention rules and regulations (collectively, the "KYC Requirements"). For - 2 - purposes of this subsection, and in connection with all applicable KYC Requirements, the Fund and each Portfolio is the "client" or "customer" of the Administrator. The Fund further represents that it will perform all obligations required under applicable KYC Requirements with respect to its "customers" (as defined in the KYC Requirements) and that, because these customers do not constitute "customers" or "clients" of the Administrator under such applicable rules and regulations, the Administrator is under no such similar obligations. 5. INSTRUCTIONS. 5.1 The Administrator shall not be liable for, and shall be indemnified by the Fund in accordance with the provisions of Section 10 of this Agreement against any and all losses, costs, damages or expenses arising from or as a result of, any action taken or omitted in reasonable reliance upon Instructions or upon any other written notice, request, direction, instruction, certificate or other instrument believed by it to be genuine and signed or authorized by the proper party or parties. A list of persons so authorized by the Fund ("Authorized Persons") is attached hereto as Appendix C and upon which the Administrator may rely until its receipt of notification to the contrary by the Fund. 5.2 Instructions shall include a written request, direction, instruction or certification signed or initialed on behalf of the Fund by one or more persons as the Board of Trustees of the Fund shall have from time to time authorized in writing. Those persons authorized to give Instructions may be identified by the Board of Trustees by name, title or position and will include at least one officer empowered by the Board to name other individuals who are authorized to give Instructions on behalf of the Fund. 5.3 Telephonic or other oral instructions or instructions given by telefax transmission may be given by any one of the above persons and will also be considered Instructions if the Administrator reasonably believes them to have been given by a person authorized to give such Instructions with respect to the transaction involved. 5.4 With respect to telefax transmissions, the Fund hereby acknowledges that (i) receipt of legible instructions cannot be assured, (ii) the Administrator cannot verify that authorized signatures on telefax instructions are original, and (iii) the Administrator shall not be responsible for losses or expenses incurred through actions taken in reasonable reliance on such telefax instructions. The Fund agrees that such telefax instructions shall be conclusive evidence of the Fund's Instruction to the Administrator to act or to omit to act. 5.5 Instructions given orally will not be confirmed in writing and the lack of such confirmation shall in no way affect any action taken by the Administrator in reliance upon such oral Instructions. The Fund authorizes the Administrator to tape record any and all telephonic or other oral - 3 - Instructions given to the Administrator by or on behalf of the Fund (including any of its officers, directors, trustees, employees or agents or any investment manager or adviser or person or entity with similar responsibilities which is authorized to give Instructions on behalf of the Fund to the Administrator.) 6. EXPENSES AND COMPENSATION. For the services to be rendered and the facilities to be furnished by the Administrator as provided for in this Agreement, the Fund shall pay the Administrator for its services rendered pursuant to this Agreement a fee based on such fee schedule as may from time to time be agreed upon in writing by the Fund and the Administrator. Additional services performed by the Administrator as requested by the Fund shall be subject to additional fees as mutually agreed from time to time. In addition to such fee, the Administrator shall bill the Fund separately for any out-of-pocket disbursements of the Administrator based on an out-of-pocket schedule as may from time to time be agreed upon in writing by the Fund and the Administrator. The foregoing fees and disbursements shall be billed to the Fund by the Administrator and shall be paid promptly by wire transfer or other appropriate means to the Administrator. 7. STANDARD OF CARE. The Administrator shall be held to the exercise of reasonable care and diligence in carrying out the provisions of this Agreement, provided that the Administrator shall not thereby be required to take any action which is in contravention of any applicable law, rule or regulation or any order or judgment of any court of competent jurisdiction. 8. GENERAL LIMITATIONS ON LIABILITY. The Administrator shall incur no liability with respect to any telecommunications, equipment or power failures, or any failures to perform or delays in performance by postal or courier services or third-party information providers (including without limitation those listed on Appendix D). 8.1 The Administrator shall also incur no liability under this Agreement if the Administrator or any agent or entity utilized by the Administrator shall be prevented, forbidden or delayed from performing, or omits to perform, any act or thing which this Agreement provides shall be performed or omitted to be performed, by reason of causes or events beyond its control, including but not limited to: 8.1.1 any Sovereign Event. A "Sovereign Event" shall mean any nationalization; expropriation; devaluation; revaluation; confiscation; seizure; cancellation; destruction; strike; act of war, terrorism, insurrection or revolution; or any other act or event beyond the Administrator's reasonable control; 8.1.2 any provision of any present or future law, regulation or order of the United States or any state thereof, or of any foreign country or political subdivision thereof, or of any securities depository or clearing agency; and - 4 - 8.1.3 any provision of any order or judgment of any court of competent jurisdiction. 8.2 The Administrator shall not be held accountable or liable for any losses, damages or expenses the Fund or any shareholder or former shareholder of the Fund or any other person may suffer or incur arising from acts, omissions, errors or delays of the Administrator in the performance of its obligations and duties as provided in Section 3 hereof, including without limitation any error of judgment or mistake of law, except a damage, loss or expense resulting from the Administrator's willful malfeasance, bad faith or negligence in the performance of such Administrator's obligations and duties. 8.3 The Administrator shall not be liable for any damages arising out of any misstatement or omission in the Fund's registration statement, prospectus, shareholder report, offering document or other information filed or made public by the Fund or First Trust Portfolios, L.P. (the "Distributor"). 8.4 In no event and under no circumstances shall either party be held liable to the other party for consequential or indirect damages, loss of profits, damage to reputation or business or any other special or punitive damages arising under or by reason of any provision of this Agreement or for any act or omissions hereunder, even if the party has been advised of the possibility of such damages or losses. 9. SPECIFIC LIMITATIONS ON LIABILITY. In addition to, and without limiting the application of the general limitations on liability contained in Section 8, above, the following specific limitations on the Administrator's liability shall apply to the particular administrative services set forth on Appendix B hereto. 9.1 PORTFOLIO COMPLIANCE MONITORING. The compliance monitoring of the investments of the Fund and/or each Portfolio with respect to investment restrictions and policies is subject to parameters that may vary over time and which may be beyond the control or knowledge of the Administrator. Consequently, the results of the monitoring as notified by the Administrator to the Fund are to be considered merely as an indication of possible non-compliance with the investment restrictions and policies of the Fund and/or Portfolio rather than an affirmative statement as to non-compliance with the investment restrictions and policies. Moreover, the Administrator may not detect a breach and consequently might not notify the Fund thereof if information or data in its possession is inaccurate, incomplete or ambiguous. The Board of Trustees of the Fund shall remain fully responsible for ensuring compliance of the investments of the Fund and each Portfolio with its investment restrictions and policies and the services provided by the Administrator in monitoring investment restrictions and policies shall not be deemed to be a delegation of the Board's responsibility to the Administrator. In addition, the Fund agrees that the Administrator shall not be liable for - 5 - the accuracy, completeness or use of any information or data that CRD (as defined in Appendix B hereof) or any other compliance system used by the Administrator generates in connection with such administrative compliance monitoring on any given date so long as not a result of Administrator's willful malfeasance, bad faith or negligence. 9.2 LIABILITY FOR FUND ACCOUNTING SERVICES. Without limiting the provisions in Section 8 hereof, the Administrator's liability for acts, omissions, errors or delays relating to its fund accounting obligations and duties shall be limited to the amount of any expenses associated with a required recalculation of net asset value per share ("NAV") or any direct damages suffered by shareholders in connection with such recalculation. The Administrator's liability or accountability for such acts, omissions, errors or delays shall be further subject to clauses 9.2.1 through 9.2.4 below. 9.2.1. The parties hereto acknowledge that the Administrator's causing an error or delay in the determination of NAV may, but does not in and of itself, constitute negligence or reckless or willful misconduct. The parties further acknowledge that in accordance with industry practice, the Administrator shall be liable and the recalculation of NAV shall be performed only with regard to errors in the calculation of the NAV that are greater than or equal to $.01 per share of a Fund. If a recalculation of NAV occurs, the Fund agrees to reprocess shareholder transactions or take such other action(s) so as to eliminate or minimize to the extent possible the liability of the Administrator. 9.2.2. In no event shall the Administrator be liable or responsible to the Fund, any present or former shareholder of the Fund, or any other person for any error or delay that continued or was undetected after the date of an audit performed by the certified public accountants employed by the Fund if, in the exercise of reasonable care in accordance with generally accepted accounting standards, such accountants should have become aware of such error or delay in the course of performing such audit. 9.2.3 The Administrator shall not be held accountable or liable to the Fund, any shareholder or former shareholder thereof or any other person for any delays or losses, damages or expenses any of them may suffer or incur resulting from (i) the Administrator's usage of a third party service provider for the purpose of storing records delivered to the Administrator by the Fund and which the Administrator did not create in the performance of its obligations hereunder; (ii) the Administrator's failure to receive timely and suitable notification concerning quotations or corporate actions relating to or affecting portfolio securities of the Fund; or (iii) any errors in the computation of NAV based upon or arising out of quotations or information as to corporate actions if received by the Administrator either (a) from a source which the Administrator was authorized to rely upon (including, but not limited to, the fair - 6 - value pricing procedures of any investment manager of adviser of the Fund and those sources listed on Appendix D), (b) from a source which in the Administrator's reasonable judgment was as reliable a source for such quotations or information as such authorized sources, or (c) relevant information known to the Fund or its service provider which would impact the calculation of NAV but which is not communicated by the Fund or its service providers to the Administrator. To the extent that Fund assets are not in the custody of the Administrator, the Administrator may conclusively rely on any reporting in connection with such assets provided to the Administrator by a third party on behalf of the Fund. 9.2.4. In the event of any error or delay in the determination of such NAV for which the Administrator may be liable, the Fund and the Administrator will consult and make good faith efforts to reach agreement on what actions should be taken in order to mitigate any loss suffered by the Fund or its present or former shareholders, in order that the Administrator's exposure to liability shall be reduced to the extent possible after taking into account all relevant factors and alternatives consistent with the Fund's Pricing Error Correction Guidelines. It is understood that in attempting to reach agreement on the actions to be taken or the amount of the loss which should appropriately be borne by the Administrator, the Fund and the Administrator will consider such relevant factors as the amount of the loss involved, the Fund's desire to avoid loss of shareholder good will, the fact that other persons or entities could have been reasonably expected to have detected the error sooner than the time it was actually discovered, the appropriateness of limiting or eliminating the benefit which shareholders or former shareholders might have obtained by reason of the error, and the possibility that other parties providing services to the Fund might be induced to absorb a portion of the loss incurred. 9.3 LIABILITY FOR ETF TRANSFER AGENCY AND RELATED SERVICES. Without limiting the provisions in Section 8 hereof, the Administrator shall have no liability for any damages arising out of (i) the failure of any Authorized Participant to perform its obligations under a Participant Agreement ("Participant Agreement" defined for this purpose as any Participant Agreement between the Distributor and an Authorized Participant acknowledged by the Administrator); (ii) activities or statements of sales or wholesaler personnel who are employed by the Distributor or its affiliates; or (iii) the failure of any Authorized Participant to deposit with the Fund's Custodian sufficient collateral, or to provide additional collateral upon request by the Administrator, in connection with the monitoring services provided for herein on Appendix B; - 7 - or (b) any errors in the computation of collateral requirements based upon or arising out of quotations or information received by the Administrator from a source which the Administrator was authorized to rely upon (including, but not limited to, those sources listed on Appendix D). 10. INDEMNIFICATION. The Fund hereby agrees to indemnify the Administrator against and hold it harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any act, omission, error or delay or any third party claim, demand, action or suit, in connection with or arising out of performance of the Administrator's obligations and duties under this Agreement, not resulting from the willful malfeasance, bad faith or negligence of the Administrator in the performance of such obligations and duties. The provisions of this Section 10 shall survive the termination of this Agreement. 11. RELIANCE BY THE ADMINISTRATOR ON OPINIONS OF COUNSEL AND OPINIONS OF CERTIFIED PUBLIC ACCOUNTANTS. The Administrator may consult with its counsel or the Fund's counsel in any case where so doing appears to the Administrator to be necessary or desirable. The Administrator shall not be considered to have engaged in any misconduct or to have acted negligently and shall be without liability in acting upon the advice of its counsel or of the Fund's counsel. The Administrator may consult with a certified public accountant or the Fund's Treasurer in any case where so doing appears to the Administrator to be necessary or desirable. The Administrator shall not be considered to have engaged in any misconduct or to have acted negligently and shall be without liability in acting upon the advice of such certified public accountant or of the Fund's Treasurer. 12. TERMINATION OF AGREEMENT. This Agreement may be terminated by either party in accordance with the provisions of this Section. 12.1 This Agreement shall have an initial term of one (1) year from the date hereof. Thereafter, this Agreement shall automatically renew for successive one (1) year periods unless either party terminates this Agreement by written notice effective no sooner than seventy-five (75) days following the date that notice to such effect shall be delivered to the other party at its address set forth herein. Notwithstanding the foregoing provisions, either party may terminate this Agreement at any time (a) for cause, which is a material breach of the Agreement not cured within sixty (60) days, in which case termination shall be effective upon written receipt of notice by the non-terminating party, or upon thirty (30) days written notice to the other party in the event that the either party is adjudged bankrupt or insolvent, or there shall be commenced against such party a case under any applicable bankruptcy, insolvency, or - 8 - other similar law now or hereafter in effect. In the event a termination notice is given by a party hereto, all expenses associated with the movement of records and materials and the conversion thereof shall be paid by the Fund for which services shall cease to be performed hereunder. The Administrator shall be responsible for completing all actions in progress when such termination notice is given unless otherwise agreed. 12.2. Upon termination of the Agreement in accordance with this Section 12, the Fund may request the Administrator to promptly deliver to the Fund or to any designated third party all records created and maintained by the Administrator pursuant to Section 3.1 of this Agreement, as well as any Fund records maintained but not created by the Administrator. If such request is provided in writing by the Fund to the Administrator within seventy-five (75) days of the date of termination of the Agreement, the Administrator shall provide to the Fund a certification that all records created by the Administrator pursuant to its obligations under Section 3.1 of this Agreement are accurate and complete. After seventy-five (75) days of the date of termination of this Agreement, no such certification will be provided to the Fund by the Administrator and the Administrator is under no further obligation to ensure that records created by the Administrator pursuant to Section 3.1 of this Agreement are maintained in a form that is accurate or complete. 13. CONFIDENTIALITY. The parties hereto agree that each shall treat confidentially the terms and conditions of this Agreement and all information provided by each party to the other regarding its business and operations. All confidential information provided by a party hereto shall be used by any other party hereto solely for the purpose of rendering or obtaining services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party without the prior consent of such providing party. The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, or that is required to be disclosed by or to any Regulatory Authority, any auditor of the parties hereto, or by judicial or administrative process or otherwise by Applicable Law. Each of the parties agrees that: (i) "confidential information" will include any and all information within the term "Nonpublic Personal Information" as defined in section 509(4) of the Gramm-Leach-Bliley Act of 1999 ("GLB"), Rule 3 of SEC Regulation S-P and under the regulations, interpretations, rulings and other issuances of other applicable federal agencies (collectively, "GLB Regulations"); (ii) for client-shareholders who are residents of the Commonwealth of Massachusetts, "confidential information" will include any and all information within the term "Personal Information" as defined in section 17.02 of the Standards for the Protection of Personal Information of the Residents of the Commonwealth of Massachusetts ("Mass. Data Privacy Law"); (iii) the receipt, disclosure, use, sharing and dissemination of confidential - 9 - information will be consistent with the provisions and requirements of GLB, the GLB Regulations and, if applicable, the Mass. Data Privacy Law; (iv) the parties will: (A) protect the security, confidentiality, and integrity of the confidential information subject to GLB, the GLB Regulations, and, if applicable, the Mass. Data Privacy Law and (B) implement appropriate measures designed to meet the objectives of GLB, GLB Regulations and the Mass. Data Privacy Law. 14. TAPE-RECORDING. The Fund authorizes the Administrator to tape record any and all telephonic or other oral instructions given to the Administrator by or on behalf of the Fund, including from any Authorized Person. This authorization will remain in effect until and unless revoked by the Fund in writing. The Fund further agrees to solicit valid written or other consent from any of its employees with respect to telephone communications to the extent such consent is required by applicable law. 15. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire understanding and agreement of the parties hereto and supersedes any other oral or written agreements heretofore in effect between the parties with respect to the subject matter hereof. No provision of this Agreement may be amended or terminated except by a statement in writing signed by the party against which enforcement of the amendment or termination is sought. 16. SEVERABILITY. In the event any provision of this Agreement is determined to be void or unenforceable, such determination shall not affect the remainder of this Agreement, which shall continue to be in force. 17. HEADINGS. The section headings in this Agreement are for the convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions thereof. 18. GOVERNING LAW. This Agreement shall be governed by and construed according to the laws of the Commonwealth of Massachusetts without giving effect to conflicts of laws principles and each of the parties hereto irrevocably consents to the exclusive jurisdiction of the courts of the Commonwealth of Massachusetts in the City of Boston and the federal courts located in the City of Boston. The fund irrevocably waives any objection it may now or hereafter have to the laying of venue of any action or proceeding in any of the aforesaid courts and any claim that any such action or proceeding has been brought in an inconvenient forum. Furthermore, each party hereto irrevocably waives any right that it may have to trial by jury in any action, proceeding or counterclaim arising out of or related to this Agreement or the services contemplated hereby. 19. NOTICES. Notices and other writings delivered or mailed postage prepaid to the Fund addressed to the Fund at 120 East Liberty Drive, Suite 400, Wheaton 60187, Attention: General Counsel or to such other address as the Fund may have designated to the Administrator in writing, or to the Administrator at 40 Water - 10 - Street, Boston, MA 02109, Attention: Manager, Fund Administration Department, or to such other address as the Administrator may have designated to the Fund in writing, shall be deemed to have been properly delivered or given hereunder to the respective addressee. 20. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Fund and the Administrator and their respective successors and assigns, provided that no party hereto may assign this Agreement or any of its rights or obligations hereunder without the written consent of the other party. Each party agrees that only the parties to this Agreement and/or their successors in interest shall have a right to enforce the terms of this Agreement. Accordingly, no client of the Fund or other third party shall have any rights under this Agreement and such rights are explicitly disclaimed by the parties. 21. COUNTERPARTS. This Agreement may be executed in any number of counterparts each of which shall be deemed to be an original. This Agreement shall become effective when one or more counterparts have been signed and delivered by each of the parties. A photocopy or telefax of the Agreement shall be acceptable evidence of the existence of the Agreement and the Administrator shall be protected in relying on the photocopy or telefax until the Administrator has received the original of the Agreement. 22. EXCLUSIVITY. The services furnished by the Administrator hereunder are not to be deemed exclusive, and the Administrator shall be free to furnish similar services to others. 23. AUTHORIZATION. The Fund hereby represents and warrants that the Fund's Board of Trustees has authorized the execution and delivery of this Agreement and that an authorized officer of the Fund has signed this Agreement, Appendices A, B, C, and D and the fee schedule hereto. 24. (a) It is expressly acknowledged and agreed that the obligations of the Fund (and Portfolios thereof) hereunder shall not be binding upon any of the shareholders, Trustees, officers, employees or agents of the Fund (and Portfolios thereof), personally, but shall bind only the trust property of the Fund and the applicable Portfolios as provided in the Fund's Declaration of Trust. The execution and delivery of this Agreement have been authorized by the Trustees of the Fund and signed by an officer of the Fund, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Fund and applicable Portfolio as provided in the Fund's Declaration of Trust. (b) This Agreement is an agreement entered into between the Administrator and the Fund with respect to each Portfolio. With respect to any obligation of the Fund on behalf of any Portfolio arising out of this Agreement, the Administrator shall look for payment of such obligation solely to the assets for - 11 - the Portfolio to which such obligation relates with the same effect as if the Administrator had separately contracted with the Fund by separate written instrument with respect to each Portfolio. (c) As used herein, the "applicable Portfolio" shall be each Portfolio in respect of which any amount due the Administrator arises, and if any amount due the Administrator arises in respect of more than one Portfolio, the same shall be allocated by the Administrator among such Portfolios in accordance with Section 24(b). Any amounts due the Administrator which may not be allocated in accordance with the preceding sentence shall constitute General Liabilities as defined in the Fund's Declaration of Trust and allocated by the Fund and paid in accordance with the provisions thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first written above. The undersigned acknowledges that (I/we) have received a copy of this document . BROWN BROTHERS HARRIMAN & CO. By: /s/ Hugh B. Bolton ------------------------- Name: Hugh B. Bolton Title: Senior Vice President Date: April 19, 2011 FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II By: /s/ Mark R. Bradley ------------------------- Name: Mark R. Bradley Title: CFO Date: April 8, 2011 - 12 - APPENDIX A TO THE ADMINISTRATIVE AGENCY AGREEMENT BETWEEN FIRST TRUST EXCHANGE-TRADED ALPHADEX FUND II and BROWN BROTHERS HARRIMAN & CO. Dated as of 4/27/2012 The following is a list of Funds/Portfolios for which the Administrator shall serve under a Administrative Agency Agreement dated as of 4/08/2011 "the Agreement": FIRST TRUST DEVELOPED MARKETS EX-US AlphaDEX FUND FIRST TRUST EMERGING MARKETS AlphaDEX FUND FIRST TRUST ASIA PACIFIC EX-JAPAN AlphaDEX FUND FIRST TRUST EUROPE AlphaDEX FUND FIRST TRUST LATIN AMERICA AlphaDEX FUND FIRST TRUST BRAZIL AlphaDEX FUND FIRST TRUST CHINA AlphaDEX FUND FIRST TRUST JAPAN AlphaDEX FUND FIRST TRUST SOUTH KOREA AlphaDEX FUND FIRST TRUST GERMANY AlphaDEX FUND FIRST TRUST CANADA AlphaDEX FUND FIRST TRUST AUSTRALIA AlphaDEX FUND FIRST TRUST UNITED KINGDOM AlphaDEX FUND FIRST TRUST TAIWAN AlphaDEX FUND FIRST TRUST HONG KONG AlphaDEX FUND FIRST TRUST SWITZERLAND AlphaDEX FUND FIRST TRUST DEVELOPED MARKETS EX-US SMALL CAP AlphaDEX FUND FIRST TRUST EMERGING MARKETS SMALL CAP AlphaDEX FUND IN WITNESS WHEREOF, each of the parties hereto has caused this to be executed in its name and on behalf of each such Fund/Portfolio. FIRST TRUST EXCHANGE-TRADED AlphaDEX FUND II BY: /s/ Mark R. Bradley ------------------------- NAME: Mark R. Bradley TITLE: President - 13 - APPENDIX B ADMINISTRATIVE AGENCY AGREEMENT Services FUND ACCOUNTING SERVICES The Administrator will provide the following fund accounting services to each Portfolio each day that such Portfolio and the New York Stock Exchange ("NYSE") is open (each a "Business Day"): transaction processing and review, custodial reconciliation, securities pricing and investment accounting. Transaction Processing and Review. The Administrator shall input and reconcile each Portfolio's investment activity including with respect to: o Investment taxlots o Income o Dividends o Principal paydowns o Capital activity o Expense accruals o Cash activity o Corporate Reorganizations Custodial Reconciliation. The Administrator shall reconcile the following positions of each Portfolio against the records of the Custodian: o Securities holdings o Cash including cash transfers, fees assessed and other investment related cash transactions o Trade settlements Securities Pricing. The Administrator shall update each security position of each Portfolio as to the following: o Market prices obtained from approved sources including those listed on Appendix D or Fair Valuations obtained from an Authorized Person of the Fund o Mark to market of non-base receivables/payables utilizing approved foreign exchange quotations as quoted in Appendix D o Mark to market of non-base currency positions utilizing the approved sources quoted in Appendix D or Fair Valuations obtained from an Authorized Person of the Fund Investment Accounting. The Administrator shall provide the following investment accounting services to each Portfolio: o Amortization/accretion at the individual tax lot level o General ledger entries o Book value calculations o Trade Date + 1 accounting o Calculation of Net Asset Value Per Share ("NAV") as of the close of business of the NYSE - 14 - PORTFOLIO COMPLIANCE MONITORING SERVICES The Administrator shall perform the following compliance monitoring services with respect to the investments of each Portfolio on each Business Day unless otherwise specified ("Portfolio Compliance Monitoring Services"): o Trade date plus one monitoring of each Portfolio's investments with respect to the investment restrictions, policies and limitations as described in the current prospectus and statement of additional information, which shall be provided to the Administrator by the Fund, and agreed to by the Administrator and Fund o Monitoring of policies, restrictions and limitations with respect to certain derivative investments is performed monthly (or as requested) o Trade date plus one monitoring of each Portfolio's investments with respect to the 1940 Act requirements and rules thereunder (including Rule 2a-7 if applicable) and applicable Internal Revenue Code rules and regulations as described in Exhibit A attached hereto o Rule 17g-1 monitoring shall be performed monthly as requested o Qualifying income monitoring with respect to Subchapter M compliance shall be performed monthly o Trade date plus one monitoring of other portfolio investment restrictions, policies and limitations at such times as may be agreed in writing by the Fund and Administrator o The Administrator shall notify the Fund's Chief Compliance Officer ("CCO") or such other Authorized Person as may be agreed to by the Fund in the event and at such times as the Administrator detects possible non-compliance with a Portfolio's investment restrictions, policies and limitations ("Daily Exception Reporting") o Provide the Fund's CCO or such other Authorized Person as may be agreed to by the Fund a monthly report summarizing the results of the Portfolio Compliance Monitoring Services ("Monthly Summary Reporting") o Provide the Fund's Board of Trustees/Directors a quarterly report summarizing the results of the Portfolio Compliance Monitoring Services ("Quarterly Board Summary Reporting") o Assist the Fund in producing quarterly brokerage-related reports for the Fund's Board of Trustees as requested by the Fund and agreed to by the Administrator o The Administrator shall perform the following additional compliance monitoring services with respect to each Portfolio one each Business Day: o Provide the Fund's CCO or such other Authorized Person as may be agreed to by the Fund a daily portfolio compliance summary report ("Daily Summary Reporting") TAX SUPPORT SERVICES The Administrator shall provide the following tax support services to the Fund: o Prepare fiscal year-end and excise tax distribution calculations; o Prepare monthly, quarterly and annual income distributions as described in each Fund's or Portfolio's prospectus o Provide any tax analysis of portfolio transactions o Prepare annual capital gain distribution(s) including spillback amounts as required o Prepare tax-related ROCSOP entries for fund accounting purposes o Review required tax disclosures (such as tax cost, long-term capital gain, tax-exempt designation, foreign tax credits, dividend-received deductions, and qualified dividend income pass throughs) in the Fund's financial statements - 15 - o Prepare and file federal, state and local (if any) income tax returns, including tax return extension requests, for signature by the Fund and/or its auditor o Prepare shareholder year-end tax information o Calculate the amounts and characterizations of distributions declared during the calendar year for Form 1099/DIV reporting o Provide analysis and necessary adjustments based on passive foreign investment companies ("PFICs") that have been identified by the Fund and communicated to the Administrator o Consult with the Fund's Authorized Persons on their management and/or investment strategy regarding straddles identified by the Fund and communicated to the Administrator and provide necessary adjustments DESCRIPTION OF ADDITIONAL TAX SUPPORT SERVICES o Prepare and maintain tax accruals and necessary adjustments for convertible preferred stock investments o Prepare available tax equalization schedules o Prepare monthly Qualified Investment Income o Prepare quarterly estimates of Qualified Dividend Income o Prepare interim estimates of taxable income and capital gains o Consult with the Fund's Authorized Persons on various tax issues as requested and with the Fund's independent public accountant when appropriate PERFORMANCE MEASUREMENT SERVICES The Administrator shall provide the following services related to calculating and reporting Fund performance: o Calculate time weighted total returns for each Portfolio (by class, if applicable) and report such returns to the Fund on a monthly basis, and SEC after-tax returns on an annual basis o If applicable, calculate 30-day SEC yields and report such returns to the Fund on a monthly basis o Provide and review each Portfolio's performance information disclosed in its financial statements, prospectus and statement of additional information o On a monthly basis, reconcile total return calculations to those reported by major database companies o At the Fund's request, report portfolio holdings to identified database companies ETF TRANSFER AGENCY AND RELATED SERVICES The Administrator shall perform the following ETF Transfer Agency and Related services and such other obligations as are set forth in any Participant Agreement: I. Creation and Redemption of Creation Units. It is agreed and understood that the Administrator on the Fund's behalf, shall process the issuance and redemption of Creation Units of the Fund in blocks of Shares as established in the Prospectus for the Fund ("Creation Units") to and from such persons as are identified and approved by the Distributor as Authorized Participants and who have entered into a Participant Agreement. A. Accept from Authorized Participants creation and redemption orders for communication to the appropriate parties, approval (as may be agreed with the Distributor) and processing. B. Pursuant to creation and redemption orders that the Administrator as transfer agent shall receive from Authorized Participants (and which shall be confirmed by the Distributor, as required) and pursuant to the - 16 - procedures set forth in the Participant Agreement, the Administrator shall communicate such orders to the Trust or Fund as appropriate. B. Pursuant to such creation orders that the Administrator as the Index Receipt Agent shall receive (and which shall be confirmed by the Distributor) and pursuant to the procedures set forth in the Participant Agreement, the Administrator shall transfer appropriate trade instructions to the Fund's custodian, Brown Brothers Harriman & Co. ("Custodian") and pursuant to such orders register the appropriate number of book entry only Creation Units in the name of The Depository Trust Company ("DTC") or its nominee as a shareholder (each a "Authorized Participant") of the Fund and deliver the Creation Units of the Fund to the appropriate Authorized Participant. C. Pursuant to such redemption orders that Index Receipt Agent shall receive from the Authorized Participant and pursuant to the procedures set forth in the Participant Agreement, the Administrator shall transfer appropriate trade instructions to the Custodian and, pursuant to such orders, redeem the appropriate number of Creation Units that are delivered to the designated DTC Participant Account of the Custodian for redemption and debit such Creation Units from the account of the Authorized Participant on the register of the Fund. D. On behalf of the Fund, the Administrator shall issue Creation Units for settlement with purchasers through DTC as the purchaser is authorized to receive. Beneficial ownership of ETF Shares shall be shown on the records of DTC and DTC Participants and not on any records maintained by the Administrator. In issuing Creation Units through DTC to an Authorized Participant, the Administrator shall be entitled to rely upon the latest Instructions that are received from the Distributor by the Administrator as Index Receipt Agent concerning the issuance and delivery of such Creation Units for settlement. E. The Administrator shall not issue on behalf of the Fund any Creation Units where it has received an Instruction from the Fund or the Distributor or written notification from any federal or state authority that the sale of the ETF Shares has been suspended or discontinued, and the Administrator shall be entitled to rely upon such Instructions or written notification. F. Upon the issuance of Creation Units as provided herein, the Administrator shall not be responsible for the payment of any original issue or other taxes, if any, required to be paid by the Fund or the Distributor in connection with such issuance. G. The Administrator will act only upon Instruction from the Fund and/or the Distributor in addressing any failure in the delivery of cash, securities and/or shares in connection with the creation and redemption of Creation Units. The Administrator shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder. II. Recordkeeping. A. The Administrator shall record the creation and redemption of Creation Units and maintain, pursuant to Rule 17Ad-14(e) under the Securities Exchange Act of 1934, as amended, a record of the total number of Creation Units that are authorized, issued and outstanding based upon data provided to the Administrator by the Fund or the Distributor. The Administrator shall also provide the Fund on a regular basis with the total number of Creation Units authorized, issued and outstanding; provided however that the Administrator shall not be responsible for monitoring the issuance of such Creation Units or compliance with any laws relating to the validity of the issuance or the legality of the sale of such Creation Units or shares. - 17 - III. Services Related to the Monitoring of Cash Collateral. (a) Monitor the collateralization levels as set forth in Participant Agreements in connection with cash collateral posted by Authorized Participants in connection with Creation Unit activity. (b) Mark to market daily the value of such cash collateral using a pricing source set forth on Appendix D. (c) Monitor collateral levels daily and communicate calls for additional collateral to the Authorized Participants as necessary based upon daily collateral requirement calculations using ratios set forth in Participant Agreements. BROWN BROTHERS HARRIMAN & CO. By: /s/ Hugh B. Bolton ------------------------- Name: Hugh B. Bolton Title: Senior Vice President Date: April 19, 2011 FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II By: /s/ Mark R. Bradley ------------------------- Name: Mark R. Bradley Title: CFO Date: April 8, 2011 - 18 - APPENDIX C ADMINISTRATIVE AGENCY AGREEMENT List of Authorized Persons James A. Bowen Daniel J. Lindquist Mark R. Bradley Chris R. Fallow W. Scott Jardine Erin E. Chapman James A. Dykas Coleen D. Lynch Kristi A. Maher Stan Ueland Scott Hall Eric Anderson Chris Fallow Roger Testin Lance Hinkle Tim Henry FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II By: /s/ Mark R. Bradley ------------------------- Name: Mark R. Bradley Title: CFO Date: April 8, 2011 - 19 - APPENDIX D TO ADMINISTRATIVE AGENCY AGREEMENT AUTHORISED SOURCES The Investment Manager and Fund hereby acknowledge that the Administrator is authorized to use the following authorized sources and their successors and assigns for financial reporting, compliance monitoring, performance measurement, pricing (including corporate actions, dividends and rights offering), and foreign exchange quotations, to assist it in fulfilling its obligations under the aforementioned Agreement. BLOOMBERG RUSSELL/MELLON FUND MANAGERS / CLIENT DIRECTED INTERACTIVE DATA CORPORATION REPUTABLE BROKERS THOMSON REUTERS SUBCUSTODIAN BANKS SIX TELEKURS REPUTABLE FINANCIAL PUBLICATIONS STOCK EXCHANGES STAT PRO MORGAN STANLEY CAPITAL INTERNATIONAL WALL STREET OFFICE PRICING DIRECT MARKIT SUPER DERIVATIVES S&P DOW JONES JP MORGAN - contract pending SQX (SECURITIES QUOTE EXCHANGE) BARCLAYS - contract pending FITCH SOLUTIONS MOODYS FORD EQUITY RESEARCH FTSE GROUP INVESTMENT TECHNOLOGY GROUP (ITG) WM COMPANY WOLTERS KLUWER FINANCIAL SERVICES DEPOSITORIES (DTC, EUROCLEAR, ETC) CLEARING BANKS (JP MORGAN CHASE, BANK OF NEW YORK MELLON, ETC) FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II FIRST TRUST ADVISORS L.P. By: /s/ Mark R. Bradley ------------------------- Name: Mark R. Bradley Title: CFO Date: April 8, 2011 - 20 - EX-99.H OTH MAT CONT 6 exhibit_h3.txt FORM OF PARTICIPANT AGREEMENT PARTICIPANT AGREEMENT FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II This Participant Agreement (this "Agreement") is entered into between First Trust Portfolios, L.P. (the "Distributor"), and ______________________________ (the "Participant") and subject to acceptance by Brown Brothers Harriman & Co., a limited partnership organized under the laws of the State of New York as transfer agent (the "Transfer Agent"). The Transfer Agent serves as the Transfer Agent of the First Trust Exchange-Traded AlphaDEX(R) Fund II (the "Trust") and is an Index Receipt Agent as that term is defined in the rules of the National Securities Clearing Corporation ("NSCC"). The Distributor has been retained to provide certain services with respect to acting as principal underwriter of each Trust in connection with the sale and distribution of shares of beneficial interest, par value $0.01 per share ("Shares"), of the Series of each Trust (each a "Fund") on Schedule I attached hereto and incorporated herein, as the same may be amended from time to time. Certain Funds (each, an "International Fund") may include securities of issuers that are domiciled outside the United States and listed on the foreign equivalent of a U.S. national securities exchange (a "U.S. Exchange"). The Distributor and the Participant acknowledge and agree that each Trust and Fund shall be a third-party beneficiary of this Agreement as to the benefits contemplated by this Agreement to the extent specified herein. The prospectus and statement of additional information for each Fund (collectively, the "Prospectus") are incorporated herein and included as part of the respective Trust's Registration Statement as amended on Form N-1A. Shares may be created or redeemed only in aggregations of 50,000 (or such other aggregation as is specified in the relevant Fund's Prospectus), referred to therein and herein as a "Creation Unit." Capitalized terms not otherwise defined herein are used herein as defined in the relevant Fund's Prospectus. All references to "cash" shall refer to U.S. dollars. This Agreement is intended to set forth certain premises and the procedures by which the Participant may create and/or redeem Creation Units (i) through the Continuous Net Settlement ("CNS") clearing processes of NSCC as such processes have been enhanced to effect creations and redemptions of Creation Units, such processes being referred to herein as the "Trusts' Clearing Process," or (ii) outside the Trusts' Clearing Process (e.g., through the facilities of the Depository Trust Company ("DTC")). This Agreement supersedes any prior Participant Agreement entered into by the parties with respect to the Trusts and any Fund from and after the date hereof. Any and all prior Participant Agreements entered into by the parties are deemed terminated upon execution of this Agreement. The parties hereto in consideration of the premises and of the agreements contained herein agree as follows: SECTION 1. STATUS OF PARTICIPANT. The Participant hereby represents, covenants and warrants that (i) with respect to orders for the creation or redemption of Creation Units by means of the Trusts' Clearing Process, it is a member of NSCC and a participant in the CNS System of NSCC (as defined in the Prospectus, a "Participating Party"); and (ii) with respect to orders for the creation or redemption of Creation Units outside the Trusts' Clearing Process, it is a DTC Participant (as defined in the Prospectus, a "DTC Participant"). The Participant may place orders for the creation or redemption of Creation Units (a "Creation Order" and "Redemption Order," respectively) either through the Trusts' Clearing Process or outside the Trusts' Clearing Process, subject to the procedures for creation and redemption referred to in Section 2 of this Agreement ("Execution of Orders") and the procedures described in Attachment A attached hereto and incorporated herein and made a part hereof, as the same may be amended from time to time ("Attachment A"). Any change in the foregoing status of the Participant shall terminate this Agreement, and the Participant shall give immediate notice to the Distributor and the Transfer Agent of such change. The Participant further represents that it is a broker-dealer registered with the Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority ("FINRA") or is exempt from or otherwise not required to be licensed as a broker-dealer or a member of the FINRA. The Participant is qualified as a broker or dealer, or otherwise, under all applicable state laws where it is required to do so in order that Shares may be sold in such states where the Participant intends to sell such Shares. The Participant agrees to conform to the rules of the FINRA (if it is a member of FINRA) and the securities laws of any jurisdiction in which it sells, directly or indirectly, Shares, to the extent such laws, rules and regulations relate to the Participant's transactions in, and activities with respect to, the Shares. The Participant understands and acknowledges that the proposed method by which Creation Units of Shares will be purchased and traded may raise certain issues under applicable securities laws. For example, because new Creation Units of Shares may be issued and sold by the Trusts and their respective Funds on an ongoing basis, the offer and sale of Shares to investors may involve a "distribution," as such term is used in the Securities Act of 1933 (the "Securities Act"). The Participant understands and acknowledges that its offer and sale of Shares to investors, depending on the circumstances, may result in its being deemed a participant in a distribution in a manner which could render it a statutory underwriter and subject it to the prospectus delivery and liability provisions of the Securities Act. The Participant also understands and acknowledges that dealers who are not "underwriters" but are effecting transactions in Shares, whether or not participating in the distribution of Shares, may be required to deliver a prospectus. SECTION 2. EXECUTION OF ORDERS. All orders for the creation or redemption of Creation Units shall be handled in accordance with the terms of the respective Fund's Prospectus, and the procedures described in Attachment A to this Agreement. In the event the procedures include the use of recorded telephone lines, the Participant hereby consents to such use. Each Trust reserves the right to issue additional or other procedures relating to the manner of creating or redeeming Creation Units (and the procedures for the Trusts may, but need not be, identical), and the Participant, the Distributor and the Transfer Agent agree to comply with such procedures as may be issued from time to time, upon reasonable notice thereof. - 2 - The Participant understands and agrees that Creations Orders and Redemption Orders may be submitted only on days that the U.S. exchange where the Shares are principally listed (as specified in the Prospectus) is open for trading or business. SECTION 3. NSCC. Solely with respect to orders for the creation or redemption of Creation Units through the Trusts' Clearing Process, the Participant as a Participating Party hereby authorizes the Distributor or the Transfer Agent, as the case may be, to transmit to NSCC on behalf of the Participant such instructions, including share and cash amounts as are necessary with respect to the creation and redemption of Creation Units consistent with the instructions issued by the Participant to the Trust telephone representative identified in Attachment A hereto (the "Trust Telephone Representative"). The Participant agrees to be bound by the terms of such instructions issued by the Distributor or the Transfer Agent, as the case may be, and reported to NSCC as though such instructions were issued by the Participant directly to NSCC. With respect to any Redemption Order, the Participant also acknowledges and agrees to use its best efforts to return to the applicable Fund any dividend, distribution or other corporate action paid to it or to the party for which it is acting in respect of any Deposit Securities that are transferred to the Participant or any party for which it is acting that, based on the valuation of such Deposit Securities at the time of transfer, should have been paid to the Fund. With respect to any Redemption Order, the Participant also acknowledges and agrees that the applicable Fund is entitled to reduce the amount of money or other proceeds due to the Participant or any party for which it is acting that, based on the valuation of such Deposit Securities at the time of transfer, should be paid to the Fund. With respect to any Creation Order, the Distributor shall cause the applicable Fund's Custodian to return to the Participant or any party for which it is acting any dividend, distribution or other corporate action paid to the Fund in respect of any Deposit Securities that are transferred to a Fund that, based on the valuation of such Deposit Securities at the time of transfer, should have been paid to the Participant or any party for which it is acting. SECTION 4. DEPOSIT SECURITIES. The Participant understands that the number and names of the designated portfolio of securities (each, a "Deposit Security" and, collectively, the "Deposit Securities") and relevant cash amounts (the "Cash Component") to be deposited in connection with the purchase of a Creation Unit (the current "Fund Deposit") for each Fund will be made available each day that the New York Stock Exchange (the "NYSE") is open for trading through the facilities of the NSCC. The Participant will not be responsible for errors in the information relating to the Deposit Securities to be included in the current Fund Deposit to be transmitted through the facilities of the NSCC in connection with Redemption Orders and Creation Orders that are caused by the applicable Trust or Fund, the Distributor or the Transfer Agent. Under certain circumstances, a Trust may, in its discretion, permit or require, with respect to one or more Funds, a Participant to substitute cash in lieu of depositing some or all of the requisite Deposit Securities. A Trust may - 3 - additionally permit, in its discretion, with respect to one or more International Funds under certain circumstances, a Participant to substitute a different security in lieu of depositing some or all of the Deposit Securities. Substitution of cash or a different security may be permitted or required, for example, because one or more Deposit Securities may be unavailable, may not be available in the quantity needed, or may not be eligible for trading by the Participant (or any party on whose behalf the Participant is acting) due to local trading restrictions (including, for example, requirements that securities be traded only for cash in local currency) or other circumstances. SECTION 5. ROLE OF PARTICIPANT. The Participant shall have no authority in any transaction to act as agent of the Distributor, the Transfer Agent, any Trust or any Fund. (a) The Participant agrees (i) subject to any privacy obligations or other obligations arising under the federal or state securities laws it may have to it customers, to assist the Distributor in ascertaining certain information regarding sales of Shares made by or through Participant upon the request of a Trust or Fund or the Distributor necessary for the applicable Trust or Fund to comply with its obligation to distribute information to its shareholders as may be required from time to time under applicable state or federal securities laws, or (ii) in lieu thereof, and at the option of the Participant, the Participant may undertake to deliver Prospectuses, as may be amended or supplemented from time to time, proxy material, annual and other reports of a Fund or other similar information that the applicable Trust or Fund is obligated to deliver to its shareholders to the Participant's customers that custody Fund Shares with the Participant, after receipt from the applicable Trust or Fund or the Distributor of sufficient quantities to allow mailing thereof to such customers. The expenses associated with such transmissions shall be borne by the Distributor or the applicable Trust or Fund in accordance with usual custom and practice in respect of such communications. None of the Distributor, the applicable Trust or Fund or any of their respective affiliates shall use the names and addresses and other information concerning Participant's customers for any purpose except in connection with the performance of their duties and responsibilities hereunder and except for servicing and informational mailings described in this clause (a) of Section 5, or as may otherwise be required by applicable law. (b) The Participant certifies that it has policies, procedures and internal controls in place that are reasonably designed to comply with all applicable anti-money laundering laws and regulations, including applicable provisions of the USA Patriot Act of 2001 and the regulations administered by the U.S. Department of the Treasury's Office of Foreign Assets Control as the same may in effect from time to time. SECTION 6. PARTICIPANT REPRESENTATIONS. (a) The Participant represents, warrants and agrees that it will not make any representations concerning any Fund, the applicable Trust, the Creation Units or the Shares other than those consistent with the Fund's then current Prospectus or any promotional or sales literature furnished to the Participant by the Distributor or the applicable Trust or Fund, or any such materials permitted by clause (b) of this Section 6. (b) The Participant agrees not to furnish or cause to be furnished by Participant or its employees to any person or to display or publish any information or materials relating to a Trust or any Fund (including, without - 4 - limitation, promotional materials and sales literature, advertisements, press releases, announcements, statements, posters, signs or other similar materials, but not including any materials prepared and used for Participant's internal use only, any brokerage communications between employees of Participant and customers or any communications prepared and directed to registered broker-dealers) ("Marketing Materials"), except (i) such Marketing Materials as may be furnished to the Participant by the Distributor or the applicable Trust or Fund and (ii) such other Marketing Materials as are consistent with the applicable Fund's then current Prospectus or otherwise approved by the Distributor or the Trust; provided that such Marketing Materials clearly indicate that such Marketing Materials are prepared and distributed by Participant and, upon request, a copy is forwarded to the Distributor as soon as practicable. (c) Notwithstanding anything to the contrary in this Agreement, Participant and its affiliates may prepare and circulate in the regular course of their businesses (i) research reports that include information, opinions or recommendations relating to Shares; and (ii) without reference to a Fund or its Prospectus, data and information relating to the various indices to which the Funds are benchmarked. SECTION 7. SUBCUSTODIAN ACCOUNTS. The Participant understands and agrees that in the case of an International Fund, the relevant Trust has caused Brown Brothers Harriman & Co., acting in its capacity as the Trust's custodian ("Custodian") to maintain with one or more applicable subcustodians (each, a "Subcustodian") for such International Fund an account in the relevant foreign jurisdiction(s) to which the Participant shall deliver or cause to be delivered in connection with the purchase of a Creation Unit the securities and any other cash amounts (or the cash value of all or a part of such securities, in the case of a permitted or required cash purchase or "cash in lieu" amount) on behalf of itself or any party for which it is acting (whether or not a customer), with any appropriate adjustments as advised by the Trust or such International Fund, in accordance with the terms and conditions applicable to such account in such foreign jurisdiction. SECTION 8. TITLE TO SECURITIES: RESTRICTED SHARES. The Participant represents that upon delivery of a portfolio of Deposit Securities to a Fund's custodian, the Fund will acquire good and unencumbered title to such securities, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims, including, without limitation, any special restriction upon the sale or transfer of such securities imposed by (i) any agreement or arrangement entered into by the Participant or any party for which it is acting in connection with a Creation Order or (ii) any provision of the Securities Act, and any regulations thereunder (except that portfolio securities of issuers other than U.S. issuers shall not be required to - 5 - have been registered under the Securities Act if exempt from such registration), or of the applicable laws or regulations of any other applicable jurisdiction. SECTION 9. FEES. In connection with the creation or redemption of Creation Units, the Transfer Agent shall charge, and the Participant agrees to pay to the Transfer Agent, (i) the Creation Transaction Fee or Redemption Transaction Fee (each also sometimes referred to individually herein as the "Transaction Fee") prescribed in the relevant Fund's Prospectus applicable to creations or redemptions through the Trusts' Clearing Process, or (ii) the applicable Creation Transaction Fee or Redemption Transaction Fee plus, in each case, such additional variable amounts as may be prescribed in the relevant Fund's Prospectus for (a) creations or redemptions outside the Trusts' Clearing Process and (b) creations through the Trusts' Clearing Process where the cash equivalent value of one or more Deposit Securities is being deposited in lieu of the inclusion of such Deposit Securities in the securities portion of the Fund Deposit. The Transaction Fee may be waived or otherwise adjusted from time to time subject to the provisions relating thereto and any limitations as prescribed in the relevant Fund's Prospectus. With respect to International Funds (for which creations and redemptions are processed outside the Trusts' Clearing Process), such additional variable amounts may include any expenses incurred by a Fund in the transfer of Deposit Securities to the Fund in connection with a creation of Creation Units, and in the transfer of Deposit Securities to the Participant in connection with a redemption of Creation Units; such expenses may include operational processing and brokerage costs, transfer fees, stamp taxes and the like. When an International Fund permits a Participant to substitute cash or a different security in lieu of depositing one or more of the requisite Deposit Securities, the Participant may be assessed a higher Transaction Fee on the substitute security portion of its investment to cover the cost of purchasing the Deposit Securities and/or disposing of the substituted securities, including operational processing and brokerage costs, transfer fees, stamp taxes, and part or all of the spread between the expected bid and offer side of the market related to such Deposit Securities and/or substitute securities. SECTION 10. AUTHORIZED PERSONS. Concurrently with the execution of this Agreement and from time to time thereafter, the Participant shall deliver to the Distributor and the Transfer Agent, duly certified as appropriate by its secretary or other duly authorized person, a certificate setting forth the names and signatures of all persons authorized to give instructions relating to activity contemplated hereby or any other notice, request or instruction on behalf of the Participant (each, an "Authorized Person"). Such certificate may be accepted and relied upon by the Distributor and the Transfer Agent as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until delivery to the Distributor and the Transfer Agent of a superseding certificate bearing a subsequent date. The Transfer Agent shall issue to each Authorized Person a unique personal identification number ("PIN Number") by which such Authorized Person and the Participant shall be identified and instructions issued by the Participant hereunder shall be authenticated. Upon the termination or revocation of authority of such Authorized Person by the Participant, the Participant shall give prompt written notice of such fact to the Distributor and the Transfer - 6 - Agent and such notice shall be effective upon receipt by both the Distributor and the Transfer Agent. SECTION 11. REDEMPTION. The Participant represents and warrants that it will not obtain a Submission Number (as defined in Attachment A) from the Transfer Agent for the purpose of redeeming a Creation Unit unless it first ascertains that (a) it or its customer, as the case may be, owns outright or has full legal authority and legal beneficial right to tender for redemption the requisite number of Shares of any Fund to be redeemed, and the entire proceeds of the redemption, (b) the delivery of such Shares to the Transfer Agent in accordance with the Prospectus or as otherwise required by the Trust or Fund would not be precluded as the result of their being subject to or the subject of a loan, repurchase agreement, securities lending agreement or other arrangement and (c) upon delivery to the Fund's custodian, the Shares will be free and clear of all liens. A Trust may make redemptions in cash in lieu of transferring one or more Deposit Securities if the Trust or Fund determines, in its discretion, that such method is warranted because a Participant who has placed the Redemption Order is restrained by regulation or policy from transacting in the Deposit Securities, delivery of the Deposit Securities is not permissible under applicable law or foreign stock exchange regulations, or for other reasons. In connection with an International Fund, a Participant must maintain appropriate securities broker-dealer, bank or other custody arrangements to which account Deposit Securities will be delivered in connection with a redemption. If a redeeming Participant, or any party on whose behalf the Participant is acting, does not have appropriate arrangements to take delivery of the Deposit Securities in the relevant foreign jurisdiction(s) and it is not possible to make other such arrangements, or if it is not possible to effect deliveries of the Deposit Securities in such foreign jurisdiction(s) and in certain other circumstances, the Trust or Fund may in its discretion redeem Shares for cash, and the redeeming Participant, on behalf of itself or any part for which it is acting, will be required to receive redemption proceeds in cash. In such case, the Participant will receive a cash payment equal to the net asset value (next determined after receipt of the Redemption Order) times the number of Shares in a Creation Unit of the relevant International Fund, minus the Transaction Fee and other costs specified in Section 9. In the case of a beneficial owner of an International Fund who is a resident of Australia or New Zealand, the Participant understands and agrees that such beneficial owner is only entitled to receive cash upon its redemption of Creation Units. In a Redemption Order, the Participant will be required to confirm that an in-kind redemption request has not been submitted on behalf of a beneficial owner who is an Australian or New Zealand resident. SECTION 12. FUND'S TAX BASIS. The Participant represents and warrants to the Distributor and each Trust and Fund that with respect to any Creation Units it shall only deliver or transfer, or cause to be delivered or transferred, Deposit Securities (or contracts therefor) that, should Section 351 of the Internal Revenue Code of - 7 - 1986, as amended, apply to such delivery or transfer, will have a tax basis in the hands of the Fund receiving the Deposit Securities equal to the closing market price of such Deposit Securities on the date the Creation Order with respect thereto is Deemed Received (as such term is defined in Attachment A hereto). Such representation and warranty shall be deemed repeated with respect to each Creation Order. SECTION 13. INDEMNIFICATION. (a) The Participant hereby agrees to indemnify and hold harmless the Distributor in its capacity as principal underwriter, each Trust, each Fund, the Transfer Agent, their respective affiliates, directors, officers, employees and agents, and each person, if any, who controls such persons within the meaning of Section 15 of the Securities Act (each, for purposes of this paragraph, an "Indemnified Party") from and against any loss, liability, cost and expense (including reasonable attorneys' fees) incurred by such Indemnified Party as a result of (i) any breach by the Participant of any provision of this Agreement that relates to the Participant; (ii) any failure on the part of the Participant to perform any of its obligations set forth in this Agreement; (iii) any failure by the Participant to comply with applicable laws, including rules and regulations of self-regulatory organizations in relation to the sales, trading or marketing of Shares and the creation or redemption of or investment in a Fund or Funds, except that the Participant shall not be required to indemnify an Indemnified Party to the extent that such failure was caused by Participant's adherence to instructions given or representations made by the Distributor, the Transfer Agent or any Indemnified Party, as applicable; or (iv) actions of such Indemnified Party in reliance upon any instructions issued or representations made in accordance with Attachment A (as it may be amended from time to time) reasonably believed by the Distributor or the Transfer Agent, as applicable, to be genuine and to have been given by the Participant except to the extent that the Participant had previously revoked a PIN Number used in giving such instructions or representations (where applicable) and such revocation was given by the Participant and received by the Distributor and the Transfer Agent in accordance with the terms of Section 10 hereto. The Participant and the Distributor understand and agree that each Trust and Fund as a third party beneficiary of this Agreement is entitled and intends to proceed directly against the Participant in the event that the Participant fails to honor any of its obligations pursuant to this Agreement that benefit each such Trust and Fund. The Distributor hereby agrees to indemnify and hold harmless the Participant, its respective subsidiaries, affiliates, directors, officers, employees and agents, and each person, if any, who controls such persons within the meaning of Section 15 of the Securities Act (each, for purposes of this paragraph, an "Indemnified Party") from and against any loss, liability, cost and expense (including reasonable attorneys' fees) incurred by such Indemnified Party as a result of (i) any breach by the Distributor of any provision of this Agreement that relates to the Distributor; (ii) any failure on the part of the Distributor to perform any of its obligations set forth in this Agreement; (iii) any failure by the Distributor to comply with applicable laws, including rules and regulations of self-regulatory organizations in relation to its role as Distributor of the Funds; (iv) actions of such Indemnified Party in reliance upon any instructions issued or representations made in accordance with Attachment A (as it may be amended from time to time) reasonably believed by the Participant to be genuine and to have been given by the Distributor or the Transfer Agent; or (v) any untrue statement or alleged untrue statement of a - 8 - material fact contained in the Registration Statement of the Fund as originally filed with the SEC or in any amendment thereof, or in any prospectus or any statement of additional information, or any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading. (b) Each of the Distributor and Participant each agree to indemnify Transfer Agent and hold Transfer Agent harmless from and against any and all losses sustained or incurred by or asserted against Transfer Agent by reason of or as a result of any action or inaction, or arising out of Transfer Agent's performance hereunder, including reasonable fees and expenses of counsel incurred by Transfer Agent in a successful defense of claims by the Distributor and/or Participant; provided however, Distributor and/or Participant shall not indemnify Transfer Agent for those losses arising out of Transfer Agent's own negligence or willful misconduct or that of its employees. This indemnity shall be a continuing obligation of the Distributor and/or Participant, and their respective successors and assigns, notwithstanding the termination of this Agreement. (c) Except to the extent that the Transfer Agent is to be indemnified as provided in this Section 13, no party to this Agreement shall be liable to the other party or to any other person for any damages arising out of mistakes or errors in data provided to such Indemnified Party by a third party, or out of interruptions or delays of electronic means of communications with the Indemnified Parties. SECTION 14. ACKNOWLEDGMENT. The Participant acknowledges receipt of each relevant Fund's Prospectus and represents it has reviewed such document and understands the terms thereof. SECTION 15. NOTICES. Except as otherwise specifically provided in this Agreement, all notices required or permitted to be given pursuant to this Agreement shall be given in writing and delivered by personal delivery or by postage prepaid registered or certified United States first class mail, return receipt requested, or by telex, telegram or facsimile or similar means of same day delivery (with a confirming copy by mail as provided herein). Unless otherwise notified in writing, all notices to the Transfer Agent shall be given or sent as follows: Brown Brothers Harriman & Co., 40 Water Street, Boston, MA 02109, Attention: Manager, ETF Transfer Agency. All notices to the Participant and the Distributor shall be directed to the address or telephone, facsimile or telex numbers indicated below the signature line of such party. SECTION 16. TERMINATION. This Agreement shall become effective in this form as of the date accepted by the Transfer Agent and may be terminated at any time by any party upon thirty (30) days prior notice to the other parties (i) unless earlier terminated by the - 9 - Transfer Agent in the event of a breach of this Agreement or the procedures described herein by the Participant or (ii) in the event that a Trust is terminated pursuant to its Declaration of Trust. This Agreement supersedes any prior Participant Agreement entered into by the parties. Any and all prior Participant Agreements entered into by the parties are deemed terminated upon execution of this Agreement. SECTION 17. PROSPECTUS. (a) The Distributor will provide to the Participant copies of the then current Prospectus for each Fund and any printed supplemental information in reasonable quantities upon request. The Distributor represents, warrants and agrees that it will notify the Participant when a revised, supplemented or amended Prospectus for any Shares is available and deliver or otherwise make available to the Participant copies of such revised, supplemented or amended Prospectus at such time and in such numbers as to enable the Participant to comply with any obligation it may have to deliver such Prospectus to customers. As a general matter, the Distributor will make such revised, supplemented or amended Prospectus available to the Participant no later than its effective date. The Distributor shall be deemed to have complied with this Section 17 when the Participant has received such revised, supplemented or amended Prospectus by email at _____________________, in printable form, with such number of hard copies as may be agreed from time to time by the parties promptly thereafter. (b) Distributor represents and warrants that (i) the registration statement(s) for First Trust Exchange-Traded AlphaDEX Fund II on Form N-1A (No. 333-171759) and the Prospectus(es) contained therein, conform in all material respects to the requirements of the Securities Act, and the rules and regulations of the Securities and Exchange Commission thereunder and do not and will not, as of the applicable effective date as to the registration statement and any amendment thereto and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) the sale and distribution of the Shares as contemplated herein will not conflict with or result in a breach or violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Trusts, any Fund or the Distributor; and (iii) no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares, except the registration under the Securities Act of the Shares. SECTION 18. COUNTERPARTS. This Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all shall constitute but one and the same instrument. SECTION 19. NO WAIVER. Each and every right granted to any party hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of any party hereto to exercise, and no delay in exercising, any - 10 - right will operate as a waiver thereof, nor will any single or partial exercise by any party hereto of any right preclude any other or future exercise thereof or the exercise of any other right. SECTION 20. ENFORCEABILITY; AMENDMENT. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected thereby. This Agreement may not be amended or modified in any manner except by a written agreement executed by the parties hereto, except that any amendment to Schedule I approved in writing by the Distributor (upon which written approval the Transfer Agent may conclusively rely) and any amendment to Attachment A hereto need be signed only by the Transfer Agent. The Transfer Agent shall provide the Participant a copy of any such amendment in the manner provided in Section 15. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by any party without the written consent of the others. SECTION 21. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be construed in accordance with the substantive laws of the State of New York, without regard to conflicts of laws principles thereof. The parties hereby consent to the jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder. Each party hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that such proceeding brought in such a court has been brought in an inconvenient forum. Each party hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement. SECTION 22. STATUS OF FUND The Distributor hereby represents that each Series of the First Trust Exchange-Traded AlphaDEX Fund II is a registered open ended investment company operating in accordance with the exemptive order granted under 812-13000 and I.C. Release No. 27068 dated September 20, 2005, as the same may be amended from time to time, and I.C. Release No. 27051 dated August 26, 2005 and any additional I.C. Releases related to such amendments. - 11 - FIRST TRUST PORTFOLIOS, L.P. By ------------------------------------------------ Name:__________________________________________ Title:_________________________________________ Address: 120 E. Liberty Drive, Suite 400 Wheaton, Illinois 60187 Telephone: (630) 765-8798 Facsimile: (630) 517-7437 ______________________________________ By ------------------------------------------------ Name:__________________________________________ Title:_________________________________________ Address: _______________________________ _______________________________ Telephone:________________________________________ Facsimile:________________________________________ ACCEPTED BY: BROWN BROTHERS HARRIMAN & CO., as Transfer Agent By ------------------------------------------------ Name:__________________________________________ Title:_________________________________________ Address: 40 Water Street Boston, MA 02109 Telephone: (617) 772-2011 Facsimile: (201) 418-4105 Dated: ------------------------ - 12 - SCHEDULE I SERIES OF FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II First Trust Developed Markets Ex-US AlphaDEX(R) Fund First Trust Emerging Markets AlphaDEX(R) Fund First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund First Trust Europe AlphaDEX(R) Fund First Trust Latin America AlphaDEX(R) Fund First Trust Brazil AlphaDEX(R) Fund First Trust China AlphaDEX(R) Fund First Trust Japan AlphaDEX(R) Fund First Trust South Korea AlphaDEX(R) Fund First Trust Germany AlphaDEX(R) Fund First Trust Canada AlphaDEX(R) Fund First Trust Australia AlphaDEX(R) Fund First Trust United Kingdom AlphaDEX(R) Fund First Trust Taiwan AlphaDEX(R) Fund First Trust Hong Kong AlphaDEX(R) Fund First Trust Switzerland AlphaDEX(R) Fund First Trust Emerging Markets Small Cap AlphaDEX(R) Fund First Trust Developed Markets Ex-U.S. Small Cap AlphaDEX(R) Fund Participant shall be a participant with respect to, and this Agreement shall be applicable to, the following additional Funds if and when they shall become Series of First Trust Exchange-Traded AlphaDEX Fund II: First Trust Global Commodity AlphaDEX(R) Fund First Trust Dividend AlphaDEX(R) Fund First Trust International Dividend AlphaDEX(R) Fund First Trust Emerging Markets Dividend AlphaDEX(R) Fund First Trust Global Agriculture AlphaDEX(R) Fund Sch. I ATTACHMENT A Subject to the terms and conditions of the attached Participant Agreement, this document supplements the Prospectuses for the Series of First Trust Exchange-Traded AlphaDEX Fund II and is an attachment to, and incorporated into and made a part of, the Participant Agreement with respect to the procedures to be used by (i) the Transfer Agent in processing an order for the creation of Shares, and (ii) the Transfer Agent in processing a request for the redemption of Shares, and (iii) the Participants and the Transfer Agent in delivering or arranging for the delivery of requisite cash payments, Fund Deposit or Shares, as the case may be, in connection with the submission of orders for creation or requests for redemption. Capitalized terms not otherwise defined have the meaning assigned to them in the Participant Agreement. A Participant is first required to have signed the Participant Agreement. Upon acceptance of the Participant Agreement by the Distributor, the Transfer Agent will assign a unique personal identification number ("PIN Number") to each Authorized Person authorized to act for the Participant. This will allow a Participant through its Authorized Person(s) to place orders for either creation or redemption of Shares. SECTION I. TO PLACE AN ORDER FOR CREATION OR REDEMPTION OF SHARES 1. Call to Receive a Submission Number. An Authorized Person for the Participant will call the Trust Telephone Representative at (617) 772-2011 not later than the closing time of the regular trading session on The New York Stock Exchange (the "NYSE Closing Time") (ordinarily 4:00 p.m. New York time) to receive a submission number ("Submission Number"). In the case of custom orders, the order must be received by the Transfer Agent no later than 3:00 p.m. Eastern time on the trade date. Upon verifying the authenticity of the caller (as determined by the use of the appropriate PIN Number) and the terms of the order for creation or request for redemption, the Trust Telephone Representative will issue a unique Submission Number. All orders with respect to the creation or redemption of Shares are required to be in writing and accompanied by the designated Submission Number. Incoming telephone calls are queued and will be handled in the sequence received. Calls placed before the NYSE Closing Time will be processed even if the call is taken after this cut-off time. ACCORDINGLY, DO NOT HANG UP AND REDIAL. INCOMING CALLS THAT ARE ATTEMPTED LATER THAN THE NYSE CLOSING TIME WILL NOT BE ACCEPTED. 2. Assemble the Submission. The Authorized Person submitting an order to create or a request to redeem shall assemble (a) written instructions regarding such creation order or redemption request and (b) the designated Submission Number in one document and transmit such document by facsimile or telex to the Trust Telephone Representative and the Distributor, as applicable, according to the procedures set forth below in subsection 3. The document so transmitted is hereinafter referred to as the "Submission," and the Business Day on which a Submission is made is hereinafter referred to as the "Transmittal Date." As used herein, a Business Day ("Business Day") is any day on which The New York Stock Exchange is open. NOTE THAT THE TELEPHONE CALL IN WHICH THE SUBMISSION NUMBER IS ISSUED INITIATES THE ORDER PROCESS BUT DOES NOT ALONE CONSTITUTE THE ORDER. AN ORDER OR REQUEST IS ONLY COMPLETED AND PROCESSED UPON RECEIPT OF THE SUBMISSION. Attachment 1 - 1 - 3. Transmit the Submission. A Submission Number is only valid for a limited time. The Submission for either creations or redemptions of Shares must be sent by facsimile or telex to the Trust Telephone Representative, as applicable, within fifteen (15) minutes of the issuance of the Submission Number. In the event that the Submission is not received within such time period, the Trust Telephone Representative will attempt to contact the Participant to request immediate transmission of the Submission. (a) In the case of a Submission for creation, unless the Submission is received by the Trust Telephone Representative upon the earlier of within (i) fifteen (15) minutes of contact with the Participant or (ii) forty-five (45) minutes after the NYSE Closing Time, the Submission will be deemed invalid. (b) In the case of a Submission for redemption, unless such Submission is received by the Trust Telephone Representative within (i) fifteen (15) minutes of contact with the Participant or (ii) forty-five (45) minutes after the NYSE Closing Time, whichever is earlier, such order for redemption contained therein shall be deemed invalid. 4. Await Receipt of Confirmation. (a) Trusts' Clearing Process-Creation Orders. The Transfer Agent shall issue to the Participant a confirmation of acceptance of an order to create Shares in Creation Unit size aggregations ("Creation Order") through the Trusts' Clearing Process within fifteen (15) minutes of its receipt of a Submission received in good form. In the event the Participant does not receive a timely confirmation from the Transfer Agent, it should contact the Distributor and the Trust Telephone Representative at the business numbers indicated. (b) Trusts' Clearing Process-Requests for Redemptions. The Transfer Agent shall issue to the Participating Party a confirmation of acceptance of a request to redeem Shares in Creation Unit size aggregations ("Redemption Order") through the Trusts' Clearing Process within fifteen (15) minutes of its receipt of a Submission received in good form. In the event the Participating Party does not receive a timely confirmation from the Transfer Agent, it should contact the Transfer Agent directly at the business number indicated. (c) Outside the Trusts' Clearing Process -- Creation Orders. The Transfer Agent shall issue to the DTC Participant an acknowledgment of receipt of a Creation Order outside the Trusts' Clearing Process within fifteen (15) minutes of its receipt of a Submission received in good form. In the event the DTC Participant does not receive a timely acknowledgment from the Transfer Agent, it should contact the Transfer Agent at the business numbers indicated. (d) Outside the Trusts' Clearing Process -- Redemption Orders. The Transfer Agent shall issue to the DTC Participant an acknowledgment of receipt of a Redemption Order outside the Trusts' Clearing Process within fifteen (15) minutes of its receipt of a Submission received in good form. In the event the DTC Participant does not receive a timely acknowledgment from the Transfer Agent, it should contact the Transfer Agent directly at the business number indicated. Attachment 1 - 2 - SECTION II. PARTICIPANTS' RESPONSIBILITY FOR DELIVERING OR EFFECTING THE DELIVERY OF REQUISITE FUND DEPOSIT OR SHARES AND CASH PAYMENTS IN CONNECTION WITH CREATION ORDERS OR REDEMPTION ORDERS 1. Trusts' Clearing Process -- Creation Orders. The Participant notified of confirmation of a Creation Order to create Shares through the Trusts' Clearing Process shall be required to transfer or arrange for the transfer of (a) the requisite Deposit Securities (or contracts to purchase such Deposit Securities expected to be delivered through NSCC by the "regular way" settlement date) and (b) the Cash Component, if any, to the Transfer Agent by means of the Trusts' Clearing Process so as to be received no later than on the "regular way" settlement date following the Business Day on which such order is Deemed Received by the Transfer Agent as set forth below in Section IV. 2. Trusts' Clearing Process -- Redemption Orders. The Participant notified of confirmation of a Redemption Order to redeem Shares through the Trusts' Clearing Process shall be required to transfer or arrange for the transfer of the requisite Shares and the Cash Redemption Amount, as defined in the applicable Fund's Prospectus ("Cash Redemption Amount"), if any, to the Participant by means of the Trusts' Clearing Process so as to be received no later than on the "regular way" settlement date following the Business Day on which such order is Deemed Received by the Transfer Agent as set forth below in Section IV. 3. Outside the Trusts' Clearing Process -- Creation Orders. The DTC Participant notified of acknowledgment of a Creation Order to create Shares outside the Trusts' Clearing Process shall be required to effect a transfer to the Transfer Agent of (a) the requisite Deposit Securities through DTC so as to be received by the Transfer Agent no later than 11:00 a.m., Eastern Time, on the next Business Day immediately following the Business Day on which such order is Deemed Received by the Distributor as set forth below in Section IV, in such a way as to replicate the Fund Deposit established on the Transmittal Date by the Transfer Agent and (b) the Cash Component, if there is a positive Cash Component, through the Federal Reserve Bank wire system so as to be received by the Transfer Agent by 2:00 p.m., Eastern Time, on the next Business Day immediately following the day such order is Deemed Received. If the Transfer Agent does not confirm receipt of the Deposit Securities by 11:00 a.m. Eastern Time and the Cash Component, if any, by 2:00 p.m., Eastern Time, on the Business Day immediately following the day such order is Deemed Received, the Creation Order contained in such Submission shall be canceled. Upon written notice to the Transfer Agent, the DTC Participant may resubmit such canceled order on the following Business Day using a Fund Deposit as newly constituted. 4. Purchase of Creation Unit Aggregations Prior to Receipt of Deposit Securities. Creation Unit Aggregations may be created in advance of receipt by a Fund 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 applicable Fund's Shares on the date the Creation Order is placed in proper form since, in addition to available Deposit Securities, cash Attachment 1 - 3 - must be deposited in an amount equal to the sum of (i) the Cash Component, plus (ii) one hundred fifteen percent (115%) of the market value of the undelivered Deposit Securities (the "Additional Cash Deposit"). The Creation Order shall be deemed to be received on the Business Day on which the order is placed provided that the Creation 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 Transfer Agent by 11:00 a.m., Eastern time, the following Business Day. If the Creation Order is not placed in proper form by 4:00 p.m., Eastern time, or federal funds in the appropriate amount are not received by 11:00 a.m., Eastern time, the next Business Day, then the Creation Order may be deemed to be canceled and the Authorized Participant shall be liable to the Fund for losses, if any, resulting therefrom. An additional amount of cash shall be required to be deposited with the applicable Fund, pending delivery of the missing Deposit Securities to the extent necessary to maintain the Additional Cash Deposit with the Fund in an amount at least equal to one hundred fifteen percent (115%) of the daily marked to market value of the missing Deposit Securities. The parties hereto further agree that the Trust may purchase the missing Deposit Securities at any time and the Participant agrees to accept liability for any shortfall between the cost to the Trust of purchasing such securities and the amount of the Additional Cash Deposit maintained with the Fund, as the Trust may determine in its sole discretion. 5. Outside the Trusts' Clearing Process -- Redemption Orders. The Participant notified of acknowledgment of a Redemption Order to redeem Shares outside the Trusts' Clearing Process shall be required to effect a transfer to the Transfer Agent of (a) the requisite number of Shares through DTC no later than the NYSE Closing Time on the Business Day on which such Redemption Order is Deemed Received by the Transfer Agent and (b) the Cash Redemption Amount, if any, through the Federal Reserve Bank wire system by no later than 2:00 p.m. on the next Business Day immediately following the Business Day on which such order is Deemed Received by the Transfer Agent. 6. Transaction Fee. In connection with the creation or redemption of Creation Units, the Transfer Agent shall charge, and the Participant agrees to pay to the Transfer Agent, (i) the Creation Transaction Fee or Redemption Transaction Fee prescribed in the relevant Fund's Prospectus applicable to creations or redemptions through the Trusts' Clearing Process, or (ii) the applicable Creation Transaction Fee or Redemption Transaction Fee plus, in each case, such additional variable amounts as may be prescribed in the relevant Fund's Prospectus for (a) creations or redemptions outside the Trusts' Clearing Process and (b) creations through the Trusts' Clearing Process where the cash equivalent value of one or more Deposit Securities is being deposited in lieu of the inclusion of such Deposit Securities in the securities portion of the Fund Deposit. The Cash Component or Cash Redemption Amount payable or to be received, as the case may be, by the Participant in connection with the Creation Order or Redemption Order shall be adjusted by the amount of such applicable Transaction Fee and additional variable amounts, if any. 7. International Funds -- Creation Orders. (a) Except as provided below, Deposit Securities must be delivered to an account maintained at the applicable local Subcustodian of the Trust on or before the International Contractual Settlement Date (defined below). The Participant must also pay on or before the International Attachment 1 - 4 - Contractual Settlement Date immediately available or same day funds estimated by Trust to be sufficient to pay the Cash Component next determined after acceptance of the Creation Order, together with the applicable Creation Transaction Fee and additional variable amounts (as described below and in the Prospectus). The "International Contractual Settlement Date" with respect to each International Fund is the earlier of (i) the date upon which all of the required Deposit Securities, the Cash Component and any other cash amounts which may be due are delivered to the Fund and (ii) the latest day for settlement on the customary settlement cycle in the jurisdiction(s) where any of the securities of such International Fund are customarily traded. (b) Except as provided in the next two paragraphs, a Creation Unit of Shares will not be issued until the transfer of good title to the Trust of the portfolio of Deposit Securities, the payment of the Cash Component, the payment of any other cash amounts and the Creation Transaction Fee have been completed. When the Subcustodian confirms to Custodian that the required Deposit Securities (or, when permitted in the sole discretion of Trust, the cash in lieu thereof) have been delivered to the account of the relevant Subcustodian, the Custodian shall notify Distributor and the Transfer Agent which, acting on behalf of the Trust, will issue and cause the delivery of the Creation Unit of Shares. (c) The Trust may in its sole discretion 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 which may not be available in sufficient quantity for delivery or for other similar reasons. If the Distributor, acting on behalf of the Trust, determines that a "cash in lieu" amount will be accepted, the Distributor will notify the Participant and the Transfer Agent, and the Participant shall deliver, on behalf of itself or the party on whose behalf it is acting, the "cash in lieu" amount, with any appropriate adjustments as advised by the Distributor. (d) In the event that a Fund Deposit is incomplete on the International Contractual Settlement Date for a Creation Order because certain or all of the Deposit Securities are missing, the Trust may issue a Creation Unit of Shares notwithstanding such deficiency in reliance on the undertaking of the Participant to deliver the missing Deposit Securities as soon as possible, which undertaking shall be secured by an Additional Cash Deposit with respect to undelivered Deposit Securities as described above in Section 4. (e) Cash shall be delivered through the Federal Reserve Bank wire system so as to be received by the Transfer Agent by 11:00 a.m., Eastern Time, on the International Contractual Settlement Date (defined above). (f) In addition to the Creation Transaction Fee, the Participant shall pay additional variable amounts which may include expenses incurred by the Fund in the transfer of Deposit Securities to the Fund in connection with a creation of Creation Units. These expenses may include operational processing and brokerage costs, transfer fees, stamp taxes and Attachment 1 - 5 - the like. When an International Fund permits a Participant to substitute cash or a different security in lieu of depositing one or more of the requisite Deposit Securities, the Participant may also be assessed an amount to cover the cost of purchasing the Deposit Securities and/or disposing of the substituted securities, including operational processing and brokerage costs, transfer fees, stamp taxes, and part or all of the spread between the expected bid and offer side of the market related to such Deposit Securities and/or substitute securities. 8. International Funds -- Redemption Orders. (a) A Participant must maintain appropriate securities broker-dealer, bank or other custody arrangements to which account Deposit Securities will be delivered in connection with a Redemption Order. If the Participant, or any party on whose behalf the Participant is acting, does not have appropriate arrangements to take delivery of the Deposit Securities in the relevant foreign jurisdiction(s) and it is not possible to make other such arrangements, the Participant will be required to receive redemption proceeds in cash, as described in paragraph (d) below. (b) The delivery of redemption proceeds will be made within twelve calendar days after the Redemption Order is received in proper form, except to the extent that a delivery is delayed due to the introduction of new or special holidays, the treatment by participants in the local market of certain days as "informal holidays" (e.g., days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), or changes in local securities delivery practices. Under these circumstances, the Fund will notify the Participant as soon as reasonably practicable (c) The Trust may in its sole discretion 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 which may not be available in sufficient quantity for delivery or for other similar reasons. If the Distributor, acting on behalf of the Trust, determines that a "cash in lieu" amount will be delivered, Distributor will notify the Participant and the Transfer Agent and the Participant shall receive the "cash in lieu" amount, with any appropriate adjustments as advised by Trust. (d) If a redeeming Participant, or any party on whose behalf the Participant is acting, does not have appropriate arrangements to take delivery of the Deposit Securities in the relevant foreign jurisdiction(s) and it is not possible to make other such arrangements, or if it is not possible to effect deliveries of the Deposit Securities in such foreign jurisdiction(s) and in certain other circumstances, the Trust may in its discretion redeem Shares for cash, and the redeeming Participant, on behalf of itself or any party for which it is acting, will be required to receive redemption proceeds in cash. In such case, the Participant will receive a cash payment equal to the net asset value (next determined after receipt of the Redemption Order) times the number of Shares in a Creation Unit of the relevant International Fund, minus the Transaction Fee. Attachment 1 - 6 - (e) Cash shall be delivered through the Federal Reserve Bank wire system by no later than 2:00 p.m. on the next Business Day immediately following the Business Day on which such order is Deemed Received by the Transfer Agent. Shares shall be delivered no later than 2:00 p.m. on the next Business Day immediately following the Business Day on which such order is Deemed Received by the Transfer Agent. (f) In addition to the Redemption Transaction Fee, the Participant shall pay additional variable amounts which may include expenses incurred by the Fund in the transfer of Deposit Securities to the Participant. These expenses may include operational processing and brokerage costs, transfer fees, stamp taxes and the like. When an International Fund redeems Shares for cash, the Participant may also be assessed an amount to cover the cost of selling the Deposit Securities, including operational processing and brokerage costs, transfer fees and stamp taxes. SECTION III. TRANSFER AGENT'S RESPONSIBILITY FOR EFFECTING DELIVERY OF REQUISITE SHARES OR SECURITIES AND CASH PAYMENTS IN CONNECTION WITH ORDERS FOR CREATION OR REQUESTS FOR REDEMPTION 1. Trusts' Clearing Process -- Creation Orders. After the Transfer Agent has received notification of a Submission from the Participant for a Creation Order for Shares through the Trusts' Clearing Process which has been Deemed Received by the Transfer Agent as set forth below in Section IV, the Transfer Agent shall initiate procedures to transfer the requisite Shares and the Cash Component, if any, through the Trusts' Clearing Process so as to be received by the creator no later than on the "regular way" settlement date following the Business Day on which the Submission is Deemed Received by the Transfer Agent. 2. Trusts' Clearing Process -- Redemption Orders. After the Transfer Agent has received a Submission for a Redemption Order for Shares through the Trusts' Clearing Process which has been Deemed Received by the Transfer Agent as set forth below in Section IV, the Transfer Agent shall initiate procedures to transfer the requisite securities (or contracts to purchase such securities expected to be delivered through NSCC by the "regular way" settlement date) and the Cash Redemption Amount, if any, through the Trusts' Clearing Process so as to be received by the beneficial owner no later than on the "regular way" settlement date following the Business Day on which the Submission is Deemed Received by the Transfer Agent. 3. Outside the Trusts' Clearing Process -- Creation Orders. After the Transfer Agent has received notification of a Submission from the Participant for a Creation Order for Shares outside the Trusts' Clearing Process which has been Deemed Received by the Transfer Agent as set forth below in Section IV, the Transfer Agent shall initiate procedures to transfer the requisite Shares through DTC and the Participants and the Cash Component, if any, through the Federal Reserve Bank wire system so as to be received by the creator no later than the same Business Day on which the transfer of Deposit Securities is required to be made pursuant to Section IV (3) in order for the Deemed Received order to continue to be Deemed Received. A Creation Order relating to Shares of an International Fund will be processed in the manner provided in this paragraph. Attachment 1 - 7 - 4. Outside the Trusts' Clearing Process -- Redemption Orders. After the Transfer Agent has received a Submission for a Redemption Order for Shares outside the Trusts' Clearing Process which has been Deemed Received by the Transfer Agent as set forth below in Section IV, the Transfer Agent shall initiate procedures to transfer the requisite securities (or contracts to purchase such securities expected to be delivered within three Business Days) through DTC and the DTC Participants and the Cash Redemption Amount, if any, through the Federal Reserve Bank wire system so as to be received by the Participant no later than the same Business Day on which the transfer of Shares is required to be made pursuant to Section IV (4) in order for the Deemed Received order to continue to be Deemed Received. A Redemption Order relating to Shares of an International Fund will be processed in the manner provided in this paragraph, except as otherwise provided in Section II 8 (b). SECTION IV. PROCEDURES BY WHICH AN ORDER TO CREATE OR A REQUEST TO REDEEM SHALL BE "DEEMED RECEIVED" 1. Trusts' Clearing Process -- Creation Orders. A Creation Order to create Shares through the Trusts' Clearing Process shall be "Deemed Received" by the Transfer Agent on the Transmittal Date only if (a) the Submission containing such order is in proper form and (b) such Submission is received by the Transfer Agent no later than the time on such Transmittal Date as set forth in Section I(3)(a) hereof. Orders to create Shares contained in Submissions transmitted after such time on a Transmittal Date shall be deemed invalid. 2. Trusts' Clearing Process -- Redemption Orders. A Redemption Order to redeem Shares through the Trusts' Clearing Process shall be Deemed Received by the Transfer Agent on the Transmittal Date only if (a) the Submission containing such request is in proper form and (b) such Submission is received by the Transfer Agent no later than the time on such Transmittal Date as set forth in Section I(3)(b) hereof. Requests to redeem Shares contained in Submissions transmitted after such time on a Transmittal Date shall be "Deemed Received" by the Transfer Agent on the next Business Day immediately following such Transmittal Date. 3. Outside the Trusts' Clearing Process -- Creation Orders. An Creation Order to create Shares outside the Trusts' Clearing Process shall be Deemed Received by the Transfer Agent on the Transmittal Date only if: (a) the Submission containing such order is in proper form, and (b) such Submission is received by the Transfer Agent no later than the time on such Transmittal Date as set forth in Section I(3)(a) hereof, provided, however, that such order shall cease to be Deemed Received unless (a) the requisite number of Deposit Securities is transferred through DTC to the account of the applicable Fund no later than 11:00 a.m., Eastern Time, on the Business Day next following the Transmittal Date and (b) the cash equal to the Cash Component, if any, is transferred via the Federal Reserve Bank wire system to the account of the applicable Fund by no later than 2:00 p.m., Eastern Time, on the Business Day next following the Transmittal Date. If either the Submission, the requisite Deposit Securities or the cash equal to the Cash Component is not received by the Transfer Agent within the time periods set forth above, such order shall be deemed invalid. 4. Outside the Trusts' Clearing Process -- Redemption Orders. A request to redeem Shares outside the Trusts' Clearing Process shall be Deemed Received by Attachment 1 - 8 - the Transfer Agent on the Transmittal Date only if (a) the Submission containing such request is in proper form, and (b) such Submission is received by the Transfer Agent no later than the time as set forth in Section I(3)(b) hereof, provided, however, that such order shall cease to be Deemed Received unless (a) the requisite number of Shares is transferred via DTC to the account of the Transfer Agent by the NYSE Closing Time on such Transmittal Date and (b) the Cash Redemption Amount owed to the applicable Fund, if any, is received by the Transfer Agent no later than 2:00 p.m., Eastern Time, of the Business Day next following such Transmittal Date. If either the Submission, the Shares or cash equal to the Cash Redemption Amount, if any, is not received by the applicable Fund within the time periods set forth above, such redemption request shall be Deemed Received by the Transfer Agent on the Business Day on which both the Submission and the requisite number of Shares are delivered to the Transfer Agent within the proper time periods as set forth above; provided that the Cash Redemption Amount, if any, is then paid on the next Business Day within the time period set forth above. 5. Ambiguous Instructions. In the event that a Submission contains terms that differ from the information provided in the telephone call at the time of issuance of the Submission Number, the Trust Telephone Representative will attempt to contact the Participant to request confirmation of the terms of the order. If an Authorized Person confirms the terms as they appear in the Submission then the Submission will be accepted and processed. If an Authorized Person contradicts its terms, the Submission will be deemed invalid, and a corrected Submission must be received by the Transfer Agent, as applicable, not later than the earlier of (i) within fifteen (15) minutes of such contact with the Participant or (ii) forty-five (45) minutes after the NYSE Closing Time. For the avoidance of doubt, notwithstanding the invalidation of the initial Submission pursuant to this paragraph, a Submission that is otherwise in proper form shall be deemed submitted at the time of its initial Submission for purposes of determining when orders are Deemed Received hereunder. If the Trust Telephone Representative is not able to contact an Authorized Person, then the Submission shall be accepted and processed in accordance with its terms notwithstanding any inconsistency from the terms of the telephone information. In the event that a Submission contains terms that are illegible, the Submission will be deemed invalid and the Trust Telephone Representative will attempt to contact the Participant to request retransmission of the Submission. A corrected Submission must be received by the Transfer Agent, as applicable, not later than the earlier of (i) within fifteen (15) minutes of such contact with the Participant or (ii) forty-five (45) minutes after the NYSE Closing Time. 6. Suspension or Rejection of an Order. Each Trust reserves the absolute right to reject a Creation Order transmitted to it by the Distributor in respect of a Fund if: (i) the order is not in proper form; (ii) the Deposit Securities delivered are not as disseminated for that date by the Custodian, as described above; (iii) acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (iv) acceptance of the Fund Deposit would otherwise, in the reasonable opinion of the applicable Trust or its investment adviser (the "Adviser"), have an adverse effect on the Trust, the applicable Fund or the rights of beneficial owners; or (v) in the event that circumstances exist outside the control of the applicable Trust or Fund, the Transfer Agent, the Distributor and the Adviser that, in their reasonable judgment, 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; Attachment 1 - 9 - systems failures involving computer or other information systems affecting a Trust or Fund, the Adviser, the Distributor, DTC, NSCC, the Transfer Agent, the Custodian or sub-custodian or any other participant in the creation process, and similar extraordinary events. The applicable Trust shall notify immediately 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. Each Trust and Fund, 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, and shall not incur any liability for the failure to give any such notification. SECTION V. TELEPHONE, FACSIMILE, AND TELEX NUMBERS FIRST TRUST EXCHANGE-TRADED ALPHADEX (R) FUND II: Telephone: (630) 765-8000 Facsimile: (630) 517-7509 TRANSFER AGENT: Telephone: (617) 772-2011 Facsimile: (201) 418-4105 PARTICIPANT:: Telephone: ________________ Facsimile: ________________ FIRST TRUST PORTFOLIOS, L.P. By ____________________________________ Title:______________________________ PARTICIPANT: _____________________________ By ____________________________________ Title:______________________________ ACCEPTED BY: BROWN BROTHERS HARRIMAN & CO., as Transfer Agent By_________________________________________________ Title:________________________________________ Dated:_____________________________________________ Attachment 1 - 10 - EX-99.J OTHER OPININ 7 exhibit_j.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in this Post-Effective Amendment No. 10 to Registration Statement No. 333-171759 on Form N-1A of our report dated February 27, 2012, relating to the financial statements and financial highlights of First Trust Exchange-Traded AlphaDEX(R) Fund II, comprised of First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund, First Trust Europe AlphaDEX(R) Fund, First Trust Latin America AlphaDEX(R) Fund, First Trust Brazil AlphaDEX(R) Fund, First Trust China AlphaDEX(R) Fund, First Trust Japan AlphaDEX(R) Fund, First Trust South Korea AlphaDEX(R) Fund, First Trust Developed Markets Ex-US AlphaDEX(R) Fund and First Trust Emerging Markets AlphaDEX(R) Fund appearing in the Annual Report on Form N-CSR for First Trust Exchange-Traded AlphaDEX(R) Fund II, for the periods ended December 31, 2011 and to the references to us under the headings "Financial Highlights" in the Prospectus and "Financial Statements" and "Independent Registered Public Accounting Firm" in the Statement of Additional Information, which are part of such Registration Statement. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois April 26, 2012 EX-99.M 12B-1 PLAN 8 exhibit_m2.txt AMENDED EXHIBIT A OF THE 12B-1 SERVICE PLAN EXHIBIT A EFFECTIVE AS OF FEBRUARY 10, 2012 FUNDS EFFECTIVE DATE First Trust Developed Markets Ex-US AlphaDEX(R) Fund April 8, 2011 First Trust Emerging Markets AlphaDEX(R) Fund April 8, 2011 First Trust Asia Pacific Ex-Japan AlphaDEX(R) Fund April 8, 2011 First Trust Europe AlphaDEX(R) Fund April 8, 2011 First Trust Latin America AlphaDEX(R) Fund April 8, 2011 First Trust Brazil AlphaDEX(R) Fund April 8, 2011 First Trust China AlphaDEX(R) Fund April 8, 2011 First Trust Japan AlphaDEX(R) Fund April 8, 2011 First Trust South Korea AlphaDEX(R) Fund April 8, 2011 First Trust Australia AlphaDEX(R) Fund February 10, 2012 First Trust Canada AlphaDEX(R) Fund February 10, 2012 First Trust Germany AlphaDEX(R) Fund February 10, 2012 First Trust Hong Kong AlphaDEX(R) Fund February 10, 2012 First Trust Switzerland AlphaDEX(R) Fund February 10, 2012 First Trust Taiwan AlphaDEX(R) Fund February 10, 2012 First Trust United Kingdom AlphaDEX(R) Fund February 10, 2012 First Trust Developed Markets Small Cap AlphaDEX(R) Fund February 10, 2012 First Trust Emerging Markets Small Cap AlphaDEX(R) Fund February 10, 2012 EX-99.M 12B-1 PLAN 9 exhibit_m3.txt LETTER AGREEMENT REGARDING 12B-1 FEES FIRST TRUST ------------------------------------------------------------------------------- April 30, 2012 First Trust Exchange-Traded AlphaDEX(R) Fund II 120 East Liberty Drive Wheaton, Illinois 60187 Ladies and Gentlemen: It is hereby acknowledged that First Trust Portfolios L.P. serves as the distributor of the Shares of each series of First Trust Exchange-Traded AlphaDEX(R) Fund II ("Trust"). The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), comprised of various exchange-traded funds (each, a "Fund," and, collectively, the "Funds"), which may be amended from time to time. It is further acknowledged that the Trust has adopted a Distribution and Service Plan (the "Plan") pursuant to Rule l2b-1 under the Investment Company Act of 1940 with respect to the shares of beneficial interest ("Shares") of the Funds. Pursuant to the Plan, each Fund may bear a fee not to exceed 0.25% per annum of such Fund's average daily net assets. Capitalized terms used herein but not otherwise defined shall have the meanings assigned to them in the Plan. The purpose of this letter agreement is to agree and acknowledge that the Funds shall not pay, and we shall not collect, any fees pursuant to the Plan any time before April 30, 2013. Very Truly Yours, FIRST TRUST PORTFOLIOS L.P. /s/ Mark R. Bradley ------------------------------------------- Mark R. Bradley Chief Financial Officer, Chief Operating Officer AGREED AND ACKNOWLEDGED: FIRST TRUST EXCHANGE-TRADED ALPHADEX FUND II /s/ Mark R. Bradley --------------------------------- Mark R. Bradley President