N-CSR/A 1 ncsra.txt AMENDED ANNUAL SHAREHOLDER REGISTRATION STATEMENT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-21774 ---------- First Trust Exchange-Traded Fund -------------------------------------------------- (Exact name of registrant as specified in charter) 1001 Warrenville Road, Suite 300 Lisle, IL 60532 --------------------------------------------------- (Address of principal executive offices) (Zip code) W.Scott Jardine, Esq. First Trust Portfolios L.P. 1001 Warrenville Road, Suite 300 Lisle, IL 60532 --------------------------------------- (Name and address of agent for service) registrant's telephone number, including area code: (630) 241-4141 --------------- Date of fiscal year end: December 31 ----------- Date of reporting period: December 31, 2005 ----------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. The Report to Shareholders is attached herewith. First Trust Exchange-Traded Fund -------------------------------------------------------------------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund SUPPLEMENT TO THE ANNUAL REPORT FOR THE PERIOD SEPTEMBER 27, 2005 (COMMENCEMENT OF INVESTMENT OPERATIONS) THROUGH DECEMBER 31, 2005 PERFORMANCE AS OF DECEMBER 31, 2005 (UNAUDITED) Cumulative Total Returns ----------------------------------------------- Inception to 12/31/05 ------------- --------------- ----------------- NAV Market Index 3.74% 3.59% 3.97% Total returns for the period since inception are calculated from 09/27/05, the commencement of operations of the First Trust Dow Jones Select MicroCap Index(SM) Fund (the "Fund"). "Cumulative total returns" represent the total change in value of an investment over the periods indicated. The Fund's per share net asset value ("NAV") is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return ("Market Price") is determined by using the midpoint between the highest bid and the lowest offer on the American Stock Exchange ("AMEX"), the stock exchange on which shares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. Since shares of the Fund did not trade in the secondary market until several days after the Fund's inception, for the period from inception to the first day of secondary market trading in shares of the Fund (09/30/05), the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Price, respectively. The Dow Jones Select MicroCap Index(SM) (the "Index") measures the performance of selected U.S. micro-capitalization companies chosen from all common stocks traded on the New York Stock Exchange, the AMEX and the NASDAQ National Market that are comparatively liquid and have strong fundamentals relative to the micro-capitalization segment as a whole. Unlike the Fund, the Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The returns included in the table above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2005 (UNAUDITED) The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the periods indicated. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV Quarter 0 to 49 50 to 99 100 to 199 > 200 Ended Basis Points Basis Points Basis Points Basis Points ----- ------------ ------------ ------------ ------------ 12/31/2005* 31 1 3 0 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV Quarter 0 to 49 50 to 99 100 to 199 > 200 Ended Basis Points Basis Points Basis Points Basis Points ----- ------------ ------------ ------------ ------------ 12/31/2005* 29 0 0 0 -------------------------------------------------------------------------------- * Trading commenced on September 30, 2005. [LOGO][GRAPHIC OMITTED] FRIST TRUST ADVISORS L.P. FIRST TRUST EXCHANGE-TRADED FUND ________________________________________________________________________________ Annual Report for the Period September 27, 2005 (Commencement of Investment Operations) through December 31, 2005 ------------------------------------------------------------------------------- TABLE OF CONTENTS ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2005 Shareholder Letter 1 Portfolio Commentary 2 Portfolio Components 3 Understanding Your Fund Expenses 4 Portfolio of Investments 5 Statement of Assets and Liabilities 15 Statement of Operations 16 Statement of Changes in Net Assets 17 Financial Highlights 18 Notes to Financial Statements 19 Report of Independent Registered Public Accounting Firm 22 Additional Information 23 Proxy Voting Policies and Procedures Portfolio Holdings Federal Income Tax Information Advisory Agreement Trustees and Officers 25 CAUTION REGARDING FORWARD-LOOKING STATEMENTS This Annual Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. (the "Advisor") and its respective representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as "anticipate," "estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or other words that convey uncertainty of future events or outcomes. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the First Trust Dow Jones Select MicroCap IndexSM Fund's (the "Fund") actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this Annual Report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its respective representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof. HOW TO READ THIS REPORT This report contains information that can help you evaluate your investment. It includes details about the portfolio and presents data and analysis that provide insight into the Fund's performance and investment approach. By reading the letter from the President of First Trust Exchange-Traded Fund, James A. Bowen, together with the portfolio commentary you will obtain an understanding of how the market environment affected its performance. The statistical information that follows can help you understand the Fund's performance compared to that of relevant market benchmarks. It is important to keep in mind that the opinions expressed by Mr. Bowen and personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. Of course, the risks of investing in the Fund are spelled out in the prospectus. ------------------------------------------------------------------------------- SHAREHOLDER LETTER ------------------------------------------------------------------------------- First Trust Exchange-Traded Fund Annual Report December 31, 2005 Dear Shareholders: We are pleased to present the first annual report to shareholders of First Trust Dow Jones Select MicroCap Indexsm Fund (the "Fund" AMEX: FDM), the initial series of the First Trust Exchange-Traded Fund. Although it is a short reporting period, the Fund is off to a good start. The Fund declared and distributed its first dividend in December and ended the year with a slight appreciation in net asset value ("NAV"). The Fund seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called The Dow Jones Select MicroCap Indexsm (the "Index"). The Index measures the performance of micro-capitalization stocks traded on the major U.S. exchanges, screening for size, trading volume and fundamentals. Micro caps exhibit a low correlation with the broad U.S. market and generally perform differently from equities overall. Therefore, they are viewed as an effective tool for portfolio diversification. Following is a review of the portfolio and an update on the Fund's performance. We thank you for your investment and look forward to serving you in the future. Sincerely, /s/ JAMES A. BOWEN James A. Bowen President of the First Trust Exchange-Traded Fund February 10, 2006 Page 1 ------------------------------------------------------------------------------- PORTFOLIO COMMENTARY ------------------------------------------------------------------------------- First Trust Exchange-Traded Fund 2005 Annual Report First Trust Dow Jones Select MicroCap Index(sm) Fund The First Trust Dow Jones Select MicroCap Index(sm) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called The Dow Jones Select MicroCap Index(sm) (the "Index"). The Index measures the performance of selected U.S. micro-capitalization companies chosen from all common stocks traded on the New York Stock Exchange ("NYSE"), the American Stock Exchange, Inc. ("AMEX") and the NASDAQ National Market ("NASDAQ") that are comparatively liquid and have strong fundamentals relative to the microcapitalization segment as a whole. In seeking to achieve the Fund's objective, the Fund generally will invest in all of the stocks comprising the Index in proportion to their weightings in the Index. For the period September 27, 2005 (commencement of investment operations) through December 31, 2005, the Fund returned 3.74%, while the Index returned 3.97%. Portfolio Allocation as of December 31, 2005
% OF % OF SECTOR NET ASSETS SECTOR NET ASSETS Consumer Discretionary 16.7 Information Technology 19.0 Consumer Staples 2.5 Materials 4.7 Energy 3.9 Telecommunications 0.9 Financial Services 19.4 Utility 1.2 Health Care 10.0 Cash and Equivalents 0.8 Industrials 20.9
Distributions On December 30, 2005, the Fund paid ordinary distributions of $0.0184 per share. Market Overview Microcap stocks slightly outperformed the overall market for the period September 27, 2005 through December 31, 2005. The S&P 500 Index advanced a total of 3.21%. The Index returned 3.97% for the same period. The best performing sector for the Fund was materials. The largest sector weight as of December 31, 2005, industrials, produced a minimally positive return for the period. The top performing stocks, by percentage gain, were Citi Trends, Inc., Multi-Fineline Electronix, Inc., Gymboree Corp., Candela Corp. and The Andersons, Inc. The four sectors which carried the lowest weightings for the Fund as of December 31, 2005, consumer staples, energy, telecommunications and utility, all declined for the period. The worst performing stocks, by percentage loss, were Nash Finch Co., Bottomline Technologies, Inc., Presstek, Inc., Sonic Solutions, Inc. and Merit Medical Systems, Inc. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC -------------------------------------------------------------------------------- Growth of a $10,000 Initial Investment September 27, 2005 - December 31, 2005 9/27/05 12/31/05 ------- -------- First Trust Dow Jones Select MicroCap Index(sm) Fund $10,000 $10,374 The Dow Jones Select MicroCap Index(sm) $10,000 $10,397 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the Index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance is no guarantee of future results. Page 2 ------------------------------------------------------------------------------- PORTFOLIO COMPONENTS ------------------------------------------------------------------------------- First Trust Dow Jones Select MicroCap Index(sm) Fund Portfolio Components* December 31, 2005
Commercial Services & Supplies 7.0% Multiline Retail 1.0% Commercial Banks 6.2% Paper & Forest Products 1.0% Machinery 4.9% Airlines 0.9% Electronic Equipment & Instruments 4.7% Distributors 0.9% Specialty Retail 4.6% Household Durables 0.9% Health Care Equipment & Supplies 4.5% Internet & Catalog Retail 0.9% Health Care Providers & Services 4.5% Metals & Mining 0.9% Real Estate 4.1% Road & Rail 0.8% Software 3.9% Water Utilities 0.7% Insurance 3.8% Building Products 0.6% Oil & Gas & Consumable Fuels 3.4% Diversified Telecommunication Services 0.6% Thrifts & Mortgage Finance 3.4% Leisure Equipment & Products 0.6% Hotels, Restaurants & Leisure 3.1% Media 0.6% Electrical Equipment 3.0% Biotechnology 0.5% IT Services 2.7% Electric Utilities 0.5% Aerospace & Defense 2.5% Energy Equipment & Services 0.5% Semiconductors & Semiconductor Equipment 2.2% Personal Products 0.5% Internet Software & Services 1.9% Pharmaceuticals 0.5% Textiles, Apparel & Luxury Goods 1.8% Air Freight & Logistics 0.4% Chemicals 1.7% Capital Markets 0.4% Computers & Peripherals 1.7% Diversified Consumer Services 0.4% Consumer Finance 1.6% Household Products 0.4% Auto Components 1.5% Industrial Conglomerates 0.4% Food Products 1.4% Food & Staples Retailing 0.3% Communications Equipment 1.3% Wireless Telecommunication Services 0.3% Trading Companies & Distributors 1.1% Beverages 0.2% Containers & Packaging 1.0% Net Other Assets and Liabilities 0.8%
* Percentages are based upon net assets. Page 3 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES December 31, 2005 As a shareholder of the First Trust Dow Jones Select MicroCap IndexSM Fund (the "Fund"), you incur ongoing costs, including management fees, distribution and/or service fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from September 27, 2005 to December 31, 2005. Actual Expenses The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period September 27, 2005 (Commencement of Investment Operations) to December 31, 2005" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line in the following table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads). Therefore the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses Paid During Beginning Annualized Period* Account Value Expense Ratio September 27, 2005 September 27, 2005 Ending Based on the (Commencement of (Commencement of Account Value Number of Days Investment Operations) Investment Operations) December 31, 2005 in the Period to December 31, 2005 First Trust Dow Jones Select MicroCap Index(sm) Fund Actual $1,000 $1,037 0.60% $1.61 Hypothetical (5% return before expenses) $1,000 $1,012 0.60% $1.59
* Expenses are equal to the Fund's annualized expense ratio of 0.60%, multiplied by the average account value over the period, multiplied by 96/365 (to reflect the actual period September 27, 2005 (commencement of investment operations) to December 31, 2005). Page 4 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(sm) FUND PORTFOLIO OF INVESTMENTS December 31, 2005 Market Shares Value ------ ------ COMMON STOCKS--99.2% Aerospace & Defense--2.5% 10,723 AAR Corp.* $ 256,816 4,762 ARGON ST, Inc.* 147,527 5,504 EDO Corp. 148,938 6,797 Essex Corp.* 115,889 4,992 Herley Industries, Inc.* 82,418 3,522 MTC Technologies, Inc.* 96,432 3,763 United Industrial Corp. 155,675 ---------- 1,003,695 ---------- Air Freight & Logistics--0.4% 20,480 ABX Air, Inc.* 160,358 ---------- Airlines--0.9% 13,368 ExpressJet Holdings, Inc.* 108,147 10,120 Republic Airways Holdings, Inc.* 153,824 7,635 World Air Holdings, Inc.* 73,449 ---------- 335,420 ---------- Auto Components--1.5% 7,474 Aftermarket Technology Corp.* 145,295 5,875 Drew Industries, Inc.* 165,616 5,626 Keystone Automotive Industries, Inc.* 177,106 5,100 Midas, Inc.* 93,636 ---------- 581,653 ---------- Beverages--0.2% 3,197 Boston Beer (The) Co., Inc., Class A* 79,925 ---------- Biotechnology--0.5% 7,331 Albany Molecular Research, Inc.* 89,072 3,652 Kendle International, Inc.* 94,002 ---------- 183,074 ---------- Building Products--0.6% 3,858 American Woodmark Corp. 95,640 8,979 Apogee Enterprises, Inc. 145,639 ---------- 241,279 ---------- Capital Markets--0.4% 11,955 TradeStation Group, Inc.* 148,003 ---------- Chemicals--1.7% 8,228 Arch Chemicals, Inc. 246,017 12,254 Calgon Carbon Corp. 69,725 3,965 Pioneer Cos., Inc.* 118,831 11,288 Spartech Corp. 247,772 ---------- 682,345 ---------- See Notes to Financial Statements. Page 5 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(sm) FUND PORTFOLIO OF INVESTMENTS - (Continued) December 31, 2005 Market Shares Value ------ ------ COMMON STOCKS - (Continued) Commercial Banks--6.2% 3,657 Bank of the Ozarks, Inc. $ 134,943 8,561 Cardinal Financial Corp. 94,171 2,507 Columbia Bancorp. 103,414 5,483 Columbia Banking Systems, Inc. 156,540 3,829 First Indiana Corp. 131,641 936 First Regional Bancorp* 63,227 3,085 IBERIABANK Corp. 157,366 5,396 Independent Bank Corp. 153,948 5,673 Main Street Banks, Inc. 154,476 2,666 Mercantile Bank Corp. 102,641 5,480 Old Second Bancorp, Inc. 167,524 4,783 Southwest Bancorp, Inc. 95,660 6,281 Sterling Bancorp 123,924 9,431 Sterling Financial Corp. 186,734 8,233 Texas Capital Bancshares, Inc.* 184,502 7,659 Unizan Financial Corp. 203,422 3,400 Vineyard National Bancorp Co. 104,856 7,941 Wilshire Bancorp, Inc. 136,506 ---------- 2,455,495 ---------- Commercial Services & Supplies--7.0% 12,398 Bowne & Co., Inc. 183,986 6,137 Casella Waste Systems, Inc.* 78,492 4,453 CDI Corp. 122,012 6,232 Central Parking Corp. 85,503 4,599 Clean Harbors, Inc.* 132,497 3,903 CRA International, Inc.* 186,134 4,754 Duratek, Inc.* 70,977 8,933 Ennis, Inc. 162,313 8,407 Healthcare Services Group 174,109 6,720 Heidrick & Struggles International, Inc.* 215,376 2,636 Huron Consulting Group, Inc.* 63,238 4,858 Innovative Solutions & Support, Inc.* 62,085 12,518 Kforce, Inc.* 139,701 4,158 LECG Corp.* 72,266 7,031 McGrath Rentcorp. 195,462 5,342 Mobile Mini, Inc.* 253,212 2,556 Providence Service (The) Corp.* 73,587 1,496 Schawk, Inc. 31,042 5,545 SOURCECORP.* 132,969 21,409 Spherion Corp.* 214,304 5,392 Standard Register (The) Co. 85,248 ---------- 2,734,513 ---------- Communications Equipment--1.3% 6,013 Anaren, Inc.* 93,983 2,939 Bel Fuse, Inc., Class B 93,460 7,085 Inter-Tel, Inc. 138,654 6,283 Spectralink Corp. 74,579 6,017 Superior Essex, Inc.* 121,303 ---------- 521,979 ---------- Page 6 See Notes to Financial Statements. FIRST TRUST DOW JONES SELECT MICROCAP INDEX(sm) FUND PORTFOLIO OF INVESTMENTS - (Continued) December 31, 2005 Market Shares Value ------ ------ COMMON STOCKS - (Continued) Computers & Peripherals--1.7% 21,507 Advanced Digital Information Corp.* $ 210,554 15,247 Dot Hill Systems Corp.* 105,662 9,739 Novatel Wireless, Inc.* 117,939 4,903 Presstek, Inc.* 44,323 2,894 Rimage Corp.* 83,868 3,645 Stratasys, Inc.* 91,161 ---------- 653,507 ---------- Consumer Finance--1.6% 4,516 ACE Cash Express, Inc.* 105,449 5,906 Collegiate Funding Services, Inc.* 116,644 3,645 Dollar Financial Corp.* 43,740 4,731 First Cash Financial Services, Inc.* 137,956 2,012 United PanAm Financial Corp.* 52,050 5,779 World Acceptance Corp.* 164,701 ---------- 620,540 ---------- Containers & Packaging--1.0% 6,857 Chesapeake Corp. 116,432 9,447 Myers Industries, Inc. 137,737 10,930 Rock-Tenn Co., Class A 149,195 ---------- 403,364 ---------- Distributors--0.9% 2,635 Andersons (The), Inc. 113,516 6,674 Audiovox Corp.* 92,502 11,710 Source Interlink Cos., Inc.* 130,215 ---------- 336,233 ---------- Diversified Consumer Services--0.4% 5,492 Encore Capital Group, Inc.* 95,286 2,311 Escala Group, Inc.* 46,867 ---------- 142,153 ---------- Diversified Telecommunication Services--0.6% 14,863 General Communication, Inc., Class A* 153,534 9,720 Talk America Holdings, Inc.* 83,884 ---------- 237,418 ---------- Electric Utilities--0.5% 8,972 Empire District Electric (The) Co. 182,401 ---------- Electrical Equipment--3.0% 13,081 Artesyn Technologies, Inc.* 134,734 12,901 CTS Corp. 142,685 5,698 Daktronics, Inc. 168,490 7,145 EnerSys* 93,171 17,224 General Cable Corp.* 339,313 8,647 II-VI, Inc.* 154,522 See Notes to Financial Statements. Page 7 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(sm) FUND PORTFOLIO OF INVESTMENTS - (Continued) December 31, 2005 Market Shares Value ------ ------ COMMON STOCKS - (Continued) Electrical Equipment--(Continued) 3,530 LaBarge, Inc. $ 50,726 6,935 LSI Industries, Inc. 108,602 ---------- 1,192,243 ---------- Electronic Equipment & Instruments--4.7% 10,680 Agilysys, Inc. 194,590 9,831 Bell Microproducts, Inc.* 75,207 8,932 Brightpoint, Inc.* 247,683 6,130 Digital Theater Systems, Inc.* 90,724 6,084 LoJack Corp.* 146,807 4,795 Measurement Specialties, Inc.* 116,758 7,395 Mercury Computer Systems, Inc.* 152,559 13,132 Methode Electronics, Inc., Class A 130,926 2,969 Multi-Fineline Electronix, Inc.* 143,017 1,826 PAR Technology Corp.* 50,690 6,362 Park Electrochemical Corp. 165,285 7,011 Radisys Corp.* 121,571 5,245 Rofin-Sinar Technologies, Inc.* 228,000 ---------- 1,863,817 ---------- Energy Equipment & Services--0.5% 7,063 GulfMark Offshore, Inc.* 209,206 ---------- Food & Staples Retailing--0.3% 2,948 Nash Finch Co. 75,115 4,503 Smart & Final, Inc.* 57,999 ---------- 133,114 ---------- Food Products--1.4% 1,532 Green Mountain Coffee Roasters, Inc.* 62,199 2,423 J & J Snack Foods Corp. 143,950 10,228 Lance, Inc. 190,548 4,891 Peet's Coffee & Tea, Inc.* 148,442 ---------- 545,139 ---------- Health Care Equipment & Supplies--4.5% 3,715 Angiodynamics, Inc.* 94,844 7,891 Candela Corp.* 113,946 4,056 Cantel Medical Corp.* 72,765 3,250 Cutera, Inc.* 85,670 4,367 Datascope Corp. 144,329 6,278 DJ Orthopedics, Inc.* 173,147 14,457 Encore Medical Corp.* 71,562 7,517 Greatbatch, Inc.* 195,517 4,403 ICU Medical, Inc.* 172,642 7,888 Meridian Bioscience, Inc. 158,864 5,685 Merit Medical Systems, Inc.* 69,016 6,125 Molecular Devices Corp.* 177,196 5,480 SonoSite, Inc.* 191,855 9,651 TriPath Imaging, Inc.* 58,292 ---------- 1,779,645 ---------- Page 8 See Notes to Financial Statements. FIRST TRUST DOW JONES SELECT MICROCAP INDEX(sm) FUND PORTFOLIO OF INVESTMENTS - (Continued) December 31, 2005 Market Shares Value ------ ------ COMMON STOCKS - (Continued) Health Care Providers & Services--4.5% 11,460 Allied Healthcare International, Inc.* $ 70,364 10,105 AMN Healthcare Services, Inc.* 199,877 2,783 Computer Programs & Systems, Inc. 115,300 8,184 Gentiva Health Services, Inc.* 120,632 11,058 HealthTronics, Inc.* 84,594 4,336 Horizon Health Corp.* 98,124 4,334 Lifeline Systems, Inc.* 158,451 1,838 Medcath Corp.* 34,095 12,126 Odyssey HealthCare, Inc.* 226,028 7,319 Option Care, Inc. 97,782 5,908 Phase Forward, Inc.* 57,603 3,888 Radiation Therapy Services, Inc.* 137,285 5,909 RehabCare Group, Inc.* 119,362 6,360 Res-Care, Inc.* 110,473 6,001 Symbion, Inc.* 138,023 ---------- 1,767,993 ---------- Hotels, Restaurants & Leisure--3.1% 7,283 AFC Enterprises* 110,119 4,936 BJ'S Restaurants, Inc.* 112,837 3,144 Churchill Downs, Inc. 115,479 4,997 Dave & Buster's, Inc.* 87,997 6,338 Lone Star Steakhouse & Saloon, Inc. 150,464 7,900 Luby's, Inc.* 105,070 13,285 Progressive Gaming Corp.* 131,123 3,055 Monarch Casino & Resort, Inc.* 69,043 14,642 Ryan's Restaurant Group, Inc.* 176,583 9,660 Steak N Shake (The) Co.* 163,737 ---------- 1,222,452 ---------- Household Durables--0.9% 1,530 Avatar Holdings, Inc.* 84,028 16,188 Interface, Inc., Class A* 133,065 2,089 Orleans Homebuilders, Inc. 38,333 4,572 Stanley Furniture Co., Inc. 105,979 ---------- 361,405 ---------- Household Products--0.4% 5,524 WD-40 Co. 145,060 ---------- Industrial Conglomerates--0.4% 6,004 Raven Industries, Inc. 173,215 ---------- Insurance--3.8% 2,475 Affirmative Insurance Holdings, Inc. 36,110 15,944 American Equity Investment Life Holding Co. 208,069 2,995 American Physicians Capital, Inc.* 137,141 2,879 Baldwin & Lyons, Inc. 69,960 6,543 Bristol West Holdings, Inc. 124,513 4,605 Clark, Inc. 61,016 See Notes to Financial Statements. Page 9 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(sm) FUND PORTFOLIO OF INVESTMENTS - (Continued) December 31, 2005 Market Shares Value ------ ------ COMMON STOCKS - (Continued) Insurance--(Continued) 5,828 Direct General Corp. $ 98,493 3,428 FPIC Insurance Group, Inc.* 118,952 4,142 Navigators Group, Inc.* 180,633 7,568 Presidential Life Corp. 144,095 4,820 Safety Insurance Group, Inc. 194,583 5,961 Tower Group, Inc. 131,023 ---------- 1,504,588 ---------- Internet & Catalog Retail--0.9% 1,375 Blair Corp. 53,543 5,637 Blue Nile, Inc.* 227,227 6,472 PetMed Express, Inc.* 91,708 ---------- 372,478 ---------- Internet Software & Services--1.9% 4,275 Blue Coat Systems, Inc.* 195,454 6,283 eCollege.com, Inc.* 113,282 17,890 Entrust, Inc.* 86,588 17,491 Ipass, Inc.* 114,741 8,667 Online Resources Corp.* 95,770 18,934 SonicWALL, Inc.* 149,957 ---------- 755,792 ---------- IT Services--2.7% 19,142 Ciber, Inc.* 126,337 4,721 Forrester Research, Inc.* 88,519 9,466 vGevity HR, Inc. 243,466 12,361 ivvvnfoUSA, Inc.* 135,106 5,246 Intrado, Inc.* 120,763 5,790 RightNow Technologies, Inc.* 106,883 3,737 SI International, Inc.* 114,240 8,662 SYKES Enterprises, Inc.* 115,811 ---------- 1,051,125 ---------- Leisure Equipment & Products--0.6% 9,465 Jakks Pacific, Inc.* 198,197 7,677 Sturm Ruger & Co., Inc. 53,816 ---------- 252,013 ---------- Machinery--4.9% 4,493 3D Systems* 80,874 7,473 Accuride Corp.* 96,402 2,876 American Science & Engineering, Inc.* 179,376 5,342 Astec Industries, Inc.* 174,470 1,908 Badger Meter, Inc. 74,870 3,834 Cascade Corp. 179,853 6,036 Columbus McKinnon Corp.* 132,671 7,373 Commercial Vehicle Group, Inc.* 138,465 6,187 Flanders Corp.* 75,234 3,625 Gehl Co.* 95,156 Page 10 See Notes to Financial Statements. FIRST TRUST DOW JONES SELECT MICROCAP INDEX(sm) FUND PORTFOLIO OF INVESTMENTS - (Continued) December 31, 2005 Market Shares Value ------ ------ COMMON STOCKS - (Continued) Machinery--(Continued) 4,217 Greenbrier Cos., Inc. $ 119,763 3,869 Lindsay Manufacturing Co. 74,401 2,167 Middleby Corp.* 187,445 4,045 Robbins & Myers, Inc. 82,316 2,477 Tennant Co. 128,804 6,280 Titan International, Inc. 108,330 ---------- 1,928,430 ---------- Media--0.6% 3,850 Courier Corp. 132,209 7,228 Playboy Enterprises, Inc.* 100,397 ---------- 232,606 ---------- Metals & Mining--0.9% 8,735 AMCOL International Corp. 179,242 8,016 Ryerson Tull, Inc. 194,949 ---------- 374,191 ---------- Multiline Retail--1.0% 3,618 Bon-Ton Stores (The), Inc. 69,212 2,905 Conn's, Inc.* 107,107 12,900 Fred's, Inc. 209,884 ---------- 386,203 ---------- Oil & Gas & Consumable Fuels--3.4% 4,686 Atlas America, Inc.* 282,190 3,715 Atlas Pipeline Partners LP (Master Limited Partnership) 150,829 5,872 Callon Petroleum Co.* 103,641 5,693 Edge Petroleum Corp.* 141,813 4,726 Giant Industries, Inc.* 245,563 2,809 Maritrans, Inc. 73,090 15,433 Petroquest Energy, Inc.* 127,785 5,293 Resource America, Inc., Class A 90,246 17,476 Transmontaigne, Inc.* 115,342 ---------- 1,330,499 ---------- Paper & Forest Products--1.0% 3,897 Deltic Timber Corp. 202,099 13,460 Glatfelter 190,997 ---------- 393,096 ---------- Personal Products--0.5% 2,677 Inter Parfums, Inc. 48,079 3,942 Nature's Sunshine Products, Inc. 71,271 2,343 Parlux Fragrances, Inc.* 71,532 ---------- 190,882 ---------- See Notes to Financial Statements. Page 11 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(sm) FUND PORTFOLIO OF INVESTMENTS - (Continued) December 31, 2005 Market Shares Value ------ ------ COMMON STOCKS - (Continued) Pharmaceuticals--0.5% 6,333 Bentley Pharmaceuticals, Inc.* $ 103,925 4,651 CNS, Inc. 101,903 ---------- 205,828 ---------- Real Estate--4.1% 16,954 Anworth Mortgage Asset Corp. 123,764 5,886 Arbor Realty Trust, Inc. 152,565 15,395 Ashford Hospitality Trust, Inc. 161,494 8,458 Bimini Mortgage Management, Inc. 76,545 6,116 Boykin Lodging Co.* 74,738 16,512 Highland Hospitality Corp. 182,458 9,716 Kite Realty Group Trust 150,307 9,595 MortgageIT Holdings, Inc. 131,068 5,911 Ramco-Gershenson Properties 157,528 5,936 Tarragon Corp.* 122,400 5,794 Town & Country Trust (The) 195,894 9,257 Winston Hotels, Inc. 91,644 ---------- 1,620,405 ---------- Road & Rail--0.8% 3,230 Marten Transport Ltd.* 58,851 13,555 RailAmerica, Inc.* 148,969 3,546 USA Truck, Inc.* 103,295 ---------- 311,115 ---------- Semiconductors & Semiconductor Equipment--2.2% 3,704 ADE Corp.* 89,118 7,157 Cohu, Inc. 163,681 6,822 Diodes, Inc.* 211,823 6,959 IXYS Corp.* 81,351 4,576 Portal Player, Inc.* 129,592 7,329 Standard Microsystems Corp.* 210,269 ---------- 885,834 ---------- Software--3.9% 2,557 Ansoft Corp.* 87,066 4,748 Blackbaud, Inc. 81,096 7,557 Bottomline Technologies, Inc.* 83,278 4,671 EPIQ Systems, Inc.* 86,600 13,388 InterVoice, Inc.* 106,568 10,213 JDA Software Group, Inc.* 173,723 7,142 MRO Software, Inc.* 100,274 6,437 Open Solutions, Inc.* 147,536 7,598 Radiant Systems, Inc.* 92,392 11,843 Secure Computing Corp.* 145,195 5,861 Sonic Solutions, Inc.* 88,560 5,851 SPSS, Inc.* 180,971 9,482 Witness Systems, Inc.* 186,511 ---------- 1,559,770 ---------- Page 12 See Notes to Financial Statements. FIRST TRUST DOW JONES SELECT MICROCAP INDEX(sm) FUND PORTFOLIO OF INVESTMENTS - (Continued) December 31, 2005 Market Shares Value ------ ------ COMMON STOCKS - (Continued) Specialty Retail--4.6% 3,060 America's Car-Mart, Inc.* $ 50,551 7,967 Big 5 Sporting Goods Corp. 174,398 4,801 Cache, Inc.* 83,153 9,944 Casual Male Retail Group, Inc.* 60,957 10,771 Cato (The) Corp. 231,038 5,654 Charlotte Russe Holding, Inc.* 117,773 12,826 Christopher & Banks Corp. 240,872 1,592 Citi Trends, Inc.* 67,962 2,045 DEB Shops, Inc. 60,798 10,807 Gymboree Corp.* 252,884 4,678 JOS A Bank Clothiers, Inc.* 203,072 5,448 Lithia Motors, Inc. 171,285 2,375 Zumiez Inc.* 102,648 ---------- 1,817,391 ---------- Textiles, Apparel & Luxury Goods--1.8% 9,946 Hartmarx Corp.* 77,678 7,844 Iconix Brand Group, Inc.* 79,930 4,259 Kenneth Cole Productions, Inc., Class A 108,605 6,442 Movado Group, Inc. 117,889 2,639 Perry Ellis International, Inc.* 50,141 3,980 Steven Madden Ltd.* 116,335 12,770 Stride Rite Corp. 173,161 ---------- 723,739 ---------- Thrifts & Mortgage Finance--3.4% 11,857 Dime Community Bancshares 173,231 2,994 Federal Agricultural Mortgage Corp. 89,610 8,215 Franklin Bank Corp.* 147,788 2,022 ITLA Capital Corp.* 98,775 10,851 KNBT Bancorp, Inc. 176,763 14,848 Partners Trust Financial Group, Inc. 178,917 16,134 Provident New York Bancorp 177,635 5,743 TierOne Corp. 168,902 2,278 WSFS Financial Corp. 139,528 ---------- 1,351,149 ---------- Trading Companies & Distributors--1.1% 9,771 Interline Brands, Inc.* 222,290 4,960 Nuco2, Inc.* 138,285 5,214 Rush Enterprises, Inc., Class A* 77,584 ---------- 438,159 ---------- Water Utilities--0.7% 5,860 American States Water Co. 180,488 7,137 Southwest Water Co. 102,130 ---------- 282,618 ---------- See Notes to Financial Statements. Page 13 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(sm) FUND PORTFOLIO OF INVESTMENTS - (Continued) December 31, 2005 Market Shares Value ------ ------ COMMON STOCKS - (Continued) Wireless Telecommunication Services--0.3% 8,183 Iowa Telecommunications Services, Inc. $ 126,755 ----------- Total Common Stocks 39,191,310 (Cost $38,268,021) ----------- Total Investments--99.2% (Cost $38,268,021)** 39,191,310 Net Other Assets & Liabilities--0.8% 300,630 ----------- Net Assets--100.0% $39,491,940 =========== ----------------------------- * Non-income producing security. ** Aggregate cost for federal income tax purposes is $38,336,070. Page 14 See Notes to Financial Statements. FIRST TRUST EXCHANGE-TRADED FUND Statement of Assets and Liabilities December 31, 2005 First Trust Dow Jones Select MicroCap Index(sm) Fund --------------------- ASSETS: Investments at value, (Cost $38,268,021) $ 39,191,310 Cash 2,226 Receivables: Capital shares sold 4,146,013 Investment securities sold 307,040 Dividends 34,723 From investment advisor 68,239 Other assets 745 ------------ Total Assets 43,750,296 ------------ LIABILITIES: Payables: Investment securities purchased 4,162,731 Investment advisory fees 40,534 Accrued expenses 55,091 ------------ Total Liabilities 4,258,356 ------------ NET ASSETS $ 39,491,940 ============ NET ASSETS consist of: Paid-in capital $ 38,646,897 Par value 19,050 Undistributed net investment income 9,834 Accumulated net realized loss on investments (107,130) Net unrealized appreciation on investments 923,289 ------------ NET ASSETS $ 39,491,940 ============ Shares outstanding (unlimited amount authorized, $0.01 par value) 1,905,000 ------------ Net asset value per share $ 20.73 ============ See Notes to Financial Statements. Page 15 FIRST TRUST EXCHANGE-TRADED FUND Statement of Operations For the Period September 27, 2005* through December 31, 2005 First Trust Dow Jones Select MicroCap Index(sm) Fund --------------------- INVESTMENT INCOME: Dividends $ 89,853 ------------ Total Income 89,853 ------------ EXPENSES: Investment advisory fees 40,534 Audit and tax fees 35,481 Trustees' fees and expenses 10,192 Legal fees 6,370 Licensing fees 6,370 Listing fees 6,244 Printing fees 5,009 Accounting and administration fees 4,053 Custodian fees 1,013 Transfer agent fees 405 Other expenses 1,209 ------------ Total Expenses 116,880 Less fees waived and expenses reimbursed by the investment advisor (68,239) ------------ Net Expenses 48,641 ------------ NET INVESTMENT INCOME 41,212 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on investments (107,136) Net change in unrealized appreciation of investments 923,289 ------------ Net realized and unrealized gain on investments 816,153 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 857,365 ============ * Commencement of investment operations. Page 16 See Notes to Financial Statements. FIRST TRUST EXCHANGE-TRADED FUND Statement of Changes in Net Assets For the Period September 27, 2005* through December 31, 2005 First Trust Dow Jones Select MicroCap Index(sm) Fund --------------------- OPERATIONS: Net investment income $ 41,212 Net realized loss on investments (107,136) Net change in unrealized appreciation of investments 923,289 ------------ Net increase in net assets resulting from operations 857,365 ------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (31,372) ------------ SHAREHOLDER TRANSACTIONS: Proceeds from shares sold 38,665,947 ------------ Net increase in net assets resulting from shareholder transactions 38,665,947 ------------ Net increase in net assets 39,491,940 NET ASSETS: Beginning of Period -- ------------ End of Period $ 39,491,940 ============ Undistributed net investment income at end of period $ 9,834 ============ CHANGES IN SHARES OUTSTANDING: Shares sold 1,905,000 Shares repurchased -- Shares outstanding, beginning of period -- ------------ Shares outstanding, end of period 1,905,000 ============ * Commencement of investment operations. See Notes to Financial Statements. Page 17 FIRST TRUST EXCHANGE-TRADED FUND First Trust Dow Jones Select MicroCap IndexSM Fund Financial Highlights For a Share outstanding throughout the period For the Period September 27, 2005* through December 31, 2005 -------------------- Net asset value, beginning of period $ 20.00 ------------ Income from Investment Operations: Net investment income** 0.03 Net realized and unrealized gain on investments 0.72 ------------ Total from investment operations 0.75 ------------ Distributions paid to shareholders from: Net investment income $ (0.02) ------------ Net asset value, end of period $ 20.73 ------------ TOTAL RETURN *** 3.74% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 39,492 Ratios to average net assets: Ratio of net expenses to average net assets ++ 0.60% Ratio of total expenses to average net assets ++ 1.44% Ratio of net investment income to average net assets ++ 0.51% Portfolio turnover rate + 6.06% * Commencement of investment operations. ** Based on average shares outstanding. *** 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. Total return calculated for a period of less than one year is not annualized. The total return would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. + Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions. ++ Annualized. Page 18 See Notes to Financial Statements. ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS ------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2005 Note 1. Organization First Trust Exchange-Traded Fund (the "Trust") is an open-end management investment company organized as a Massachusetts business trust on August 8, 2003, and is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust currently consists of one fund, the First Trust Dow Jones Select MicroCap IndexSM Fund (the "Fund"), which represents a separate series of beneficial interest in the Trust. The Fund's inception date was September 22, 2005 and it commenced investment operations on September 27, 2005. The Fund was listed on the American Stock Exchange, Inc. ("AMEX") on September 30, 2005 and trades under the ticker symbol FDM at market prices that may differ from the net asset value ("NAV") of the shares. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at NAV, only in large specified blocks consisting of 50,000 shares called a "Creation Unit." Creation Units are issued and redeemed principally in-kind for securities included in The Dow Jones Select MicroCap IndexSM (the "Index"). Except when aggregated in Creation Units, shares are not redeemable securities of the Fund. The investment objective of the Fund is to seek investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of the Index. Note 2. Significant Accounting Policies The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. Portfolio Valuation The Fund determines the NAV of its shares daily, as of the close of regular session trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. The NAV is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividend declared but unpaid), by the total number of shares outstanding. The Fund's investments are valued at market value or, in the absence of market value with respect to any portfolio securities, at fair value according to procedures adopted by the Trust's Board of Trustees. Portfolio securities listed on any exchange other than the NASDAQ National Market ("NASDAQ") are valued at the last sale price on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the most recent bid and asked prices on such day. Securities traded on the NASDAQ are valued at the NASDAQ Official Closing Price as determined by NASDAQ. Portfolio securities traded on more than one securities exchange are valued at the last sale price on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities. Portfolio securities traded in the over-the-counter market, but excluding securities traded on the NASDAQ, are valued at the closing bid prices. Short-term investments that mature in less than 60 days are valued at amortized cost. B. Securities Transactions and Investment Income Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis. The Fund may hold publicly-traded master limited partnerships. Distributions from such investments may include a return of capital component. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date; interest income on such securities is not accrued until settlement date. The Fund instructs the custodian to segregate assets of the Fund with a current value at least equal to the amount of its when-issued purchase commitments. Page 19 ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (Continued) ------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2005 C. Dividends and Distribution to Shareholders Dividends from net investment income of the Fund, if any, are declared and paid semi-annually or as the Board of Trustees may determine from time to time. Distributions of net capital gains earned by the Fund, if any, are distributed at least annually. Distributions from income and capital gains are determined in accordance with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences and differing characterization of distributions made by the Fund. Permanent differences incurred during the period ended December 31, 2005, resulting in book and tax accounting differences, have been reclassified at period end to reflect a decrease in accumulated net realized loss on investments by $6 and a decrease in undistributed net investment income by $6. Net assets were not affected by this reclassification. The tax character of distributions paid during the period ended December 31, 2005 is as follows: Distributions paid from: 2005 --------- Ordinary Income $31,372 As of December 31, 2005, the components of distributable earnings on a tax basis were as follows: Undistributed Ordinary Income $ 10,469 Net Unrealized Appreciation $855,240 Capital losses incurred after October 31 ("post-October losses") within the taxable year are deemed to arise on the first business day of the Fund's next taxable year. The Fund will defer post-October losses in the amount of $39,717. D. Income Taxes The Fund intends to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, and by distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. E. Expenses The Fund will pay all expenses directly related to its operations. First Trust Advisors L.P. ("First Trust") has entered into a non-transferable, non-exclusive license agreement with Dow Jones & Company, Inc. ("Dow Jones"), which allows for the use by First Trust of certain trademarks and trade names of Dow Jones and the Index. The Fund is a sub-licensee to this license agreement. Note 3. Investment Advisory Fee and Other Affiliated Transactions First Trust (or the "Advisor") is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. First Trust serves as investment advisor to the Fund pursuant to an Investment Management Agreement. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund's portfolio and certain other services necessary for the management of the Fund. For these services, First Trust is entitled to a monthly fee calculated at an annual rate of 0.50% of the Fund's average daily net assets. The Bank of New York is the administrator, custodian, fund accountant and transfer agent for the Fund. The Trust and the Advisor have entered into an Excess Expense Agreement in which the Advisor has agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) from exceeding 0.60% of average daily net assets per year (the "Expense Cap"), at least until September 30, 2007. Expenses borne by the Advisor are subject to reimbursement by the Fund up to three years from the date the fee or expense was incurred, but no reimbursement Page 20 ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (Continued) ------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2005 payment will be made by the Fund if it would result in the Fund exceeding its Expense Cap. The Trust pays each Trustee who is not an officer or employee of First Trust or any of its affiliates an annual retainer of $10,000 which includes compensation for all regular quarterly board meetings and regular committee meetings. No additional meeting fees are paid in connection with regular quarterly board meetings or regular committee meetings. Additional fees of $1,000 and $500 are paid to non-interested Trustees for special board meetings and non-regular committee meetings, respectively. These additional fees are shared by the Fund and by other funds in the First Trust fund complex, not part of this Trust, that participate in the particular meeting and are not per fund fees. Trustees are also reimbursed for travel and out-of-pocket expenses in connection with all meetings. Effective January 1, 2006, non-interested Trustees will no longer be paid additional fees of $1,000 and $500 for special board meetings and non-regular committee meetings, respectively. Note 4. Purchases and Sales of Securities Cost of purchases and proceeds from sales of investment securities, excluding short-term investments and in-kind transactions, for the period ended December 31, 2005, were $1,624,380 and $1,845,009, respectively. For the period ended December 31, 2005, the cost of in-kind purchases was $38,603,072. There were no in-kind sale transactions. Gains on in-kind transactions are not considered taxable for federal income tax purposes. As of December 31, 2005, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $2,377,503 and the aggregate gross unrealized depreciation from all securities in which there was an excess of tax cost over value was $1,522,263. Note 5. Capital As of December 31, 2005, 1,905,000 shares were issued and outstanding with a par value of $0.01 per share. Shares are created and redeemed by the Fund only in Creation Unit size aggregations of 50,000 shares. Transaction fees at scheduled amounts ranging from $500 to $2,000 per Creation Unit are charged to those persons creating or redeeming Creation Units. Such transactions are generally permitted on an in-kind basis, with a balancing cash component to equate the transactions to the net asset value per unit of the Fund on the transaction date. Page 21 ------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------------------------------- To the Board of Trustees of First Trust Exchange-Traded Fund and Shareholders of First Trust Dow Jones Select MicroCap IndexSM Fund: We have audited the accompanying statement of assets and liabilities of First Trust Dow Jones Select MicroCap IndexSM Fund (the "Fund"), a series of the First Trust Exchange-Traded Fund, including the portfolio of investments, as of December 31, 2005, and the related statements of operations and changes in net assets, and the financial highlights for the period September 27, 2005 (commencement of investment operations) through December 31, 2005. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the Fund's custodian and broker. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of First Trust Dow Jones Select MicroCap IndexSM Fund as of December 31, 2005, the results of its operations, the changes in its net assets, and the financial highlights for the period September 27, 2005 (commencement of investment operations) through December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois February 17, 2006 Page 22 ------------------------------------------------------------------------------- ADDITIONAL INFORMATION ------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2005 (Unaudited) Proxy Voting Policies and Procedures A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 will be available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Trust's website located at http://www.ftportfolios.com; and (3) on the Securities and Exchange Commission's website at http://www.sec.gov. Portfolio Holdings The Trust files its complete schedule of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Trust's Forms N-Q are available (1) by calling (800) 988-5891; (2) on the Trust's website located at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov; and (4) for review and copying at the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding the operation of the PRR may be obtained by calling 1-800- SEC-0330. Federal Income Tax Information 100% of investment income (dividend income plus short-term gains, if any) for the Fund qualifies for the dividends-received deduction and as qualified dividend income. Advisory Agreement Board Considerations Regarding Approval of Advisory Contract for the First Trust Dow Jones Select MicroCap Index(sm) Fund The Board of Trustees unanimously approved the First Trust Dow Jones Select MicroCap IndexSM Fund's (the "Fund") Investment Management Agreement (the "Agreement") for an initial two-year term at a meeting held on June 13, 2005. The Board of Trustees determined that the Agreement is in the best interests of the Fund and the shareholders and that the compensation arrangement set forth in the Agreement is fair and reasonable in light of the services, expenses and such other matters as the Trustees considered to be relevant in the exercise of their reasonable business judgment. To reach this determination, the Trustees considered their duties under the Investment Company Act of 1940, as amended (the "1940 Act") as well as under the general principles of state law in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisers with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards of trustees have fulfilled their duties; and the factors to be considered by the Trustees in voting on such agreements. To assist the Board in its evaluation of the proposed advisory contract with First Trust Advisors L.P. ("First Trust"), the Independent Trustees received a report in advance of the Board meeting responding to a request for information from counsel to the Independent Trustees. The report, among other things, outlined the services to be provided by First Trust (including the relevant personnel responsible for these services and their experience, an organization chart of First Trust and First Trust's Form ADV); the proposed advisory fee as compared to those of comparable funds (prepared by an independent third party); the proposed advisory fee compared to fees charged to other First Trust clients; estimated expenses of the Fund compared to comparable funds (prepared by an independent third party as well as a supplemental expense report of similar exchange-traded funds prepared by First Trust); the nature of expenses to be incurred in providing services to the Fund and the potential for economies of scale, if any; the financial statement of First Trust; fall-out benefits to First Trust and First Trust Portfolios L.P.; and a summary of First Trust's compliance program. The Board of Trustees also noted the services provided by First Trust and the advisory fee of 0.50% of average daily net assets. It also considered that First Trust has agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding interest expense, brokerage commissions, trading expenses, taxes and extraordinary expenses) from exceeding 0.60% of average daily net assets per year for two years. Expenses borne by First Trust are proposed to be subject to reimbursement by the Fund for up to three years from the date the fee or expense was incurred, but no reimbursement payment would be made by the Fund if it would result in the Fund exceeding its expense cap. The Board of Trustees applied its business judgment to determine whether the arrangements between the Fund and First Trust are reasonable business arrangements from the Fund's perspective as well as from the perspective of shareholders. In evaluating whether to approve the Agreement, the Independent Trustees considered the nature, extent and quality of services to be provided under the Agreement, and noted that First Trust employees provided management services to other investment companies in the First Trust complex with Page 23 ------------------------------------------------------------------------------- ADDITIONAL INFORMATION - (Continued) ------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2005 (Unaudited) diligence and care. They also considered the compliance program that had been developed by First Trust and the skills of its employees who would be working with the Fund. The Independent Trustees also considered the efforts expended by First Trust in organizing the Trust and arranging for the service providers, particularly The Bank of New York, to provide services to the Fund. The Independent Trustees concluded they were comfortable that First Trust had the capabilities and resources to oversee the operations of the Fund, including the services to be provided by the service providers. Since the Fund is newly organized, the Board did not consider investment performance of the Fund, but the Board did consider performance of the applicable index. The Independent Trustees also reviewed information compiled by First Trust from Lipper Inc. on management and advisory fees charged to "similar" exchange-traded funds, and they discussed with representatives of First Trust certain differences between those funds and the Fund, as well as the similarities between the fees and expense caps for the Fund and other funds, based on information provided by First Trust. The Independent Trustees noted First Trust's commitment to attempt to analyze whether economies of scale can be realized as Fund assets increase and operations experience is accumulated, and noted that First Trust intended to continue to make investments in infrastructure and personnel. The Independent Trustees took the costs to be borne by First Trust in connection with its services to be performed under the Agreement into consideration and noted that First Trust was unable to estimate the profitability of the Agreement to First Trust, but had agreed to cap the Fund's expenses for two years. The Independent Trustees considered that First Trust had identified as a fall-out benefit to First Trust and First Trust Portfolios, L.P. their exposure to investors and brokers who, in the absence of the Fund, may have had no dealings with First Trust, noting that First Trust would not utilize soft dollars in connection with its management of the Fund's portfolio. The Board of Trustees concluded that First Trust had the capabilities, resources and personnel necessary to manage the Fund. Based upon such information as it considered necessary to the exercise of its reasonable business judgment, the Board of Trustees concluded unanimously that it was in the best interests of the Fund to approve the Agreement. Page 24 ------------------------------------------------------------------------------- TRUSTEES AND OFFICERS ------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2005 (Unaudited) Board of Trustees and Officers Information pertaining to the Trustees and officers* of the Trust is set forth below. The statement of additional information includes additional information about the Trustees and is available without charge, upon request, by calling (800) 988-5891.
Number of Other Portfolios Trusteeships/ Name, D.O.B., Address and Term of Office and Principal Occupation(s) in Fund Complex Directorships Position(s) with the Registrant Length of Time Served During Past 5 Years Overseen by Trustee Held by Trustee ---------------------------------------------------------------------------------------------------------------------------------- DISINTERESTED TRUSTEES ---------------------------------------------------------------------------------------------------------------------------------- Richard E. Erickson, Trustee o One year term Physician; President, 24 portfolios None D.O.B. 04/51 o 6 months served Wheaton Orthopedics; c/o First Trust Advisors L.P. Co-owner and Co- 1001 Warrenville Road Director, Sports Med Suite 300 Center for Fitness; Lisle, IL 60532 Limited Partner, Gundersen Real Estate Partnership Thomas R. Kadlec, Trustee o One year term Vice President and 24 portfolios None D.O.B. 11/57 o 6 months served Chief Financial Officer c/o First Trust Advisors (1990 to present), ADM L.P. Investor Services, Inc. 1001 Warrenville Road (Futures Commission Suite 300 Merchant); Registered Lisle, IL 60532 Representative (2000 to present), Segerdahl & Company, Inc., an NASD member (Broker- Dealer); President, ADM Derivatives, Inc. (May 2005 to present) Niel B. Nielson, Trustee o One year term President, Covenant 24 portfolios Director of Good D.O.B. 03/54 o 6 months served College (June 2002 to News Publishers- c/o First Trust Advisors present); Pastor, College Crossway Books; L.P. Church in Wheaton Covenant Transport, 1001 Warrenville Road (1997 to June 2002) Inc. Suite 300 Lisle, IL 60532 David M. Oster, Trustee o One year term Trader (self-employed) 12 portfolios None D.O.B. 03/64 o 6 months served (1987 to present, c/o First Trust Advisors Options Trading and L.P. Market Making) 1001 Warrenville Road Suite 300 Lisle, IL 60532
Page 25 ------------------------------------------------------------------------------- TRUSTEES AND OFFICERS - (Continued) ------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2005 (Unaudited) Board of Trustees and Officers (Continued)
Number of Other Portfolios Trusteeships/ Name, D.O.B., Address and Term of Office and Principal Occupation(s) in Fund Complex Directorships Position(s) with the Registrant Length of Time Served During Past 5 Years Overseen by Trustee Held by Trustee ---------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEE ---------------------------------------------------------------------------------------------------------------------------------- James A. Bowen, Trustee o One year Trustee President, First Trust 24 portfolios None President, Chairman of the term and indefinite Advisors L.P. and First Board and CEO officer term Trust Portfolios L.P.; D.O.B. 09/55 o 6 months served Chairman of the Board, 1001 Warrenville Road BondWave LLC and Suite 300 Stonebridge Advisors Lisle, IL 60532 LLC ---------------------------------------------------------------------------------------------------------------------------------- OFFICERS WHO ARE NOT TRUSTEES ---------------------------------------------------------------------------------------------------------------------------------- Mark R. Bradley, Treasurer, o Indefinite term Chief Financial Officer, N/A N/A Controller, Chief Financial o 6 months served Managing Director, Officer, Chief Accounting First Trust Advisors L.P. Officer and First Trust D.O.B. 11/57 Portfolios L.P.; Chief 1001 Warrenville Road Financial Officer, Suite 300 BondWave LLC and Lisle, IL 60532 Stonebridge Advisors LLC Susan M. Brix o Indefinite term Representative, First N/A N/A Assistant Vice President o 6 months served Trust Portfolios L.P.; D.O.B. 01/60 Assistant Portfolio 1001 Warrenville Road Manager, First Trust Suite 300 Advisors L.P. Lisle, IL 60532 Robert F. Carey o Indefinite term Senior Vice President, N/A N/A Vice President o 6 months served First Trust Advisors L.P. D.O.B. 07/63 and First Trust 1001 Warrenville Road Portfolios L.P. Suite 300 Lisle, IL 60532 James M. Dykas o Indefinite term Vice President, First N/A N/A Assistant Treasurer o 1 month served Trust Advisors L.P. and D.O.B. 01/66 First Trust Portfolios 1001 Warrenville Road L.P. (January 2005 to Suite 300 present); Executive Lisle, IL 60532 Director, Van Kampen Asset Management and Morgan Stanley Investment Management (1999-2005)
Page 26 ------------------------------------------------------------------------------- TRUSTEES AND OFFICERS - (Continued) ------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2005 (Unaudited) Board of Trustees and Officers (Continued)
Number of Other Portfolios Trusteeships/ Name, D.O.B., Address and Term of Office and Principal Occupation(s) in Fund Complex Directorships Position(s) with the Registrant Length of Time Served During Past 5 Years Overseen by Trustee Held by Trustee ---------------------------------------------------------------------------------------------------------------------------------- OFFICERS WHO ARE NOT TRUSTEES - (Continued) ---------------------------------------------------------------------------------------------------------------------------------- W. Scott Jardine, Secretary o Indefinite term General Counsel, N/A N/A and Chief Compliance o 6 months served First Trust Advisors Officer L.P. and First Trust D.O.B. 05/60 Portfolios L.P.; 1001 Warrenville Road Secretary, BondWave Suite 300 LLC and Stonebridge Lisle, IL 60532 Advisors LLC Daniel J. Lindquist o Indefinite term Senior Vice President, N/A N/A Vice President o 1 month served First Trust Advisors D.O.B. 02/70 L.P.; Vice President, 1001 Warrenville Road First Trust Portfolios Suite 300 L.P. (April 2004 to present); Lisle, IL 60532 Chief Operating Officer, Mina Capital Management, LLC (January 2004-April 2004); Chief Operating Officer, Samaritan Asset Management Services, Inc. (April 2000- January 2004) Kristi A. Maher o Indefinite term Assistant General N/A N/A Assistant Secretary o 6 months served Counsel, First Trust D.O.B. 12/66 Advisors L.P. and First 1001 Warrenville Road Trust Portfolios L.P. Suite 300 (March 2004 to present); Lisle, IL 60532 Associate, Chapman and Cutler LLP (1995-2004) Roger F. Testin o Indefinite term Senior Vice President, N/A N/A Vice President o 6 months served First Trust Advisors L.P. D.O.B. 06/66 and First Trust Portfolios 1001 Warrenville Road L.P. (August 2001 to Suite 300 present); Analyst, Dolan Lisle, IL 60532 Capital Management (1998-2001) ------------------ * The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function.
Page 27 This Page Left Blank Intentionally. This Page Left Blank Intentionally. ITEM 2. CODE OF ETHICS. (a) The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (c) There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. (d) The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item's instructions. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. As of the end of the period covered by the report, the registrant's board of Trustees has determined that Thomas R. Kadlec is qualified to serve as an audit committee financial expert serving on its audit committee and that he is "independent," as defined by Item 3 of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees (Registrant) -- The aggregate fees billed from Registrant's inception on September 27, 2005 through December 31, 2005 for professional services rendered by the principal accountant for the audit of the Registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements was $6,000. (b) Audit-Related Fees (Registrant) -- The aggregate fees billed from Registrant's inception on September 27, 2005 through December 31, 2005 for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the Registrant's financial statements and are not reported under paragraph (a) of this Item were $0. Audit-Related Fees (Investment Adviser) -- The aggregate fees billed from Registrant's inception on September 27, 2005 through December 31, 2005 for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the Registrant's financial statements and are not reported under paragraph (a) of this Item were $0. (c) Tax Fees (Registrant) -- The aggregate fees billed from inception on September 27, 2005 through December 31, 2005 for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the Registrant were $0. Tax Fees (Investment Adviser) -- The aggregate fees billed from inception on September 27, 2005 through December 31, 2005 for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the Registrant's adviser were $0. (d) All Other Fees (Registrant) -- The aggregate fees billed from inception on September __, 2005, through December 31, 2005 for products and services provided by the principal accountant to the Registrant, other than the services reported in paragraphs (a) through (c) of this Item were $54.13. These fees were for services related to compliance program evaluation. All Other Fees (Investment Adviser) -- The aggregate fees billed from inception on September 27, 2005 through December 31, 2005 for products and services provided by the principal accountant to the Registrant's investment adviser, other than services reported in paragraphs (a) through (c) of this Item were $68,619. These fees were for services related to compliance program evaluation. (e)(1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X. Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval Policy adopted December 12, 2005, the Audit Committee (the "Committee") is responsible for the pre-approval of all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the Registrant by its independent auditors. The Chairman of the Committee is authorized to give such pre-approvals on behalf of the Committee up to $25,000 and report any such pre-approval to the full Committee. The Committee is also responsible for the pre-approval of the independent auditor's engagements for non-audit services with the Registrant's adviser (not including a sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser) and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant, if the engagement relates directly to the operations and financial reporting of the Registrant, subject to the de minimis exceptions for non-audit services described in Rule 2-01 of Regulation S-X. If the independent auditor has provided non-audit services to the Registrant's adviser (other than any sub-adviser whose role is primarily portfolio management and is sub-contracted with or overseen by another investment adviser) and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant that were not pre-approved pursuant to the de minimis exception, the Committee will consider whether the provision of such non-audit services is compatible with the auditor's independence. (e)(2) The percentage of services described in each of paragraphs (b) through (d) for the Registrant and the Registrant's investment adviser of this Item that were approved by the audit committee pursuant to the pre-approval exceptions included in paragraph (c)(7)(i)(C) or paragraph(C)(7)(ii) of Rule 2-01 of Regulation S-X are as follows: (b) 0%. (c) 0%. (d) 0%. (f) The percentage of hours expended on the principal accountant's engagement to audit the Registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than fifty percent. (g) The aggregate non-audit fees billed by the Registrant's accountant for services rendered to the Registrant, and rendered to the Registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the Registrant from the inception of the Registrant on September 27, 2005 through December 31, 2005, were $54.13 for the Registrant and $68,619 for the Registrant's investment adviser. (h) Not applicable. The audit committee pre-approved all non-audit services rendered to the Registrant's investment adviser and any entity controlling, controlled by or under common control with the adviser that provides ongoing services to the Registrant. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant's board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or this Item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. (a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. (a)(3) Not applicable. (b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (registrant) First Trust Exchange-Traded Fund ------------------------------------------- By (Signature and Title)* /s/ James A. Bowen ----------------------------------------------------- James A. Bowen, Chairman of the Board, President and Chief Executive Officer (principal executive officer) Date August 11, 2006 -------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ James A. Bowen ----------------------------------------------------- James A. Bowen, Chairman of the Board, President and Chief Executive Officer (principal executive officer) Date August 11, 2006 -------------------------------- By (Signature and Title)* /s/ Mark R. Bradley ----------------------------------------------------- Mark R. Bradley, Treasurer, Controller, Chief Financial Officer and Chief Accounting Officer (principal financial officer) Date August 11, 2006 -------------------------------- * Print the name and title of each signing officer under his or her signature.