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
First Trust Exchange-Traded Fund III
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
Registrant's telephone number, including area code:
Date of reporting period:
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. § 3507.
Item 1. Reports to Shareholders.
(a) Following is a copy of the annual reports transmitted to shareholders pursuant to Rule 30e-1 under the Act.
First Trust Preferred Securities
and Income ETF
FPE | NYSE ARCA, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust Preferred Securities and Income ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/FPE. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
This report describes changes to the Fund that occurred during the Period.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust Preferred Securities and Income ETF | $93 | 0.84% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 21.79% for the 12 months ended October 31, 2024. The Fund outperformed its benchmark, a blended benchmark consisting of a 30/30/30/10 blend of the ICE BofA Core Plus Fixed Rate Preferred Securities Index, the ICE BofA US Investment Grade Institutional Capital Securities Index, the ICE USD Contingent Capital Index and the ICE BofA US High Yield Institutional Capital Securities Index, which returned 20.56% for the same Period.
This outperformance was primarily driven by security selection within variable rate securities during the bullish Period. Many of these securities were trading at deep discounts to par to start the Period but pulled towards par during the Period as resilient economic data and disinflation drove spreads tighter across the market. This outperformance was most pronounced within shorter duration securities that are approaching their first call dates. Other factors that contributed to the Fund’s outperformance during the Period were as follows:
Better security selection and overweight allocation to newly issued securities in 2024;
Security selection within global banks including U.S. Global Systematically Important Banks, European banks and high-quality Emerging Market Banks;
Security selection in insurance, utilities and energy pipelines.
Although the Fund outperformed during the Period, there were a few factors that detracted from relative performance compared to the benchmark. This included the Fund’s underweight to longer duration (10+ year) securities, including fixed rate coupon security structures. These securities outperformed as rates moved lower during the Period. Other factors that detracted from relative performance during the Period were as follows:
Underweight and security selection within regional and super regional banks;
Overweight allocation to Federal Farm Credit Banks;
Underweight to consumer finance.
Despite the economic resilience experienced through the tightening cycle to date, the Fund maintains a conservative stance as it relates to credit. Specifically, this includes underweighting potentially higher beta parts of the market, including consumer finance, regional banks and real estate investment trusts.
FUND PERFORMANCE (October 31, 2014 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | 10 Year |
| First Trust Preferred Securities and Income ETF | 21.79% | 3.33% | 5.07% |
| ICE BofA US Investment Grade Institutional Capital Securities Index | 17.82% | 3.90% | 4.79% |
| Blended Benchmark(1) | 20.56% | 2.84% | 4.76% |
| Bloomberg US Aggregate Bond Index | 10.55% | -0.23% | 1.49% |
| (1) | The Blended Benchmark consists of a 30/30/30/10 blend of the ICE BofA Core Plus Fixed Rate Preferred Securities Index, the ICE BofA US Investment Grade Institutional Capital Securities Index, the ICE USD Contingent Capital Index and the ICE BofA US High Yield Institutional Capital Securities Index. |
Visit www.ftportfolios.com/etf/FPE for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $5,680,039,181 |
| Total number of portfolio holdings | 225 |
| Total advisory fee paid | $44,636,161 |
| Portfolio turnover rate | 46% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| Wells Fargo & Co., Series L | 2.4% |
| Barclays PLC | 1.8% |
| JPMorgan Chase & Co., Series NN | 1.8% |
| Bank of America Corp., Series L | 1.7% |
| Intesa Sanpaolo S.p.A. | 1.7% |
| Credit Agricole S.A. | 1.3% |
| Lloyds Banking Group PLC | 1.3% |
| Energy Transfer, L.P., Series G | 1.3% |
| Global Atlantic Fin Co. | 1.3% |
| Deutsche Bank AG, Series 2020 | 1.3% |
Any amount shown as 0.0% represents less than 0.1%
HOW HAS THE FUND MATERIALLY CHANGED?
This is a summary of certain changes to the Fund since November 1, 2023. For more complete information, you may review the Fund’s prospectus and any applicable supplements at www.ftportfolios.com/fund-documents/etf/FPE or upon request at 1-800-621-1675 or info@ftportfolios.com.
During the fiscal year ended October 31, 2024, the minimum percentage of exchange-listed securities held by the Fund decreased from 25% of the Fund’s net assets to 15% of the Fund’s net assets.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/FPE to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust Institutional
Preferred Securities and Income ETF
FPEI | NYSE ARCA, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust Institutional Preferred Securities and Income ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/FPEI. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust Institutional Preferred Securities and Income ETF | $94 | 0.85% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 20.03% for the 12 months ended October 31, 2024. The Fund outperformed its benchmark, a blended benchmark consisting of a 45/40/15 blend of the ICE BofA US Investment Grade Institutional Capital Securities Index, the ICE USD Contingent Capital Index and the ICE BofA US High Yield Institutional Capital Securities Index, which returned 18.72% for the same Period.
This outperformance was primarily driven by security selection within variable rate coupon securities during the bullish Period. Many of these securities were trading at deep discounts to par to start the Period but pulled towards par during the Period as resilient economic data and disinflation drove spreads tighter across the market. This outperformance was most pronounced within shorter duration securities that are approaching their first call dates. Other factors that contributed to the Fund’s outperformance during the Period were as follows:
Better security selection and overweight allocation to newly issued securities in 2024;
Security selection within global banks including U.S. Global Systematically Important Banks, European banks and high-quality Emerging Market Banks;
Security selection in insurance, utilities and energy pipelines.
Although the Fund outperformed during the Period, there were a few factors that modestly detracted from relative performance compared to the benchmark during the Period:
Underweight to consumer finance issuers;
Exposure to low beta near call securities;
Modest overweight allocation to Federal Farm Credit Banks.
Despite the economic resilience experienced through the tightening cycle to date, the Fund maintains a conservative stance as it relates to credit. Specifically, this includes underweighting potentially higher beta parts of the market, including consumer finance and regional banks.
FUND PERFORMANCE (August 22, 2017 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | Since
Inception
(8/22/17) |
| First Trust Institutional Preferred Securities and Income ETF | 20.03% | 4.18% | 4.42% |
| Blended Benchmark(1) | 18.72% | 3.33% | 4.15% |
| ICE BofA US Investment Grade Institutional Capital Securities Index | 17.82% | 3.90% | 4.46% |
| Bloomberg US Aggregate Bond Index | 10.55% | -0.23% | 1.08% |
| (1) | The Blended Benchmark consists of a 45/40/15 blend of the ICE BofA US Investment Grade Institutional Capital Securities Index, the ICE USD Contingent Capital Index and the ICE BofA US High Yield Institutional Capital Securities Index. |
Visit www.ftportfolios.com/etf/FPEI for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $1,489,789,993 |
| Total number of portfolio holdings | 165 |
| Total advisory fee paid | $10,861,741 |
| Portfolio turnover rate | 35% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| Toronto-Dominion Bank (The) | 2.2% |
| Lloyds Banking Group PLC | 1.7% |
| ING Groep N.V. | 1.7% |
| Energy Transfer, L.P., Series G | 1.7% |
| BNP Paribas S.A. | 1.7% |
| Global Atlantic Fin Co. | 1.7% |
| Bank of America Corp., Series TT | 1.7% |
| Bank of Montreal | 1.6% |
| Charles Schwab (The) Corp., Series I | 1.6% |
| Intesa Sanpaolo S.p.A. | 1.6% |
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/FPEI to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust Managed Municipal ETF
FMB | NASDAQ, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust Managed Municipal ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/FMB. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust Managed Municipal ETF | $68 | 0.65% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 9.53% for the 12 months ended October 31, 2024. The Fund outperformed its benchmark, the Bloomberg Revenue 10 Year (8-12) Index which returned 7.63% for the same Period.
The key factors which impacted the Fund’s performance relative to the benchmark for the Period included:
Credit Rating: The Fund’s selection of bonds rated AA and allocation and selection of non-rated bonds were the primary positive contributors to performance relative to the benchmark. Secondary positive contributions to performance included the Fund’s selection of A-rated bonds and allocation of BB-rated bonds.
Years to Maturity: In terms of the Fund’s selection and allocation in years to a bond’s final maturity date, the Fund’s allocation to bonds with 18+ years to maturity was the primary source of outperformance relative to the benchmark. Secondary sources of outperformance included the Fund’s allocation to bonds with 12-14, 14-16 and 16-18 years to maturity, respectively. The Fund’s primary source of underperformance relative to the benchmark was the selection of bonds with 0-2 years to maturity. A secondary source of underperformance was the Fund’s allocation to bonds with 10-12 years to maturity.
Effective Duration: Focusing on the effective duration of bonds in the Fund, the Fund’s selection of bonds with effective durations of 7-10 years was the primary source of outperformance relative to the benchmark. The allocation and selection of bonds with 10+ years, as well as the selection of bonds with 3-5 and 5-7 years, were secondary sources of outperformance. The allocation to bonds with 0-1 years was the primary source of underperformance relative to the benchmark.
Sector/Industry: The Fund’s selection of Healthcare bonds was the primary source of outperformance relative to the benchmark. The Fund’s selection of Special Tax, Education, Transportation and Local General Obligation bonds were secondary sources of outperformance. The Fund’s allocation and selection of Housing bonds was the primary source of underperformance relative to the benchmark, while the Fund’s allocation to Lease bonds and selection of Industrial Development Bonds were a secondary source of underperformance.
Interest Rate Hedge: During the Period, the use of U.S. Treasury futures to hedge interest rate risk was a moderate negative contributor to the Fund’s performance.
Distribution Rate: The distribution paid on October 31, 2024, of $0.139, represented a tax-exempt annualized distribution rate of 3.26% based on the Fund’s closing market price of $51.14 on October 31, 2024. During the 12-month period ended October 31, 2024, the Fund’s distribution rate increased five times. The Fund’s distribution rate is not constant and is subject to change over time based on the performance of the Fund and general market conditions.
For the Period, municipal bonds generated a total return of 9.70% as measured by the Bloomberg Municipal Bond Index. By comparison, the Bloomberg U.S. Treasury Index generated a total return of 8.41% during the Period. Key factors impacting the municipal bond market over the Period included:
U.S. Treasury Rate Trends: During the Period, U.S. Treasury rates declined all along the yield curve while 10-Year and 30-Year U.S. Treasury yields decreased by approximately 65 basis points (“bps”) and 62 bps, respectively, to 4.28% and 4.47%. As a reminder, the price of a bond moves inversely to a given change in yield, so lower yields resulted in higher U.S. Treasury bond prices and municipal bond prices increased in alignment with U.S. Treasury bond price moves.
Industry Fund Inflows/Outflows: Industry-wide mutual fund and exchange-traded fund flows have been distinctly positive year-to-date. According to data collected by LSEG Lipper and JP Morgan, year-to-date inflows were tracking approximately $33.8 billion with approximately $19.7 billion inflows into investment grade funds and $14.2 billion of inflows into high yield funds. In general, fund inflows would indicate more demand for municipal securities which supports municipal bond price increases while fund outflows would signal less demand for municipal securities which could reduce bond prices.
Primary Market Supply: New issue municipal bond supply has been significantly higher year-to-date, as of October 31, 2024, compared to the same period of 2023. Through October 30, 2024, year-to-date issuance increased approximately 38% to $442 billion. Historically speaking, larger than historical average municipal bond supply could require higher yields to increase or support municipal bond demand while less supply might result in lower yields given a consistent level of demand. Actual market experience could vary from historical norms.
Credits Spreads and Trends: According to data analyzed from Bloomberg, municipal credit spreads declined year-over-year. From October 31, 2023 to October 31, 2024, municipal bond credit spreads for bonds rated AA, A, BBB, and high yield decreased by approximately 4 bps, 19 bps, 26 bps, and 26 bps, respectively. Normally, as credit spreads tighten for investment grade and high yield municipal bonds, municipal bond prices will increase. Conversely, as credit spreads widen for investment grade and high yield municipal bonds, bond prices will decline.
Changes in Municipal Bond Yields: Looking at the Refinitiv/TM3 AAA municipal yield curve over the past year, municipal yields have declined significantly, with 10-Year and 30-Year AAA municipal yields declining by 60 bps and 70 bps, respectively, to 3.01% and 3.87% as of October 31, 2024. As municipal bond yields decline, municipal bond prices increase, and as municipal bond yields rise, municipal bond yields decline.
FUND PERFORMANCE (October 31, 2014 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | 10 Year |
| First Trust Managed Municipal ETF | 9.53% | 0.96% | 2.68% |
| Bloomberg Revenue 10 Year (8-12) Index | 7.63% | 1.09% | 2.41% |
| Bloomberg Municipal Bond Index | 9.70% | 1.05% | 2.30% |
Visit www.ftportfolios.com/etf/FMB for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. The Fund’s total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor.
Performance in municipal bond investment strategies can be impacted from the benefits of purchasing odd lot positions. The impact of these investments can be particularly meaningful when funds have limited assets under management and may not be a sustainable source of performance as a fund grows in size.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $2,025,547,480 |
| Total number of portfolio holdings | 1,349 |
| Total advisory fee paid | $12,791,968 |
| Portfolio turnover rate | 29% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| Hospital | 11.6% |
| Insured | 9.5% |
| Airport | 9.3% |
| Government Obligation Bond-Unlimited Tax | 9.0% |
| Gas | 7.1% |
| Dedicated Tax | 6.8% |
| Certificates of Participation | 5.7% |
| Utility | 5.3% |
| Industrial Development Bond | 4.4% |
| All Other | 31.3% |
(1) The credit quality and ratings information presented above reflect the ratings assigned by one or more nationally recognized statistical rating organizations (NRSROs), including S&P Global Ratings, Moody’s Investors Service, Inc., Fitch Ratings or a comparably rated NRSRO. For situations in which a security is rated by more than one NRSRO and the ratings are not equivalent, the highest rating is used. Sub-investment grade ratings are those rated BB+/Ba1 or lower. Investment grade ratings are those rated BBB-/Baa3 or higher. The credit ratings shown relate to the creditworthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings are subject to change.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/FMB to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust Long/Short Equity ETF
FTLS | NYSE ARCA, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust Long/Short Equity ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/FTLS. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust Long/Short Equity ETF | $154 | 1.38% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 22.52% for the 12 months ended October 31, 2024. The Fund underperformed its benchmark, the S&P 500® Index, which returned 38.02% for the same Period.
The underperformance was the result of the Fund’s short equity positions which detracted from the Fund’s performance during the Period.
The overall economic backdrop during the Period was one of solid economic growth and declining inflation. During the Period, broad based economic indicators highlighting these trends were:
Average quarterly growth in gross domestic product in the prior four calendar quarters (fourth quarter 2023 through third quarter 2024) was 2.65%;
Year-over-year the Consumer Price Index continued to decline, falling from 3.2% as of October 31, 2023 to 2.6% as of October 31, 2024;
Year-over-year increase in real wages, as measured by the U.S. Bureau of Labor Statistics, increased by 1.3%, rising from 0.1% to 1.4%
U.S. equities rallied strongly during the Period with only a brief pullback in mid-July/early August 2024. For the Period, the benchmark was up 38.02% and the technology heavy Nasdaq-100® was up 39.19%. Smaller capitalization stocks also rallied strongly, but without the tech powerhouses of Apple, Inc., NVIDIA Corp., Meta Platforms, Inc. and Microsoft Corp., they lagged the larger indices, up “only” 34.06%. Helping boost equities during the Period was the market’s increasing confidence that the Federal Reserve would lower its short-term benchmark rate, the Federal Funds target rate, in the final four months of 2024 and then throughout 2025. Two-year Treasury rates, in anticipation of the lower Federal Funds target rate, declined by 1.18% during the Period, while the Ten-year Treasury rate, which helps set 30-year mortgage rates, declined by 0.65%.
The Fund benefitted from the economic backdrop as its long equity holdings performed in-line with the benchmark during the Period. On average, the Fund’s long equity portfolio was underweight technology and financial stocks during the Period. Offsetting those underweights were overweights in materials and energy stocks. Sector weightings during the Period were negative contributors to relative return in the long portfolio as the Technology sector, an underweight, was the best performing sector within the benchmark. Energy, an overweight, was the worst performing sector within the benchmark. Within the long portfolio, the relative performance impact of the stock selection process offset almost all the relative performance lost due to sector over/underweights. Individual stock selection (picking outperforming stocks) was strongest within the Information Technology sector and the Consumer Staples sector. The selection impact was a negative contributor to relative returns in the Health Care sector.
The Fund’s investment process of shorting stocks to hedge the portfolio and reduce overall net equity exposure detracted from absolute and relative performance during the Period. The Fund’s short positions were on average, 35.2% of net asset value during the Period. The short portfolio, in a strongly rising equity market, detracted from absolute returns as the short positions rose in value during the Period. On a relative basis, the Fund’s short portfolio detracted from performance as the short positions, on average, rose in value by more than the benchmark’s total return. The single largest sector detracting from relative performance was the Information Technology sector. The Fund was, on average, underweight the Information Technology sector; however, the Fund’s short equity positions within the sector rose in value significantly more than the benchmark positions which detracted from relative performance. Short equity futures also detracted from the Fund's total return during the Period.
FUND PERFORMANCE (October 31, 2014 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | 10 Year |
| First Trust Long/Short Equity ETF | 22.52% | 9.74% | 8.50% |
| S&P 500® Index | 38.02% | 15.27% | 13.00% |
Visit www.ftportfolios.com/etf/FTLS for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $1,566,266,143 |
| Total number of portfolio holdings | 417 |
| Total advisory fee paid | $11,272,429 |
| Portfolio turnover rate | 235% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of net assets and total investments of the Fund, respectively.
| Common Stocks | 96.5% |
| Exchange-Traded Funds | 1.0% |
| Money Market Funds | 0.9% |
| Common Stocks Sold Short | (28.9%) |
| Net Other Assets and Liabilities(1) | 30.5% |
| Total | 100.0% |
(1) Includes variation margin on futures contracts.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/FTLS to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust Emerging Markets
Local Currency Bond ETF
FEMB | NASDAQ, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust Emerging Markets Local Currency Bond ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/FEMB. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust Emerging Markets Local Currency Bond ETF | $88 | 0.85% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 7.33% for the 12 months ended October 31, 2024. The Fund underperformed its benchmark, the J.P. Morgan GBI-EM Global Diversified Index, which returned 8.76% for the same Period.
This underperformance was primarily driven by the Fund’s underweight exposure to China, which saw strong fixed-income performance, as well as the underweights in Thailand, Poland, and the Czech Republic. However, overweight exposures in South Africa, Colombia, and India partly mitigated the underperformance.
India, a new entrant to the benchmark during the Period, offered a compelling investment case as an investment-grade-rated, high-yielding market within Asia. The Fund, benefiting from active management, has maintained exposure to India for several years and continues to see attractive opportunities there going forward.
The benchmark’s performance was largely driven by the performance of the local currency bonds as yields generally fell over the Period. The benchmark’s local bond component returned 9.44% while emerging market (“EM”) currencies detracted from performance, declining -0.63%. The benchmark’s yield fell 47 basis points (“bps”) to 6.38%, compared to a 70 bps decline in the U.S. 5-Year Treasury yield, which ended the Period at 4.16%.
Currency management, via derivatives, detracted from performance during the Period as weaker EM currencies weighed on returns. Short positions in the U.S. Dollar and long exposures to the Indonesian Rupiah, Israeli Shekel, and Chilean Peso contributed negatively, while exposures to the South African Rand, Colombian Peso, and Chinese Yuan provided positive contributions.
Regional performance was mixed. Latin America underperformed, delivering flat returns, while the Middle East and Africa led gains, buoyed by South Africa. The Asian region outperformed, with strong contributions from Malaysia and Thailand.
EM assets were volatile due to shifting expectations regarding policy of the U.S. Federal Reserve (the “Fed”). Hopes for rapid rate cuts early on in the Period faded amid persistent inflation, but easing inflation later in the Period prompted the Fed to begin its easing cycle, providing a boost to EMs. However, uncertainty surrounding the U.S. Presidential election and its implications for EMs added to the near-term risks.
FUND PERFORMANCE (November 4, 2014 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | Since
Inception
(11/4/14) |
| First Trust Emerging Markets Local Currency Bond ETF | 7.33% | -1.15% | -0.48% |
| Bloomberg Emerging Markets Local Currency Government - 10% Country Capped Index | 9.87% | -0.35% | 0.58% |
| JP Morgan GBI-EM Global Diversified Index | 8.76% | -0.92% | 0.01% |
Visit www.ftportfolios.com/etf/FEMB for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $200,771,556 |
| Total number of portfolio holdings | 74 |
| Total advisory fee paid | $1,392,785 |
| Portfolio turnover rate | 48% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| Indonesia Treasury Bond, 7.00%, 09/15/30 | 4.6% |
| Indonesia Treasury Bond, 9.00%, 03/15/29 | 4.5% |
| Republic of South Africa Government Bond, 8.25%, 03/31/32 | 4.2% |
| Colombian TES, Series B, 7.25%, 10/18/34 | 3.8% |
| Indonesia Treasury Bond, 8.38%, 09/15/26 | 3.8% |
| Republic of South Africa Government Bond, Series R186, 10.50%, 12/21/26 | 3.7% |
| Thailand Government Bond, 3.39%, 06/17/37 | 3.7% |
| Romania Government Bond, 6.70%, 02/25/32 | 3.7% |
| Malaysia Government Bond, 3.89%, 08/15/29 | 3.6% |
| Brazil Notas do Tesouro Nacional, Series F, 10.00%, 01/01/29 | 3.3% |
(1) The ratings are by S&P Global Ratings. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). Investment grade is defined as those issuers that have a long-term credit rating of BBB- or higher. “NR” indicates no rating. The credit ratings shown relate to the credit worthiness of the issuers of the underlying securities in the Fund, and not to the Fund or its shares. Credit ratings are subject to change.
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/FEMB to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust RiverFront
Dynamic Developed International ETF
RFDI | NASDAQ, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust RiverFront Dynamic Developed International ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/RFDI. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust RiverFront Dynamic Developed International ETF | $93 | 0.83% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 23.93% for the 12 months ended October 31, 2024. The Fund outperformed its benchmark, the MSCI EAFE Index, which returned 22.97% for the same Period.
This outperformance was driven by security selection, while asset allocation detracted from the Fund’s performance.
Top contributors to performance during the Period:
Security selection in Japan
Security selection in Technology
Security selection in the United Kingdom
Top detractors to performance during the Period:
While the Fund can utilize currency hedging, no hedging was utilized during the Period.
FUND PERFORMANCE (April 13, 2016 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | Since
Inception
(4/13/16) |
| First Trust RiverFront Dynamic Developed International ETF | 23.93% | 5.58% | 5.78% |
| MSCI EAFE Index | 22.97% | 6.24% | 6.81% |
Visit www.ftportfolios.com/etf/RFDI for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $120,088,234 |
| Total number of portfolio holdings | 150 |
| Total advisory fee paid | $1,034,488 |
| Portfolio turnover rate | 20% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| Shell PLC | 2.2% |
| Dreyfus Government Cash Management Fund, Institutional Shares | 2.1% |
| HSBC Holdings PLC | 2.1% |
| Novartis AG | 2.0% |
| TotalEnergies SE | 1.7% |
| UBS Group AG | 1.6% |
| Allianz SE | 1.5% |
| Recruit Holdings Co., Ltd. | 1.4% |
| Unilever PLC | 1.4% |
| Advantest Corp. | 1.4% |
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/RFDI to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust RiverFront Dynamic Europe ETF
RFEU | NASDAQ, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust RiverFront Dynamic Europe ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/RFEU. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust RiverFront Dynamic Europe ETF | $226 | 2.09%(1) |
(1) | Includes tax expense. If the tax expense was not included, the expense ratio would have been 0.83%. |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 16.49% for the 12 months ended October 31, 2024. The Fund underperformed its benchmark, the MSCI Europe Index, which returned 22.43% for the same Period.
This underperformance was driven by both poor security selection and asset allocation.
Top contributors to performance during the Period:
Security selection in Denmark
Security selection in Technology
Security selection in Financials
Top detractors to performance during the Period:
While the Fund can utilize currency hedging, no hedging was utilized during the Period.
FUND PERFORMANCE (April 13, 2016 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | Since
Inception
(4/13/16) |
| First Trust RiverFront Dynamic Europe ETF | 16.49% | 4.47% | 5.74% |
| MSCI Europe Index | 22.43% | 6.91% | 6.92% |
Visit www.ftportfolios.com/etf/RFEU for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $6,354,852 |
| Total number of portfolio holdings | 89 |
| Total advisory fee paid | $73,278 |
| Portfolio turnover rate | 21% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| ASML Holding N.V. | 3.6% |
| Nestle S.A. | 3.2% |
| Novartis AG | 3.0% |
| Roche Holding AG | 2.8% |
| Nokia Oyj | 2.7% |
| Unilever PLC | 2.4% |
| LVMH Moet Hennessy Louis Vuitton SE | 2.3% |
| TotalEnergies SE | 2.2% |
| Allianz SE | 2.2% |
| Shell PLC | 2.1% |
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/RFEU to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
First Trust RiverFront
Dynamic Emerging Markets ETF
RFEM | NASDAQ, INC.
ANNUAL SHAREHOLDER REPORT | October 31, 2024
This annual shareholder report contains important information about the First Trust RiverFront Dynamic Emerging Markets ETF (the “Fund”) for the year of November 1, 2023 to October 31, 2024 (the “Period”). You can find additional information about the Fund at www.ftportfolios.com/fund-documents/etf/RFEM. You can also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
WHAT WERE THE FUND COSTS FOR THE LAST YEAR?
(Based on a hypothetical $10,000 investment)
| Fund | Costs of a $10,000 investment | Costs paid as a percentage
of a $10,000 investment |
| First Trust RiverFront Dynamic Emerging Markets ETF | $108 | 0.95% |
HOW DID THE FUND PERFORM LAST YEAR? WHAT AFFECTED THE FUND’S PERFORMANCE?
The Fund returned 26.53% for the 12 months ended October 31, 2024. The Fund outperformed its benchmark, the MSCI Emerging Markets Index, which returned 25.32% for the same Period.
This outperformance was driven primarily by security selection, though asset allocation also contributed to performance.
Top contributors to performance during the Period:
Security selection in Taiwan
Security selection in Industrials
Security selection in Financials
Top detractors to performance during the Period:
Selection in Materials
Overweight to Turkey
Overweight to Energy
Additionally, the portfolio management team used their fundamental overlay to underweight China relative to the benchmark. This fundamental underweight was additive to portfolio performance during the Period.
The portfolio partially hedged its Taiwan Dollar exposure during the full Period. This hedging was additive to portfolio performance.
FUND PERFORMANCE (June 14, 2016 to October 31, 2024)
The performance line graph below shows the performance of a hypothetical $10,000 initial investment in the Fund over a ten-year period (or for the life of the Fund, if shorter). The subsequent account value as of the end of the Period is listed next to the name of the Fund or index, as applicable. The performance table below shows the average annual total returns of the Fund for the past one-, five-, and ten-year periods, as applicable (or for the life of the Fund, if shorter), as of the end of the Period. Both the line graph and performance table compare the Fund’s performance to an appropriate broad-based index and may compare to additional indices reflecting the market segment(s) in which the Fund invests over the same periods.
Investment Performance of $10,000
| Average Annual Total Returns (as of October 31, 2024) | 1 Year | 5 Year | Since
Inception
(6/14/16) |
| First Trust RiverFront Dynamic Emerging Markets ETF | 26.53% | 5.27% | 6.81% |
| MSCI Emerging Markets Index | 25.32% | 3.93% | 6.62% |
Visit www.ftportfolios.com/etf/RFEM for more recent performance information.
The Fund’s past performance is not a good predictor of the Fund’s future performance. The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares.
KEY FUND STATISTICS (As of October 31, 2024)
| Fund net assets | $29,111,673 |
| Total number of portfolio holdings | 105 |
| Total advisory fee paid | $313,243 |
| Portfolio turnover rate | 27% |
WHAT DID THE FUND INVEST IN? (As of October 31, 2024)
The tables below show the investment makeup of the Fund, representing the percentage of total investments of the Fund.
| Taiwan Semiconductor Manufacturing Co., Ltd. | 10.3% |
| iShares MSCI China ETF | 4.3% |
| Tencent Holdings Ltd. | 4.2% |
| MediaTek, Inc. | 2.3% |
| Alibaba Group Holding Ltd. | 2.3% |
| Industrial & Commercial Bank of China Ltd., Class H | 2.0% |
| ICICI Bank Ltd. | 2.0% |
| Haidilao International Holding Ltd. | 1.8% |
| Kasikornbank PCL, NVDR | 1.7% |
| Kasikornbank PCL | 1.6% |
WHERE CAN I FIND ADDITIONAL INFORMATION ABOUT THE FUND?
Visit www.ftportfolios.com/fund-documents/etf/RFEM to view additional information about the Fund such as the prospectus, financial information, Fund holdings and proxy voting information. You may also request this information by contacting us at 1-800-621-1675 or info@ftportfolios.com.
| (a) | Not applicable to the Registrant. |
Item 2. Code of Ethics.
| (a) | The First Trust Exchange-Traded Fund III (“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, during the period covered by this report, 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. |
| (f) | A copy of the code of ethics that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller is filed as an exhibit pursuant to Item 13(a)(1). |
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 and Robert F. Keith are qualified to serve as audit committee financial experts serving on its audit committee and that each of them 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 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 were $213,000 for the fiscal year ended 2023 and $249,000 for the fiscal year ended 2024. |
| (b) | Audit-Related Fees (Registrant) -- The aggregate fees billed 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 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024. |
Audit-Related Fees (Investment Advisor) -- The aggregate fees billed 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 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024.
Audit-Related Fees (Distributor) -- The aggregate fees billed 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 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024.
| (c) | Tax Fees (Registrant) -- The aggregate fees billed for professional services rendered by the principal accountant for tax return review and debt instrument tax analysis and reporting were $176,601 for the fiscal year ended 2023 and $144,126 for the fiscal year ended 2024. |
Tax Fees (Investment Advisor) -- The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the Registrant’s advisor and distributor were $0 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024.
Tax Fees (Distributor) -- The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the Registrant’s distributor were $0 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024.
These fees were for tax consultation and/or tax return preparation and professional services rendered for PFIC (Passive Foreign Investment Company) Identification Services.
| (d) | All Other Fees (Registrant) -- The aggregate fees billed 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 $0 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024. |
All Other Fees (Investment Advisor) -- The aggregate fees billed for products and services provided by the principal accountant to the Registrant’s investment advisor, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024.
All Other Fees (Distributor) -- The aggregate fees billed for products and services provided by the principal accountant to the Registrant’s distributor, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended 2023 and $0 for the fiscal year ended 2024.
(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, 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 advisor (not including a sub-advisor whose role is primarily portfolio management and is sub-contracted or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor 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 advisor (other than any sub-advisor whose role is primarily portfolio management and is sub-contracted with or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor that provides ongoing services to the Registrant that were not pre-approved pursuant to its policies, 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 advisor and distributor 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:
| Registrant: | | Advisor and Distributor: |
| (b) 0% | | (b) 0% |
| (c) 0% | | (c) 0% |
| (d) 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 advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the advisor that provides ongoing services to the Registrant for the fiscal year ended 2023 were $176,601 for the Registrant, $44,000 for the Registrant’s investment advisor, $60,500 for the Registrant’s distributor and $16,000 for Stonebridge Advisors LLC (“Stonebridge”), which is under common control with the registrant’s investment advisor and serves as the registrant’s investment sub-advisor for the First Trust Preferred Securities and Income ETF and the First Trust Institutional Preferred Securities and Income ETF; and for the fiscal year ended 2024 were $144,126 for the Registrant, $28,080 for the Registrant’s investment advisor, $32,400 for the Registrant’s distributor and $8,640 for Stonebridge. |
| (h) | The Registrant’s audit committee of its Board of Trustees has determined that the provision of non-audit services that were rendered to the Registrant’s investment advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the investment advisor that provides ongoing services to the Registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
(i) Not applicable to the Registrant.
(j) Not applicable to the Registrant.
Item 5. Audit Committee of Listed Registrants.
| (a) | The Registrant has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 consisting of all the independent directors of the Registrant. The audit committee of the Registrant is comprised of: Richard E. Erickson, Thomas R. Kadlec, Denise M. Keefe, Robert F. Keith, Niel B. Nielson and Bronwyn Wright. |
| (b) | Not applicable to the Registrant. |
Item 6. Investments.
| (a) | The Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included in the Financial Statements and Other Information filed under Item 7(a) of this Form N-CSR. |
| (b) | Not applicable to the Registrant. |
Item 7. Financial Statements and Financial Highlights for Open-End Management Investment Companies.
(a) Following is a copy of the annual financial statements required, and for the periods specified, by Regulation S-X.
Annual Financial
Statements and
Other Information |
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund III
First Trust Preferred Securities and Income ETF (FPE) |
First Trust Institutional Preferred Securities and Income ETF (FPEI) |
First Trust Exchange-Traded Fund III
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that any series of First Trust Exchange-Traded Fund III (the “Trust”) described in this report (each such series is referred to as a “Fund” and collectively, as the “Funds”) will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in a Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Funds’ advisor, may also periodically provide additional information on Fund performance on each Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment. It includes details about each Fund and presents data that provides insight into each Fund’s performance and investment approach.
The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Preferred Securities and Income ETF (FPE)Portfolio of InvestmentsOctober 31, 2024
| | | | |
$25 PAR PREFERRED SECURITIES — 18.6% |
| | |
| | | | |
| | | | |
| | | | | |
| | |
| Bank of America Corp., Series KK | | | |
| JPMorgan Chase & Co., Series DD | | | |
| Pinnacle Financial Partners, Inc., Series B | | | |
| | | | |
| Wintrust Financial Corp., Series E (b) | | | |
| | | | | |
| | |
| Affiliated Managers Group, Inc. | | | |
| Affiliated Managers Group, Inc. | | | |
| Affiliated Managers Group, Inc. | | | |
| Affiliated Managers Group, Inc. | | | |
| Brookfield Oaktree Holdings LLC, Series A | | | |
| Brookfield Oaktree Holdings LLC, Series B | | | |
| | | | |
| DigitalBridge Group, Inc., Series I | | | |
| DigitalBridge Group, Inc., Series J | | | |
| KKR Group Finance Co. IX LLC | | | |
| | | | |
| TPG Operating Group II, L.P. | | | |
| | | | | |
| | |
| Global Net Lease, Inc., Series A | | | |
| Diversified Telecommunication Services — 0.2% | |
| | | | |
| Electric Utilities — 1.4% | |
| Duke Energy Corp., Series A | | | |
| SCE Trust IV, Series J (b) | | | |
| SCE Trust V, Series K (b) | | | |
| | | | |
| | | | |
| | | | |
| | | | | |
| Financial Services — 0.8% | |
| Equitable Holdings, Inc., Series A | | | |
| Jackson Financial, Inc. (b) | | | |
| | | | | |
| | |
| | | | |
| | |
| South Jersey Industries, Inc. (c) | | | |
| Independent Power and Renewable Electricity Producers — 0.5% | |
| Brookfield BRP Holdings Canada, Inc. | | | |
| Brookfield Renewable Partners, L.P., Series 17 | | | |
| | | | | |
See Notes to Financial Statements
First Trust Preferred Securities and Income ETF (FPE)Portfolio of Investments (Continued)October 31, 2024 | | | | |
$25 PAR PREFERRED SECURITIES (Continued) |
| | |
| | | | |
| American National Group, Inc., Series A (b) | | | |
| American National Group, Inc., Series B (b) | | | |
| AmTrust Financial Services, Inc. | | | |
| AmTrust Financial Services, Inc. | | | |
| Arch Capital Group Ltd., Series F | | | |
| Arch Capital Group Ltd., Series G | | | |
| Argo Group International Holdings, Inc. (b) | | | |
| Aspen Insurance Holdings Ltd. | | | |
| Aspen Insurance Holdings Ltd. | | | |
| Aspen Insurance Holdings Ltd., 3 Mo. LIBOR + 4.06% (d) | | | |
| | | | |
| | | | |
| Athene Holding Ltd., Series A (b) | | | |
| Athene Holding Ltd., Series C (b) | | | |
| Athene Holding Ltd., Series E (b) | | | |
| Axis Capital Holdings Ltd., Series E | | | |
| CNO Financial Group, Inc. (c) | | | |
| F&G Annuities & Life, Inc. | | | |
| | | | |
| | | | |
| RenaissanceRe Holdings Ltd., Series F | | | |
| RenaissanceRe Holdings Ltd., Series G | | | |
| | | | |
| | | | | |
| | |
| AGNC Investment Corp., Series D, 3 Mo. CME Term SOFR + CSA + 4.33% (d) | | | |
| AGNC Investment Corp., Series F (b) | | | |
| | | | | |
| | |
| Algonquin Power & Utilities Corp., Series 19-A, 3 Mo. CME Term SOFR + CSA + 4.01% (d) | | | |
| Brookfield Infrastructure Finance ULC | | | |
| Brookfield Infrastructure Partners, L.P., Series 13 (c) | | | |
| Brookfield Infrastructure Partners, L.P., Series 14 | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | |
| Real Estate Management & Development — 0.7% | |
| Brookfield Property Partners, L.P., Series A | | | |
| Brookfield Property Partners, L.P., Series A2 | | | |
| | | | | |
| Wireless Telecommunication Services — 1.5% | |
| United States Cellular Corp. | | | |
See Notes to Financial Statements
First Trust Preferred Securities and Income ETF (FPE)Portfolio of Investments (Continued)October 31, 2024 | | | | |
$25 PAR PREFERRED SECURITIES (Continued) |
| Wireless Telecommunication Services (Continued) | |
| United States Cellular Corp. | | | |
| United States Cellular Corp. | | | |
| | | | | |
| Total $25 Par Preferred Securities | |
| | |
$100 PAR PREFERRED SECURITIES — 0.0% |
| |
| Dairy Farmers of America, Inc. (e) | | | |
| | |
$1,000 PAR PREFERRED SECURITIES — 4.1% |
| |
| Bank of America Corp., Series L | | | |
| Wells Fargo & Co., Series L | | | |
| Total $1,000 Par Preferred Securities | |
| | | |
| | | | |
CAPITAL PREFERRED SECURITIES — 72.4% |
| | |
| Banco Bilbao Vizcaya Argentaria S.A. (b) (f) | | | |
| Banco Bilbao Vizcaya Argentaria S.A., Series 9 (b) (f) | | | |
| Banco de Credito e Inversiones S.A. (b) (e) (f) | | | |
| Banco de Credito e Inversiones S.A. (b) (f) (g) | | | |
| Banco Mercantil del Norte S.A. (b) (e) (f) | | | |
| Banco Mercantil del Norte S.A. (b) (e) (f) | | | |
| Banco Mercantil del Norte S.A. (b) (e) (f) | | | |
| Banco Santander S.A. (b) (f) | | | |
| Banco Santander S.A. (b) (f) | | | |
| Banco Santander S.A. (b) (f) | | | |
| Banco Santander S.A. (b) (f) | | | |
| Bank of America Corp., Series RR (b) | | | |
| Bank of America Corp., Series TT (b) | | | |
| | | | |
| | | | |
| Bank of Nova Scotia (The) (b) | | | |
| Bank of Nova Scotia (The) (b) | | | |
| | | | |
| | | | |
| | | | |
| BBVA Bancomer S.A. (b) (e) (f) | | | |
| BBVA Bancomer S.A. (b) (e) (f) | | | |
| BNP Paribas S.A. (b) (e) (f) | | | |
| BNP Paribas S.A. (b) (e) (f) | | | |
| BNP Paribas S.A. (b) (e) (f) | | | |
| BNP Paribas S.A. (b) (e) (f) | | | |
| BNP Paribas S.A. (b) (e) (f) | | | |
| BNP Paribas S.A. (b) (e) (f) | | | |
See Notes to Financial Statements
First Trust Preferred Securities and Income ETF (FPE)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CAPITAL PREFERRED SECURITIES (Continued) |
| | |
| Citigroup, Inc., Series AA (b) | | | |
| Citigroup, Inc., Series BB (b) | | | |
| Citigroup, Inc., Series DD (b) | | | |
| Citigroup, Inc., Series P (b) | | | |
| Citigroup, Inc., Series W (b) | | | |
| Citigroup, Inc., Series X (b) | | | |
| Citigroup, Inc., Series Z (b) | | | |
| Citizens Financial Group, Inc., Series F (b) | | | |
| Citizens Financial Group, Inc., Series G (b) | | | |
| | | | |
| | | | |
| | | | |
| Credit Agricole S.A. (b) (e) (f) | | | |
| Farm Credit Bank of Texas (b) | | | |
| Farm Credit Bank of Texas, Series 3 (b) (e) | | | |
| Fifth Third Bancorp, Series L (b) | | | |
| HSBC Holdings PLC (b) (f) | | | |
| HSBC Holdings PLC (b) (f) | | | |
| HSBC Holdings PLC (b) (f) | | | |
| Huntington Bancshares, Inc., Series G (b) | | | |
| ING Groep N.V. (b) (f) (g) | | | |
| ING Groep N.V. (b) (f) (g) | | | |
| ING Groep N.V. (b) (f) (g) | | | |
| Intesa Sanpaolo S.p.A. (b) (e) (f) | | | |
| JPMorgan Chase & Co., Series NN (b) | | | |
| Lloyds Banking Group PLC (b) (f) | | | |
| NatWest Group PLC (b) (f) | | | |
| NatWest Group PLC (b) (f) | | | |
| NatWest Group PLC (b) (f) | | | |
| PNC Financial Services Group (The), Inc., Series U (b) | | | |
| PNC Financial Services Group (The), Inc., Series V (b) | | | |
| PNC Financial Services Group (The), Inc., Series W (b) | | | |
| | | | |
| | | | |
| Societe Generale S.A. (b) (e) (f) | | | |
| Societe Generale S.A. (b) (e) (f) | | | |
| Standard Chartered PLC (b) (e) (f) | | | |
| Sumitomo Mitsui Financial Group, Inc. (b) (f) | | | |
| | | | |
| | | | |
| Toronto-Dominion Bank (The) (b) | | | |
| Toronto-Dominion Bank (The) (b) | | | |
| | | | |
| | | | |
| | | | | |
| | |
| Ares Finance Co. III LLC (b) (e) | | | |
| Charles Schwab (The) Corp., Series H (b) | | | |
| Charles Schwab (The) Corp., Series I (b) | | | |
| Charles Schwab (The) Corp., Series K (b) | | | |
See Notes to Financial Statements
First Trust Preferred Securities and Income ETF (FPE)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CAPITAL PREFERRED SECURITIES (Continued) |
| Capital Markets (Continued) | |
| Credit Suisse Group AG, Claim (c) (h) | | | |
| Credit Suisse Group AG, Claim (c) (h) | | | |
| Credit Suisse Group AG, Claim (c) (h) | | | |
| Credit Suisse Group AG, Claim (c) (h) | | | |
| Credit Suisse Group AG, Claim (c) (h) | | | |
| Deutsche Bank AG, Series 2020 (b) (f) | | | |
| Goldman Sachs Group (The), Inc., Series R (b) | | | |
| Goldman Sachs Group (The), Inc., Series W (b) | | | |
| Goldman Sachs Group (The), Inc., Series X (b) | | | |
| Goldman Sachs Group (The), Inc., Series Y (b) | | | |
| State Street Corp., Series I (b) | | | |
| State Street Corp., Series J (b) | | | |
| | | | | |
| Construction Materials — 0.0% | |
| Cemex S.A.B. de C.V. (b) (e) | | | |
| Electric Utilities — 3.9% | |
| American Electric Power Co., Inc. (b) | | | |
| American Electric Power Co., Inc. (b) | | | |
| | | | |
| Emera, Inc., Series 16-A (b) | | | |
| | | | |
| EUSHI Finance, Inc. (b) (e) | | | |
| NextEra Energy Capital Holdings, Inc. (b) | | | |
| | | | | |
| Financial Services — 2.4% | |
| American AgCredit Corp. (b) (e) | | | |
| Capital Farm Credit ACA, Series 1 (b) (e) | | | |
| Compeer Financial ACA (b) (e) | | | |
| Corebridge Financial, Inc. (b) | | | |
| Corebridge Financial, Inc. (b) | | | |
| | | | | |
| | |
| Dairy Farmers of America, Inc. (i) | | | |
| Land O’Lakes Capital Trust I (i) | | | |
| | | | |
| | | | |
| | | | |
| | | | | |
| | |
| | | | |
| Independent Power and Renewable Electricity Producers — 0.6% | |
| | | | |
| | |
| | | | |
| Assured Guaranty Municipal Holdings, Inc. (b) (e) | | | |
| AXIS Specialty Finance LLC (b) | | | |
| CNP Assurances SACA (b) (f) (g) | | | |
| | | | |
See Notes to Financial Statements
First Trust Preferred Securities and Income ETF (FPE)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CAPITAL PREFERRED SECURITIES (Continued) |
| | |
| Fortegra Financial Corp. (b) (i) | | | |
| Global Atlantic Fin Co. (b) (e) | | | |
| Global Atlantic Fin Co. (b) (e) | | | |
| Hartford Financial Services Group (The), Inc., 3 Mo. CME Term SOFR + CSA + 2.13% (d) (e) | | | |
| Kuvare US Holdings, Inc. (b) (e) | | | |
| | | | |
| Lancashire Holdings Ltd. (b) (g) | | | |
| Liberty Mutual Group, Inc. (b) (e) | | | |
| Prudential Financial, Inc. (b) | | | |
| QBE Insurance Group Ltd. (b) (e) | | | |
| | | | | |
| | |
| Algonquin Power & Utilities Corp. (b) | | | |
| CenterPoint Energy, Inc., Series A (b) | | | |
| CenterPoint Energy, Inc., Series B (b) | | | |
| Dominion Energy, Inc., Series A (b) | | | |
| Dominion Energy, Inc., Series B (b) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | |
| Oil, Gas & Consumable Fuels — 6.8% | |
| | | | |
| | | | |
| | | | |
| Enbridge, Inc., Series 16-A (b) | | | |
| Enbridge, Inc., Series 20-A (b) | | | |
| Energy Transfer, L.P., Series B (b) | | | |
| Energy Transfer, L.P., Series F (b) | | | |
| Energy Transfer, L.P., Series G (b) | | | |
| Energy Transfer, L.P., Series H (b) | | | |
| | | | |
| | | | |
| Venture Global LNG, Inc. (b) (e) | | | |
| | | | | |
| | |
| Scentre Group Trust 2 (b) (e) | | | |
| Trading Companies & Distributors — 0.2% | |
| Air Lease Corp., Series D (b) | | | |
| Total Capital Preferred Securities | |
| | |
| | |
EXCHANGE-TRADED FUNDS — 3.5% |
| | |
| iShares Short Treasury Bond ETF | |
See Notes to Financial Statements
First Trust Preferred Securities and Income ETF (FPE)Portfolio of Investments (Continued)October 31, 2024 | | |
EXCHANGE-TRADED FUNDS (Continued) |
| Capital Markets (Continued) | |
| SPDR® Bloomberg 1-3 Month T-Bill ETF | |
| WisdomTree Floating Rate Treasury Fund | |
| Total Exchange-Traded Funds | |
| | |
|
|
| Total Investments — 98.6% | |
| | |
| Net Other Assets and Liabilities — 1.4% | |
| | |
| |
| Fixed-to-floating or fixed-to-variable rate security. The interest rate shown reflects the fixed rate in effect at October 31, 2024. At a predetermined date, the fixed rate will change to a floating rate or a variable rate. |
| Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be illiquid by First Trust Advisors L.P. (the “Advisor”). |
| Floating or variable rate security. |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”), and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by the Advisor. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At October 31, 2024, securities noted as such amounted to $1,126,654,583 or 19.8% of net assets. |
| This security is a contingent convertible capital security which may be subject to conversion into common stock of the issuer under certain circumstances. At October 31, 2024, securities noted as such amounted to $1,327,476,219 or 23.4% of net assets. Of these securities, 9.1% originated in emerging markets, and 90.9% originated in foreign markets. |
| This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the 1933 Act. |
| Claim pending with the administrative court of Switzerland. |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the 1933 Act, and may be resold in transactions exempt from registration, normally to qualified institutional buyers (see Note 2C - Restricted Securities in the Notes to Financial Statements). |
Abbreviations throughout the Portfolio of Investments: |
| – Chicago Mercantile Exchange |
| – Credit Spread Adjustment |
| – London Interbank Offered Rate |
| – Real Estate Investment Trusts |
| – Secured Overnight Financing Rate |
See Notes to Financial Statements
First Trust Preferred Securities and Income ETF (FPE)Portfolio of Investments (Continued)October 31, 2024 | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Net Other Assets and Liabilities | |
| |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
$25 Par Preferred Securities: | | | | |
| | | | |
| | | | |
Other Industry Categories* | | | | |
$100 Par Preferred Securities* | | | | |
$1,000 Par Preferred Securities* | | | | |
Capital Preferred Securities* | | | | |
| | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Institutional Preferred Securities and Income ETF (FPEI)Portfolio of InvestmentsOctober 31, 2024
| | | | |
$1,000 PAR PREFERRED SECURITIES — 2.4% |
| |
| Bank of America Corp., Series L | | | |
| Wells Fargo & Co., Series L | | | |
| Total $1,000 Par Preferred Securities | |
| | | |
| | | | |
CAPITAL PREFERRED SECURITIES — 95.9% |
| | |
| Banco Bilbao Vizcaya Argentaria S.A. (b) (c) | | | |
| Banco Bilbao Vizcaya Argentaria S.A., Series 9 (b) (c) | | | |
| Banco de Credito e Inversiones S.A. (b) (c) (d) | | | |
| Banco de Credito e Inversiones S.A. (b) (c) (e) | | | |
| Banco Mercantil del Norte S.A. (b) (c) (d) | | | |
| Banco Mercantil del Norte S.A. (b) (c) (d) | | | |
| Banco Mercantil del Norte S.A. (b) (c) (d) | | | |
| Banco Mercantil del Norte S.A. (b) (c) (d) | | | |
| Banco Santander S.A. (b) (c) | | | |
| Banco Santander S.A. (b) (c) | | | |
| Banco Santander S.A. (b) (c) | | | |
| Banco Santander S.A. (b) (c) | | | |
| Bank of America Corp., Series RR (c) | | | |
| Bank of America Corp., Series TT (c) | | | |
| | | | |
| | | | |
| Bank of Nova Scotia (The) (c) | | | |
| Bank of Nova Scotia (The) (c) | | | |
| | | | |
| | | | |
| | | | |
| BBVA Bancomer S.A. (b) (c) (d) | | | |
| BBVA Bancomer S.A. (b) (c) (d) | | | |
| BNP Paribas S.A. (b) (c) (d) | | | |
| BNP Paribas S.A. (b) (c) (d) | | | |
| BNP Paribas S.A. (b) (c) (d) | | | |
| BNP Paribas S.A. (b) (c) (d) | | | |
| BNP Paribas S.A. (b) (c) (d) | | | |
| BNP Paribas S.A. (b) (c) (d) | | | |
| Citigroup, Inc., Series AA (c) | | | |
| Citigroup, Inc., Series BB (c) | | | |
| Citigroup, Inc., Series DD (c) | | | |
| Citigroup, Inc., Series P (c) | | | |
| Citigroup, Inc., Series W (c) | | | |
| Citigroup, Inc., Series X (c) | | | |
| Citigroup, Inc., Series Y (c) | | | |
| Citizens Financial Group, Inc., Series F (c) | | | |
| Citizens Financial Group, Inc., Series G (c) | | | |
| | | | |
| | | | |
| | | | |
See Notes to Financial Statements
First Trust Institutional Preferred Securities and Income ETF (FPEI)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CAPITAL PREFERRED SECURITIES (Continued) |
| | |
| Corestates Capital III, 3 Mo. CME Term SOFR + CSA + 0.57% (d) (f) | | | |
| Credit Agricole S.A. (b) (c) (d) | | | |
| Danske Bank A/S (b) (c) (e) | | | |
| Farm Credit Bank of Texas (c) | | | |
| Farm Credit Bank of Texas, Series 3 (c) (d) | | | |
| Fifth Third Bancorp, Series L (c) | | | |
| HSBC Holdings PLC (b) (c) | | | |
| HSBC Holdings PLC (b) (c) | | | |
| HSBC Holdings PLC (b) (c) | | | |
| Huntington Bancshares, Inc., Series F (c) | | | |
| Huntington Bancshares, Inc., Series G (c) | | | |
| ING Groep N.V. (b) (c) (e) | | | |
| ING Groep N.V. (b) (c) (e) | | | |
| ING Groep N.V. (b) (c) (e) | | | |
| Intesa Sanpaolo S.p.A. (b) (c) (d) | | | |
| JPMorgan Chase & Co., Series KK (c) | | | |
| JPMorgan Chase & Co., Series NN (c) | | | |
| Lloyds Banking Group PLC (b) (c) | | | |
| NatWest Group PLC (b) (c) | | | |
| NatWest Group PLC (b) (c) | | | |
| NatWest Group PLC (b) (c) | | | |
| PNC Financial Services Group (The), Inc., Series U (c) | | | |
| PNC Financial Services Group (The), Inc., Series V (c) | | | |
| PNC Financial Services Group (The), Inc., Series W (c) | | | |
| | | | |
| | | | |
| Societe Generale S.A. (b) (c) (d) | | | |
| Societe Generale S.A. (b) (c) (d) | | | |
| Standard Chartered PLC (b) (c) (d) | | | |
| Sumitomo Mitsui Financial Group, Inc. (b) (c) | | | |
| | | | |
| | | | |
| Toronto-Dominion Bank (The) (c) | | | |
| | | | |
| | | | |
| | | | | |
| | |
| Ares Finance Co. III LLC (c) (d) | | | |
| Charles Schwab (The) Corp., Series H (c) | | | |
| Charles Schwab (The) Corp., Series I (c) | | | |
| Charles Schwab (The) Corp., Series K (c) | | | |
| Credit Suisse Group AG, Claim (g) (h) | | | |
| Credit Suisse Group AG, Claim (g) (h) | | | |
| Credit Suisse Group AG, Claim (g) (h) | | | |
| Credit Suisse Group AG, Claim (g) (h) | | | |
| Credit Suisse Group AG, Claim (g) (h) | | | |
| Deutsche Bank AG, Series 2020 (b) (c) | | | |
| Goldman Sachs Group (The), Inc., Series R (c) | | | |
| Goldman Sachs Group (The), Inc., Series T (c) | | | |
See Notes to Financial Statements
First Trust Institutional Preferred Securities and Income ETF (FPEI)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CAPITAL PREFERRED SECURITIES (Continued) |
| Capital Markets (Continued) | |
| Goldman Sachs Group (The), Inc., Series U (c) | | | |
| Goldman Sachs Group (The), Inc., Series W (c) | | | |
| Goldman Sachs Group (The), Inc., Series X (c) | | | |
| Goldman Sachs Group (The), Inc., Series Y (c) | | | |
| Morgan Stanley, Series M (c) | | | |
| State Street Corp., Series I (c) | | | |
| State Street Corp., Series J (c) | | | |
| | | | | |
| Construction Materials — 0.3% | |
| Cemex S.A.B. de C.V. (c) (d) | | | |
| | |
| | | | |
| Electric Utilities — 6.1% | |
| American Electric Power Co., Inc. (c) | | | |
| American Electric Power Co., Inc. (c) | | | |
| American Electric Power Co., Inc. (c) | | | |
| | | | |
| Emera, Inc., Series 16-A (c) | | | |
| | | | |
| EUSHI Finance, Inc. (c) (d) | | | |
| NextEra Energy Capital Holdings, Inc. (c) | | | |
| | | | | |
| Financial Services — 3.0% | |
| American AgCredit Corp. (c) (d) | | | |
| Capital Farm Credit ACA, Series 1 (c) (d) | | | |
| Compeer Financial ACA (c) (d) | | | |
| Corebridge Financial, Inc. (c) | | | |
| Corebridge Financial, Inc. (c) | | | |
| Equitable Holdings, Inc., Series B (c) | | | |
| Voya Financial, Inc., Series A (c) | | | |
| | | | | |
| | |
| Dairy Farmers of America, Inc. (i) | | | |
| Land O’Lakes Capital Trust I (i) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | |
| | |
| | | | |
| Independent Power and Renewable Electricity Producers — 0.5% | |
| | | | |
| | |
| | | | |
| Assured Guaranty Municipal Holdings, Inc. (c) (d) | | | |
| Assured Guaranty Municipal Holdings, Inc. (c) (e) | | | |
| AXIS Specialty Finance LLC (c) | | | |
See Notes to Financial Statements
First Trust Institutional Preferred Securities and Income ETF (FPEI)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CAPITAL PREFERRED SECURITIES (Continued) |
| | |
| CNP Assurances SACA (b) (c) (e) | | | |
| | | | |
| Global Atlantic Fin Co. (c) (d) | | | |
| Global Atlantic Fin Co. (c) (d) | | | |
| Hartford Financial Services Group (The), Inc., 3 Mo. CME Term SOFR + CSA + 2.13% (d) (f) | | | |
| Kuvare US Holdings, Inc. (c) (d) | | | |
| | | | |
| Lancashire Holdings Ltd. (c) (e) | | | |
| Liberty Mutual Group, Inc. (c) (d) | | | |
| Liberty Mutual Group, Inc. (d) | | | |
| Lincoln National Corp., Series C (c) | | | |
| | | | |
| MetLife Capital Trust IV (d) | | | |
| | | | |
| Prudential Financial, Inc. (c) | | | |
| QBE Insurance Group Ltd. (c) (d) | | | |
| | | | | |
| | |
| Algonquin Power & Utilities Corp. (c) | | | |
| CenterPoint Energy, Inc., Series A (c) | | | |
| CenterPoint Energy, Inc., Series B (c) | | | |
| Dominion Energy, Inc., Series A (c) | | | |
| Dominion Energy, Inc., Series B (c) | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | |
| Oil, Gas & Consumable Fuels — 7.2% | |
| | | | |
| | | | |
| | | | |
| Enbridge, Inc., Series 16-A (c) | | | |
| Enbridge, Inc., Series 20-A (c) | | | |
| Energy Transfer, L.P., Series B (c) | | | |
| Energy Transfer, L.P., Series F (c) | | | |
| Energy Transfer, L.P., Series G (c) | | | |
| Energy Transfer, L.P., Series H (c) | | | |
| | | | |
| | | | |
| Venture Global LNG, Inc. (c) (d) | | | |
| | | | | |
| | |
| Scentre Group Trust 2 (c) (d) | | | |
See Notes to Financial Statements
First Trust Institutional Preferred Securities and Income ETF (FPEI)Portfolio of Investments (Continued)October 31, 2024 | | | | |
CAPITAL PREFERRED SECURITIES (Continued) |
| Trading Companies & Distributors — 0.2% | |
| Air Lease Corp., Series D (c) | | | |
| Total Capital Preferred Securities | |
| | |
|
|
| Total Investments — 98.3% | |
| | |
| Net Other Assets and Liabilities — 1.7% | |
| | |
| |
| This security is a contingent convertible capital security which may be subject to conversion into common stock of the issuer under certain circumstances. At October 31, 2024, securities noted as such amounted to $452,841,325 or 30.4% of net assets. Of these securities, 6.9% originated in emerging markets, and 93.1% originated in foreign markets. |
| Fixed-to-floating or fixed-to-variable rate security. The interest rate shown reflects the fixed rate in effect at October 31, 2024. At a predetermined date, the fixed rate will change to a floating rate or a variable rate. |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”), and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P. (the “Advisor”). Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At October 31, 2024, securities noted as such amounted to $315,524,439 or 21.2% of net assets. |
| This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the 1933 Act. |
| Floating or variable rate security. |
| Claim pending with the administrative court of Switzerland. |
| Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be illiquid by the Advisor. |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the 1933 Act, and may be resold in transactions exempt from registration, normally to qualified institutional buyers (see Note 2C - Restricted Securities in the Notes to Financial Statements). |
Abbreviations throughout the Portfolio of Investments: |
| – Chicago Mercantile Exchange |
| – Credit Spread Adjustment |
| – Real Estate Investment Trusts |
| – Secured Overnight Financing Rate |
See Notes to Financial Statements
First Trust Institutional Preferred Securities and Income ETF (FPEI)Portfolio of Investments (Continued)October 31, 2024 | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Net Other Assets and Liabilities | |
| |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
$1,000 Par Preferred Securities* | | | | |
Capital Preferred Securities* | | | | |
| | | | |
| See Portfolio of Investments for industry breakout. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Assets and Liabilities
October 31, 2024
| First Trust Preferred Securities and Income ETF
(FPE) | First Trust Institutional Preferred Securities and Income ETF
(FPEI) |
| | |
| | |
| | |
Foreign currency, at value | | |
| | |
| | |
Investment securities sold | | |
| | |
| | |
| | |
| | |
|
| | |
| | |
Investment securities purchased | | |
| | |
| | |
| | |
|
| | |
| | |
| | |
Accumulated distributable earnings (loss) | | |
| | |
NET ASSET VALUE, per share | | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | | |
| | |
Foreign currency, at cost (proceeds) | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Operations
For the Year Ended October 31, 2024
| First Trust Preferred Securities and Income ETF
(FPE) | First Trust Institutional Preferred Securities and Income ETF
(FPEI) |
| | |
| | |
| | |
| | |
| | |
|
| | |
| | |
| | |
| | |
NET INVESTMENT INCOME (LOSS) | | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | | |
Net realized gain (loss) on: | | |
| | |
| | |
Foreign currency transactions | | |
| | |
Net change in unrealized appreciation (depreciation) on investments | | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Changes in Net Assets
| First Trust Preferred Securities and Income ETF (FPE) | First Trust Institutional Preferred Securities and Income ETF (FPEI) |
| | | | |
| | | | |
Net investment income (loss) | | | | |
| | | | |
Net change in unrealized appreciation (depreciation) | | | | |
Net increase (decrease) in net assets resulting from operations | | | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | |
| | | | |
| | | | |
Total distributions to shareholders | | | | |
|
SHAREHOLDER TRANSACTIONS: | | | | |
Proceeds from shares sold | | | | |
| | | | |
Net increase (decrease) in net assets resulting from shareholder transactions | | | | |
Total increase (decrease) in net assets | | | | |
|
| | | | |
| | | | |
| | | | |
|
CHANGES IN SHARES OUTSTANDING: | | | | |
Shares outstanding, beginning of period | | | | |
| | | | |
| | | | |
Shares outstanding, end of period | | | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIFinancial Highlights
For a share outstanding throughout each period First Trust Preferred Securities and Income ETF (FPE)
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | |
Portfolio turnover rate (c) | | | | | |
| 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 distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIFinancial Highlights (Continued)
For a share outstanding throughout each period First Trust Institutional Preferred Securities and Income ETF (FPEI)
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | |
Portfolio turnover rate (d) | | | | | |
| 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 distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| Includes extraordinary legal fees. If the legal fees expense was not included, the expense ratio would have been 0.85%. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Exchange-Traded Fund IIIOctober 31, 2024
1. Organization
First Trust Exchange-Traded Fund III (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on January 9, 2008, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the two funds (each a “Fund” and collectively, the “Funds”) listed below, each a diversified series of the Trust and listed and traded on NYSE Arca, Inc.
First Trust Preferred Securities and Income ETF – (ticker “FPE”) |
First Trust Institutional Preferred Securities and Income ETF – (ticker “FPEI”) |
Each Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
Each Fund is an actively managed exchange-traded fund. The investment objective of each Fund is to seek total return and to provide current income.
Under normal market conditions, FPE seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in preferred securities and income-producing debt securities, including corporate bonds, high-yield securities (commonly referred to as “junk” bonds) and convertible securities.
Under normal market conditions, FPEI seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in institutional preferred securities and income-producing debt securities, including hybrid capital securities, contingent capital securities, U.S. and non-U.S. corporate bonds and convertible securities.
There can be no assurance that a Fund will achieve its investment objective. The Funds may not be appropriate for all investors.
2. Significant Accounting Policies
The Funds are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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.
Each Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Domestic debt securities and foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. Each Fund’s NAV is calculated by dividing the value of all assets of each Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Each Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Funds’ investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund’s investments are valued as follows:
Preferred stocks, exchange-traded funds and other equity securities listed on any national or foreign exchange (excluding Nasdaq, Inc. (“Nasdaq”) and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
Bonds, notes, capital preferred securities and other debt securities are fair valued on the basis of valuations provided by a third-party pricing service approved by the Advisor’s Pricing Committee, which may use the following valuation inputs when available:
7)
reference data including market research publications.
Securities trading on foreign exchanges or over-the-counter markets that close prior to the NYSE close may be valued using a systematic fair valuation model provided by a third-party pricing service. If these foreign securities meet certain criteria in relation to the valuation model, their valuation is systematically adjusted to reflect the impact of movement in the U.S. market after the close of the foreign markets.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
Fixed income and other debt securities having a remaining maturity of sixty days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following:
1)
the credit conditions in the relevant market and changes thereto;
2)
the liquidity conditions in the relevant market and changes thereto;
3)
the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates);
4)
issuer-specific conditions (such as significant credit deterioration); and
5)
any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended (the “1933 Act”)) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value 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 third-party 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. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price;
3)
the size of the holding;
4)
the initial cost of the security;
5)
transactions in comparable securities;
6)
price quotes from dealers and/or third-party pricing services;
7)
relationships among various securities;
8)
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 9)
an analysis of the issuer’s financial statements;
10)
the existence of merger proposals or tender offers that might affect the value of the security; and
11)
other relevant factors.
If the securities in question are foreign securities, the following additional information may be considered:
1)
the last sale price on the exchange on which they are principally traded;
2)
the value of similar foreign securities traded on other foreign markets;
3)
ADR trading of similar securities;
4)
closed-end fund or exchange-traded fund trading of similar securities;
5)
foreign currency exchange activity;
6)
the trading prices of financial products that are tied to baskets of foreign securities;
7)
factors relating to the event that precipitated the pricing problem;
8)
whether the event is likely to recur;
9)
whether the effects of the event are isolated or whether they affect entire markets, countries or regions; and
10)
other relevant factors.
The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund’s investments as of October 31, 2024, is included with each Fund’s Portfolio of Investments.
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 is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
As of October 1, 2024, the United Kingdom’s Financial Conduct Authority ceased all London Interbank Offered Rates (“LIBOR”) publications. Transitioning to the Secured Overnight Financing Rate (“SOFR”), or any alternative reference rate, may affect the value, liquidity or return on certain investments previously based on LIBOR.
Distributions received from a Fund’s investments in real estate investment trusts (“REITs”) may be comprised of return of capital, capital gains, and income. The actual character of the amounts received during the year are not known until after the REITs’ fiscal year end. A Fund records the character of distributions received from the REITs during the year based on estimates available. The characterization of distributions received by a Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 C. Restricted Securities
Each Fund invests in restricted securities, which are securities that may not be offered for public sale without first being registered under the 1933 Act. Prior to registration, restricted securities may only be resold in transactions exempt from registration under Rule 144A under the 1933 Act, normally to qualified institutional buyers. As of October 31, 2024, each Fund held restricted securities as shown in the following table that the Advisor has deemed illiquid pursuant to procedures adopted by the Trust’s Board of Trustees. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security-specific factors and assumptions, which require subjective judgment. Each Fund does not have the right to demand that such securities be registered. These securities are valued according to the valuation procedures as stated in the Portfolio Valuation note (Note 2A) and are not expressed as a discount to the carrying value of a comparable unrestricted security.
| | | | | | |
| | | | | | |
Dairy Farmers of America, Inc., 7.13% | | | | | | |
Fortegra Financial Corp., 8.50%, 10/15/57 | | | | | | |
Land O’Lakes Capital Trust I, 7.45%, 03/15/28 | | | | | | |
| | | | | | |
| | | | | | |
Dairy Farmers of America, Inc., 7.13% | | | | | | |
Land O’Lakes Capital Trust I, 7.45%, 03/15/28 | | | | | | |
| | | | | | |
D. Dividends and Distributions to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by each Fund, if any, are distributed at least annually. Each Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Funds and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the fiscal year ended October 31, 2024 were as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Return of
Capital |
First Trust Preferred Securities and Income ETF | | | |
First Trust Institutional Preferred Securities and Income ETF | | | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 The tax character of distributions paid by each Fund during the fiscal year ended October 31, 2023 were as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Return of
Capital |
First Trust Preferred Securities and Income ETF | | | |
First Trust Institutional Preferred Securities and Income ETF | | | |
As of October 31, 2024, the components of distributable earnings on a tax basis for each Fund were as follows:
| Undistributed
Ordinary
Income | Accumulated
Capital and
Other
Gain (Loss) | Net
Unrealized
Appreciation
(Depreciation) |
First Trust Preferred Securities and Income ETF | | | |
First Trust Institutional Preferred Securities and Income ETF | | | |
Each Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes 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. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of each Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Funds and has determined that no provision for income tax is required in the Funds’ financial statements for uncertain tax positions.
Each Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. Each Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, each applicable Fund had a capital loss carryforward available that is shown in the following table, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to each applicable Fund’s shareholders.
| Non-Expiring
Capital Loss
Carryforwards |
First Trust Preferred Securities and Income ETF | |
First Trust Institutional Preferred Securities and Income ETF | |
During the taxable year ended October 31, 2024, the following Fund utilized capital loss carryforwards in the following amount:
| |
First Trust Institutional Preferred Securities and Income ETF | |
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Funds had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 Statements of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Funds and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for each Fund were as follows:
| Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
First Trust Preferred Securities and Income ETF | | | |
First Trust Institutional Preferred Securities and Income ETF | | | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| | Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
First Trust Preferred Securities and Income ETF | | | | |
First Trust Institutional Preferred Securities and Income ETF | | | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the ongoing monitoring of the securities in each Fund’s portfolio, managing the Funds’ business affairs and providing certain administrative services necessary for the management of the Funds.
Stonebridge Advisors LLC (“Stonebridge” or the “Sub-Advisor”), a majority-owned affiliate of First Trust, serves as each Fund’s sub-advisor and manages each Fund’s portfolio subject to First Trust’s supervision. Pursuant to the Investment Management Agreement between the Trust and the Advisor, First Trust will supervise Stonebridge and its management of the investment of each Fund’s assets and will pay Stonebridge for its services as each Fund’s sub-advisor. The Sub-Advisor receives a monthly portfolio management fee calculated at an annual rate of 0.425% of the average daily net assets of the Fund less the amount of Fund Expenses owed by the Sub-Advisor. During any period in which the Advisor’s management fee is reduced in accordance with the breakpoints described below, the investment sub-advisory fee (which is based on the Advisor’s management fee) paid to Stonebridge will be reduced to reflect the reduction in the Advisor’s management fee. First Trust is responsible for each Fund’s expenses, including the cost of transfer agency, sub-advisory, custody, fund administration, legal, audit and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, acquired fund fees and expenses, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a 12b-1 plan, if any, and extraordinary expenses.
The annual unitary management fee payable by each Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the schedule below:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 Prior to November 6, 2023, First Trust also provided fund reporting services to the Fund for a flat annual fee in the amount of $9,250 per Fund, which was covered under the annual unitary management fee.
First Trust Capital Partners, LLC (“FTCP”), an affiliate of First Trust, owns a 51% ownership interest in Stonebridge.
Effective November 6, 2023, the Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BNY is responsible for custody of each Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for each Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Prior to November 6, 2023, the Trust had multiple service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performed custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BBH was responsible for custody of each Fund’s assets. As fund accountant and administrator, BBH was responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BBH was responsible for maintaining shareholder records for each Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
| | |
First Trust Preferred Securities and Income ETF | | |
First Trust Institutional Preferred Securities and Income ETF | | |
For the fiscal year ended October 31, 2024, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows:
| | |
First Trust Preferred Securities and Income ETF | | |
First Trust Institutional Preferred Securities and Income ETF | | |
Effective February 28, 2024, the Trust, on behalf of First Trust Preferred Securities and Income ETF, along with First Trust Exchange-Traded Fund IV, First Trust Series Fund and First Trust Variable Insurance Trust, entered into a new Credit Agreement with BNY as administrative agent for a group of lenders. The borrowing rate is the higher of the federal funds effective rate and the adjusted daily simple SOFR rate plus 1.00%. The commitment amount under the credit agreement is $620 million and such commitment amount may be increased up to $700 million with the consent of one or more lenders. BNY charges on behalf of the lenders a commitment fee of 0.20% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans, and an agency fee. Prior to February 28, 2024, the Trust, on behalf of First Trust Preferred Securities and Income ETF, along with First Trust Exchange-Traded Fund IV and First Trust Series Fund, had a $550 million Credit Agreement with The Bank of Nova Scotia (“Scotia”) as administrative agent for a group of lenders. Scotia charged a commitment fee of 0.25% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans, and an agency fee. First Trust allocates the
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 commitment fee and agency fee amongst the funds that have access to the credit line. To the extent that the Fund accesses the credit line, there would also be an interest fee charged. The Fund did not have any borrowings outstanding during the fiscal year ended October 31, 2024.
6. Creations, Redemptions and Transaction Fees
Each Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with a Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, a Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of a Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of a Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in a Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of a Fund’s shares at or close to the NAV per share of the Fund.
Each Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of a Fund 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, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
Each Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any 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 the securities comprising the redemption basket. 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 may also be assessed an amount to cover the cost of such services. The redemption fee charged by a Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before February 28, 2026.
The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 9. Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund III:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities of First Trust Preferred Securities and Income ETF and First Trust Institutional Preferred Securities and Income ETF (the “Funds”), each a series of the First Trust Exchange-Traded Fund III, including the portfolios of investments, as of October 31, 2024, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of each of the Funds as of October 31, 2024, and the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 23, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Exchange-Traded Fund IIIOctober 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Funds’ accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of any Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of each Fund are compensated through the unitary management fee paid by each Fund to the advisor and not directly by each Fund. The investment advisory fee paid is included in the Statements of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund III (the “Trust”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreements (as applicable to a specific Fund, the “Advisory Agreement” and collectively, the “Advisory Agreements”) with First Trust Advisors L.P. (the “Advisor”) and the Investment Sub-Advisory Agreements (as applicable to a specific Fund, the “Sub-Advisory Agreement” and collectively, the “Sub-Advisory Agreements” and together with the Advisory Agreements, the “Agreements”) among the Trust, the Advisor and Stonebridge Advisors LLC (the “Sub-Advisor”) on behalf of the following series of the Trust (each a “Fund” and collectively, the “Funds”):
First Trust Preferred Securities and Income ETF (FPE)
First Trust Institutional Preferred Securities and Income ETF (FPEI)
The Board approved the continuation of the applicable Agreements for each Fund for a one-year period ending June 30, 2025 at a meeting held on June 2–3, 2024. The Board determined for each Fund that the continuation of the applicable Agreements is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination for each Fund, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor and the Sub-Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor and the Sub-Advisor to each Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by each Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the sub-advisory fee as compared to fees charged to other clients of the Sub-Advisor; the expense ratio of each Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for each Fund, including comparisons of each Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to each Fund and the potential for the Advisor and the Sub-Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; financial data for the Sub-Advisor; any indirect benefits to the Advisor and its affiliates, First Trust Portfolios L.P. (“FTP”) and First Trust Capital Partners, LLC (“FTCP”), and the Sub-Advisor; and information on the Advisor’s and the Sub-Advisor’s compliance programs. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor and the Sub-Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangements between the Trust and the Advisor and among the Trust, the Advisor and the Sub-Advisor continue to be reasonable business arrangements from each Fund’s perspective. The Board determined that, given the
Other Information (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 (Unaudited) totality of the information provided with respect to the Agreements, the Board had received sufficient information to renew the Agreements. The Board considered that shareholders chose to invest or remain invested in a Fund knowing that the Advisor and the Sub-Advisor manage the Fund and knowing the Fund’s unitary fee.
In reviewing the applicable Agreements for each Fund, the Board considered the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor under the applicable Agreements. With respect to the Advisory Agreements, the Board considered that the Advisor is responsible for the overall management and administration of the Trust and each Fund and reviewed all of the services provided by the Advisor to the Funds, including the oversight of the Sub-Advisor, as well as the background and experience of the persons responsible for such services. The Board noted that the Advisor oversees the Sub-Advisor’s day-to-day management of each Fund’s investments, including portfolio risk monitoring and performance review. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s, the Sub-Advisor’s and each Fund’s compliance with the 1940 Act, as well as each Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Funds. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Funds and the other funds in the First Trust Fund Complex. With respect to the Sub-Advisory Agreements, the Board noted that each Fund is an actively-managed ETF and the Sub-Advisor actively manages the Fund’s investments. The Board reviewed the materials provided by the Sub-Advisor and considered the services that the Sub-Advisor provides to each Fund, including the Sub-Advisor’s day-to-day management of the Funds’ investments. In considering the Sub-Advisor’s management of the Funds, the Board noted the background and experience of the Sub-Advisor’s portfolio management team, including the Board’s prior meetings with members of the portfolio management team. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and each Fund by the Advisor and the Sub-Advisor under the Agreements have been and are expected to remain satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has managed each Fund consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate schedule payable by each Fund under the applicable Advisory Agreement for the services provided. The Board noted that the sub-advisory fee for each Fund is paid by the Advisor from the Fund’s unitary fee. The Board considered that as part of the unitary fee the Advisor is responsible for each Fund’s expenses, including the cost of sub-advisory, transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the applicable Advisory Agreement and interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Groups, as well as advisory and unitary fee rates charged by the Advisor and the Sub-Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because each Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for each Fund was above the median total (net) expense ratio of the peer funds in its respective Expense Group. With respect to the Expense Groups, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board also noted that, for each Fund, not all peer funds employ an advisor/sub-advisor management structure. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Funds and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedules overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to each Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for each Fund. The Board noted the process it has established for monitoring each Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor and the Sub-Advisor for the Funds. The Board determined that this process continues to be effective for reviewing each Fund’s performance. The Board received and reviewed information comparing FPEI’s performance for periods ended December 31, 2023 to the performance of the funds in its Performance Universe and to that of a benchmark index and information comparing FPE’s performance for periods ended December 31, 2023 to the performance of the funds in its Performance Universe and to that of a blended benchmark index. Based on the information provided, the Board noted that FPEI outperformed its Performance Universe median for the one-, three- and five-year periods ended December 31, 2023, underperformed its benchmark index for the one- and five-year periods ended December 31, 2023 and outperformed its benchmark index for the three-year period ended December 31,
Other Information (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 (Unaudited) 2023. The Board noted that FPE performed equal to its Performance Universe median and underperformed its blended benchmark index for the one-year period ended December 31, 2023 and outperformed its Performance Universe median and blended benchmark index for the three-, five- and ten-year periods ended December 31, 2023.
On the basis of all the information provided on the unitary fee and performance of each Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for each Fund (out of which the Sub-Advisor is compensated) continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor to each Fund under the Agreements.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Funds at current asset levels and whether the Funds may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for each Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Funds will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Funds would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Funds. The Board concluded that the unitary fee rate schedule for each Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to each Fund for the twelve months ended December 31, 2023 and the estimated profitability level for each Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for each Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Funds. The Board noted that FTCP has an ownership interest in the Sub-Advisor and considered potential indirect benefits to the Advisor from such ownership interest. The Board also considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Funds, may have had no dealings with the Advisor or FTP. The Board concluded that the character and amount of potential indirect benefits to the Advisor were not unreasonable.
The Board considered the Sub-Advisor’s statements that the Sub-Advisor bears a combination of fixed and variable costs related to managing the Funds and that the Sub-Advisor would add resources as needed if it experiences significant asset growth. The Board noted that the Advisor pays the Sub-Advisor for each Fund from the unitary fee, that the sub-advisory fee will be reduced consistent with the breakpoints in the unitary fee rate schedule and its understanding that each Fund’s sub-advisory fee was the product of an arm’s length negotiation. The Board did not review the profitability of the Sub-Advisor with respect to each Fund. The Board concluded that the profitability analysis for the Advisor was more relevant. The Board considered indirect benefits that may be realized by the Sub-Advisor from its relationship with the Funds, including potential indirect benefits to the Sub-Advisor from the ownership interest of FTCP in the Sub-Advisor. The Board noted the Sub-Advisor’s statements that its relationship with the Advisor has helped it build relationships with Wall Street firms that have preferred and hybrid securities trading desks, which has led to access to each of those firms’ research reports, various analysts and investment bankers on new issues, and that the Sub-Advisor never accepts soft-dollar arrangements. The Board concluded that the character and amount of potential indirect benefits to the Sub-Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreements continue to be fair and reasonable and that the continuation of the Agreements is in the best interests of each Fund. No single factor was determinative in the Board’s analysis.
Remuneration Disclosure Under the Alternative Investment Fund Managers Directive
First Trust Advisors L.P. (“First Trust”) is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of certain First Trust Exchange-Traded Fund III funds it manages (the “Funds”) in certain member states in the European Economic Area in accordance with the cooperation arrangements in Article 42 of the Alternative Investment Fund Managers Directive (the “Directive”). First Trust is required under the Directive to make disclosures in respect of remuneration. The following disclosures are made in line with First Trust’s interpretation of currently available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2023, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Funds is $3,055,581. This figure is comprised of $134,419 paid (or to be paid) in fixed compensation and $2,921,162 paid (or to be
Other Information (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 (Unaudited) paid) in variable compensation. There were a total of 26 beneficiaries of the remuneration described above. Those amounts include $1,526,406 paid (or to be paid) to senior management of First Trust Advisors L.P. and $1,529,175 paid (or to be paid) to other employees whose professional activities have a material impact on the risk profiles of First Trust Advisors L.P. or the Funds (collectively, “Code Staff”).
Code Staff included in the aggregated figures disclosed above are rewarded in line with First Trust’s remuneration policy (the “Remuneration Policy”) which is determined and implemented by First Trust’s senior management. The Remuneration Policy reflects First Trust’s ethos of good governance and encapsulates the following principal objectives:
i.
to provide a clear link between remuneration and performance of First Trust and to avoid rewarding for failure;
ii.
to promote sound and effective risk management consistent with the risk profiles of the funds managed by First Trust; and
iii.
to remunerate staff in line with the business strategy, objectives, values and interests of First Trust and the funds managed by First Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when considering and implementing remuneration for Code Staff and considers whether any potential award to such person(s) would give rise to a conflict of interest. First Trust does not reward failure, or consider the taking of risk or failure to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in respect of performance-related remuneration of Code Staff by reference to a broad range of measures including (i) individual performance (using financial and non-financial criteria), and (ii) the overall performance of First Trust. Remuneration is not based upon the performance of the Funds.
The elements of remuneration are balanced between fixed and variable and the senior management sets fixed salaries at a level sufficient to ensure that variable remuneration incentivises and rewards strong individual performance but does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
For the taxable year ended October 31, 2024, the following percentages of income dividends paid by the Funds qualify for the dividends received deduction available to corporations:
| Dividends Received
Deduction |
First Trust Preferred Securities and Income ETF | |
First Trust Institutional Preferred Securities and Income ETF | |
For the taxable year ended October 31, 2024, the following percentages of income dividends paid by the Funds are hereby designated as qualified dividend income:
| |
First Trust Preferred Securities and Income ETF | |
First Trust Institutional Preferred Securities and Income ETF | |
A portion of the ordinary dividends (including short-term capital gains) that FPE paid to shareholders during the taxable year ended October 31, 2024, may be eligible for the Qualified Business Income (QBI) Deduction under the Internal Revenue Code of 1986, as amended, Section 199A for the aggregate dividends the Fund received from the underlying Real Estate Investment Trusts (REITs) it invests in.
Annual Financial
Statements and
Other Information |
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund III
First Trust Managed Municipal ETF (FMB) |
First Trust Managed Municipal ETF (FMB)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that First Trust Managed Municipal ETF (the “Fund”) will achieve its investment objectives. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Managed Municipal ETF (FMB)Portfolio of InvestmentsOctober 31, 2024
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| AL Cmnty Clg Sys Brd of Trustees Rev Bishop St Cmnty Clg, BAM | | | |
| AL St Port Auth Docks Facs Rev Ref Docks Facs Rev, Ser A, AGM, AMT | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev Bonds Proj No 7, Ser C-1 (Mandatory put 12/01/26) | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev Proj No 6, Ser B (Mandatory put 12/01/26) | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev, Ser C (Mandatory put 07/01/31) | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev, Ser C-1 (Mandatory put 06/01/29) | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev, Ser E | | | |
| Black Belt Energy Gas Dist AL Gas Proj Rev, Ser F (Mandatory put 12/01/28) | | | |
| Energy SE AL A Cooperative Dist Energy Sply Rev, Ser A-1 (Mandatory put 01/01/31) | | | |
| Energy SE AL A Cooperative Dist Energy Sply Rev, Ser B-1 (Mandatory put 11/01/31) | | | |
| Gulf Shores AL Ref Warrants, Ser A | | | |
| Gulf Shores AL Ref Warrants, Ser A | | | |
| Homewood AL Eductnl Bldg Auth Rev Ref Samford Univ Proj,
Ser A | | | |
| Homewood AL Eductnl Bldg Auth Rev Ref Samford Univ Proj,
Ser A | | | |
| Homewood AL Eductnl Bldg Auth Rev Stdt Hsg & Parking Proj, Ser C | | | |
| Infirmary Hlth Sys AL Spl Care Facs Fing Auth Rev Infirmary Hlth Sys Inc, Ser A | | | |
| Jefferson Cnty AL Swr Rev Warrants Ref Warrants | | | |
| Jefferson Cnty AL Swr Rev Warrants Ref Warrants | | | |
| Jefferson Cnty AL Swr Rev Warrants Ref Warrants | | | |
| Lower AL Gas Dist Gas Proj Rev Bonds Proj 2 (Mandatory put 12/01/25) | | | |
| Midcity Impt Dist AL Spl Assmnt Rev | | | |
| Mobile AL Impt Dist Sales Tax Rev Mcgowin Park Proj, Ser A | | | |
| Prichard AL Wtrwks & Swr Brd Wtr & Swr Rev Ref (a) (b) | | | |
| Prichard AL Wtrwks & Swr Brd Wtr & Swr Rev Ref (a) (b) | | | |
| SE Energy Auth AL Cmdy Sply Rev Proj #1, Ser A (Mandatory put 10/01/28) | | | |
| SE Energy Auth AL Cmdy Sply Rev Proj #6, Ser B (Mandatory put 06/01/30) | | | |
| SE Energy Auth AL Cmdy Sply Rev Var Proj No 3, Ser A-1 (Mandatory put 12/01/29) | | | |
| Univ of AL at Birmingham Gen Rev Brd of Trustees, Ser B | | | |
| Walker Cnty AL Econ & Indl Dev Auth Sol Wst Disp Rev Var AL Pwr Co Plant Gorgas Proj, AMT (c) | | | |
| | |
| | |
| AK St Indl Dev & Export Auth Pwr Rev Ref Snettisham Hydroelectric Proj, AMT | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| AZ Indl Dev Auth Hosp Rev Phoenix Children’s Hosp, Ser A | | | |
| AZ St Indl Dev Auth Edu Rev Acads of Math & Science Proj (d) | | | |
| AZ St Indl Dev Auth Edu Rev Cadence Cmps Proj, Ser A (d) | | | |
| AZ St Indl Dev Auth Edu Rev Cadence Cmps Proj, Ser A (d) | | | |
| AZ St Indl Dev Auth Edu Rev Doral Acdmy NV Fire Mesa & Red Rock Cmps Proj, Ser A | | | |
| AZ St Indl Dev Auth Edu Rev Doral Acdmy NV Pebble, Ser A (d) | | | |
| AZ St Indl Dev Auth Edu Rev Macombs Fac Proj Sustainable Bonds, Ser A | | | |
| AZ St Indl Dev Auth Edu Rev Ref Basis Sch Projs, Ser D (d) | | | |
| AZ St Indl Dev Auth Edu Rev Ref Basis Schs Projs, Ser A (d) | | | |
| AZ St Indl Dev Auth Edu Rev Ref Basis Schs Projs, Ser G (d) | | | |
| AZ St Indl Dev Auth Edu Rev Ref Doral Acdmy of Northern NV Proj, Ser A (d) | | | |
| AZ St Indl Dev Auth Edu Rev Ref Doral Acdmy of Northern NV Proj, Ser A (d) | | | |
| AZ St Indl Dev Auth Edu Rev Somerset Acdmy of LV Aliante & Skye Canyon Cmps Proj, Ser A (d) | | | |
| AZ St Indl Dev Auth Natl Chrt Sch Revolving Loan Fd Equitable Sch Revolving Fund Sustainable Bonds, Ser A | | | |
| AZ St Indl Dev Auth Natl Chrt Sch Revolving Loan Fd Equitable Sch Revolving Fund Sustainable Bonds, Ser A | | | |
| AZ St Indl Dev Auth Natl Chrt Sch Revolving Loan Fd Equitable Sch Revolving Fund Sustainable Bonds, Ser A | | | |
| AZ St Indl Dev Auth Natl Chrt Sch Revolving Loan Fd Sustainable Bond Equitable Sch Revolving Fund, Ser A | | | |
| AZ St Indl Dev Auth Natl Chrt Sch Revolving Loan Fd Sustainable Bond Equitable Sch Revolving Fund, Ser A | | | |
| AZ St Indl Dev Auth Natl Chrt Sch Revolving Loan Fd Sustainable Bonds Equitable Sch Revolving Fund, Ser A | | | |
| AZ St Indl Dev Auth Natl Chrt Sch Revolving Loan Fd Sustainable Bonds Equitable Sch Revolving Fund, Ser A | | | |
| Chandler AZ Indl Dev Auth Indl Dev Rev Var Intel Corp Proj, Ser 2022-2, AMT (Mandatory put 09/01/27) | | | |
| Glendale AZ Indl Dev Auth Sr Living Facs Rev Ref Sun Hlth Svcs, Ser A | | | |
| Maricopa Cnty AZ Indl Dev Auth Edu Rev Greathearts AZ Projs, Ser C | | | |
| Maricopa Cnty AZ Indl Dev Auth Edu Rev Legacy Trad Schs Proj | | | |
| Maricopa Cnty AZ Indl Dev Auth Edu Rev Legacy Trad Schs Proj | | | |
| Maricopa Cnty AZ Indl Dev Auth Edu Rev Legacy Trad Schs Proj | | | |
| Maricopa Cnty AZ Indl Dev Auth Edu Rev Legacy Trad Schs Proj | | | |
| Maricopa Cnty AZ Indl Dev Auth Edu Rev Ref Horizon Cmnty Learning Ctr Proj | | | |
| Maricopa Cnty AZ Indl Dev Auth Edu Rev Ref Legacy Trad Sch Proj | | | |
| Maricopa Cnty AZ Indl Dev Auth Edu Rev Ref Legacy Trad Schs Proj Auth, Ser B (d) | | | |
| Maricopa Cnty AZ Indl Dev Auth Edu Rev Ref Legacy Trad Schs Proj Auth, Ser B (d) | | | |
| Maricopa Cnty AZ Indl Dev Auth Edu Rev Ref Paradise Schs Projs Paragon Mgmt Inc (d) | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Maricopa Cnty AZ Indl Dev Auth Ref Banner Hlth Oblig Grp,
Ser A | | | |
| Maricopa Cnty AZ Spl Hlth Care Dist Aka Maricopa Integrated Hlth Sys, Ser C | | | |
| Phoenix AZ Indl Dev Auth Edu Rev Fac Legacy Trad Schs Projs, Ser A (d) | | | |
| Phoenix AZ Indl Dev Auth Edu Rev Ref Basis Schs Projs, Ser A (d) | | | |
| Phoenix AZ Indl Dev Auth Hotel Rev Sr Falcon Properties LLC Proj, Ser A (d) | | | |
| Phoenix AZ Indl Dev Auth Stdt Hsg Rev Downtown Phoenix Stdt Hsg II LLC AZ St Univ Proj, Ser A | | | |
| Phoenix AZ Indl Dev Auth Stdt Hsg Rev Downtown Phoenix Stdt Hsg II LLC AZ St Univ Proj, Ser A | | | |
| Phoenix AZ Indl Dev Auth Stdt Hsg Rev Downtown Phoenix Stdt Hsg II LLC AZ St Univ Proj, Ser A | | | |
| Phoenix AZ Indl Dev Auth Stdt Hsg Rev Downtown Phoenix Stdt Hsg II LLC AZ St Univ Proj, Ser A | | | |
| Phoenix AZ Indl Dev Auth Stdt Hsg Rev Downtown Phoenix Stdt Hsg II LLC AZ St Univ Proj, Ser A | | | |
| Phoenix AZ Indl Dev Auth Stdt Hsg Rev Ref Downtown Phoenix Stdt Hsg LLC AZ St Univ Proj, Ser A | | | |
| Tempe AZ Indl Dev Auth Rev Ref Friendship Vlg of Tempe Proj, Ser A | | | |
| Yuma AZ Indl Dev Auth Hosp Rev Ref Yuma Regl Med Ctr, Ser A | | | |
| | |
| | |
| Univ of Central AR Rev, Ser A, AGM | | | |
| | |
| Burbank CA Wtr & Pwr Elec Rev | | | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Sustainable Bond Auth Clean Energy Proj Rev Bonds, Ser E (Mandatory put 09/01/32) (e) | | | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Sustainable Bond, Ser A-1 (Mandatory put 08/01/28) | | | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Sustainable Bond, Ser B-1 (Mandatory put 08/01/31) | | | |
| CA Cmnty Choice Fing Auth Clean Energy Proj Rev Sustainable Bond, Ser B-1 (Mandatory put 08/01/29) | | | |
| CA Cnty CA Tobacco Securitization Agy Tobacco Stlmt Ref Sonoma Cnty Securitization Corp, Ser A | | | |
| CA Cnty CA Tobacco Securitization Agy Tobacco Stlmt Ref Sonoma Cnty Securitization Corp, Ser A | | | |
| CA Cnty CA Tobacco Securitization Agy Tobacco Stlmt Ref Sonoma Cnty Securitization Corp, Ser A | | | |
| CA Cnty CA Tobacco Securitization Agy Tobacco Stlmt Sr Ref, Ser A | | | |
| CA Sch Fin Auth Sch Fac Rev Alliance Clg Ready Pub Schs Proj, Ser C (d) | | | |
| CA Sch Fin Auth Sch Fac Rev Granada Hills Chrt Oblig Grp (d) | | | |
| CA Sch Fin Auth Sch Fac Rev Ref Hth Learning Proj, Ser A (d) | | | |
| CA Sch Fin Auth Sch Fac Rev Ref Hth Learning Proj, Ser A (d) | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| CA Sch Fin Auth Sch Fac Rev, Ser A (d) | | | |
| CA St Enterprise Dev Auth Lease Rev Riverside Cnty Library Fac Proj | | | |
| CA St Enterprise Dev Auth Lease Rev Riverside Cnty Mead Vly Wellness Vlg Proj, Ser A | | | |
| CA St Hlth Facs Fing Auth Rev Ref Sutter Hlth, Ser B | | | |
| CA St Hlth Facs Fing Auth Rev Sutter Hlth, Ser A | | | |
| CA St Muni Fin Auth Chrt Sch Lease Rev Vista Chrt Middle Sch Proj (a) | | | |
| CA St Muni Fin Auth Chrt Sch Rev Palmdale Aerospace Acdmy Proj (d) | | | |
| CA St Muni Fin Auth Chrt Sch Rev Palmdale Aerospace Acdmy Proj, Ser A (d) | | | |
| CA St Muni Fin Auth Ref Palomar Hlth, Ser A, AGM, COPS | | | |
| CA St Muni Fin Auth Rev Channing House Proj, Ser B | | | |
| CA St Muni Fin Auth Rev Ref HumanGood Oblig Grp, Ser A | | | |
| CA St Muni Fin Auth Rev Ref HumanGood Oblig Grp, Ser A | | | |
| CA St Muni Fin Auth Rev Ref HumanGood Oblig Grp, Ser A | | | |
| CA St Muni Fin Auth Rev Ref HumanGood Oblig Grp, Ser A | | | |
| CA St Muni Fin Auth Rev Ref Retmnt Hsg Fdtn Oblig Grp, Ser A | | | |
| CA St Muni Fin Auth Spl Fac Rev United Airls Inc Proj, AMT | | | |
| CA St Muni Fin Auth Stdt Hsg Rev Sustainable Bond Orchard Park Stdt Hsg Proj, BAM | | | |
| CA St Poll Control Fin Auth Sol Wst Disp Rev Ref Wst Mgmt Inc, Ser A1, AMT | | | |
| CA St Poll Control Fin Auth Sol Wst Disp Rev Var Ref Rep Svcs Inc Proj Remk, AMT (Mandatory put 02/18/25) (d) | | | |
| CA St Poll Control Fing Auth Wtr Furnishing Rev Plant Bonds, AMT (d) | | | |
| CA St Pub Wks Brd Lease Rev Various Capital Proj, Ser B | | | |
| | | | |
| | | | |
| CA Stwd Cmntys Dev Auth Rev Loma Linda Univ Med Ctr,
Ser A (d) | | | |
| CA Stwd Cmntys Dev Auth Rev Loma Linda Univ Med Ctr,
Ser A (d) | | | |
| CA Stwd Cmntys Dev Auth Rev Ref CA Baptist Univ, Ser A (d) | | | |
| CA Stwd Cmntys Dev Auth Rev Ref Front Porch Cmntys & Svcs, Ser A | | | |
| CA Stwd Cmntys Dev Auth Rev Ref Front Porch Cmntys & Svcs, Ser A | | | |
| Chino CA Cmnty Facs Dist Spl Tax #2003-3 Impt Area #7 | | | |
| Chino Vly CA Unif Sch Dist Cibs Election of 2016, Ser D | | | |
| Chino Vly CA Unif Sch Dist, Ser B | | | |
| Chino Vly CA Unif Sch Dist, Ser B | | | |
| CSCDA Cmnty Impt Auth CA Essential Hsg Rev The Link Glendale Sustainable Bonds, Ser A-2 (d) | | | |
| CSCDA Cmnty Impt Auth CA Essential Hsg Rev Union S Bay Sustainable Bonds, Ser A-2 (d) | | | |
| Elk Grove CA Fin Auth Spl Tax Rev Cmnty Facs Dt No 2005-1 Laguna Ridge | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Folsom Ranch CA Fing Auth Spl Tax Rev Cmnty Facs Dist No 19 Mangini | | | |
| Folsom Ranch CA Fing Auth Spl Tax Rev White Rock Springs Ranch | | | |
| Folsom Ranch CA Fing Auth Spl Tax Rev White Rock Springs Ranch | | | |
| Folsom Ranch CA Fing Auth Spl Tax Rev White Rock Springs Ranch | | | |
| Fontana CA Spl Tax Cmnty Facs Dt #109 | | | |
| Fontana CA Spl Tax Spl Tax The Meadows | | | |
| Fontana CA Spl Tax Spl Tax The Meadows | | | |
| Fontana CA Spl Tax Spl Tax The Meadows | | | |
| Fontana CA Spl Tax Spl Tax The Meadows | | | |
| Hawthorne CA Cmnty Redev Agy Successor Agy Tax Allocation Ref Sub, AGM | | | |
| Irvine CA Facs Fing Auth Lease Rev Gateway Preserve Land Acq Proj, Ser A | | | |
| Irvine CA Unif Sch Dist Spl Tax Cmnty Facs Dist No 09-1, Ser A | | | |
| Irvine CA Unif Sch Dist Spl Tax Cmnty Facs Dist No 09-1, Ser A | | | |
| Irvine CA Unif Sch Dist Spl Tax Cmnty Facs Dist No 09-1, Ser A | | | |
| Kern CA Cmnty Clg Dist, Ser D | | | |
| Lammersville CA Jt Unif Sch Dist Spl Tax Cmnty Facs Dist #2014-1 Impt Area #1 Mountain House Sch Facs | | | |
| Lammersville CA Jt Unif Sch Dist Spl Tax Cmnty Facs Dist #2014-1 Mountain House Sch Facs | | | |
| Long Beach CA Unif Sch Dist Ref | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Prerefunded Subord Ref, Ser D, AMT (Pre-refunded maturity 11/15/31) | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Ref Sub Priv Activity, Ser A, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Ref Sub Priv Activity, Ser A, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Sr Bonds Priv Activity, Ser H, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Sr Bonds Sustainable Bond Priv Activity, Ser G, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Sr Bonds Sustainable Bond Priv Activity, Ser G, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Sub Los Angeles Intl Arpt, Ser B, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Subord Los Angeles Intl Arpt, Ser F, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Sustainable Bond Ref Subord Priv Activity, Ser A, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Unrefunded Subord Ref, Ser D, AMT | | | |
| Los Angeles CA Dept of Arpts Arpt Rev Unrefunded Subord Ref, Ser D, AMT | | | |
| Madera CA Unif Sch Dist Ref 2018 Sch Fac Proj, AGM, COPS | | | |
| Marina CA Redev Agy Successor Agy Tax Allocation Hsg, Ser B | | | |
| Menifee CA Union Sch Dist Pub Fing Auth Spl Tax Rev Ref, Ser A | | | |
| Menifee CA Union Sch Dist Spl Tax Cmnty Facs Dist #2011-1 | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Menifee CA Union Sch Dist Spl Tax Cmnty Facs Dist #2011-1 | | | |
| Menifee CA Union Sch Dist Spl Tax Cmnty Facs Dist #2011-1 | | | |
| Menifee CA Union Sch Dist Spl Tax Cmnty Facs Dist #2011-1 | | | |
| Met Wtr Dist of Sthrn CA Wtrwks Rev, Ser A | | | |
| Rancho Cordova CA Cmnty Facs Dist Spl Tax No 2018-1 Grantline 208 | | | |
| Rancho Cordova CA Cmnty Facs Dist Spl Tax Rev Grantline 208 Cmnty Fac Dt #2018-1 | | | |
| River Islands CA Pub Fing Auth Spl Tax Cmnty Facs Dist #2003- 1, Ser A | | | |
| River Islands CA Pub Fing Auth Spl Tax Cmnty Facs Dist #2019-1 Phase 2 Pub Impts | | | |
| Riverside CA Unif Sch Dist Cmnty Facs Dt #33 Citrus Heights II Spl Tax | | | |
| Riverside CA Unif Sch Dist Cmnty Facs Dt #33 Citrus Heights II Spl Tax | | | |
| Riverside CA Unif Sch Dist Impt Area No 2 | | | |
| Riverside CA Unif Sch Dist Impt Area No 2 | | | |
| Roseville CA Spl Tax Fiddyment Ranch Cmnty Facs | | | |
| Roseville CA Spl Tax Fiddyment Ranch Cmnty Facs | | | |
| Roseville CA Spl Tax Svsp Westpark Federico Cmnty Facs Dt
No 1 | | | |
| Roseville CA Spl Tax Svsp Westpark Federico Cmnty Facs Dt
No 1 | | | |
| Roseville CA Spl Tax Vlg CFD #1 | | | |
| Roseville CA Spl Tax Vlg CFD #1 | | | |
| Roseville CA Spl Tax Vlg CFD #1 | | | |
| Roseville CA Spl Tax Vlg CFD #1 | | | |
| Sacramento CA Spl Tax Greenbriar Cmnty Facs Dist #2018-03 Impt Area #1 | | | |
| Sacramento CA Spl Tax Greenbriar Cmnty Facs Dist #2018-03 Impt Area #1 | | | |
| Sacramento CA Spl Tax Greenbriar Cmnty Facs Dist #2018-03 Impt Area #1 | | | |
| Sacramento CA Spl Tax Greenbriar Cmnty Facs Dist #2018-03 Impt Area #1 | | | |
| Sacramento CA Spl Tax Greenbriar Cmnty Facs Dist #2018-03 Impt Area #1 | | | |
| Sacramento CA Transient Occupancy Tax Rev Sub Convention Ctr Complex, Ser C | | | |
| San Diego Cnty CA Regl Arpt Auth Arpt Rev Sr Priv Activity, Ser B, AMT | | | |
| San Diego Cnty CA Regl Arpt Auth Arpt Rev Subord, Ser B, AMT | | | |
| San Francisco CA City & Cnty Arpts Commn Intl Arpt Rev Ref, Ser A, AMT | | | |
| San Francisco CA City & Cnty Arpts Commn Intl Arpt Rev, Ser A, AMT | | | |
| San Francisco CA City & Cnty Arpts Commn Intl Arpt Rev, Ser E, AMT | | | |
| San Francisco CA City & Cnty Dev Spl Tax Dist No Mission Rock Fac and Svcs, Ser A (d) | | | |
| San Francisco City & Cnty CA Cmnty Facs Dist #2016-1 | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| San Francisco City & Cnty CA Cmnty Facs Dist #2016-1 | | | |
| San Francisco City & Cnty CA Cmnty Facs Dist #2016-1 | | | |
| San Francisco City & Cnty CA Cmnty Facs Dist #2016-1 | | | |
| San Francisco City & Cnty CA Cmnty Facs Dist #2016-1 | | | |
| San Francisco City & Cnty CA Cmnty Facs Dist #2016-1 | | | |
| San Francisco City & Cnty CA Redev Agy Successor Agy Tax Ref Mission Bay N Redev Proj, Ser A | | | |
| San Luis Obispo CA Cmnty Facs Dist #2019-1 Spl Tax | | | |
| San Luis Obispo Cnty CA Fing Auth Lease Rev Multiple Capital Projs Ref, Ser A | | | |
| San Luis Obispo Cnty CA Fing Auth Lease Rev Multiple Capital Projs Ref, Ser A | | | |
| Santa Margarita CA Wtr Dist Spl Tax Ref, Ser A, BAM | | | |
| Temecula Vly Unif Sch Dist Fing Auth CA Spl Tax Rev, BAM | | | |
| Tobacco Securitization Auth Nthrn CA Tobacco Stlmt Rev Ref Sr Bonds Sacramento Co Tobacco Secur Corp Class 1, Ser A | | | |
| Tobacco Securitization Auth Sthrn CA Tobacco Stlmt Rev Ref San Diego Co Asset Securitization Corp, Class 1, Ser A | | | |
| Tobacco Securitization Auth Sthrn CA Tobacco Stlmt Rev Ref San Diego Co Asset Securitization Corp, Class 1, Ser A | | | |
| Tustin CA Cmnty Fac Dist Spl Tax Ref #06-1 Legacy Columbus Vlgs, Ser A | | | |
| Vacaville CA Unif Sch Dist, Ser D | | | |
| Victor CA Elem Sch Dist Cmnty Facs Dist Spl Tax Ref 2005-1, BAM | | | |
| | |
| | |
| Adams & Weld Cntys Co Sch Dist #27J Brighton | | | |
| Allison Vly Met Dist #2 CO Ref | | | |
| Bennett Ranch Met Dist #1 Co, Ser A (a) | | | |
| Brighton Crossing Met Dist #6 CO, Ser A | | | |
| Buffalo Ridge CO Met Dist Ref & Impt Sr, Ser A, BAM | | | |
| Buffalo Ridge CO Met Dist Ref & Impt Sr, Ser A, BAM | | | |
| Canyons Met Dist #5 CO Ref, Ser A, BAM | | | |
| Cascade Ridge Met Dist CO | | | |
| Cathedral Pines CO Met Dist Ref | | | |
| Centrl Weld Cnty CO Wtr Dist Rev, AGM | | | |
| CO Eductnl & Cultural Auth Rev Ref W Ridge Acdmy Chrt Sch Proj, Ser A | | | |
| CO Springs CO Pikes Peak Americas Mountain Enterprise Pikes Peak | | | |
| CO Springs CO Sch Dist #11, BAM, COPS | | | |
| CO Springs CO Sch Dist #11, BAM, COPS | | | |
| CO Springs CO Sch Dist #11, BAM, COPS | | | |
| CO St Eductnl & Cultural Facs Auth Rev Chrt Sch Loveland Classical Schs Proj (d) | | | |
| CO St Eductnl & Cultural Facs Auth Rev Ref & Impt Chrt Sch Univ Lab Bldg Corp (d) | | | |
| CO St Eductnl & Cultural Facs Auth Rev Ref & Impt Chrt Sch Univ Lab Bldg Corp (d) | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| CO St Eductnl & Cultural Facs Auth Rev Ref & Impt Chrt Sch Univ Lab Bldg Corp (d) | | | |
| CO St Hlth Facs Auth Rev Ref Adventhealth Oblig, Ser A | | | |
| CO St Hlth Facs Auth Rev Ref Christian Living Neighborhoods Proj | | | |
| CO St Hlth Facs Auth Rev Ref Commonspirit Hlth, Ser A | | | |
| CO St Hlth Facs Auth Rev Ref Commonspirit Hlth, Ser A-1 | | | |
| CO St Hlth Facs Auth Rev Ref Commonspirit Hlth, Ser A-1 | | | |
| CO St Hlth Facs Auth Rev Ref Commonspirit Hlth, Ser A-2 | | | |
| CO St Hlth Facs Auth Rev Ref Commonspirit Hlth, Ser A-2 | | | |
| CO St Hlth Facs Auth Rev Ref Commonspirit Hlth, Ser A-2 | | | |
| CO St Hlth Facs Auth Rev Ref Frasier Meadows Retmnt Cmnty Proj, Ser A | | | |
| CO St Hlth Facs Auth Rev Ref Frasier Meadows Retmnt Cmnty Proj, Ser A | | | |
| CO St Hlth Facs Auth Rev Ref Intermountain Hlth, Ser A | | | |
| CO St Hlth Facs Auth Rev Ref Intermountain Hlth, Ser A | | | |
| CO St Hlth Facs Auth Rev Ref Scl Hlth Sys, Ser B | | | |
| CO St Hlth Facs Auth Rev Sr Living Ralston Creek Arvada Proj, Ser A (a) (b) | | | |
| CO St Hlth Facs Auth Rev Var Intermountain Hlth, Ser E (c) | | | |
| CO St Hlth Sciences Fac, Ser A, COPS | | | |
| CO St Hlth Sciences Fac, Ser A, COPS | | | |
| | | | |
| | | | |
| Crystal Vly CO Met Dist #2 Ref, Ser A, AGM | | | |
| Crystal Vly CO Met Dist #2 Ref, Ser A, AGM | | | |
| Crystal Vly CO Met Dist #2 Ref, Ser A, AGM | | | |
| Crystal Vly CO Met Dist #2 Ref, Ser A, AGM | | | |
| Crystal Vly CO Met Dist #2 Ref, Ser A, AGM | | | |
| Denver City & Cnty CO Arpt Rev Ref Sub Sys, Ser A, AMT | | | |
| Denver City & Cnty CO Arpt Rev Ref Sub Sys, Ser A, AMT | | | |
| Denver City & Cnty CO Arpt Rev Ref Subord, Ser B, AMT | | | |
| Denver City & Cnty CO Arpt Rev Ref Subord, Ser B, AMT | | | |
| Denver City & Cnty CO Arpt Rev Ref, Ser D, AMT | | | |
| Denver City & Cnty CO Arpt Rev Ref, Ser D, AMT | | | |
| Denver City & Cnty CO Arpt Rev, Ser A, AMT | | | |
| Denver City & Cnty CO Arpt Rev, Ser A, AMT | | | |
| Denver City & Cnty CO Arpt Rev, Ser A, AMT | | | |
| Denver City & Cnty CO Sch Dist #1 Ref, Ser B | | | |
| Denver CO Hlth & Hosp Auth 550 Acoma Inc, COPS | | | |
| Denver CO Intl Busn Ctr CO Met Dist #1 Subord, Ser B | | | |
| E-470 CO Pub Hwy Auth Sr Ref, Ser A | | | |
| Elbert & Hwy 86 CO Comml Spl Rev & Tax Supported Ref Sr Bonds, Ser A (d) | | | |
| Firestone CO Wtr Enterprise Rev Ref, BAM | | | |
| Flying Horse CO Met Dist #2 Ref, Ser A, AGM | | | |
| Flying Horse CO Met Dist #2 Ref, Ser A, AGM | | | |
| Jefferson Ctr CO Met Dist #1 Spl Rev, Ser A-2 | | | |
| Lanterns Met Dist #1 CO Sr, Ser A | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Lanterns Met Dist #1 CO Sr, Ser A | | | |
| Lorson Ranch Met Dist #2 CO | | | |
| Lorson Ranch Met Dist #2 CO | | | |
| Mirabelle Met Dist #2 CO Sr, Ser A | | | |
| Mirabelle Met Dist #2 CO Sr, Ser A | | | |
| Nexus N at Dia Met Dist CO | | | |
| Park Creek CO Met Dist Rev Ref Sr Ltd Property Tax Supported, Ser A | | | |
| Park Creek CO Met Dist Rev Ref Sr Ltd Property Tax Supported, Ser A | | | |
| Park Creek CO Met Dist Rev Ref Sr Ltd Property Tax Supported, Ser A | | | |
| Park Creek CO Met Dist Rev Sr Lien, Ser A, AGM | | | |
| Park Creek CO Met Dist Rev Sr, Ser A, NATL-RE | | | |
| Park Creek CO Met Dist Rev Sr, Ser A | | | |
| Park Creek Met Dist CO Ltd Property Tax Supported Rev Sr, Ser A, AGM | | | |
| Peak Met Dist #1 CO, Ser A (d) | | | |
| Pinon Pines Met Dist #2 CO MDD | | | |
| Pinon Pines Met Dist #2 CO MDD | | | |
| Prairie Ctr CO Met Dist #3 Ltd Property Tax Supported Pri Ref,
Ser A (d) | | | |
| Prairie Ctr CO Met Dist #3 Ltd Property Tax Supported Pri Ref,
Ser A (d) | | | |
| Prairie Ctr Met Dist #7 CO | | | |
| Ravenna CO Met Dist Ref, AGM | | | |
| Sagebrush Farm Met Dist #1 CO Sr Bonds, Ser A | | | |
| Sand Creek CO Met Dist, AGM | | | |
| Sand Creek CO Met Dist, AGM | | | |
| Sand Creek CO Met Dist, AGM | | | |
| | | | |
| Sterling Hills CO W Met Dist Ref | | | |
| Sterling Ranch Cmnty Auth Brd CO Spl Assmnt Rev Spl Impt Dist No 1 | | | |
| | | | |
| | | | |
| Third Creek Met Dist #1 CO Sr Bonds, Ser A-1 | | | |
| Third Creek Met Dist #1 CO Sr Bonds, Ser A-1 | | | |
| Thompson Crossing Met Dist #4 CO Ref | | | |
| Trails at Crowfoot Met Dist #3 Co Ref, Ser A, AGC | | | |
| Westerly Met Dist #4 CO Sr, Ser A | | | |
| | |
| | |
| CT St Hlth & Eductnl Facs Auth Rev Covenant Home Inc, Ser B | | | |
| CT St Hlth & Eductnl Facs Auth Rev Hartford Hlthcare, Ser A | | | |
| CT St Hlth & Eductnl Facs Auth Rev Hartford Hlthcare, Ser A | | | |
| CT St Hlth & Eductnl Facs Auth Rev Quinnipiac Univ Ref, Ser M | | | |
| CT St Hlth & Eductnl Facs Auth Rev Ref Fairfield Univ, Ser R | | | |
| CT St Hlth & Eductnl Facs Auth Rev Ref Fairfield Univ, Ser S | | | |
| CT St Hlth & Eductnl Facs Auth Rev Ref Quinnipiac Univ, Ser L | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| CT St Muni Elec Energy Coop Pwr Sply Sys Rev Ref, Ser A | | | |
| CT St Spl Tax Oblig Rev, Ser A | | | |
| CT St Spl Tax Oblig Rev, Ser A | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Harbor Point CT Infra Impt Dist Spl Oblig Rev Ref Harbor Point Proj Ltd (d) | | | |
| | | | |
| | | | |
| | |
| | |
| DE St Econ Dev Auth Retmnt Cmntys Rev Acts Retmnt Life Cmntys Inc, Ser B | | | |
| DE St Hlth Facs Auth Rev Beebe Med Ctr | | | |
| DE St Hlth Facs Auth Rev Ref Christiana Hlth Care Sys Oblig Grp, Ser A | | | |
| DE St Hlth Facs Auth Rev Ref Christiana Hlth Care Sys Oblig Grp, Ser A | | | |
| Millsboro DE Spl Oblig Ref Plantation Lakes Spl Dev Dist (d) | | | |
| | |
| District of Columbia — 0.7% | |
| | | | |
| Met WA DC Arpts Auth Arpt Sys Rev Ref Arpt Sys Rev, Ser A, AMT | | | |
| Met WA DC Arpts Auth Arpt Sys Rev Ref, Ser A, AMT | | | |
| Met WA DC Arpts Auth Arpt Sys Rev Ref, Ser A, AMT | | | |
| Met WA DC Arpts Auth Arpt Sys Rev Ref, Ser A, AMT | | | |
| Met WA DC Arpts Auth Arpt Sys Rev Ref, Ser A, AMT | | | |
| Met WA DC Arpts Auth Arpt Sys Rev Ref, Ser A, AMT | | | |
| | |
| | |
| Academical Vlg CDD FL Spl Assmnt Rev CDD | | | |
| Academical Vlg CDD FL Spl Assmnt Rev CDD | | | |
| Alachua Cnty FL Hlth Facs Auth CCRC Ref Oak Hammock at the Univ of FL Inc Proj | | | |
| Alachua Cnty FL Hlth Facs Auth Ref Shands Teaching Hosp & Clinics Inc, Ser B-1 | | | |
| Ave Maria FL Stewardship Cmnty Dist Capital Impt Rev Phase 4 Master Impt Proj (d) | | | |
| Beach Cmnty Dev Dist FL Capital Impt Rev Ref, AGM | | | |
| Berry Bay CDD FL Spl Assmnt Rev Assmnt Area One | | | |
| Berry Bay CDD FL Spl Assmnt Rev Assmnt Area One | | | |
| Bexley CDD FL Spl Assmnt Rev | | | |
| Broward Cnty FL Arpt Sys Rev, Ser A, AMT | | | |
| Broward Cnty FL Convention Ctr Hotel Rev First Tier | | | |
| Buckhead Trails CDD FL Spl Assmnt | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Charlotte Cnty FL Indl Dev Auth Util Sys Rev Town & Country Utils Proj (d) | | | |
| Coco Palms FL CDD Spl Assmnt | | | |
| Collier Cnty FL Indl Dev Auth NCH Hlthcare Sys Projs, Ser A, AGM | | | |
| Collier Cnty FL Indl Dev Auth NCH Hlthcare Sys Projs, Ser A, AGM | | | |
| Creekview CDD FL Spl Assmnt Rev Phase I Proj | | | |
| Cross Creek N CDD FL Spl Assmnt, Ser 2022 | | | |
| Cypress Mill CDD FL Spl Assmnt CDD Assmnt Area Two Proj | | | |
| Edgewater E CDD FL Spl Assmnt Rev Assmnt Area One | | | |
| Edgewater E CDD FL Spl Assmnt Rev Assmnt Area One | | | |
| Epperson N CDD FL Capital Impt Rev Assmnt Area #2 | | | |
| Epperson N CDD FL Capital Impt Rev Assmnt Area 1, Ser A-1 (d) | | | |
| Epperson N CDD FL Capital Impt Rev Assmnt Area 1, Ser A-1 (d) | | | |
| Epperson N CDD FL Capital Impt Rev Assmnt Area Three, Ser A | | | |
| Fallschase Cmnty Dev Dist FL Spl Assmnt | | | |
| FL Dev Fin Corp Hlthcare Facs Rev Tampa General Hosp Proj, Ser A | | | |
| FL St Dev Fin Corp Eductnl Facs Rev River City Science Acdmy Projs, Ser A | | | |
| FL St Dev Fin Corp Eductnl Facs Rev River City Science Acdmy Projs, Ser A | | | |
| FL St Dev Fin Corp Eductnl Facs Rev River City Science Acdmy Projs, Ser A | | | |
| FL St Dev Fin Corp Eductnl Facs Rev River City Science Acdmy Projs, Ser A | | | |
| FL St Dev Fin Corp Ref Brightline FL Passenger Rail Proj, AGM, AMT | | | |
| FL St Dev Fin Corp Ref Brightline FL Passenger Rail Proj, AGM, AMT | | | |
| Fort Pierce FL Utils Auth Ref, Ser A, AGM | | | |
| Halifax FL Hosp Med Ctr Ref | | | |
| Harmony FL CDD Capital Impt Rev Ref, Ser 2015 | | | |
| Heritage Harbour FL N CDD Capital Impt Rev Ref Sr Lien, Ser A-1, AGM | | | |
| Hillsborough Cnty FL Indl Dev Auth Hlth Sys Rev Ref Baycare Hlth Sys, Ser C | | | |
| Hillsborough Cnty FL Indl Dev Auth Hlth Sys Rev Ref Baycare Hlth Sys, Ser C | | | |
| Hyde Park CDD #1 FL Spl Assmntn | | | |
| JEA FL Elec Sys Rev Ref Sub, Ser III B | | | |
| Lakeland FL Energy Sys Rev Ref | | | |
| Lakeland FL Hosp Sys Rev Lakeland Regl Hlth (Pre-refunded maturity 11/15/24) | | | |
| Lakeland FL Hosp Sys Rev Ref Lakeland Regl Hlth Sys | | | |
| Lakeland FL Hosp Sys Rev Ref Lakeland Regl Hlth Sys | | | |
| Lakewood Ranch FL Stewardship Dist Util Rev Sys Acq Proj, AGM | | | |
| Lee Cnty FL Arpt Rev, AMT | | | |
| Lee Cnty FL Arpt Rev, AMT | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Lee Cnty FL Arpt Rev, AMT | | | |
| Lee Cnty FL Indl Dev Auth Hlthcare Facs Rev Shell Point, Ser C | | | |
| Lee Cnty FL Indl Dev Auth Hosp Rev Exchange Ref Lee Hlth Sys, Ser 2019 A-1 | | | |
| Lee Cnty FL Loc Optional Gas Tax Rev | | | |
| Lee Cnty FL Loc Optional Gas Tax Rev | | | |
| Liberty Cove CDD FL Spl Assmnt Rev Assmnt Area One Proj | | | |
| Miami FL Spl Oblg Ref Street & Sidewalk Impt Prog, Ser A, AGM (d) | | | |
| Miami World Ctr CDD FL Spl Assmnt | | | |
| Miami World Ctr CDD FL Spl Assmnt | | | |
| Miami-Dade Cnty FL Aviation Rev Ref, Ser A, AMT | | | |
| Miami-Dade Cnty FL Aviation Rev Ref, Ser A | | | |
| Miami-Dade Cnty FL Aviation Rev Ref, Ser A, AMT | | | |
| Miami-Dade Cnty FL Aviation Rev Ref, Ser B, AMT | | | |
| Miami-Dade Cnty FL Eductnl Facs Auth Rev Ref Univ of Miami, Ser A (e) | | | |
| Miami-Dade Cnty FL Eductnl Facs Auth Rev Ref Univ of Miami, Ser A (e) | | | |
| Miami-Dade Cnty FL Indl Dev Auth Doral Acdmy Proj | | | |
| Miami-Dade Cnty FL Indl Dev Auth Doral Acdmy Proj | | | |
| Miami-Dade Cnty FL Indl Dev Auth Doral Acdmy Proj | | | |
| Miami-Dade Cnty FL Indl Dev Auth Sol Wst Disp Rev Var Ref Wst Mgmt Inc Proj Remk, Ser A, AMT (Mandatory put 07/01/25) | | | |
| Miami-Dade Cnty FL Seaport Rev Ref Sr Bonds, Ser A, AMT | | | |
| Miami-Dade Cnty FL Spl Oblig Sub Ref | | | |
| N Park Isle Cmnty Dev Dist FL Spl Assmnt Rev Assmnt Area One | | | |
| N Park Isle Cmnty Dev Dist FL Spl Assmnt Rev Assmnt Area One | | | |
| N River Ranch CDD FL Capital Impt Rev Phase 1 Proj, Ser A-1 | | | |
| N Sumter Cnty FL Util Dependent Dist Util Rev Sumter Wtr Conservation Auth Proj, AGM | | | |
| Nthrn Palm Beach Cnty FL Impt Dist | | | |
| Orange Cnty FL Hlth Facs Auth Rev Orlando Hlth Oblig Grp,
Ser A | | | |
| Orange Cnty FL Hlth Facs Auth Rev Orlando Hlth Oblig Grp,
Ser A | | | |
| Orange Cnty FL Hlth Facs Auth Rev Orlando Hlth Oblig Grp,
Ser A | | | |
| Panama City Beach FL Capital Impt Rev Front Beach Road Proj | | | |
| Pasco Cnty FL Sch Brd, Ser C, AGM, COPS | | | |
| Polk Cnty FL Indl Dev Auth Mineral Dev LLC Secondary Phosphate Tailings Recovery Proj (f) | | | |
| Pompano Beach FL Rev John Knox Vlg Proj, Ser A | | | |
| Putnam Cnty FL Dev Auth Ref Seminole Proj, Ser A | | | |
| Rhodine Road N CDD FL Spl Assmnt 2019 Assmnt Area | | | |
| Ridge at Apopka CDD FL Spl Assmnt, Ser 22 | | | |
| Rivington CDD FL Spl Assmnt Rev 2022 Assmnt Area | | | |
| Rivington CDD FL Spl Assmnt Rev Assmnt Area | | | |
| S Broward FL Hosp Dist Ref | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Saint Johns Cnty FL Indl Dev Auth Sr Living Rev Ref Vicar’s Landing Proj, Ser A | | | |
| Saint Johns Cnty FL Indl Dev Auth Sr Living Rev Ref Vicar’s Landing Proj, Ser A | | | |
| Saint Johns Cnty FL Indl Dev Auth Sr Living Rev Ref Vicar’s Landing Proj, Ser A | | | |
| Saint Johns Cnty FL Sch Brd, Ser A, AGM, COPS | | | |
| San Simeon Cmnty Dev Dist FL Spl Assmnt (d) | | | |
| Sarasota Natl FL CDD Spl Assmnt Ref | | | |
| Sarasota Natl FL CDD Spl Assmnt Ref | | | |
| Sawyers Landing CDD FL Spl Assmnt Rev | | | |
| Sawyers Landing CDD FL Spl Assmnt Rev | | | |
| SE Overtown Park W Cmnty Redev Agy FL Tax, Ser A-1 (d) | | | |
| Shell Point Cmnty Dev Dist FL Spl Assmnt (d) | | | |
| Stoneybrook FL S CDD Spl Assmnt Rev Assmnt Area Two A Proj | | | |
| Summer Woods CDD FL Spl Assmnt Area Two 2020 Proj | | | |
| Tampa FL Hosp Rev H Lee Moffitt Cancer Ctr Proj, Ser B | | | |
| Tampa FL Hosp Rev H Lee Moffitt Cancer Ctr Proj, Ser B | | | |
| Tampa FL Hosp Rev H Lee Moffitt Cancer Ctr Proj, Ser B | | | |
| Tampa FL Hosp Rev H Lee Moffitt Cancer Ctr Proj, Ser B | | | |
| Tampa FL Hosp Rev H Lee Moffitt Cancer Ctr Proj, Ser B | | | |
| Tampa FL Hosp Rev H Lee Moffitt Cancer Ctr Proj, Ser B | | | |
| Tampa FL Rev Ref The Univ of Tampa Proj, Ser A | | | |
| Tern Bay CDD FL Spl Assmnt | | | |
| Tern Bay CDD FL Spl Assmnt | | | |
| The Heights CDD FL Spl Assmnt Rev CDD | | | |
| Timber Creek CDD FL Spl Assmnt Rev (d) | | | |
| Tolomato FL CDD Ref 2022A Assmnt Area, Ser A, AGM | | | |
| Tolomato FL CDD Ref 2022A Assmnt Area, Ser A, AGM | | | |
| Trout Creek CDD FL Capital Impt Rev | | | |
| Two Lakes CDD FL Spl Assmnt (e) | | | |
| Two Rivers W CDD FL Spl Assmnt Proj, Ser 2024 (d) | | | |
| Veranda CDD II FL Spl Assmnt Rev Ref Assmt Area 3 Preserve E Proj | | | |
| Villamar CDD FL Spl Assmnt Area Six Proj | | | |
| Vlg FL CDD #6 Spl Assmnt Rev Ref | | | |
| Volusia Cnty FL Eductnl Fac Auth Ref Embry Riddle Aeronautical Univ Inc Proj, Ser A | | | |
| Volusia Cnty FL Eductnl Fac Auth Ref Embry Riddle Aeronautical Univ Inc Proj, Ser A | | | |
| Volusia Cnty FL Eductnl Fac Auth Stetson Univ Inc Proj | | | |
| Volusia Cnty FL Eductnl Fac Auth Stetson Univ Inc Proj | | | |
| Westside FL CDD Spl Assmnt Rev Ref (d) | | | |
| Westview S CDD FL Spl Assmnt Area One 2023 Proj Area | | | |
| Yarborough Lane CDD FL Spl Assmnt Proj, Ser 2024 | | | |
| | |
| | |
| Atlanta GA Arpt Passenger Fac Charge Rev Arpt Rev Subord, Ser D, AMT | | | |
| Atlanta GA Arpt Rev Ref, Ser C, AMT | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Atlanta GA Arpt Rev, Ser A | | | |
| Atlanta GA Tax Allocation Ref Eastside Proj (Pre-refunded maturity 01/01/26) | | | |
| Bartow Cnty GA Dev Auth Var Ref GA Pwr Co Plt Bowen Proj Remk, First Ser (Mandatory put 03/08/28) | | | |
| Brookhaven Dev Auth GA Children’s Hlthcare of Atlanta, Ser A | | | |
| Burke Cnty GA Dev Auth Poll Control Rev Adjustable GA Pwr Co Plant Vogtle Proj Remk (c) | | | |
| Burke Cnty GA Dev Auth Poll Control Rev Var GA Pwr Co Plant Vogtle Proj Remk, 2nd Ser (Mandatory put 03/12/27) | | | |
| Burke Cnty GA Dev Auth Poll Control Rev Var GA Pwr Co Plant Vogtle Proj Remk, 5th Ser (Mandatory put 06/13/28) | | | |
| Burke Cnty GA Dev Auth Poll Control Rev Var Ref GA Pwr Co Plant Vogtle Proj (c) | | | |
| Columbia Cnty GA Hosp Auth Rev Anticipation Ctfs Wellstar Hlth Sys Inc Proj, Ser B | | | |
| Columbia Cnty GA Hosp Auth Rev Anticipation Ctfs Wellstar Hlth Sys Inc Proj, Ser B | | | |
| Columbia Cnty GA Hosp Auth Rev Anticipation Ctfs Wellstar Hlth Sys Inc Proj, Ser B | | | |
| Columbia Cnty GA Hosp Auth Rev Anticipation Ctfs Wellstar Hlth Sys Inc Proj, Ser B | | | |
| De Kalb GA Priv Hosp Auth Children’s Hlthcare of Atlanta, Ser B | | | |
| Etowah GA Wtr & Swr Auth Rev Ref, BAM | | | |
| Etowah GA Wtr & Swr Auth Rev Ref, BAM | | | |
| Fulton Cnty GA Rsdl Care Facs Elderly Auth Retmnt Fac Rev Ref Lenbrook Sq Fdtn Inc | | | |
| GA St Hgr Edu Facs Auth Rev Ref USG Real Estate Fdtn II LLC Projs | | | |
| GA St Hgr Edu Facs Auth Rev Ref USG Real Estate Fdtn II LLC Projs | | | |
| GA St Hsg & Fin Auth Rev Sf Mtge, Ser C | | | |
| Gainesville & Hall Cnty GA Hosp Auth Ref NE GA Hlth Sys Inc Proj, Ser A | | | |
| Geo L Smith II GA Congress Ctr Auth Convention Ctr Hotel First Tier, Ser A | | | |
| Geo L Smith II GA Congress Ctr Auth Convention Ctr Hotel First Tier, Ser A | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A (Mandatory put 09/01/27) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A (Mandatory put 12/01/29) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A (Mandatory put 06/01/30) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser A (Mandatory put 09/01/31) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser B (Mandatory put 03/01/30) | | | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser B (Mandatory put 03/01/32) | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Main Street Nat Gas Inc GA Gas Sply Rev, Ser D (Mandatory put 12/01/30) | | | |
| Monroe Cnty GA Dev Auth Poll Control Rev Var Ref GA Pwr Co Plant Scherer Proj 2nd Ser Remk (Mandatory put 03/06/26) | | | |
| Muni Elec Auth of GA Plant Vogtle Units 3&4 Proj J Bonds, Ser A, AGM | | | |
| Muni Elec Auth of GA Ref Plant Vogtle Units 3&4 Proj J, Ser A, AGM | | | |
| Muni Elec Auth of GA Ref Proj One Subord Bonds, Ser A | | | |
| Muni Elec Auth of GA Ref Proj One Subord Bonds, Ser A | | | |
| Muni Elec Auth of GA Ref Proj One Subord Bonds, Ser A, BAM | | | |
| Muni Elec Auth of GA Ref Proj One Subord Bonds, Ser A | | | |
| Priv Clgs & Univs Auth GA Ref Mercer Univ Proj | | | |
| | |
| | |
| Guam Govt Wtrwks Auth Wtr & Wstwtr Sys Rev, Ser A | | | |
| Guam Port Auth Port Rev, Ser B, AMT | | | |
| | |
| | |
| HI St Arpts Sys Rev, Ser A, AMT | | | |
| Honolulu City & Cnty HI Wstwtr Sys Rev Ref First Bond Resolution, Ser B | | | |
| Honolulu City & Cnty HI Wstwtr Sys Rev Sustainable Bonds Sr First Bond Resolution, Ser A | | | |
| Honolulu City & Cnty HI Wstwtr Sys Rev Sustainable Bonds Sr First Bond Resolution, Ser A | | | |
| | |
| | |
| ID St Hlth Facs Auth Rev Ref Madison Memorial Hosp | | | |
| ID St Hlth Facs Auth Rev Ref Madison Memorial Hosp | | | |
| ID St Hlth Facs Auth Rev Ref Madison Memorial Hosp | | | |
| ID St Hlth Facs Auth Rev Ref St Luke’s Hlth Sys Proj, Ser A | | | |
| ID St Hsg & Fin Assn Sales Tax Rev Transprtn Expansion & Congestion Mitigation Fund, Ser A | | | |
| | |
| | |
| Bolingbrook IL Ref, Ser A, AGM | | | |
| Bolingbrook IL Ref, Ser A, AGM | | | |
| Bolingbrook IL Ref, Ser A | | | |
| Chicago IL Brd of Edu Dedicated Capital Impt Tax | | | |
| Chicago IL Brd of Edu Dedicated Capital Impt Tax | | | |
| Chicago IL Brd of Edu Ref Dedicated, Ser C | | | |
| Chicago IL Brd of Edu Ref, Ser B | | | |
| Chicago IL Brd of Edu, Ser A | | | |
| Chicago IL Brd of Edu, Ser A | | | |
| Chicago IL Chicago Wks, Ser A | | | |
| Chicago IL Chicago Wks, Ser A | | | |
| | | | |
| Chicago IL Midway Arpt Rev Sr Lien Ref, Ser A, AMT, BAM | | | |
| Chicago IL Midway Arpt Rev Sr Lien Ref, Ser A, AMT, BAM | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Chicago IL O’Hare Intl Arpt Rev Ref Gen Sr Lien, Ser A, AMT | | | |
| Chicago IL O’Hare Intl Arpt Rev Ref Sr Lien O’Hare Intl Arpt, Ser C, AMT | | | |
| Chicago IL O’Hare Intl Arpt Rev Ref Sr Lien, Ser A, AMT | | | |
| Chicago IL O’Hare Intl Arpt Rev Ref Sr Lien, Ser A, AMT | | | |
| Chicago IL O’Hare Intl Arpt Rev Ref, Ser A, AMT | | | |
| Chicago IL O’Hare Intl Arpt Rev Ref, Ser C, AMT | | | |
| Chicago IL O’Hare Intl Arpt Rev Ref, Ser C, AMT | | | |
| Chicago IL O’Hare Intl Arpt Rev, Ser C, AMT | | | |
| Chicago IL Park Dist Ref, Ser A, BAM | | | |
| Chicago IL Park Dist Ref, Ser A, BAM | | | |
| Chicago IL Ref 2003B Remk | | | |
| | | | |
| Chicago IL Ref, Ser C, CABS | | | |
| | | | |
| | | | |
| Chicago IL Unrefunded, Ser A | | | |
| Cook Cnty IL Sch Dist #81 Schiller Park, BAM | | | |
| Hampshire IL Spl Svc Area #14 Spl Tax Ref Lakewood Crossing, BAM | | | |
| | | | |
| IL St Fin Auth Acad Facs Lease Rev Univ of IL at Urbana Champaign Proj, Ser A | | | |
| IL St Fin Auth Acad Facs Lease Rev Univ of IL at Urbana Champaign Proj, Ser A | | | |
| IL St Fin Auth Acad Facs Lease Rev Univ of IL at Urbana Champaign Proj, Ser A | | | |
| IL St Fin Auth Acad Facs Lease Rev Univ of IL at Urbana Champaign Proj, Ser A | | | |
| IL St Fin Auth Rev Loc Govt Prog E Prairie Sch Dist #73 Proj, BAM | | | |
| IL St Fin Auth Rev Ref Mercy Hlth Sys Oblig Grp | | | |
| IL St Fin Auth Rev Ref Presbyterian Homes Oblig Grp, Ser A | | | |
| IL St Fin Auth Rev Township High Sch Dist #207 Proj | | | |
| IL St Fin Auth Stdt Hsg & Acad Fac Rev Chf Chicago LLC Univ IL Chicago Proj, Ser A | | | |
| IL St Fin Auth Stdt Hsg & Acad Fac Rev Chf Chicago LLC Univ IL Chicago Proj, Ser A | | | |
| IL St Fin Auth Stdt Hsg & Acad Fac Rev Chf Chicago LLC Univ IL Chicago Proj, Ser A | | | |
| IL St Hsg Dev Auth Mf Hsg Rev Var S Shore HHDC (Mandatory put 02/01/26) | | | |
| IL St Sales Tax Rev Junior Oblig, Ser A, BAM | | | |
| IL St Toll Hwy Auth Ref Sr, Ser A | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| | | | |
| | | | |
| Kane Cook & DuPage Cntys IL Cmnty Clg Dist #509 | | | |
| Lincolnwood IL Tax Incr Allocation Rev Nts Dist 1860 Dev Proj, Ser A, COPS (d) | | | |
| Madison Bond Etc Cntys IL Cmnty Unit Sch Dist #5, Ser B, AGM | | | |
| Madison Bond Etc Cntys IL Cmnty Unit Sch Dist #5, Ser B, AGM | | | |
| Morton Grove Niles Wtr Commn IL Wtr, Ser A | | | |
| Moultrie Shelby & Coles Cntys IL Cmnty Unit Sch Dist #300, BAM | | | |
| Moultrie Shelby & Coles Cntys IL Cmnty Unit Sch Dist #300, BAM | | | |
| Peoria IL Ref, Ser C, AGM | | | |
| Piatt Champaign & DeWitt Cntys IL Cmnty Unit Sch Dist # 25 Ref, Ser B, BAM | | | |
| Rockford IL Ref Wtrwks Sys, Ser B, BAM | | | |
| Romeoville IL Rev Ref Lewis Univ Proj | | | |
| Sales Tax Securitization Corp IL Ref, Ser C | | | |
| Sales Tax Securitization Corp IL Ref, Ser C | | | |
| Skokie IL Park Dist, Ser A | | | |
| Skokie IL Park Dist, Ser A | | | |
| Will Cnty IL Forest Preserve Dist (e) | | | |
| | |
| | |
| Avon IN Cmnty Sch Bldg Corp | | | |
| Borden Henryville Multi Sch Bldg Corp IN | | | |
| Brownsburg IN 1999 Sch Bldg Corp First Mtge (e) | | | |
| | | | |
| Fort Wayne IN Mf Hsg Rev Silver Birch at Cook Road (d) | | | |
| Franklin Twp IN Multi Sch Bldg Corp First Mtge | | | |
| Franklin Twp IN Multi Sch Bldg Corp First Mtge | | | |
| Franklin Twp IN Multi Sch Bldg Corp First Mtge | | | |
| Franklin Twp IN Multi Sch Bldg Corp First Mtge | | | |
| IN Fin Auth Midwestern Disaster Relief Rev OH Vly Elec Corp Proj Remk, Ser A | | | |
| IN St Fin Auth Envrnmntl Rev Ref Var Duke Energy IN Inc Proj Remk, Ser A-1, AMT (Mandatory put 06/01/32) | | | |
| IN St Fin Auth Hlth Fac Rev Margaret Mary Hlth Proj, Ser A | | | |
| IN St Fin Auth Hlth Fac Rev Margaret Mary Hlth Proj, Ser A | | | |
| IN St Fin Auth Hlth Sys Rev IN Univ Hlth, Ser A | | | |
| IN St Fin Auth Hosp Rev Goshen Hlth, Ser A | | | |
| IN St Fin Auth Hosp Rev Goshen Hlth, Ser A | | | |
| IN St Fin Auth Hosp Rev Reid Hlth, AGM | | | |
| IN St Fin Auth Rev Marian Univ Proj, Ser A | | | |
| IN St Fin Auth Rev Ref Rev Cmnty Fdtn of NW IN | | | |
| IN St Muni Pwr Agy Ref, Ser A | | | |
| IPS Multi Sch Bldg Corp IN Ref Sustainable Bond First Mortgage | | | |
| IPS Multi Sch Bldg Corp IN Ref Sustainable Bond First Mortgage | | | |
| Msd Warren Twp IN Vision 2005 Sch Bldg Corp Rev | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Noblesville IN Cmnty Dev Corp LSE Rent Rev Event Ctr Proj, Ser B, AGM | | | |
| Penn IN High Sch Bldg Corp 1st Mtge Bonds, Ser A | | | |
| Sunman Dearborn IN High Sch Bldg Corp First Mtge | | | |
| Sunman Dearborn IN High Sch Bldg Corp First Mtge | | | |
| Whiting IN Envrnmntl Facs Rev Ref BP Products N America Inc Proj, Ser A, AMT (Mandatory put 06/05/26) | | | |
| | |
| | |
| Altoona IA, Ser A, BAM, COPS | | | |
| | | | |
| Dallas Ctr IA Grimes Cmnty Sch Dist | | | |
| IA St Fin Auth Midwstrn Disaster Area Rev Ref IA Fertilizer Company Proj (Pre-refunded maturity 12/01/32) | | | |
| Tobacco Stlmt Auth IA Tobacco Stlmt Rev Ref Sr, Ser A-2, Class 1 | | | |
| Tobacco Stlmt Auth IA Tobacco Stlmt Rev Ref Sr, Ser A-2, Class 1 | | | |
| Tobacco Stlmt Auth IA Tobacco Stlmt Rev Ref Sr, Ser A-2, Class 1 | | | |
| Univ of IA IA Facs Corp Museum of Art Proj | | | |
| Univ of IA IA Facs Corp Museum of Art Proj | | | |
| | |
| | |
| Goddard KS Sales Tax Spl Oblg Rev Ref Olympic Park Star Bond Proj | | | |
| KS Muni Energy Agy Pwr Proj Rev Dogwood Proj, Ser A, BAM | | | |
| KS Muni Energy Agy Pwr Proj Rev Dogwood Proj, Ser A, BAM | | | |
| KS St Dept of Transprtn Hwy Rev | | | |
| Leavenworth Cnty KS Unif Sch Dist #464 Ref, Ser A | | | |
| Leavenworth Cnty KS Unif Sch Dist #464 Ref, Ser A | | | |
| Leavenworth Cnty KS Unif Sch Dist #464 Ref, Ser A | | | |
| Leavenworth Cnty KS Unif Sch Dist #464 Ref, Ser A | | | |
| Leavenworth Cnty KS Unif Sch Dist #464 Ref, Ser A | | | |
| Leavenworth Cnty KS Unif Sch Dist #464 Ref, Ser A | | | |
| Lenexa KS Hlth Care Fac Rev Ref Lakeview Vlg Inc, Ser A | | | |
| Wyandotte Cnty KS Kansas City Unif Govt Spl Oblg Rev Ref Vlg E Proj Areas 2B 3 5 (d) | | | |
| Wyandotte Cnty KS Kansas City Unif Govt Util Sys Rev Impt, Ser A | | | |
| Wyandotte Cnty KS Kansas City Unif Govt Util Sys Rev Ref & Impt, Ser A | | | |
| Wyandotte Cnty KS Unif Sch Dist #202, Ser A, AGM (Pre- refunded maturity 09/01/27) | | | |
| | |
| | |
| Ashland KY Med Ctr Rev Ref Ashland Hosp Corp DBA Kings Daughters Med Ctr, AGM | | | |
| Boyle Cnty KY Eductnl Facs Rev Ref Ctr Clg, Ser A | | | |
| Jefferson Cnty KY Sch Dist Fin Corp Sch Bldg Rev, Ser B | | | |
| KY St Econ Dev Fin Auth Baptist Hlthcare Sys, Ser B | | | |
| KY St Econ Dev Fin Auth Baptist Hlthcare Sys, Ser B | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| KY St Econ Dev Fin Auth Hlth Sys Rev Norton Hlthcare Inc, Ser B, CABS, NATL-RE | | | |
| KY St Econ Dev Fin Auth Ref Commonspirit Hlth, Ser A-1 | | | |
| KY St Econ Dev Fin Auth Ref Commonspirit Hlth, Ser A-1 | | | |
| KY St Econ Dev Fin Auth Ref Commonspirit Hlth, Ser A-2 | | | |
| KY St Hsg Corp SF Mtge, Ser C | | | |
| KY St Pub Energy Auth Gas Sply Rev Ref, Ser A-1 (Mandatory put 02/01/32) | | | |
| KY St Pub Energy Auth Gas Sply Rev Var, Ser C (Mandatory put 02/01/28) | | | |
| Louisville & Jefferson Cnty KY Met Govt Hlth Sys Rev Norton Hlthcare Inc, Ser A | | | |
| Louisville & Jefferson Cnty KY Met Govt Hlth Sys Rev Ref Norton Hlthcare Inc, Ser A | | | |
| Louisville & Jefferson Cnty KY Met Govt Hlth Sys Rev Ref Norton Hlthcare Inc, Ser A | | | |
| Louisville & Jefferson Cnty KY Met Swr Dist Swr & Drain Sys Sustainable Bond, Ser A | | | |
| Meade Cnty KY Indl Bldg Rev Var Nucor Steel Brandenburg Proj Sustainable Bond, Ser B-1 (c) | | | |
| Trimble Cnty KY Envrnmntl Facs Rev Var Louisville Gas & Elec Co Proj, Ser A, AMT (Mandatory put 06/01/27) | | | |
| | |
| | |
| E Baton Rouge Parish LA Capital Impts Dist MOVEBR Sales,
Ser T | | | |
| E Baton Rouge Parish LA Swr Commn Rev Ref, Ser A | | | |
| LA Pub Facs Auth Rev Ref Ochsner Clinic Fdtn Proj | | | |
| LA St Loc Govt Envrnmntl Facs & Cmnty Dev Auth Rev Ascension Psh Courthouse Proj | | | |
| LA St Loc Govt Envrnmntl Facs & Cmnty Dev Auth Rev Ref Hosp Womans Fdtn Proj, Ser A | | | |
| LA St Loc Govt Envrnmntl Facs & Cmnty Dev Auth Rev Ref Westlake Chemical Corp Proj Remk | | | |
| LA St Pub Facs Auth Sol Wst Disp Fac Rev Var Elementus Minerals LLC Proj (Mandatory put 11/01/25) (d) | | | |
| Lafayette LA Util Rev Elec Proj, AGC | | | |
| New Orleans LA Aviation Brd Gen Arpt N Term, Ser B, AMT | | | |
| New Orleans LA Wtr Rev (Pre-refunded maturity 12/01/25) | | | |
| New Orleans LA Wtr Rev Ref (Pre-refunded maturity 12/01/24) | | | |
| | |
| | |
| Baltimore Cnty MD Rev Ref Oak Crest Vlg Inc Fac | | | |
| Baltimore Cnty MD Rev Ref Oak Crest Vlg Inc Fac | | | |
| Baltimore Cnty MD Rev Ref Riderwood Vlg Inc Proj | | | |
| Baltimore Cnty MD Rev Ref Riderwood Vlg Inc Proj | | | |
| Baltimore Cnty MD Rev Ref Riderwood Vlg Inc Proj | | | |
| Baltimore MD Spl Oblig Ref E Baltimore Rsrch Park Proj, Ser A | | | |
| Baltimore MD Spl Oblig Ref Sr Lien Harbor Point Proj, Ser A (d) | | | |
| Baltimore MD Spl Oblig Ref Sr Lien Harbor Point Proj, Ser A (d) | | | |
| Harford Cnty MD Spl Oblg Ref Beechtree Estates Proj | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| MD St Econ Dev Corp Stdt Hsg Rev Bowie St Univ Proj | | | |
| MD St Econ Dev Corp Stdt Hsg Rev College Park Leonard Town Proj, AGM | | | |
| MD St Hlth & Hgr Eductnl Facs Auth Rev Ref Anne Arundel Hlth Sys, Ser A | | | |
| MD St Hlth & Hgr Eductnl Facs Auth Rev Ref Stevenson Univ Proj, Ser A | | | |
| MD St Hlth & Hgr Eductnl Facs Auth Rev Ref Stevenson Univ Proj, Ser A | | | |
| MD St Hlth & Hgr Eductnl Facs Auth Rev Ref Stevenson Univ Proj, Ser A | | | |
| MD St Stadium Auth Rev Constr & Revitalization Prog Baltimore Pub Sch, Ser A | | | |
| MD St Stadium Auth Rev Football Stadium Issue, Ser A | | | |
| WA MD Suburban San Dist Consolidated Pub Impt | | | |
| WA Suburban San Dist MD Var Remk, Ser A, BANS (c) | | | |
| | |
| | |
| MA St Bay Transprtn Auth Sales Tax Rev Ref Sr, Ser B | | | |
| MA St Bay Transprtn Auth Sales Tax Rev Sr Ref, Ser A | | | |
| MA St Bay Transprtn Auth Sales Tax Rev Sr Ref, Ser A | | | |
| MA St Bay Transprtn Auth Sales Tax Rev Sr, Ser A | | | |
| MA St Consolidated Loan, Ser A | | | |
| MA St Dev Fin Agy Rev Linden Ponds Inc Fac (d) | | | |
| MA St Port Auth Ref, Ser A, AMT | | | |
| MA St Port Auth, Ser C, AMT | | | |
| MA St Transprtn Fund Rev Rail Enhancement Prog, Ser A | | | |
| MA St Transprtn Fund Rev Rail Enhancement Proj Commonwealth Transprtn Fund, Ser B | | | |
| | | | |
| | |
| | |
| Charles Stewart Mott MI Cmnty Clg Ref, AGM | | | |
| Genesee Cnty MI Swr Disp Sys Rev, Ser A, BAM | | | |
| Genesee Cnty MI Swr Disp Sys Rev, Ser A, BAM | | | |
| Genesee Cnty MI Swr Disp Sys Rev, Ser A, BAM | | | |
| Grand Rapids MI Santn Swr Sys Rev | | | |
| Great Lakes MI Wtr Auth Sewage Disposal Sys Rev Ref Sr Lien, Ser A | | | |
| Great Lakes MI Wtr Auth Wtr Sply Sys Rev Ref Sr Lien, Ser C | | | |
| Kalamazoo MI Hosp Fin Auth Unrefunded Ref Bronson Hlthcare Grp | | | |
| Kentwood MI Pub Schs, Ser II, AGM | | | |
| Lake Shore MI Pub Schs, Ser I | | | |
| Lakeview MI Public Sch Distn | | | |
| Marquette MI Brd of Light & Pwr Elec Util Sys Rev Ref, Ser A | | | |
| MI St Bldg Auth Rev Var Fac Progr Multi Modal, Ser I (c) | | | |
| MI St Fin Auth Act 38 Facs Sr Rev Sustainable Bonds Henry Ford Hlth Detroit Util Plant Proj | | | |
| MI St Fin Auth Ltd Oblig Rev Ref Clg for Creative Studies Proj | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| MI St Fin Auth Rev Henry Ford Hlth Sys, Ser A | | | |
| MI St Fin Auth Rev Loc Govt Loan Pgm Great Lakes Wtr Auth Ref 2nd Lien, Ser C | | | |
| MI St Fin Auth Rev Multi Modal McLaren Hlth Care, Ser A | | | |
| MI St Fin Auth Rev Ref Beaumont Spectrum Consolidation, Ser A | | | |
| MI St Fin Auth Rev Ref CHE Trinity Hlth Credit Grp Remk, Ser 2013-2 | | | |
| MI St Fin Auth Rev Ref Henry Ford Hlth Sys | | | |
| MI St Fin Auth Rev Ref Henry Ford Hlth Sys | | | |
| MI St Fin Auth Rev Ref Hosp McLaren Hlth Care, Ser B | | | |
| MI St Fin Auth Rev Ref Loc Govt Loan Prog Great Lakes Wtr Auth, Ser D-1 | | | |
| MI St Fin Auth Rev Ref Sr Turbo, Ser A-2 | | | |
| MI St Hosp Fin Auth Ref Ascenion Sr Credit Remk, Ser F7 | | | |
| Midland MI Pub Schs Sch Bldg & Site, Ser II | | | |
| | | | |
| | |
| | |
| Duluth MN Indep Sch Dist #709 Ref, Ser B, COPS | | | |
| | | | |
| Minneapolis Saint Paul MN Met Arpts Commn Arpt Rev Ref Sub, Ser B, AMT | | | |
| MN St Agric & Econ Devbrd HealthPartners Oblig Grp | | | |
| MN St Agric & Econ Devbrd HealthPartners Oblig Grp | | | |
| Saint Paul MN Hsg & Redev Auth Hlth Care Fac Rev Ref HealthPartners Oblig Grp, Ser A | | | |
| Saint Paul MN Hsg & Redev Auth Hlth Care Fac Rev Ref HealthPartners Oblig Grp, Ser A | | | |
| | |
| | |
| MS St Busn Fin Commns Gulf Opportunity Zone Var Chevron USA Inc, Ser K (c) | | | |
| MS St Busn Fin Corp Sol Wst Disp Rev Adj Ref MS Pwr Co Proj Remk, AMT (c) | | | |
| MS St Hosp Equipment & Facs Auth Baptist Memorial Hlth Care, Ser A | | | |
| MS St, Ser A (Pre-refunded maturity 11/01/26) | | | |
| W Rankin MS Util Auth Rev, AGM (Pre-refunded maturity 01/01/25) | | | |
| Warren Cnty MS Lease Pur Jail Proj, BAM, COPS | | | |
| | |
| | |
| Bridgeton MO Spl Oblig Rev Ref, Ser A | | | |
| Jackson Cnty MO Consol Sch Dist #4 | | | |
| Jackson Cnty MO Consol Sch Dist #4 | | | |
| Jackson Cnty MO Consol Sch Dist #4 | | | |
| Jackson Cnty MO Spl Oblig Ref Truman Sports Complex Proj | | | |
| Kansas City MO Indl Dev Auth Arpt Spl Oblig Kansas City Intl Arpt Terminal Mod Proj, Ser B, AMT | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Kansas City MO Indl Dev Auth Arpt Spl Oblig Kansas City Intl Arpt Terminal Mod, Ser A, AMT | | | |
| Kansas City MO Indl Dev Auth Arpt Spl Oblig Kansas City Intl Arpt, Ser A, AMT | | | |
| Lincoln Cnty MO Pub Wtr Sply Dist #1 Ref, COPS | | | |
| Lincoln Cnty MO Pub Wtr Sply Dist #1 Ref, COPS | | | |
| Maryville MO Sch Dist #R-II | | | |
| MO Jt Muni Elec Util Commn Pwr Proj Rev Dogwood Energy Fac Proj, Ser C, BAM | | | |
| MO Jt Muni Elec Util Commn Pwr Proj Rev Dogwood Energy Fac Proj, Ser C, BAM | | | |
| MO St Hlth & Eductnl Facs Auth Hlth Facs Rev Cox Health & Oblig Grp, Ser A | | | |
| MO St Hlth & Eductnl Facs Auth Hlth Facs Rev Mercy Hlth | | | |
| MO St Hlth & Eductnl Facs Auth Hlth Facs Rev Ref Mosaic Hlth Sys, Ser A | | | |
| MO St Hlth & Eductnl Facs Auth Hlth Facs Rev Ref, Ser C (Mandatory put 05/01/28) | | | |
| MO St Hlth & Eductnl Facs Auth Lutheran Sr Svcs Projs | | | |
| MO St Hlth & Eductnl Facs Auth Lutheran Sr Svcs Projs | | | |
| MO St Hlth & Eductnl Facs Auth Lutheran Sr Svcs Projs | | | |
| MO St Hlth & Eductnl Facs Auth Lutheran Sr Svcs Projs | | | |
| MO St Hlth & Eductnl Facs Auth Med Rsrch Lutheran Svcs, Ser A | | | |
| MO St Hlth & Eductnl Facs Auth Ref Lutheran Sr Svcs Projs, Ser A | | | |
| St Charles Cnty MO Pub Wtr Sply Dist #2 Pub Wtr Sply Dist No 2, COPS | | | |
| St Louis Cnty MO Pattonville Sch Dist #R-3 | | | |
| St Louis Cnty MO Pattonville Sch Dist #R-3 | | | |
| St Louis Cnty MO Spl Oblig Convention Ctr, Ser A | | | |
| St Louis MO Muni Library Dist Ref, BAM, COPS | | | |
| | |
| | |
| Forsyth MT Poll Control Rev Ref Puget Sound Energy Proj, Ser A | | | |
| | |
| Centrl Plains Energy Proj NE Gas Proj Rev Var Ref Proj #4, Ser A (Mandatory put 11/01/29) | | | |
| NE St Pub Pwr Dist Rev Gen, Ser C | | | |
| | |
| | |
| Carson City NV Hosp Rev Ref Carson Tahoe Regl Med Ctr, Ser A | | | |
| Clark Cnty NV Arpt Rev Ref, Ser B | | | |
| Clark Cnty NV Poll Control Rev Var Ref NV Pwr CO Proj Remk (Mandatory put 03/31/26) | | | |
| Clark Cnty NV Ref Las Vegas Convention & Visitors Auth, Ser C | | | |
| Clark Cnty NV Sch Dist, Ser A | | | |
| Las Vegas NV Spl Impt Dist #816 Spl Impt District No 816 Summerlin Vlg 22 | | | |
| Las Vegas NV Spl Impt Dist #816 Spl Impt District No 816 Summerlin Vlg 22 | | | |
| Las Vegas Vly NV Wtr Dist Ref Wtr Impt, Ser A | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| N Las Vegas NV Loc Impt Vly Vista Spl Impt Dist #64 | | | |
| N Las Vegas NV Loc Impt Vly Vista Spl Impt Dist #64 | | | |
| N Las Vegas NV Loc Impt Vly Vista Spl Impt Dist #64 | | | |
| NV Dept of Busn & Ind NV Doral Acdmy, Ser A | | | |
| Reno NV Capital Impt Rev Ref, Ser A-1, AGM | | | |
| Reno NV Capital Impt Rev Ref, Ser A-1, AGM | | | |
| Reno NV Capital Impt Rev Ref, Ser A-1, AGM | | | |
| Reno Tahoe NV Arpt Auth Arpt Rev Tahoe Intl Arpt, Ser B | | | |
| Reno Tahoe NV Arpt Auth Arpt Rev Tahoe Intl Arpt, Ser B | | | |
| Washoe Cnty NV Hwy Rev Ref Fuel Tax | | | |
| | |
| | |
| Natl Fin Auth NH Rev Adventist Hlth Energy Proj, Ser C | | | |
| Natl Fin Auth NH Rev Adventist Hlth Energy Proj, Ser C | | | |
| | |
| | |
| NJ St Econ Dev Auth Mtr Vehcl Surcharge Rev Ref Sub, Ser A, BAM | | | |
| NJ St Econ Dev Auth Rev Portal N Bridge Proj NJ Transit Transprtn Proj Bonds, Ser A | | | |
| NJ St Econ Dev Auth Rev Sch Facs Constr Prog, Ser LLL | | | |
| NJ St Econ Dev Auth Rev Sch Facs Constr Prog, Ser LLL | | | |
| NJ St Econ Dev Auth Rev Sustainable Bonds, Ser QQQ | | | |
| NJ St Econ Dev Auth Rev Sustainable Bonds, Ser QQQ | | | |
| NJ St Econ Dev Auth Spl Fac Rev Ref Port Newark Container Terminal LLC Proj, AMT | | | |
| NJ St Econ Dev Auth Wtr Facs Rev Var Ref NJ American Wtr Co Inc Proj Remk, Ser B, AMT (Mandatory put 06/01/28) | | | |
| NJ St Transprtn Trust Fund Auth Cap Apprec Transprtn Sys, Ser C, AMBAC | | | |
| NJ St Transprtn Trust Fund Auth Fed Hwy Reimb Nts, Ser A-1, GARVEE | | | |
| NJ St Transprtn Trust Fund Auth Fun Auth Transprtn Prog Bonds, Ser CC | | | |
| NJ St Transprtn Trust Fund Auth Ref Transprtn Sys Bonds, Ser A | | | |
| NJ St Transprtn Trust Fund Auth Ref Transprtn Sys Bonds, Ser A | | | |
| NJ St Transprtn Trust Fund Auth Ref Transprtn Sys, Ser A | | | |
| NJ St Transprtn Trust Fund Auth Ref Transprtn Sys, Ser A | | | |
| NJ St Transprtn Trust Fund Auth Ref, Ser A | | | |
| NJ St Transprtn Trust Fund Auth Ref, Ser AA | | | |
| NJ St Transprtn Trust Fund Auth Transprtn Prog Bonds, Ser AA (Pre-refunded maturity 12/15/28) | | | |
| NJ St Transprtn Trust Fund Auth Transprtn Prog Bonds, Ser AA | | | |
| NJ St Transprtn Trust Fund Auth, Ser BB (Pre-refunded maturity 12/15/28) | | | |
| NJ St Transprtn Trust Fund Auth, Ser BB | | | |
| NJ St Turnpike Auth Turnpike Rev, Ser B | | | |
| Tobacco Stlmt Fing Corp NJ Ref Sub, Ser B | | | |
| Tobacco Stlmt Fing Corp NJ Ref, Ser A | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Tobacco Stlmt Fing Corp NJ Ref, Ser A | | | |
| Tobacco Stlmt Fing Corp NJ Ref, Ser A | | | |
| | |
| | |
| Albuquerque NM Refuse Removal & Disp Rev | | | |
| Farmington NM Poll Control Rev Var Ref Pub Svc Co NM San Juan Proj Remk, Ser D (Mandatory put 06/01/28) | | | |
| Los Ranchos De Albuquerque NM Eductnl Facs Rev Ref Albuquerque Acdmy Proj | | | |
| Los Ranchos De Albuquerque NM Eductnl Facs Rev Ref Albuquerque Acdmy Proj | | | |
| Los Ranchos De Albuquerque NM Eductnl Facs Rev Ref Albuquerque Acdmy Proj | | | |
| Lower Petroglyphs Pub Impt Dist NM Spl Levy Rev Ref | | | |
| Lower Petroglyphs Pub Impt Dist NM Spl Levy Rev Ref | | | |
| Lower Petroglyphs Pub Impt Dist NM Spl Levy Rev Ref | | | |
| Lower Petroglyphs Pub Impt Dist NM Spl Levy Rev Ref | | | |
| NM St Hosp Equipment Loan Council Hosp Rev Ref | | | |
| | |
| | |
| Build NYC Res Corp NY Rev Sustainable Bond Kipp NYC Pub Sch Facs Canal W Proj | | | |
| Build NYC Res Corp NY Rev Sustainable Bond Kipp NYC Pub Sch Facs Canal W Proj | | | |
| Chautauqua Cnty NY Capital Res Corp Exempt Facs Rev Var Ref NRG Energy Proj Remk (Mandatory put 04/03/28) | | | |
| Hudson Yards Infra Corp NY 2nd Indenture Rev Ref, Ser A | | | |
| Hudson Yards Infra Corp NY 2nd Indenture Rev Ref, Ser A | | | |
| Kings Park NY Centrl Sch Dist, Ser B | | | |
| Long Island NY Pwr Auth Elec Sys Rev Elec Sys Rev Gen, Ser A, BAM | | | |
| Long Island NY Pwr Auth Elec Sys Rev Ref, Ser A | | | |
| Long Island NY Pwr Auth Elec Sys Rev Ref, Ser A | | | |
| Met Transprtn Auth NY Rev Var Ref Remk, Ser 2002D-2A-1 (c) | | | |
| Monroe Cnty NY Indl Dev Corp Rev Ref St John Fisher Univ Proj | | | |
| Monroe Cnty NY Indl Dev Corp Rev Ref St John Fisher Univ Proj | | | |
| N Babylon NY Union Free Sch Dist | | | |
| New York City NY Hsg Dev Corp Mf Hsg Rev Sustainable Dev Bonds, Ser F-2A (Mandatory put 12/22/26) | | | |
| New York City NY Muni Wtr Fin Auth Wtr & Swr Sys Rev Ref 2nd Gen Resolution, Subser EE-2 | | | |
| New York City NY Transitional Fin Auth Bldg Aid Rev Subord Ref, Ser S-2A | | | |
| New York City NY Transitional Fin Auth Rev Future Tax Sec Sub, Subser D-1 | | | |
| New York City NY Transitional Fin Auth Rev Sub Multi Modal, Ser F-1 | | | |
| New York City NY Transitional Fin Auth Rev Sub, Ser B-1 | | | |
| New York City NY Transitional Fin Auth Rev Sub, Ser B-1 | | | |
| New York City NY Transitional Fin Auth Rev Subord, Ser A-1 | | | |
| | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| | | | |
| | | | |
| | | | |
| | | | |
| NY St Dorm Auth Rev Non St Supported Debt Montefiore Obligated Grp | | | |
| NY St Dorm Auth Rev Non St Supported Debt White Plains Hosp Obligated Grp, AGC | | | |
| NY St Dorm Auth Revs Non St Supported Debt Pratt Institute Ref | | | |
| NY St Dorm Auth Revs Non St Supported Debt Ref New Sch,
Ser A | | | |
| NY St Dorm Auth Revs Non St Supported Debt Ref Northwell Hlth Oblig Grp, Ser A | | | |
| NY St Dorm Auth Revs Non St Supported Debt White Plains Hosp Obligated Grp, AGC | | | |
| NY St Dorm Auth Sales Tax Rev Ref Grp 3, Ser E | | | |
| NY St Dorm Auth St Personal Income Tax Rev Ref, Ser A | | | |
| NY St Dorm Auth St Personal Income Tax Rev Ref, Ser A | | | |
| NY St Hsg Fin Agy Affordable Hsg Rev Var 320 W 38th St Hsg Remk, Ser A (Mandatory put 11/01/31) | | | |
| NY St Thruway Auth Gen Rev Jr Indebtedness Obl Subord, Ser B | | | |
| NY St Thruway Auth Personal Income Tax Rev Ref Bidding Grp 3 | | | |
| NY St Thruway Auth Personal Income Tax Rev Ref Bidding Grp 3 | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Delta Airls Inc LaGuardia Arpt Terminals C&D Redev, AMT | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Delta Airls Inc LaGuardia Arpt Terminals C&D Redev, AMT | | | |
| NY St Transprtn Dev Corp Spl Fac Rev LaGuardia Arpt Terminal C&D Redev Proj, AMT | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Sustainable Bond JFK Intl Arpt New Terminal, AMT | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Sustainable Bond JFK Intl Arpt New Terminal, AMT | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Sustainable Bond JFK Intl Arpt Terminal One Prj, AGM, AMT | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Sustainable Bond JFK Intl Arpt Terminal One Prj, AGM, AMT | | | |
| NY St Transprtn Dev Corp Spl Fac Rev Sustainable Bond JFK Intl Arpt Terminal One Prj, AGM, AMT | | | |
| Port Auth of NY & NJ NY Ref, 194th Ser | | | |
| Port Auth of NY & NJ NY Ref, Ser 246, AMT | | | |
| Suffolk Regl Off Track Betting Corp NY Rev | | | |
| Syracuse Regl Arpt Auth NY Sr Arpt Rev Ref, AMT | | | |
| Util Debt Securitization Auth NY Ref Restructuring Bonds,
Ser TE-1 | | | |
| Westchester Cnty NY Loc Dev Corp Rev Westchester Med Ctr Oblig Grp Proj, AGM | | | |
| Westchester Cnty NY Loc Dev Corp Rev Westchester Med Ctr Oblig Grp Proj, AGM | | | |
| Westchester Cnty NY Loc Dev Corp Rev Westchester Med Ctr Oblig Grp Proj, AGM | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Yonkers NY Econ Dev Corp Eductnl Rev Chrt Sch Edu Excellence Proj, Ser A | | | |
| | | | |
| | | | |
| | |
| | |
| Charlotte Mecklenburg NC Hosp Auth Hlth Care Sys Rev Ref Carolinas Hlthcare Sys, Ser A | | | |
| Charlotte NC Arpt Rev Charlotte Douglas Intl Arpt, Ser B, AMT | | | |
| Charlotte NC Arpt Rev, Ser A | | | |
| Charlotte NC Arpt Rev, Ser B, AMT | | | |
| Greenville NC Comb Enterprise Sys Rev Ref | | | |
| Monroe NC Comb Enterprise Sys Rev Ref | | | |
| NC St Agric & Tech Univ Ref Gen, Ser A | | | |
| NC St Capital Facs Fin Agy Stdt Rev Ref Hsg NC A&T Univ Fdtn Proj, Ser A, AGC | | | |
| NC St Med Care Commn Hosp Rev Caromont Hlth, Ser A | | | |
| NC St Med Care Commn Hosp Rev Caromont Hlth, Ser B (Mandatory put 02/01/26) | | | |
| NC St Med Care Commn Retmnt Facs Rev Carolina Meadows | | | |
| NC St Med Care Commn Retmnt Facs Rev Pennybyrn at Maryfield Proj, Ser A | | | |
| NC St Med Care Commn Retmnt Facs Rev The United Methodist Retmnt Homes Proj, Ser A | | | |
| Raleigh Durham NC Arpt Auth Arpt Rev Ref, Ser A, AMT | | | |
| Raleigh Durham NC Arpt Auth Arpt Rev Ref, Ser A, AMT | | | |
| | | | |
| | |
| | |
| Akron Bath Copley Jt Twp OH Hosp Dist Ref Summa Hlth Oblig Grp Hosp Facs Rev | | | |
| Bowling Green OH St Univ Ref, Ser A | | | |
| Brunswick OH City Sch Dist, BAM | | | |
| Buckeye OH Tobacco Stlmt Fing Auth Ref Sr, Class 1, Ser A-2 | | | |
| Buckeye OH Tobacco Stlmt Fing Auth Ref Sr, Class 1, Ser A-2 | | | |
| Buckeye OH Tobacco Stlmt Fing Auth Ref Sr, Class 2, Ser B-2 | | | |
| Butler Cnty OH Port Auth Econ Dev Lease Rev Ref Cmnty First Solutions Oblg Grp Proj, Ser A | | | |
| Cleveland OH Pub Pwr Sys Rev Prerefunded Ref, Ser A, AGM | | | |
| Cleveland OH Pub Pwr Sys Rev Unrefunded Ref, Ser A, AGM | | | |
| | | | |
| Hamilton Cnty OH Hosp Facs Rev Ref Trihealth Inc Oblig Grp Proj, Ser A | | | |
| Hamilton Cnty OH Hosp Facs Rev Ref Trihealth Inc Oblig Grp Proj, Ser A | | | |
| Hamilton Cnty OH Hosp Facs Rev Ref Trihealth Inc Oblig Grp Proj, Ser A | | | |
| Hamilton Cnty OH Hosp Facs Rev UC Hlth | | | |
| | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Miami Cnty OH Hosp Facs Rev Ref & Impt Kettering Hlth Network Oblig Grp | | | |
| Miami Cnty OH Hosp Facs Rev Ref & Impt Kettering Hlth Network Oblig Grp | | | |
| Miami Cnty OH Hosp Facs Rev Ref & Impt Kettering Hlth Network Oblig Grp | | | |
| Miamisburg OH City Sch Dist Ref (Pre-refunded maturity 12/01/25) | | | |
| Montgomery Cnty OH Hlth Care Facs Rev Ref Solvita Proj | | | |
| Montgomery Cnty OH Hlth Care Facs Rev Ref Solvita Proj | | | |
| Montgomery Cnty OH Hlth Care Facs Rev Ref Solvita Proj | | | |
| Montgomery Cnty OH Hlth Care Facs Rev Ref Solvita Proj | | | |
| Montgomery Cnty OH Hosp Rev Ref Kettering Hlth Network Oblig Grp Proj | | | |
| Montgomery Cnty OH Hosp Rev Ref Kettering Hlth Network Oblig Grp Proj | | | |
| OH St Air Quality Dev Auth American Elec Pwr Co Proj Remk, Ser A (Mandatory put 10/01/29) | | | |
| OH St Air Quality Dev Auth Exempt Facs Rev AMG Vanadium Proj, AMT (d) | | | |
| OH St Air Quality Dev Auth OH Vly Electric Corp Proj Remk, Ser B, AMT (Mandatory put 10/01/29) | | | |
| OH St Air Quality Dev Auth Ref OH Vly Elec Corp Proj, Ser A | | | |
| OH St Air Quality Dev Auth Var Ref Duke Energy Corp Proj, Ser A, AMT (Mandatory put 06/01/27) | | | |
| OH St Air Quality Dev Auth Var Ref Duke Energy Corp Proj, Ser B (Mandatory put 06/01/27) | | | |
| OH St Hgr Eductnl Fac Commn Ref Rev Judson Oblig Grp 2020 Proj, Ser A | | | |
| OH St Hosp Rev Childrens Hosp Med Ctr of Akron, Ser A | | | |
| OH St Hosp Rev Ref Var Univ Hosps Hlth Sys Inc, Ser C (c) | | | |
| OH St Hosp Rev Ref, Ser A | | | |
| OH St Hosp Rev Ref, Ser A | | | |
| OH St Hosp Rev Term Floaters Univ Hosp Hlth Sys Inc Ref, Ser C (c) | | | |
| | | | |
| OH St Wtr Dev Auth Rev Sustainable Bond, Ser A | | | |
| OH St Wtr Dev Auth Rev Sustainable Bond, Ser A | | | |
| OH St Wtr Dev Auth Rev Sustainable Bond, Ser A | | | |
| | | | |
| Port of Gtr Cincinnati Dev Auth OH Rev Subord Ref Duke Energy Convention Ctr Proj, Ser B | | | |
| Port of Gtr Cincinnati Dev Auth OH Rev Subord Ref Duke Energy Convention Ctr Proj, Ser B | | | |
| Sharonville OH Spl Oblg Rev | | | |
| Upper Arlington OH Spl Oblig Non Tax Rev Kingsdale Mixed Use Dev, Ser A | | | |
| Warren Cnty OH Hosp Facs Rev Ref Cmnty First Solutions Obligated Grp, Ser A | | | |
| | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Catoosa OK Indl Auth Sales Tax Rev | | | |
| OK St Dev Fin Auth Sr OK Proton Ctr, Ser A1 (f) | | | |
| Oklahoma Cnty OK Fin Auth Eductnl Facs Lease Rev Midwest City De City Pub Schs Proj | | | |
| Oklahoma Cnty OK Fin Auth Eductnl Facs Lease Rev Midwest City Del City Pub Schs Proj, BAM | | | |
| Tulsa Cnty OK Indl Auth Sr Living Cmnty Rev Ref Montereau Inc Proj | | | |
| Tulsa Cnty OK Indl Auth Sr Living Cmnty Rev Ref Montereau Inc Proj | | | |
| Weatherford OK Indl Trust Eductnl Facs Lease Rev Weatherford Pub Schs Proj | | | |
| | |
| | |
| Astoria OR Hosp Facs Auth Columbia Memorial Hosp Proj | | | |
| Astoria OR Hosp Facs Auth Columbia Memorial Hosp Proj | | | |
| Clackamas Cnty OR Hosp Fac Auth Rev Ref Rose Villa Proj, Ser A | | | |
| Clackamas Cnty OR Hosp Fac Auth Rev Ref Sr Living Willamette View Proj, Ser A | | | |
| Clackamas Cnty OR Hosp Fac Auth Rev Ref Sr Living Willamette View Proj, Ser A | | | |
| Medford OR Hosp Facs Auth Rev Ref Asante Proj, Ser A | | | |
| OR St Facs Auth Rev Ref Univ Portland, Ser A | | | |
| Port of Portland OR Arpt Rev Portland Intl Arpt, Ser 25B, AMT | | | |
| Port of Portland OR Arpt Rev Portland Intl Arpt, Ser 25B, AMT | | | |
| Tri Cnty Met Transprtn Dist OR Rev, Ser A, GARVEE | | | |
| Union Cnty OR Hosp Fac Auth Grande Ronde Hosp | | | |
| | |
| | |
| Allegheny Cnty PA Arpt Auth Arpt Rev Pittsburgh Arpt, Ser A, AGM, AMT | | | |
| Allegheny Cnty PA Arpt Auth Arpt Rev Pittsburgh Arpt, Ser A, AGM, AMT | | | |
| Allegheny Cnty PA Hosp Dev Auth Ref Allegheny Hlth Network Oblig Grp Issue, Ser A | | | |
| Allegheny Cnty PA Hosp Dev Auth Ref Univ Pittsburgh Med Ctr, Ser A | | | |
| Allegheny Cnty PA Hosp Dev Auth Ref Univ Pittsburgh Med Ctr, Ser A | | | |
| Allegheny Cnty PA Hosp Dev Auth Ref Univ Pittsburgh Med Ctr, Ser A | | | |
| Armstrong PA Sch Dist Ref, Ser A, BAM | | | |
| Berks Cnty PA Indl Dev Auth Hlthcare Facs Rev Ref Highlands at Wyomissing, Ser A | | | |
| Bucks Cnty PA Indl Dev Auth Hosp Rev St Luke’s Univ Hlth Network Proj | | | |
| Bucks Cnty PA Indl Dev Auth Ref Pennswood Vlg Proj, Ser A | | | |
| Bucks Cnty PA Indl Dev Auth Ref Pennswood Vlg Proj, Ser A | | | |
| Chester Cnty PA Indl Dev Auth Nts Avon Grove Chrt Sch | | | |
| Cmwlth Fing Auth PA Tobacco Master Stlmt Payment Rev Bonds | | | |
| Cmwlth Fing Auth PA Tobacco Master Stlmt Payment Rev Bonds | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Cmwlth Fing Auth PA Tobacco Master Stlmt Payment Rev Bonds, AGM | | | |
| | | | |
| Colonial PA Sch Dist, Ser A | | | |
| Cumberland Cnty PA Muni Auth Prerefunded Ref Diakon Lutheran Ministries Proj (Pre-refunded maturity 01/01/25) | | | |
| Cumberland Cnty PA Muni Auth Prerefunded Ref Diakon Lutheran Ministries Proj (Pre-refunded maturity 01/01/25) | | | |
| Cumberland Cnty PA Muni Auth Prerefunded Ref Diakon Lutheran Ministries Proj (Pre-refunded maturity 01/01/25) | | | |
| Cumberland Cnty PA Muni Auth Prerefunded Ref Diakon Lutheran Ministries Proj (Pre-refunded maturity 01/01/25) | | | |
| Cumberland Cnty PA Muni Auth Ref Diakon Lutheran Social Ministries | | | |
| Cumberland Cnty PA Muni Auth Ref Diakon Lutheran Social Ministries | | | |
| Cumberland Cnty PA Muni Auth Ref Messiah Vlg Proj | | | |
| Cumberland Cnty PA Muni Auth Unrefunded Ref Diakon Lutheran Ministries Proj | | | |
| Cumberland Cnty PA Muni Auth Unrefunded Ref Diakon Lutheran Ministries Proj | | | |
| Deer Creek PA Drain Basin Allegheny Cnty Swr Rev Ref, AGM | | | |
| Dubois PA Hosp Auth Penn Highlands Hlthcare | | | |
| Dubois PA Hosp Auth Penn Highlands Hlthcare | | | |
| E Hempfield Twp PA Indl Dev Auth Ref Willow Vly Cmntys Proj | | | |
| Kiski Vly PA Wtr Poll Control Auth Ref, AGM | | | |
| Lancaster Cnty PA Hosp Auth Hlthcare Facs Rev Moravian Manors Inc Proj, Ser A | | | |
| Lancaster Cnty PA Hosp Auth Penn St Hlth | | | |
| Lancaster Cnty PA Hosp Auth Penn St Hlth | | | |
| Latrobe PA Indl Dev Auth Univ Rev Ref Seton Hill Univ | | | |
| Latrobe PA Indl Dev Auth Univ Rev Ref Seton Hill Univ | | | |
| Lebanon PA Auth Swr Rev Ref Sustainable Bond, BAM | | | |
| Lebanon PA Auth Swr Rev Ref Sustainable Bond, BAM | | | |
| Lehigh Cnty PA Indl Dev Auth Ref Ppl Elec Util Corp Proj Remk, Ser A | | | |
| Maxatawny Twp PA Muni Auth Rev Diakon Lutheran Social Ministries Proj, Ser A | | | |
| Mifflinburg PA Area Sch Dist Ref, Ser A | | | |
| Montgomery Cnty PA Hgr Edu & Hlth Auth Ref Thomas Jefferson Univ Proj | | | |
| Montgomery Cnty PA Indl Dev Auth Exempt Facs Rev Var Constellation Energy Generation LLC Proj Ref, Ser A (Mandatory put 04/03/28) | | | |
| Montgomery Cnty PA Indl Dev Auth Ref Meadowood Sr Living Proj, Ser A | | | |
| Montgomery Cnty PA Indl Dev Auth Ref Waverly Heights Ltd Proj | | | |
| Montgomery Cnty PA Indl Dev Auth Ref Waverly Heights Ltd Proj | | | |
| Montgomery Cnty PA Indl Dev Auth Ref Waverly Heights Ltd Proj | | | |
| Northampton Cnty PA Gen Purp Auth Clg Rev Ref Moravian Clg | | | |
| Northampton Cnty PA Gen Purp Auth Clg Rev Ref Moravian Clg | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| PA St Econ Dev Fing Auth Pkg Sys Rev Ref Sr Insured Capitol Region Parking Sys, Ser A, AGM | | | |
| PA St Econ Dev Fing Auth Pkg Sys Rev Ref Sr Insured Capitol Region Parking Sys, Ser A, AGM | | | |
| PA St Econ Dev Fing Auth Pkg Sys Rev Ref Sr Insured Capitol Region Parking Sys, Ser A, AGM | | | |
| PA St Econ Dev Fing Auth Rev PA Bridges Finco LP P3 Proj | | | |
| PA St Econ Dev Fing Auth Rev Ref Presbyterian Sr Living Prj,
Ser B-2 | | | |
| PA St Econ Dev Fing Auth Solid Wst Disposal Rev Var Wst Mgmt Inc Proj Remk, AMT (Mandatory put 07/01/27) | | | |
| PA St Econ Dev Fing Auth Solid Wst Disposal Rev Var Wste Mgmt Inc Proj Remk, AMT (Mandatory put 02/03/25) | | | |
| PA St Econ Dev Fing Auth T/E Priv Activity Rev The Penndot Major Bridges Package One Proj P3 Proj, AMT | | | |
| PA St Econ Dev Fing Auth T/E Priv Activity Rev The Penndot Major Bridges Package One Proj P3 Proj, AMT | | | |
| PA St Econ Dev Fing Auth T/E Priv Activity Rev The Penndot Major Bridges Package One Proj P3 Proj, AMT | | | |
| PA St Hsg Fin Agy Sf Mtge Rev Non Ace, Ser 123B | | | |
| PA St Hsg Fin Agy Sf Mtge Rev Non Ace, Ser 125B, AMT | | | |
| PA St Hsg Fin Agy Sf Mtge Rev, Ser 127B | | | |
| PA St Turnpike Commn Turnpike Rev Ref | | | |
| PA St Turnpike Commn Turnpike Rev Ref Subord, First Ser | | | |
| PA St Turnpike Commn Turnpike Rev Ref Subord, Ser 2017-3 | | | |
| PA St Turnpike Commn Turnpike Rev Ref, Ser B | | | |
| PA St Turnpike Commn Turnpike Rev Ref, Ser B | | | |
| PA St Turnpike Commn Turnpike Rev Ref, Ser B | | | |
| PA St Turnpike Commn Turnpike Rev Sub, Ser A, BAM | | | |
| PA St Turnpike Commn Turnpike Rev Subord, Ser A | | | |
| PA St Turnpike Commn Turnpike Rev Subord, Ser A-1 | | | |
| PA St Turnpike Commn Turnpike Rev, Ser B | | | |
| Parkland PA Sch Dist, Ser B | | | |
| Philadelphia PA Arpt Rev Ref Priv Activity, AGM | | | |
| Philadelphia PA Arpt Rev Ref, Ser B, AMT | | | |
| Philadelphia PA Auth for Indl Dev Chrt Sch Rev Mast Chrt Sch Proj | | | |
| Philadelphia PA Auth for Indl Dev Chrt Sch Rev Philadelphia E&T Chrt High Sch, Ser A | | | |
| Philadelphia PA Energy Auth Sustainable Bonds Philadelphia Street Lighting Proj, Ser A | | | |
| Philadelphia PA Energy Auth Sustainable Bonds Philadelphia Street Lighting Proj, Ser A | | | |
| Philadelphia PA Gas Wks Rev 1998 General Ordinance Seventeenth, Ser A | | | |
| Philadelphia PA Gas Wks Rev 1998 General Ordinance Seventeenth, Ser A | | | |
| Philadelphia PA Gas Wks Rev Ref | | | |
| Philadelphia PA Sch Dist Sustainable Bond, Ser B | | | |
| | | | |
| S Estrn PA Transprtn Auth Asset Impt Progr | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| S Estrn PA Transprtn Auth Asset Impt Progr | | | |
| S Wayne Cnty PA Wtr & Swr Auth Wtr & Swr Rev Ref, BAM | | | |
| S Wayne Cnty PA Wtr & Swr Auth Wtr & Swr Rev Ref, BAM | | | |
| S Wayne Cnty PA Wtr & Swr Auth Wtr & Swr Rev Ref, BAM | | | |
| Upper Darby PA Sch Dist, AGM | | | |
| Upper Darby PA Sch Dist, Ser A, BAM | | | |
| W Cornwall Twp PA Muni Auth Ref Lebanon Vly Brethren Home Proj, Ser A | | | |
| W Cornwall Twp PA Muni Auth Ref Lebanon Vly Brethren Home Proj, Ser A | | | |
| W Cornwall Twp PA Muni Auth Ref Lebanon Vly Brethren Home Proj, Ser A | | | |
| | |
| | |
| Puerto Rico Cmwlth Restructured, Ser A1 | | | |
| Puerto Rico Sales Tax Fing Corp Sales Tax Rev Restructured,
Ser A-1, CABS | | | |
| Puerto Rico Sales Tax Fing Corp Sales Tax Rev Restructured,
Ser A-1, CABS | | | |
| Puerto Rico Sales Tax Fing Corp Sales Tax Rev Restructured,
Ser A-1 | | | |
| Puerto Rico Sales Tax Fing Corp Sales Tax Rev Restructured,
Ser A-2 | | | |
| | |
| | |
| Providence RI Pub Bldgs Auth Rev Capital Impt Prog Proj, Ser A, AGC | | | |
| Providence RI Pub Bldgs Auth Rev Capital Impt Prog Proj, Ser A, AGC | | | |
| Providence RI Pub Bldgs Auth Rev, Ser B, AGM | | | |
| Providence RI Pub Bldgs Auth Rev, Ser B, AGM | | | |
| Providence RI Pub Bldgs Auth Rev, Ser B, AGM | | | |
| RI St Hlth & Eductnl Bldg Corp Pub Schs Rev City of Cranston Issue, Ser D, AGC | | | |
| RI St Hlth & Eductnl Bldg Corp Rev Ref Hosp Fing Lifespan Oblig Grp | | | |
| RI St Hlth & Eductnl Bldg Corp Rev Ref Hosp Fing Lifespan Oblig Grp | | | |
| RI St Hlth & Eductnl Bldg Corp Rev Ref Hosp Fing Lifespan Oblig Grp | | | |
| | |
| | |
| Berkeley Cnty SC Assmnt Rev Nexton Impt Dist | | | |
| Charleston Cnty SC Arpt Dist Arpt Sys Rev, Ser A, AMT | | | |
| Charleston Cnty SC Arpt Dist Arpt Sys Rev, Ser A, AMT | | | |
| Charleston Cnty SC Arpt Dist Arpt Sys Rev, Ser A, AMT | | | |
| Greenville Cnty SC Sch Dist Installment Pur Rev Ref SC Proj | | | |
| Lancaster Cnty SC Assmnt Rev Ref Walnut Creek Impt Dist,
Ser A-1 | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| South Carolina (Continued) | |
| Lancaster Cnty SC Assmnt Rev Ref Walnut Creek Impt Dist,
Ser A-1 | | | |
| SC St Jobs Econ Dev Auth Econ Dev Rev Ref The Woodlands at Furman | | | |
| SC St Jobs Econ Dev Auth Econ Dev Rev Woodlands at Furman Proj, Ser A | | | |
| SC St Jobs Econ Dev Auth Hlth Facs Rev Novant Hlth Oblig Grp, Ser A | | | |
| SC St Jobs Econ Dev Auth Hlth Facs Rev Novant Hlth Oblig Grp, Ser A | | | |
| SC St Jobs Econ Dev Auth Hlth Facs Rev Novant Hlth Oblig Grp, Ser A | | | |
| SC St Jobs Econ Dev Auth Hlth Facs Rev Novant Hlth Oblig Grp, Ser A | | | |
| SC St Jobs Econ Dev Auth Hlthcare Rev Beaufort Memorial Hosp & South of Broad Hlthcare Proj | | | |
| SC St Jobs Econ Dev Auth Hlthcare Rev Beaufort Memorial Hosp & South of Broad Hlthcare Proj | | | |
| SC St Pub Svc Auth Rev Ref Santee Cooper, Ser B | | | |
| SC St Pub Svc Auth Rev Ref Santee Cooper, Ser C, AGM | | | |
| SC St Pub Svc Auth Rev Ref Santee Cooper, Ser C, AGM | | | |
| SC St Pub Svc Auth Rev Ref Santee Cooper, Ser C, AGM | | | |
| SC St Pub Svc Auth Rev Ref, Ser A | | | |
| SC St Pub Svc Auth Rev Santee Cooper, Ser A | | | |
| | |
| | |
| SD St Hlth & Eductnl Facs Auth Ref Sanford Oblig Grp | | | |
| SD St Hlth & Eductnl Facs Auth Ref Westhills Vlg Retmnt Cmnty Issue | | | |
| SD St Hlth & Eductnl Facs Auth Ref Westhills Vlg Retmnt Cmnty Issue | | | |
| | |
| | |
| Chattanooga TN Hlth Eductnl & Hsg Fac Brd Ref Erlanger Hlth | | | |
| Chattanooga TN Hlth Eductnl & Hsg Fac Brd Ref Erlanger Hlth | | | |
| Chattanooga TN Hlth Eductnl & Hsg Fac Brd Rev Ref Commonspirit Hlth, Ser A-1 | | | |
| Chattanooga TN Hlth Eductnl & Hsg Fac Brd Rev Ref Commonspirit Hlth, Ser A-1 | | | |
| Chattanooga TN Hlth Eductnl & Hsg Fac Brd Rev Ref Commonspirit Hlth, Ser A-2 | | | |
| Cleveland TN Hlth & Eductnl Facs Brd Rev Hamilton Hlth Care Sys Inc Proj, Ser A | | | |
| Hamilton Cnty & Chattanooga Sports Auth TN Pub Fac Rev Stadium Proj, Ser A | | | |
| Hamilton Cnty & Chattanooga Sports Auth TN Pub Fac Rev Stadium Proj, Ser A | | | |
| Hamilton Cnty & Chattanooga Sports Auth TN Pub Fac Rev Stadium Proj, Ser A | | | |
| Hamilton Cnty & Chattanooga Sports Auth TN Pub Fac Rev Stadium Proj, Ser A | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Knox Cnty TN Hlth Eductnl & Hsg Fac Brd Stdt Hsg Rev Univ of TN Proj, Ser A-1, BAM | | | |
| Met Govt Nashville & Davidson Cnty TN Hlth & Eductnl Fac Brd Belmont Univ | | | |
| Met Govt Nashville & Davidson Cnty TN Hlth & Eductnl Fac Brd Belmont Univ | | | |
| Met Govt Nashville & Davidson Cnty TN Hlth & Eductnl Fac Brd Ref Lipscomb Univ Proj, Ser A | | | |
| Met Knoxville TN Arpt Auth Arpt Rev, Ser A, AGC | | | |
| Met Knoxville TN Arpt Auth Arpt Rev, Ser A, AGC | | | |
| Met Nashville TN Arpt Auth Arpt Rev Subord, Ser B, AMT | | | |
| Met Nashville TN Arpt Auth Arpt Rev, Ser B, AMT | | | |
| Met Nashville TN Arpt Auth Arpt Rev, Ser B, AMT | | | |
| TN Energy Acq Corp Cmdy Proj Rev, Ser A (Mandatory put 11/01/31) | | | |
| TN St Energy Acq Corp Gas Rev Var Ref Gas Proj, Ser A-1 (Mandatory put 05/01/28) | | | |
| | |
| | |
| Arlington TX Hgr Edu Fin Corp Edu Rev | | | |
| Arlington TX Hgr Edu Fin Corp Edu Rev | | | |
| Arlington TX Hgr Edu Fin Corp Edu Rev | | | |
| Arlington TX Hgr Edu Fin Corp Edu Rev Ref Legacy Trad Schs TX Proj, Ser A | | | |
| Arlington TX Hsg Fin Corp Mf Hsg Rev Var 6900 Matlok Road (Mandatory put 04/01/27) | | | |
| Aubrey TX Spl Assmnt Ref Jackson Ridge Pub Impt Dt Phase #1 & #2 Assmnts, BAM | | | |
| Austin TX Arpt Sys Rev, AMT | | | |
| Austin TX Arpt Sys Rev, AMT | | | |
| Austin TX Arpt Sys Rev, AMT | | | |
| Austin TX Arpt Sys Rev, Ser B, AMT | | | |
| Austin TX Wtr & Wstwtr Sys Rev Ref | | | |
| Barbers Hill TX Indep Sch Dist Sch Bldg | | | |
| Bexar Cnty TX Hosp Dist Ref | | | |
| Bexar Cnty TX Rev Ref Tax Exempt Venue Proj | | | |
| Celina TX Spl Assmnt Rev Ref Sutton Fields II Pub Impt Dt Neighborhood Proj, BAM | | | |
| Celina TX Spl Assmnt Rev Ref Sutton Fields II Pub Impt Dt Neighborhood Proj, BAM | | | |
| Celina TX Spl Assmnt Rev Ref Sutton Fields II Pub Impt Dt Neighborhood Proj, BAM | | | |
| Centrl TX Regl Mobility Auth Rev Sr Lien, Ser A (Pre-refunded maturity 07/01/25) | | | |
| Centrl TX Regl Mobility Auth Rev, Ser B | | | |
| Centrl TX Regl Mobility Auth Rev, Ser B | | | |
| Clear Creek TX Indep Sch Dist Ref, Ser A | | | |
| Clifton TX Hgr Edu Fin Corp Edu Rev Uplift Edu, Ser A | | | |
| Corpus Christi TX Util Sys Rev Junior Lien, Ser B | | | |
| Dallas Fort Worth TX Intl Arpt Rev Ref, Ser B | | | |
| Dallas TX Hotel Occupancy Tax Rev Ref | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Flower Mound TX Ctfs Oblig | | | |
| Fort Worth TX Spl Assmnt Rev Walsh Ranch / Quail Vly Impt Area #1-3 Proj, BAM | | | |
| Fort Worth TX Spl Assmnt Rev Walsh Ranch / Quail Vly Impt Area #1-3 Proj, BAM | | | |
| Gainesville TX Ctfs Oblig | | | |
| Gainesville TX Ctfs Oblig | | | |
| Galveston Cnty TX Muni Util Dist #54 Ref | | | |
| Garland TX Wtr & Swr Rev Ref | | | |
| Harris Cnty Houston TX Sports Auth Rev Ref Sr Lien, Ser A, AGC (e) | | | |
| Harris Cnty TX Cultural Edu Facs Fin Corp Rev Ref Memorial Hermann Hlth Sys, Ser B | | | |
| Harris Cnty TX Ref Sr Lien Toll Road, Ser B | | | |
| Harris Cnty TX Toll Road Rev Ref, Ser A | | | |
| Hidalgo Cnty TX Ctfs Oblig | | | |
| Hidalgo Cnty TX Ctfs Oblig | | | |
| Houston TX Arpt Sys Rev Ref Subord Lien, Ser A, AGM, AMT | | | |
| Houston TX Arpt Sys Rev Ref Subord Lien, Ser A, AGM, AMT | | | |
| Houston TX Arpt Sys Rev Ref Subord Lien, Ser A, AMT, AGM | | | |
| Houston TX Arpt Sys Rev Ref United Airls Inc Terminal E Proj, Ser A, AMT | | | |
| Houston TX Arpt Sys Rev Ref United Airls Inc Terminal Impt Proj, Ser B-2, AMT | | | |
| Houston TX Arpt Sys Rev Sub, Ser A, AMT | | | |
| Houston TX Arpt Sys Rev Sub, Ser A, AMT | | | |
| Houston TX Arpt Sys Rev Sub, Ser A, AMT | | | |
| Houston TX Arpt Sys Rev United Airls Inc Terminal E Proj, Ser A, AMT | | | |
| Houston TX Arpt Sys Rev United Airls Inc Terminal Impt Proj, Ser B-1, AMT | | | |
| Houston TX Util Sys Rev Ref Subord First Lien, Ser B | | | |
| Houston TX Util Sys Rev Subord First Lien Ref, Ser A | | | |
| | | | |
| | | | |
| Justin TX Spl Assmnt Rev Timberbrook Pub Imp Dt #1 Imp Area #2 Proj (d) | | | |
| Kyle TX Spl Assmnt Rev 6 Creeks Pub Impt Dist Impt Area #1 (d) | | | |
| La Vernia TX Hgr Edu Fin Corp Edu Rev Meridian World Sch (d) | | | |
| La Vernia TX Hgr Edu Fin Corp Edu Rev Meridian World Sch, Ser A (d) | | | |
| Leander TX Spl Assmnt Rev Crystal Springs Pub Impt Dist Proj Accd Inv (d) | | | |
| Leonard TX Indep Sch Dist, BAM | | | |
| Liberty Hill TX Indep Sch Dist Ref | | | |
| Liberty Hill TX Indep Sch Dist Ref, Ser A | | | |
| Lindsay TX Indep Sch Dist | | | |
| Lower CO River TX Auth Trans Contract Rev Ref LCRA Trans Svcs Corp Proj | | | |
| Lower CO River TX Auth Trans Contract Rev Ref LCRA Trans Svcs Corp Proj | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Lubbock TX Elec Light & Pwr Sys | | | |
| McGregor TX Indep Sch Distn | | | |
| Mission TX Ctfs Oblig, AGM | | | |
| N Fort Bend TX Wtr Auth Wtr Sys Rev Ref, BAM | | | |
| N Parkway Muni Mgmt Dist #1 TX Contract Rev Legacy Hills Pub Impt Dt Phase #1A-1B Impts (d) | | | |
| N Parkway Muni Mgmt Dist #1 TX Spl Assmnt Rev Major Impt Proj (d) | | | |
| N TX Tollway Auth Rev Ref 1st Tier, Ser A | | | |
| N TX Tollway Auth Rev Ref 2nd Tier, Ser A | | | |
| N TX Tollway Auth Rev Ref 2nd Tier, Ser B | | | |
| N TX Tollway Auth Rev Ref First Tier Bonds, Ser A | | | |
| N TX Tollway Auth Rev Ref First Tier Bonds, Ser A | | | |
| New Hope Cultural Edu Facs Fin Corp TX Edu Rev Ref Jubilee Acad Ctr (d) | | | |
| New Hope Cultural Edu Facs Fin Corp TX Hosp Rev Ref Childrens Hlth Sys of TX Proj, Ser A | | | |
| New Hope Cultural Edu Facs Fin Corp TX Retmnt Fac Rev Ref Longhorn Vlg Proj | | | |
| New Hope Cultural Edu Facs Fin Corp TX Retmnt Fac Rev Ref Longhorn Vlg Proj | | | |
| Newark Hgr Edu Fin Corp TX Edu Rev Hughen Ctr Inc Proj, Ser A | | | |
| Newark Hgr Edu Fin Corp TX Edu Rev Hughen Ctr Inc Proj, Ser A | | | |
| Northside TX Indep Sch Dist Ref, Ser A | | | |
| Pecos Barstow Toyah TX Indep Sch Dist | | | |
| Pecos Barstow Toyah TX Indep Sch Dist | | | |
| Princeton TX Spl Assmnt Rev Winchester Pub Impr Dist #2 Proj (d) | | | |
| Quinlan TX Indep Sch Dist | | | |
| Quinlan TX Indep Sch Dist | | | |
| Quinlan TX Indep Sch Dist | | | |
| | | | |
| | | | |
| | | | |
| Round Rock TX Indep Sch Dist Ref Sch Bldg | | | |
| San Antonio TX Elec & Gas Rev Ref, Ser B | | | |
| | | | |
| San Antonio TX Wtr Rev Junior Lien, Ser B | | | |
| San Antonio TX Wtr Rev Junior Lien, Ser B | | | |
| San Antonio TX Wtr Rev Junior Lien, Ser B | | | |
| Tarrant Cnty TX Cultural Edu Facs Fin Corp Hosp Rev Methodist Hosp of Dallas Proj | | | |
| Tarrant Cnty TX Cultural Edu Facs Fin Corp Hosp Rev Ref Baylor Scott & White Hlth Proj, Ser A | | | |
| Tarrant Cnty TX Cultural Edu Facs Fin Corp Hosp Rev Ref Baylor Scott & White Hlth Proj, Ser A | | | |
| Tarrant Cnty TX Cultural Edu Facs Fin Corp Hosp Rev Var Baylor Scott & White Hlth Proj, Ser F (Mandatory put 11/15/30) | | | |
| Tarrant Cnty TX Cultural Edu Facs Fin Corp Rev Ref Trinity Terrace Proj | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Tarrant Cnty TX Cultural Edu Facs Fin Corp Rev Ref Trinity Terrace Proj | | | |
| Tarrant Cnty TX Hosp Dist | | | |
| | | | |
| | | | |
| TX St Dept of Hsg & Cmnty Affairs Mf Hsg Rev Var Nts Aspen Park (Mandatory put 03/01/26) | | | |
| TX St Muni Gas Acq & Sply Corp IV, Ser A (Mandatory put 01/01/30) | | | |
| TX St Muni Gas Acq & Sply Corp IV, Ser B | | | |
| TX St Muni Gas Acq & Sply Corp IV, Ser B | | | |
| TX St Muni Gas Acq & Sply Corp IV, Ser B (Mandatory put 01/01/34) | | | |
| TX St Priv Activity Bond Surface Transprtn Corp Rev Ref Sr Lien Bond Surface Transprtn Corp, AMT | | | |
| TX St Priv Activity Bond Surface Transprtn Corp Rev Ref Sr Lien Bond Surface Transprtn Corp, AMT | | | |
| TX St Priv Activity Bond Surface Transprtn Corp Rev Ref Sr N Tarrant Express Managed Lanes Proj, Ser A | | | |
| TX St Priv Activity Bond Surface Transprtn Corp Rev Ref Sr N Tarrant Express Managed Lanes Proj, Ser A | | | |
| | | | |
| TX St Transprtn Commn Central TX Turnpike Sys Rev Ref Second Tier, Ser C | | | |
| TX St Transprtn Commn Central TX Turnpike Sys Rev Ref Second Tier, Ser C | | | |
| TX St Transprtn Commn Central TX Turnpike Sys Rev Ref Second Tier, Ser C | | | |
| TX St Transprtn Commn Central TX Turnpike Sys Rev Ref, Ser A | | | |
| TX St Univ Sys Fing Rev Ref | | | |
| TX St Wtr Dev Brd St Wtr Implementation Fund, Ser A | | | |
| TX Wtr Dev Brd St Wtr Implementation Rev Fund Master Trust | | | |
| TX Wtr Dev Brd St Wtr Implementation Rev Fund Master Trust | | | |
| TX Wtr Dev Brd St Wtr Implementation Rev Fund Master Trust, Ser A | | | |
| TX Wtr Dev Brd St Wtr Implementation Rev Fund, Ser A | | | |
| Univ of Houston TX Univ Revs Ref, Ser A | | | |
| Univ of N TX Univ Rev Ref, Ser A | | | |
| Univ of TX TX Permanent Univ Fnd Ref, Ser B | | | |
| Univ of TX TX Permanent Univ Fnd Ref, Ser B | | | |
| Uptown Dev Auth TX Incr Contract Rev, Ser A | | | |
| Viridian TX Muni Mgmt Dist Ref Util Impt, BAM | | | |
| Viridian TX Muni Mgmt Dist Road Impt, BAM | | | |
| Viridian TX Muni Mgmt Dist Util Impt, BAM | | | |
| W Harris Cnty TX Regl Wtr Auth Wtr Sys Rev Ref, BAM | | | |
| Walnut Creek Spl Util Dist TX Wtr Sys Rev, AGM | | | |
| Walnut Creek Spl Util Dist TX Wtr Sys Rev, AGM | | | |
| Woodsboro TX Indep Sch Dist | | | |
| | |
| | |
| Black Desert Pub Infra Dist Sr Bonds, Ser A (d) | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Firefly Pub Infra Dist #1 UT Spl Assmnt Firefly Assmnt Area #1, Ser A-2 (d) | | | |
| Intermountain Pwr Agy UT Pwr Sply Rev Ref, Ser A | | | |
| Intermountain Pwr Agy UT Pwr Sply Rev, Ser A | | | |
| Military Installation Dev Auth UT Tax Allocation Rev, Ser A-1 | | | |
| Military Installation Dev Auth UT Tax Allocation Rev, Ser A-2 | | | |
| Ogden City UT Muni Bldg Auth Lease Rev, Ser A | | | |
| Salt Lake City UT Arpt Rev, Ser A, AMT | | | |
| Salt Lake City UT Arpt Rev, Ser A, AMT | | | |
| UT St Chrt Sch Fin Auth Chrt Sch Rev Ref Quest Acdmy | | | |
| UT St Chrt Sch Fin Auth Chrt Sch Rev Ref Quest Acdmy | | | |
| UT St Chrt Sch Fin Auth Chrt Sch Rev Wallace Stegner Acdmy Proj, Ser A (d) | | | |
| UT St Telecommunication Open Infra Agy Sales Tax Ref | | | |
| UT St Transit Auth Sales Tax Rev Ref Sub, Ser A (Pre-refunded maturity 06/15/25) | | | |
| | |
| | |
| Burlington VT Ref Lakeview Garage Proj, Ser A, COPS | | | |
| VT St Econ Dev Auth Mtge Rev Ref Wake Robin Corp Proj, Ser A | | | |
| VT St Econ Dev Auth Mtge Rev Ref Wake Robin Corp Proj, Ser A | | | |
| VT St Econ Dev Auth Solid Wst Disp Rev Var Casella Wst Sys Inc Remk, AMT (Mandatory put 04/03/28) (d) | | | |
| | |
| | |
| Botetourt Cnty VA Rsdl Care Fac Rev Ref Glebe Inc, Ser A | | | |
| Fairfax Cnty VA Econ Dev Auth Fac Rev Sustainable Bond Cnty Fac Proj, Ser A | | | |
| Gloucester Cnty VA Indl Dev Auth Sol Wst Disp Rev Var Wst Mgmt Svsc Remk, Ser A, AMT (Mandatory put 07/01/27) | | | |
| Isle of Wight Cnty VA Econ Dev Auth Riverside Hlth Sys, AGM | | | |
| | | | |
| VA Clg Bldg Auth Eductnl Facs Rev Ref Regent Univ Proj | | | |
| VA Clg Bldg Auth Eductnl Facs Rev Ref Regent Univ Proj | | | |
| VA St Pub Bldg Auth Pub Facs Rev, Ser C, AMT | | | |
| VA St Small Busn Fing Auth Rev Ref Sr Lien 95 Express Lanes LLC Proj, AMT | | | |
| VA St Small Busn Fing Auth Rsdl Fac Care Rev Lifespire of VA, Ser A (e) | | | |
| VA St Small Busn Fing Auth Rsdl Fac Care Rev Ref Lifespire of VA | | | |
| Virginia Beach VA Dev Auth Rsdl Care Fac Rev Ref Westminster Canterbury on Chesapeake Bay | | | |
| Virginia Beach VA Dev Auth Rsdl Care Fac Rev Ref Westminster Canterbury on Chesapeake Bay | | | |
| Virginia Beach VA Dev Auth Rsdl Care Fac Rev Ref Westminster Canterbury on Chesapeake Bay | | | |
| Virginia Beach VA Dev Auth Rsdl Care Fac Rev Westminster Canterbury on Chesapeake Bay, Ser A | | | |
| Williamsburg VA Econ Dev Auth Stdt Hsg Rev William & Mary Proj, Ser A, AGM | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Winchester VA Econ Dev Auth Rev Ref Valley Hlth Sys, Ser A | | | |
| Wstrn VA Regl Jail Auth Regl Jail Facs Rev Prerefunded Ref (Pre- refunded maturity 12/01/26) | | | |
| Wstrn VA Regl Jail Auth Regl Jail Facs Rev Unrefunded Ref | | | |
| | |
| | |
| Benton Cnty WA Pub Util Dist #1 Ref | | | |
| Centrl Puget Sound WA Regl Transit Auth Sales & Use Tax Sustainable Bond Ref & Impt, Ser S-1 (Pre-refunded maturity 11/01/25) | | | |
| Centrl Puget Sound WA Regl Transit Auth Sales Tax & Mtr Ve Sustainable Bond, Ser S-1 | | | |
| Pierce Cnty WA Sch Dist #403 Bethel | | | |
| Port of Seattle WA Rev Intermediate Lien, Ser C, AMT | | | |
| Port of Seattle WA Rev Ref Intermediate Lien Priv Activity, Ser C, AMT | | | |
| Port of Seattle WA Rev Ref Intermediate Lien Priv Activity, Ser C, AMT | | | |
| Port of Seattle WA Rev Ref Intermediate Lien Priv Activity, Ser C, AMT | | | |
| Port of Seattle WA Rev Ref Intermediate Lien, Ser B, AMT | | | |
| Port of Seattle WA Rev Ref Intermediate Lien, Ser B, AMT | | | |
| Port of Seattle WA Rev Ref Intermediate Lien, Ser B, AMT | | | |
| Port of Seattle WA Rev, Ser A, AMT | | | |
| Seattle WA Muni Light & Pwr Rev Sustainable Bond, Ser A | | | |
| Skagit Cnty WA Pub Hosp Dist #1 | | | |
| Skagit Cnty WA Pub Hosp Dist #1 | | | |
| Snohomish Cnty WA Hsg Auth | | | |
| Spokane Cnty WA Arpt Rev, Ser B, AMT (e) | | | |
| WA St Bid Grp 2, Ser 2024-A | | | |
| WA St Convention Ctr Pub Facs Dist Sub | | | |
| WA St Convention Ctr Pub Facs Dist Sub For Exchange Pur Sustainable Bd 2021 1st Priority, Ser B | | | |
| WA St Hlth Care Facs Auth Seattle Cancer Care Alliance (d) | | | |
| WA St Hlth Care Facs Auth Seattle Cancer Care Alliance (d) | | | |
| WA St Hsg Fin Commn Nonprofit Hsg Rev Heron’s Key, Ser A (Pre-refunded maturity 07/01/25) (d) | | | |
| WA St Hsg Fin Commn Nonprofit Hsg Rev Ref Emerald Heights Proj, Ser A | | | |
| WA St Hsg Fin Commn Nonprofit Rev Radford Court & Nordheim Court Portfolio | | | |
| WA St Hsg Fin Commn Sustainable Ctf, Ser A-1 | | | |
| | | | |
| | | | |
| | | | |
| | |
| | |
| WV St Econ Dev Auth Sol Wst Disp Facs Var Sr Arch Res Proj, AMT (Mandatory put 07/01/25) | | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Fond Du Lac WI Sch Dist, Ser A, BAM | | | |
| Pub Fin Auth WI Chrt Sch Rev Eno River Acdmy Proj, Ser A (d) | | | |
| Pub Fin Auth WI Chrt Sch Rev Founders of Acdmy Las Vegas Proj, Ser A (d) | | | |
| Pub Fin Auth WI Chrt Sch Rev Ltd American Prep Acdmy Las Vegas Proj, Ser A (d) | | | |
| Pub Fin Auth WI Chrt Sch Rev Ltd American Prep Acdmy Las Vegas Proj, Ser A (d) | | | |
| Pub Fin Auth WI Edu Rev Coral Acdmy of Science Las Vegas,
Ser A | | | |
| Pub Fin Auth WI Edu Rev Ref Mountain Island Chrt Sch Ltd | | | |
| Pub Fin Auth WI Edu Rev Ref Mountain Island Chrt Sch Ltd | | | |
| Pub Fin Auth WI Edu Rev Ref Mountain Island Chrt Sch Ltd | | | |
| Pub Fin Auth WI Edu Rev Triad Eductnl Svcs Inc, Ser A | | | |
| Pub Fin Auth WI Eductnl Rev Piedmont Cmnty Chrt Sch | | | |
| Pub Fin Auth WI Exempt Facs Rev Ref Celanese Proj, Ser B, AMT | | | |
| Pub Fin Auth WI Retmnt Cmntys Rev Acts Retmnt Life Cmntys Inc Oblig Grp, Ser A | | | |
| Pub Fin Auth WI Retmnt Fac Rev Southminster (d) | | | |
| Pub Fin Auth WI Rev Sr Proton Intl AR LLC, Ser A (f) | | | |
| Pub Fin Auth WI Rev Sustainable Fargo Moorhead Met Area Flood Mgmnt, AMT | | | |
| Pub Fin Auth WI Rev TX Biomedical Rsrch Institute Proj, Ser A | | | |
| Pub Fin Auth WI Rev TX Biomedical Rsrch Institute Proj, Ser A | | | |
| Pub Fin Auth WI Stdt Hsg Rev NC A&T Real Estate Fdtn LLC Proj, Ser B | | | |
| Pub Fin Auth WI Tax Incr Rev Miami Worldcenter Proj, Ser A (d) | | | |
| Public Fin Auth WI Sol Wst Disp Rev Var Ref Wst Mgmt Inc Proj Remk, Ser A-3, AMT (Mandatory put 02/03/25) | | | |
| WI St Hlth & Eductnl Facs Auth Rev Bellin Memorial Hosp Inc, Ser A | | | |
| WI St Hlth & Eductnl Facs Auth Rev Fort Hlthcare Inc, Ser A | | | |
| WI St Hlth & Eductnl Facs Auth Rev Marshfield Clinic Hlth Sys Inc, Ser A | | | |
| WI St Hlth & Eductnl Facs Auth Rev Marshfield Clinic Hlth Sys Inc, Ser A | | | |
| WI St Hlth & Eductnl Facs Auth Rev Ref Prohlth Care Oblig Grp | | | |
| WI St Hlth & Eductnl Facs Auth Rev Ref Prohlth Care Oblig Grp | | | |
| WI St Hlth & Eductnl Facs Auth Rev Var Fort Hlthcare Inc, Ser B (Mandatory put 10/03/34) | | | |
| | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
MUNICIPAL BONDS (Continued) |
| | |
| Consol Muni Elec Pwr Sys Wy Jt Pwrs Brd Sys Jt Pwrs Brd Ref Electrical Sys Proj | | | |
| Consol Muni Elec Pwr Sys Wy Jt Pwrs Brd Sys Jt Pwrs Brd Ref Electrical Sys Proj | | | |
| | |
|
|
| Total Investments — 99.8% | |
| | |
| Net Other Assets and Liabilities — 0.2% | |
| | |
Futures Contracts at October 31, 2024 (See Note 2C - Futures Contracts in the Notes to Financial Statements):
| | | | Unrealized
Appreciation
(Depreciation)/
Value |
Ultra 10-Year U.S. Treasury Notes | | | | |
| Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be illiquid by First Trust Advisors L.P. (the “Advisor”). |
| This issuer is in default. |
| Variable rate demand bond. Interest rate is reset periodically by the agent based on current market conditions. |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”), and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by the Advisor. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At October 31, 2024, securities noted as such amounted to $98,578,292 or 4.9% of net assets. |
| When-issued security. The interest rate shown reflects the rate in effect at October 31, 2024. Interest will begin accruing on the security’s first settlement date. |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the 1933 Act, and may be resold in transactions exempt from registration, normally to qualified institutional buyers (see Note 2D - Restricted Securities in the Notes to Financial Statements). |
| |
Abbreviations throughout the Portfolio of Investments: |
| |
| – Assured Guaranty Municipal Corp. |
| – American Municipal Bond Assurance Corp. |
| – Alternative Minimum Tax |
| |
| – Bond Anticipation Notes |
| – Capital Appreciation Bonds |
| – Certificates of Participation |
| – Grant Anticipation Revenue Vehicle |
| – National Public Finance Guarantee Corp. |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Portfolio of Investments (Continued)October 31, 2024
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for state and territory breakout. |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Futures Contracts table. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities. |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Statement of Assets and Liabilities
October 31, 2024
| |
| |
| |
Cash segregated as collateral | |
| |
| |
| |
| |
| |
|
| |
| |
Investment securities purchased | |
| |
| |
| |
| |
|
| |
| |
| |
Accumulated distributable earnings (loss) | |
| |
NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
| |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Statement of Operations
For the Year Ended October 31, 2024
| |
| |
| |
|
| |
| |
| |
NET INVESTMENT INCOME (LOSS) | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
| |
| |
| |
Net change in unrealized appreciation (depreciation) on: | |
| |
| |
Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Statements of Changes in Net Assets
| | |
| | |
Net investment income (loss) | | |
| | |
Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
| | |
| | |
Total distributions to shareholders | | |
|
SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
| | |
Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
|
| | |
| | |
| | |
|
CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
| | |
| | |
Shares outstanding, end of period | | |
See Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)Financial Highlights
For a share outstanding throughout each period
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets | | | | | |
Ratio of net expenses to average net assets | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | |
Portfolio turnover rate (e) | | | | | |
| Based on average shares outstanding. |
| Amount represents less than $0.01. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. For some periods, the total returns would have been lower if certain fees had not been waived by the advisor. |
| During the fiscal years ended October 31, 2022 and 2021, the Fund received reimbursements from the advisor in the amounts of $5,130 and $4,688, respectively, each representing less than $0.01 per share. Since the advisor reimbursed the Fund, there was no effect on the Fund’s total return. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Managed Municipal ETF (FMB)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund III (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on January 9, 2008, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the First Trust Managed Municipal ETF (the “Fund”), a diversified series of the Trust, which trades under the ticker “FMB” on Nasdaq, Inc. The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The primary investment objective of the Fund is to generate current income that is exempt from regular federal income taxes and its secondary objective is long term capital appreciation. Under normal market conditions, the Fund seeks to achieve its investment objectives by investing at least 80% of its net assets (including investment borrowings) in municipal debt securities that pay interest that is exempt from regular federal income taxes. There can be no assurance that the Fund will achieve its investment objectives. The Fund may not be appropriate for all investors.
2. Significant Accounting Policies
The Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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.
The Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Domestic debt securities are priced using data reflecting the earlier closing of the principal markets for those securities. The Fund’s NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
The Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. The Fund’s investments are valued as follows:
Municipal securities and other debt securities are fair valued on the basis of fair valuations provided by a third-party pricing service approved by the Advisor’s Pricing Committee, which may use the following valuation inputs when available:
7)
reference data including market research publications.
Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round lot size, but a Fund may hold or transact in such securities in smaller, odd lot sizes. Odd lots may trade at lower prices than institutional round lots.
Notes to Financial Statements (Continued)
First Trust Managed Municipal ETF (FMB)October 31, 2024 Exchange-traded futures contracts are valued at the end of the day settlement price.
Fixed income and other debt securities having a remaining maturity of sixty days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following:
1)
the credit conditions in the relevant market and changes thereto;
2)
the liquidity conditions in the relevant market and changes thereto;
3)
the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates);
4)
issuer-specific conditions (such as significant credit deterioration); and
5)
any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended (the “1933 Act”)) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value 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 the Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party 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. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the most recent price provided by a pricing service;
2)
available market prices for the fixed-income security;
3)
the fundamental business data relating to the issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of the security;
6)
the financial statements of the issuer;
7)
the credit quality and cash flow of the issuer, based on the Advisor’s or external analysis;
8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities (or equity securities) of the issuer/borrower, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security; and
12)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
Notes to Financial Statements (Continued)
First Trust Managed Municipal ETF (FMB)October 31, 2024 o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
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 ex-dividend date. Interest income is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
Securities purchased or sold on a when-issued, delayed-delivery or forward purchase commitment basis may have extended settlement periods. The value of the security so purchased is subject to market fluctuations during this period. The Fund maintains liquid assets with a current value at least equal to the amount of its when-issued, delayed-delivery or forward purchase commitments until payment is made. At October 31, 2024, the Fund held $16,385,333 of when-issued or delayed-delivery securities. At October 31, 2024, the Fund had no forward purchase commitments.
The Fund may purchase or sell (i.e., is long or short) exchange-listed futures contracts to hedge against changes in interest rates (interest rate risk). Futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Open futures contracts can also be closed out prior to settlement by entering into an offsetting transaction in a matching futures contract. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain margin deposits on the futures contract. When the contract is closed or expires, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed or expired. This gain or loss is included in “Net realized gain (loss) on futures contracts” on the Statement of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called margin, with its custodian in the name of the clearing broker equal to a specified percentage of the current value of the contract. Open futures contracts are marked-to-market daily with the change in value recognized as a component of “Net change in unrealized appreciation (depreciation) on futures contracts” on the Statement of Operations. This daily fluctuation in the value of the contract is also known as variation margin and is included in “Variation margin” payable or receivable on the Statement of Assets and Liabilities.
If market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the futures contract and may realize a loss. The use of futures contracts involves the risk of imperfect correlation in movements in the price of the futures contracts, interest rates and the underlying instruments.
Restricted cash segregated as collateral for futures contracts in the amount of $904,800 is shown as “Cash segregated as collateral” on the Statement of Assets and Liabilities.
The Fund invests in restricted securities, which are securities that may not be offered for public sale without first being registered under the 1933 Act. Prior to registration, restricted securities may only be resold in transactions exempt from registration under Rule 144A under the 1933 Act, normally to qualified institutional buyers. As of October 31, 2024, the Fund held restricted securities as shown in the following table that the Advisor has deemed illiquid pursuant to procedures adopted by the Trust’s Board of Trustees. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security-specific factors and assumptions, which require subjective judgment. The Fund does not have the right to demand that such securities be registered. These securities are valued according to the valuation procedures as stated in the Portfolio Valuation note (Note 2A) and are not expressed as a discount to the carrying value of a comparable unrestricted security.
Notes to Financial Statements (Continued)
First Trust Managed Municipal ETF (FMB)October 31, 2024 | | | | | | |
OK St Dev Fin Auth Sr OK Proton Ctr, Ser A1, 7.25%, 09/01/51 | | | | | | |
Polk Cnty FL Indl Dev Auth Mineral Dev LLC Secondary Phosphate Tailings Recovery Proj, 5.88%, 01/01/33 | | | | | | |
Pub Fin Auth WI Rev Sr Proton Intl AR LLC, Ser A, 6.50%, 01/01/41 | | | | | | |
| | | | | | |
E. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid during the fiscal years ended October 31, 2024 and 2023 was as follows:
As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), which includes 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. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
In addition, the Fund intends to invest in municipal securities to allow it to pay shareholders “exempt dividends” as defined in the Code.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply
Notes to Financial Statements (Continued)
First Trust Managed Municipal ETF (FMB)October 31, 2024 when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had $176,143,015 of non-expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to the Fund’s shareholders.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Fund. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
| | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the Advisor, First Trust manages the investment of the Fund’s assets and is 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, acquired fund fees and expenses, if any, 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. Prior to November 6, 2023, First Trust also provided fund reporting services to the Fund for a flat annual fee in the amount of $9,250, which was covered under the annual unitary management fee. The annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Effective November 6, 2023, the Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the
Notes to Financial Statements (Continued)
First Trust Managed Municipal ETF (FMB)October 31, 2024 Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Prior to November 6, 2023, the Trust had multiple service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performed custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BBH was responsible for custody of the Fund’s assets. As fund accountant and administrator, BBH was responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BBH was responsible for maintaining shareholder records for the Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments, excluding short-term investments and in-kind transactions, were $701,587,018 and $556,776,667, respectively.
For the fiscal year ended October 31, 2024, the Fund had no in-kind transactions.
Effective February 28, 2024, the Trust, on behalf of the Fund, along with First Trust Exchange-Traded Fund IV, First Trust Series Fund and First Trust Variable Insurance Trust, entered into a new Credit Agreement with BNY as administrative agent for a group of lenders. The borrowing rate is the higher of the federal funds effective rate and the adjusted daily simple SOFR rate plus 1.00%. The commitment amount under the credit agreement is $620 million and such commitment amount may be increased up to $700 million with the consent of one or more lenders. BNY charges on behalf of the lenders a commitment fee of 0.20% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans, and an agency fee. Prior to February 28, 2024, the Trust, on behalf of the Fund, along with First Trust Exchange-Traded Fund IV and First Trust Series Fund, had a $550 million Credit Agreement with The Bank of Nova Scotia (“Scotia”) as administrative agent for a group of lenders. Scotia charged a commitment fee of 0.25% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans, and an agency fee. First Trust allocates the commitment fee and agency fee amongst the funds that have access to the credit line. To the extent that the Fund accesses the credit line, there would also be an interest fee charged. The Fund did not have any borrowings outstanding during the fiscal year ended October 31, 2024.
Notes to Financial Statements (Continued)
First Trust Managed Municipal ETF (FMB)October 31, 2024 6. Derivative Transactions
The following table presents the types of derivatives held by the Fund at October 31, 2024, the primary underlying risk exposure and the location of these instruments as presented on the Statement of Assets and Liabilities.
| | | |
| | Statement of Assets and
Liabilities Location | | Statement of Assets and
Liabilities Location | |
| | Unrealized appreciation on futures contracts* | | Unrealized depreciation on futures contracts* | |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Fund’s Portfolio of Investments. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities. |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the fiscal year ended October 31, 2024, on derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
Statement of Operations Location | |
Interest Rate Risk Exposure | |
Net realized gain (loss) on futures contracts | |
Net change in unrealized appreciation (depreciation) on futures contracts | |
The average notional value of futures contracts outstanding during the fiscal year ended October 31, 2024, which is indicative of the volume of this derivative type, was $57,319,531.
The Fund does not have the right to offset financial assets and financial liabilities related to futures contracts on the Statement of Assets and Liabilities.
7. Creations, Redemptions and Transaction Fees
The Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with the Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund 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, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any operational processing and brokerage costs,
Notes to Financial Statements (Continued)
First Trust Managed Municipal ETF (FMB)October 31, 2024 transfer fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the redemption basket. 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 may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before February 28, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund III:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of First Trust Managed Municipal ETF (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund III, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 23, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Managed Municipal ETF (FMB)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund III (the “Trust”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the “Agreement”) with First Trust Advisors L.P. (the “Advisor”) on behalf of the First Trust Managed Municipal ETF (the “Fund”). The Board approved the continuation of the Agreement for a one-year period ending June 30, 2025 at a meeting held on June 2–3, 2024. The Board determined that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor manages the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, as well as the background and experience of the persons responsible for such services. The Board noted that the Fund is an actively-managed ETF and noted that the Advisor’s Municipal Securities Team is responsible for the day-to-day management of the Fund’s investments. The Board considered the background and experience of the members of the Municipal Securities Team and noted the Board’s prior meetings with members of the Team. The Board considered the Advisor’s statement that it applies the same oversight model internally with its Municipal Securities Team as it uses for overseeing external sub-advisors, including portfolio risk monitoring and performance review. In reviewing the services
Other Information (Continued)
First Trust Managed Municipal ETF (FMB)October 31, 2024 (Unaudited) provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objectives, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed the Fund consistent with its investment objectives, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Agreement for the services provided. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Agreement and interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for periods ended December 31, 2023 to the performance of the funds in the Performance Universe and to that of a benchmark index. Based on the information provided, the Board noted that the Fund underperformed the Performance Universe median and the benchmark index for the one-year period ended December 31, 2023 and outperformed the Performance Universe median and underperformed the benchmark index for the three-year and five-year periods ended December 31, 2023.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to the Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their
Other Information (Continued)
First Trust Managed Municipal ETF (FMB)October 31, 2024 (Unaudited) exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP, and noted that the Advisor does not utilize soft dollars in connection with the Fund. The Board concluded that the character and amount of potential indirect benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreement continue to be fair and reasonable and that the continuation of the Agreement is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
For the taxable year ended October 31, 2024, the following distribution information is being provided as required by the Internal Revenue Code of 1986, as amended, or to meet a specific state’s requirement. The Fund designates the following percentages or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended October 31, 2024:
Federal and State Income Tax | |
Tax-Exempt Interest Dividends | |
Alternative Minimum Tax (AMT) | |
Annual Financial
Statements and
Other Information |
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund III
First Trust Long/Short Equity ETF (FTLS) |
First Trust Long/Short Equity ETF (FTLS)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that First Trust Long/Short Equity ETF (the “Fund”) will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Long/Short Equity ETF (FTLS)Portfolio of InvestmentsOctober 31, 2024
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| Aerospace & Defense — 0.8% | |
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| Air Freight & Logistics — 1.5% | |
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| Automobile Components — 0.1% | |
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| Winnebago Industries, Inc. | |
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| Atlantic Union Bankshares Corp. | |
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| Columbia Banking System, Inc. | |
| Commerce Bancshares, Inc. | |
| Customers Bancorp, Inc. (b) | |
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| Pinnacle Financial Partners, Inc. | |
| Texas Capital Bancshares, Inc. (b) | |
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| Boston Beer (The) Co., Inc., Class A (b) | |
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| Amicus Therapeutics, Inc. (b) | |
| BioCryst Pharmaceuticals, Inc. (b) | |
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| Myriad Genetics, Inc. (b) | |
| Twist Bioscience Corp. (b) | |
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See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
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| Hayward Holdings, Inc. (b) | |
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| Zurn Elkay Water Solutions Corp. | |
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| Charles Schwab (The) Corp. (a) | |
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| DigitalBridge Group, Inc. | |
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| CF Industries Holdings, Inc. | |
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| Commercial Services & Supplies — 1.6% | |
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| Communications Equipment — 0.5% | |
| Extreme Networks, Inc. (b) | |
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| Construction Materials — 0.3% | |
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| Bread Financial Holdings, Inc. | |
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| Consumer Staples Distribution & Retail — 1.4% | |
| BJ’s Wholesale Club Holdings, Inc. (b) | |
| Sprouts Farmers Market, Inc. (b) | |
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| Containers & Packaging — 0.3% | |
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| Diversified Consumer Services — 0.5% | |
| Bright Horizons Family Solutions, Inc. (b) | |
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See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
| Diversified Consumer Services (Continued) | |
| Grand Canyon Education, Inc. (b) | |
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| Electrical Equipment — 0.2% | |
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| Electronic Equipment, Instruments & Components — 1.1% | |
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| Energy Equipment & Services — 0.2% | |
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| Cinemark Holdings, Inc. (b) | |
| Liberty Media Corp.-Liberty Formula One, Class C (b) | |
| TKO Group Holdings, Inc. (b) | |
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| Financial Services — 2.5% | |
| Berkshire Hathaway, Inc., Class B (a) (b) | |
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| Fidelity National Information Services, Inc. | |
| Marqeta, Inc., Class A (b) | |
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| Payoneer Global, Inc. (b) | |
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| Pilgrim’s Pride Corp. (b) | |
| Simply Good Foods (The) Co. (b) | |
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| Health Care Providers & Services — 0.3% | |
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| Option Care Health, Inc. (b) | |
| Universal Health Services, Inc., Class B | |
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| Hotels, Restaurants & Leisure — 0.9% | |
| Brinker International, Inc. (b) | |
| Penn Entertainment, Inc. (b) | |
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| Household Durables — 1.3% | |
| Green Brick Partners, Inc. (b) | |
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See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
| Household Products — 1.2% | |
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| Axis Capital Holdings Ltd. | |
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| Hanover Insurance Group (The), Inc. | |
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| Kinsale Capital Group, Inc. | |
| Old Republic International Corp. | |
| Palomar Holdings, Inc. (b) | |
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| Selective Insurance Group, Inc. | |
| Travelers (The) Cos., Inc. | |
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| Interactive Media & Services — 4.2% | |
| Alphabet, Inc., Class A (a) | |
| Alphabet, Inc., Class C (a) | |
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| Meta Platforms, Inc., Class A (a) | |
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| Accenture PLC, Class A (a) | |
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| Twilio, Inc., Class A (b) | |
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| Life Sciences Tools & Services — 1.2% | |
| 10X Genomics, Inc., Class A (b) | |
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| Allison Transmission Holdings, Inc. | |
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| Stanley Black & Decker, Inc. | |
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| Marine Transportation — 0.6% | |
| Global Ship Lease, Inc., Class A | |
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| ZIM Integrated Shipping Services Ltd. | |
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See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
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| Alamos Gold, Inc., Class A | |
| Carpenter Technology Corp. | |
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| ARMOUR Residential REIT, Inc. | |
| Oil, Gas & Consumable Fuels — 8.1% | |
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| California Resources Corp. | |
| Canadian Natural Resources Ltd. | |
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| Hess Midstream, L.P., Class A (c) | |
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| Magnolia Oil & Gas Corp., Class A | |
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| Petroleo Brasileiro S.A., ADR | |
| Plains All American Pipeline, L.P. (d) | |
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| Williams (The) Cos., Inc. | |
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| Paper & Forest Products — 0.3% | |
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| West Fraser Timber Co., Ltd. | |
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| Passenger Airlines — 0.1% | |
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| Amphastar Pharmaceuticals, Inc. (b) | |
| Collegium Pharmaceutical, Inc. (b) | |
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| Jazz Pharmaceuticals PLC (b) | |
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| Prestige Consumer Healthcare, Inc. (b) | |
| Royalty Pharma PLC, Class A | |
| Supernus Pharmaceuticals, Inc. (b) | |
| Verona Pharma PLC, ADR (b) | |
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| Professional Services — 0.2% | |
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See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
| Professional Services (Continued) | |
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| Real Estate Management & Development — 0.1% | |
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| Retail Opportunity Investments Corp. | |
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| Semiconductors & Semiconductor Equipment — 7.3% | |
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| Clear Secure, Inc., Class A | |
| Dropbox, Inc., Class A (b) | |
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| National Storage Affiliates Trust | |
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| Academy Sports & Outdoors, Inc. | |
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| Technology Hardware, Storage & Peripherals — 8.9% | |
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| Logitech International S.A. | |
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| Textiles, Apparel & Luxury Goods — 1.1% | |
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| Philip Morris International, Inc. (a) | |
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See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (Continued) |
| Trading Companies & Distributors — 0.3% | |
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| MSC Industrial Direct Co., Inc., Class A | |
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| Wireless Telecommunication Services — 2.1% | |
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EXCHANGE-TRADED FUNDS — 1.0% |
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| iShares Russell 1000 Value ETF | |
| Schwab U.S. Large-Cap Value ETF | |
| SPDR Portfolio S&P 500 Value ETF | |
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| Total Exchange-Traded Funds | |
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MONEY MARKET FUNDS — 0.9% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 4.76% (e) | |
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| Total Investments — 98.4% | |
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COMMON STOCKS SOLD SHORT — (28.9)% |
| Aerospace & Defense — (1.4)% | |
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| Huntington Ingalls Industries, Inc. | |
| Kratos Defense & Security Solutions, Inc. (b) | |
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| Rivian Automotive, Inc., Class A (b) | |
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| Community Financial System, Inc. | |
| First Financial Bankshares, Inc. | |
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| International Bancshares Corp. | |
See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS SOLD SHORT (Continued) |
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| Mitsubishi UFJ Financial Group, Inc., ADR | |
| PNC Financial Services Group (The), Inc. | |
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| Triumph Financial, Inc. (b) | |
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| Coca-Cola Europacific Partners PLC | |
| Constellation Brands, Inc., Class A | |
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| Fomento Economico Mexicano S.A.B. de C.V., ADR | |
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| Broadline Retail — (0.3)% | |
| Alibaba Group Holding Ltd., ADR | |
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| Bank of New York Mellon (The) Corp. | |
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| Air Products and Chemicals, Inc. | |
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| Commercial Services & Supplies — (0.6)% | |
| ACV Auctions, Inc., Class A (b) | |
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| Communications Equipment — (0.4)% | |
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| Construction & Engineering — (0.1)% | |
| Ameresco, Inc., Class A (b) | |
| Dycom Industries, Inc. (b) | |
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| Construction Materials — (0.6)% | |
| Martin Marietta Materials, Inc. | |
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See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS SOLD SHORT (Continued) |
| Consumer Finance — (0.1)% | |
| SoFi Technologies, Inc. (b) | |
| Upstart Holdings, Inc. (b) | |
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| Consumer Staples Distribution & Retail — (0.3)% | |
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| Containers & Packaging — (0.2)% | |
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| Packaging Corp. of America | |
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| A-Mark Precious Metals, Inc. | |
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| Diversified Telecommunication Services — (0.3)% | |
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| Cogent Communications Holdings, Inc. | |
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| Electrical Equipment — (0.6)% | |
| Bloom Energy Corp., Class A (b) | |
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| Electronic Equipment, Instruments & Components — (0.5)% | |
| Arlo Technologies, Inc. (b) | |
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| Insight Enterprises, Inc. (b) | |
| Keysight Technologies, Inc. (b) | |
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| Energy Equipment & Services — (0.4)% | |
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See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS SOLD SHORT (Continued) |
| Entertainment (Continued) | |
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| Take-Two Interactive Software, Inc. (b) | |
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| Financial Services — (0.1)% | |
| Apollo Global Management, Inc. | |
| AvidXchange Holdings, Inc. (b) | |
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| Mondelez International, Inc., Class A | |
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| Ground Transportation — (0.7)% | |
| Canadian Pacific Kansas City Ltd. | |
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| Health Care Equipment & Supplies — (2.0)% | |
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| Alphatec Holdings, Inc. (b) | |
| Cooper (The) Cos., Inc. (b) | |
| GE HealthCare Technologies, Inc. | |
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| Intuitive Surgical, Inc. (b) | |
| iRhythm Technologies, Inc. (b) | |
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| PROCEPT BioRobotics Corp. (b) | |
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| Zimmer Biomet Holdings, Inc. | |
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| Health Care Providers & Services — (0.6)% | |
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| Health Care Technology — (0.0)% | |
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| Hotels, Restaurants & Leisure — (0.5)% | |
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See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS SOLD SHORT (Continued) |
| Hotels, Restaurants & Leisure (Continued) | |
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| Royal Caribbean Cruises Ltd. | |
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| Household Durables — (0.2)% | |
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| Household Products — (0.3)% | |
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| Procter & Gamble (The) Co. | |
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| Industrial Conglomerates — (0.3)% | |
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| Honeywell International, Inc. | |
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| Interactive Media & Services — (0.0)% | |
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| Kyndryl Holdings, Inc. (b) | |
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| Leisure Products — (0.1)% | |
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| Life Sciences Tools & Services — (0.4)% | |
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| Thermo Fisher Scientific, Inc. | |
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| West Pharmaceutical Services, Inc. | |
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| Interpublic Group of Companies (The), Inc. | |
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| Trade Desk (The), Inc., Class A (b) | |
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| Cia de Minas Buenaventura SAA, ADR | |
| Teck Resources Ltd., Class B | |
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See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS SOLD SHORT (Continued) |
| Oil, Gas & Consumable Fuels — (1.0)% | |
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| Vista Energy S.A.B. de C.V., ADR (b) | |
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| Personal Care Products — (0.4)% | |
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| Dr Reddy’s Laboratories Ltd., ADR | |
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| Professional Services — (1.4)% | |
| Dun & Bradstreet Holdings, Inc. | |
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| Real Estate Management & Development — (0.0)% | |
| Howard Hughes Holdings, Inc. (b) | |
| Semiconductors & Semiconductor Equipment — (1.7)% | |
| Advanced Micro Devices, Inc. (b) | |
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| ARM Holdings PLC, ADR (b) | |
| ASE Technology Holding Co., Ltd., ADR | |
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| Credo Technology Group Holding Ltd. (b) | |
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See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS SOLD SHORT (Continued) |
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| Appian Corp., Class A (b) | |
| Cadence Design Systems, Inc. (b) | |
| Confluent, Inc., Class A (b) | |
| Dolby Laboratories, Inc., Class A | |
| Guidewire Software, Inc. (b) | |
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| Palo Alto Networks, Inc. (b) | |
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| Tyler Technologies, Inc. (b) | |
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| Specialty Retail — (0.2)% | |
| American Eagle Outfitters, Inc. | |
| Burlington Stores, Inc. (b) | |
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| Textiles, Apparel & Luxury Goods — (0.0)% | |
| Birkenstock Holding PLC (b) | |
| Trading Companies & Distributors — (0.4)% | |
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| Wireless Telecommunication Services — (0.1)% | |
| Rogers Communications, Inc., Class B | |
| Total Investments Sold Short — (28.9)% | |
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| Net Other Assets and Liabilities — 30.5% | |
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Futures Contracts at October 31, 2024 (See Note 2D - Futures Contracts in the Notes to Financial Statements):
| | | | Unrealized
Appreciation
(Depreciation)/
Value |
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| This security or a portion of this security is segregated as collateral for investments sold short. At October 31, 2024, the segregated value of these securities amounts to $325,176,532. |
| Non-income producing security. |
| This security is taxed as a “C” corporation for federal income tax purposes. |
See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Portfolio of Investments (Continued)October 31, 2024 | Security is a Master Limited Partnership (“MLP”). |
| Rate shown reflects yield as of October 31, 2024. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
| – Real Estate Investment Trusts |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
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|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
Common Stocks Sold Short* | | | | |
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| See Portfolio of Investments for industry breakout. |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Futures Contracts table. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities. |
See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Statement of Assets and Liabilities
October 31, 2024
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Cash segregated as collateral | |
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Investments sold short, at value | |
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Investment securities purchased | |
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Dividends on investments sold short | |
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Accumulated distributable earnings (loss) | |
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NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
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Investments sold short, proceeds | |
See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Statement of Operations
For the Year Ended October 31, 2024
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Dividend expense on investments sold short | |
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NET INVESTMENT INCOME (LOSS) | |
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NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
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Foreign currency transactions | |
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Net change in unrealized appreciation (depreciation) on: | |
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Foreign currency translation | |
Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Statements of Changes in Net Assets
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Net investment income (loss) | | |
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Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
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DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
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SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
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Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
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CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
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Shares outstanding, end of period | | |
See Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)Financial Highlights
For a share outstanding throughout each period
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Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
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Net asset value, end of period | | | | | |
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Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets (c) | | | | | |
Ratio of total expenses to average net assets excluding dividend expense and margin interest expense (c) | | | | | |
Ratio of net investment income (loss) to average net assets (c) | | | | | |
Portfolio turnover rate (d) | | | | | |
| 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 distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| Ratios of expenses to average net assets and ratio of net investment income (loss) to average net assets do not reflect the Fund’s proportionate share of expenses and income of underlying investment companies in which the Fund invests. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Long/Short Equity ETF (FTLS)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund III (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on January 9, 2008, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the First Trust Long/Short Equity ETF (the “Fund”), a diversified series of the Trust, which trades under the ticker “FTLS” on NYSE Arca, Inc. The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The investment objective of the Fund is to seek to provide investors with long-term total return. Under normal conditions, the Fund will expose at least 80% of its net assets (including investment borrowings) to U.S. exchange-listed equity securities and/or U.S. exchange-traded funds (“ETFs”) that provide exposure to U.S. exchange-listed equity securities. The Fund pursues its investment objective by establishing long and short positions in its portfolio of U.S. exchange-listed equity securities and ETFs. The Fund’s portfolio may include U.S. exchange-listed equity securities of non-U.S. issuers, including the securities of non-U.S. issuers traded on U.S. exchanges in the form of depositary receipts. There can be no assurance that the Fund will achieve its investment objective. The Fund may not be appropriate for all investors.
2. Significant Accounting Policies
The Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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.
The Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. The Fund’s NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
The Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. The Fund’s investments are valued as follows:
Common stocks, exchange-traded funds and other equity securities listed on any national or foreign exchange (excluding Nasdaq, Inc. (“Nasdaq”) and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
Exchange-traded futures contracts are valued at the end of the day settlement price.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is
Notes to Financial Statements (Continued)
First Trust Long/Short Equity ETF (FTLS)October 31, 2024 unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value 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 the Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party 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. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price;
3)
the size of the holding;
4)
the initial cost of the security;
5)
transactions in comparable securities;
6)
price quotes from dealers and/or third-party pricing services;
7)
relationships among various securities;
8)
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
9)
an analysis of the issuer’s financial statements;
10)
the existence of merger proposals or tender offers that might affect the value of the security; and
11)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
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 daily on the accrual basis.
Distributions received from the Fund’s investments in real estate investment trusts (“REITs”) may be comprised of return of capital, capital gains, and income. The actual character of the amounts received during the year are not known until after the REITs’ fiscal year end. The Fund records the character of distributions received from the REITs during the year based on estimates available. The characterization of distributions received by the Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude.
Notes to Financial Statements (Continued)
First Trust Long/Short Equity ETF (FTLS)October 31, 2024 Distributions received from the Fund’s investments in master limited partnerships (“MLPs”) generally are comprised of return of capital and investment income. The Fund records estimated return of capital and investment income based on historical information available from each MLP. These estimates may subsequently be revised based on information received from the MLPs after their tax reporting periods are concluded.
Short sales are utilized for investment and risk management purposes and are transactions in which securities or other instruments (such as options, forwards, futures or other derivative contracts) are sold by the Fund, but are not currently owned in the Fund’s portfolio. When the Fund engages in a short sale, the Fund must borrow the security sold short and deliver the security to the counterparty. Short selling allows the Fund to profit from a decline in a market price to the extent such decline exceeds the transaction costs and the costs of borrowing the securities. The Fund will pay a fee or premium to borrow the securities sold short and is obligated to repay the lenders of the securities. Any dividends or interest that accrues on the securities during the period of the loan are due to the lenders. A gain, limited to the price at which the security was sold short, or a loss, unlimited in size, will be recognized upon the termination of the short sale; which is affected by the Fund purchasing the security sold short and delivering the security to the lender. Any such gain or loss may be offset, completely or in part, by the change in the value of the long portion of the Fund’s portfolio. The Fund is subject to the risk that it may be unable to reacquire a security to terminate a short position except at a price substantially in excess of the last quoted price. Also, there is the risk that the counterparty to a short sale may fail to honor its contractual terms, causing a loss to the Fund.
The Fund has established an account with Pershing, LLC for the purpose of borrowing securities that the Fund intends to sell short. The Fund is charged interest on debit margin balances at a rate equal to the Overnight Bank Funding Rate (“OBFR”) plus 40 basis points and earns interest on credit margin balances at a rate equal to the OBFR less 30 basis points. With regard to securities held short, the Fund is credited a rebate equal to the market value of its short positions at a rate equal to the OBFR less 25 basis points. This rebate rate applies to easy to borrow securities. Securities that are hard to borrow may earn a rebate that is less than the foregoing or may be subject to a premium charge on a security by security basis. The different rebate rate is determined at the time of a short sale request. For the fiscal year ended October 31, 2024, the Fund had margin interest income of $294,020 and margin interest expense of $71,684, as shown on the Statement of Operations. Restricted cash in the amount of $465,269,171, as shown on the Statement of Assets and Liabilities, is associated with collateral at the broker as of October 31, 2024.
The Fund may purchase or sell (i.e., is long or short) exchange-listed futures contracts to gain long or short exposure to broad based equity indexes. Futures contracts are agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Open futures contracts can also be closed out prior to settlement by entering into an offsetting transaction in a matching futures contract. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain margin deposits on the futures contract. When the contract is closed or expires, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed or expired. This gain or loss is included in “Net realized gain (loss) on futures contracts” on the Statement of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called margin, with its custodian in the name of the clearing broker equal to a specified percentage of the current value of the contract. Open futures contracts are marked-to-market daily with the change in value recognized as a component of “Net change in unrealized appreciation (depreciation) on futures contracts” on the Statement of Operations. This daily fluctuation in the value of the contract is also known as variation margin and is included in “Variation margin” payable or receivable on the Statement of Assets and Liabilities.
If market conditions change unexpectedly, the Fund may not achieve the anticipated benefits of the futures contract and may realize a loss. The use of futures contracts involves the risk of imperfect correlation in movements in the price of the futures contracts, interest rates and the underlying instruments.
Restricted cash segregated as collateral for futures contracts in the amount of $5,956,453 is included in “Cash segregated as collateral” on the Statement of Assets and Liabilities.
Notes to Financial Statements (Continued)
First Trust Long/Short Equity ETF (FTLS)October 31, 2024 E. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid quarterly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid during the fiscal years ended October 31, 2024 and 2023 was as follows:
As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes 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. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had $178,026,408 of non-expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to the Fund’s shareholders.
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Fund had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Fund and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for the Fund were as follows:
Notes to Financial Statements (Continued)
First Trust Long/Short Equity ETF (FTLS)October 31, 2024
Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
| | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee, dividend and interest expense on investments sold short and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
Pursuant to the Investment Management Agreement between the Trust and the Advisor, First Trust manages the investment of the Fund’s assets and is 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, acquired fund fees and expenses, dividend expenses on investments sold short, and extraordinary expenses. The annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Prior to November 6, 2023, First Trust also provided fund reporting services to the Fund for a flat annual fee in the amount of $9,250, which was covered under the annual unitary management fee. In addition, the Fund incurs acquired fund fees and expenses.
Effective November 6, 2023, the Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Prior to November 6, 2023, the Trust had multiple service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performed custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BBH was responsible for custody of the Fund’s assets. As fund accountant and administrator, BBH was responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BBH was responsible for maintaining shareholder records for the Fund.
Notes to Financial Statements (Continued)
First Trust Long/Short Equity ETF (FTLS)October 31, 2024 Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments, excluding short-term investments, investments sold short, and in-kind transactions, were $2,323,435,494 and $2,341,949,543, respectively. The cost of purchases to cover short sales and the proceeds from short sales were $1,153,993,539 and $1,295,265,899, respectively.
For the fiscal year ended October 31, 2024, the cost of in-kind purchases and proceeds from in-kind sales were $2,175,335,771 and $1,595,321,509, respectively. For the fiscal year ended October 31, 2024, the Fund had no in-kind transactions in investments sold short.
5. Derivative Transactions
The following table presents the types of derivatives held by the Fund at October 31, 2024, the primary underlying risk exposure and the location of these instruments as presented on the Statement of Assets and Liabilities.
| | | |
| | Statement of Assets and
Liabilities Location | | Statement of Assets and
Liabilities Location | |
| | Unrealized appreciation on futures contracts* | | Unrealized depreciation on futures contracts* | |
| Includes cumulative appreciation/depreciation on futures contracts as reported in the Fund’s Portfolio of Investments. Only the current day’s variation margin is presented on the Statement of Assets and Liabilities. |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the fiscal year ended October 31, 2024, on derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
Statement of Operations Location | |
| |
Net realized gain (loss) on futures contracts | |
Net change in unrealized appreciation (depreciation) on futures contracts | |
The average notional value of futures contracts outstanding during the fiscal year ended October 31, 2024, which is indicative of the volume of this derivative type, was $76,559,912.
The Fund does not have the right to offset financial assets and financial liabilities related to futures contracts on the Statement of Assets and Liabilities.
6. Creations, Redemptions and Transaction Fees
The Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with the Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units.
Notes to Financial Statements (Continued)
First Trust Long/Short Equity ETF (FTLS)October 31, 2024 Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund 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, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any 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 the securities comprising the redemption basket. 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 may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before February 28, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund III:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of First Trust Long/Short Equity ETF (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund III, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 23, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Long/Short Equity ETF (FTLS)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund III (the “Trust”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the “Agreement”) with First Trust Advisors L.P. (the “Advisor”) on behalf of the First Trust Long/Short Equity ETF (the “Fund”). The Board approved the continuation of the Agreement for a one-year period ending June 30, 2025 at a meeting held on June 2–3, 2024. The Board determined that the continuation of the Agreement is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”); and information on the Advisor’s compliance program. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangement between the Trust and the Advisor continues to be a reasonable business arrangement from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreement, the Board had received sufficient information to renew the Agreement. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor manages the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreement, the Board considered the nature, extent and quality of the services provided by the Advisor under the Agreement. The Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the Fund, as well as the background and experience of the persons responsible for such services. The Board noted that the Fund is an actively-managed ETF and noted that the Advisor’s Alternatives Investment Team is responsible for the day-to-day management of the Fund’s investments. The Board considered the background and experience of the members of the Alternatives Investment Team and noted the Board’s prior meetings with members of the Team. The Board considered the Advisor’s statement that it applies the same oversight model internally with its Alternatives Investment Team as it uses for overseeing external sub-advisors, including portfolio risk monitoring and performance review. In reviewing the services
Other Information (Continued)
First Trust Long/Short Equity ETF (FTLS)October 31, 2024 (Unaudited) provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor under the Agreement have been and are expected to remain satisfactory and that the Advisor has managed the Fund consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Agreement for the services provided. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Agreement and interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the unitary fee rate for the Fund was below the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for periods ended December 31, 2023 to the performance of the funds in the Performance Universe and to that of a benchmark index. Based on the information provided, the Board noted that the Fund outperformed the Performance Universe median and underperformed the benchmark index for the one-, three- and five-year periods ended December 31, 2023.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor to the Fund under the Agreement.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP, and
Other Information (Continued)
First Trust Long/Short Equity ETF (FTLS)October 31, 2024 (Unaudited) noted that the Advisor does not utilize soft dollars in connection with the Fund. The Board concluded that the character and amount of potential indirect benefits to the Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreement continue to be fair and reasonable and that the continuation of the Agreement is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Remuneration Disclosure Under the Alternative Investment Fund Managers Directive
First Trust Advisors L.P. (“First Trust”) is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of certain funds it manages, including First Trust Long/Short Equity ETF (the “Fund”), in certain member states in the European Economic Area in accordance with the cooperation arrangements in Article 42 of the Alternative Investment Fund Managers Directive (the “Directive”). First Trust is required under the Directive to make disclosures in respect of remuneration. The following disclosures are made in line with First Trust’s interpretation of currently available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2023, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Fund is $1,260,117. This figure is comprised of $71,556 paid (or to be paid) in fixed compensation and $1,188,561 paid (or to be paid) in variable compensation. There were a total of 28 beneficiaries of the remuneration described above. Those amounts include $164,436 paid (or to be paid) to senior management of First Trust Advisors L.P. and $1,095,681 paid (or to be paid) to other employees whose professional activities have a material impact on the risk profiles of First Trust Advisors L.P. or the Fund (collectively, “Code Staff”).
Code Staff included in the aggregated figures disclosed above are rewarded in line with First Trust’s remuneration policy (the “Remuneration Policy”) which is determined and implemented by First Trust’s senior management. The Remuneration Policy reflects First Trust’s ethos of good governance and encapsulates the following principal objectives:
i.
to provide a clear link between remuneration and performance of First Trust and to avoid rewarding for failure;
ii.
to promote sound and effective risk management consistent with the risk profiles of the funds managed by First Trust; and
iii.
to remunerate staff in line with the business strategy, objectives, values and interests of First Trust and the funds managed by First Trust in a manner that avoids conflicts of interest.
First Trust assesses various risk factors which it is exposed to when considering and implementing remuneration for Code Staff and considers whether any potential award to such person(s) would give rise to a conflict of interest. First Trust does not reward failure, or consider the taking of risk or failure to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in respect of performance-related remuneration of Code Staff by reference to a broad range of measures including (i) individual performance (using financial and non-financial criteria), and (ii) the overall performance of First Trust. Remuneration is not based upon the performance of the Fund.
The elements of remuneration are balanced between fixed and variable and the senior management sets fixed salaries at a level sufficient to ensure that variable remuneration incentivises and rewards strong individual performance but does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
For the taxable year ended October 31, 2024, the following percentages of income dividends paid by the Fund qualify for the dividends received deduction available to corporations and are hereby designated as qualified dividend income:
Dividends Received Deduction | Qualified Dividend Income |
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Other Information (Continued)
First Trust Long/Short Equity ETF (FTLS)October 31, 2024 (Unaudited) A portion of the ordinary dividends (including short-term capital gains) that the Fund paid to shareholders during the taxable year ended October 31, 2024, may be eligible for the Qualified Business Income (QBI) Deduction under the Internal Revenue Code of 1986, as amended, Section 199A for the aggregate dividends the Fund received from the underlying Real Estate Investment Trusts (REITs) it invests in.
Annual Financial
Statements and
Other Information |
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund III
First Trust Emerging Markets Local Currency Bond ETF (FEMB) |
First Trust Emerging Markets Local Currency Bond ETF (FEMB)
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that First Trust Emerging Markets Local Currency Bond ETF (the “Fund”) will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Fund’s advisor, may also periodically provide additional information on Fund performance on the Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment in the Fund. It includes details about the Fund and presents data that provides insight into the Fund’s performance and investment approach.
The material risks of investing in the Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust Emerging Markets Local Currency Bond ETF (FEMB)Portfolio of InvestmentsOctober 31, 2024
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FOREIGN SOVEREIGN BONDS AND NOTES (a) — 90.3% |
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| Brazil Notas do Tesouro Nacional, Series F (BRL) | | | |
| Brazil Notas do Tesouro Nacional, Series F (BRL) | | | |
| Brazil Notas do Tesouro Nacional, Series F (BRL) | | | |
| Brazil Notas do Tesouro Nacional, Series F (BRL) | | | |
| Brazil Notas do Tesouro Nacional, Series F (BRL) | | | |
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| Bonos de la Tesoreria de la Republica en pesos (CLP) | | | |
| Bonos de la Tesoreria de la Republica en pesos (CLP) (b) (c) | | | |
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| Colombian TES, Series B (COP) | | | |
| Colombian TES, Series B (COP) | | | |
| Colombian TES, Series B (COP) | | | |
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| Czech Republic Government Bond (CZK) (c) | | | |
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| Hungary Government Bond (HUF) | | | |
| Hungary Government Bond (HUF) | | | |
| Hungary Government Bond (HUF) | | | |
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| India Government Bond (INR) | | | |
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| Indonesia Treasury Bond (IDR) | | | |
| Indonesia Treasury Bond (IDR) | | | |
| Indonesia Treasury Bond (IDR) | | | |
| Indonesia Treasury Bond (IDR) | | | |
| Indonesia Treasury Bond (IDR) | | | |
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| Israel Government Bond - Fixed (ILS) | | | |
| Israel Government Bond - Fixed (ILS) | | | |
| Israel Government Bond - Fixed (ILS) | | | |
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| Malaysia Government Bond (MYR) | | | |
| Malaysia Government Bond (MYR) | | | |
| Malaysia Government Bond (MYR) | | | |
| Malaysia Government Bond (MYR) | | | |
| Malaysia Government Bond (MYR) | | | |
| Malaysia Government Bond (MYR) | | | |
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| Mexican Bonos, Series M (MXN) | | | |
See Notes to Financial Statements
First Trust Emerging Markets Local Currency Bond ETF (FEMB)Portfolio of Investments (Continued)October 31, 2024 | | | | |
FOREIGN SOVEREIGN BONDS AND NOTES (a) (Continued) |
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| Mexican Bonos, Series M (MXN) | | | |
| Mexican Bonos, Series M (MXN) | | | |
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| Peru Government Bond (PEN) | | | |
| Peru Government Bond (PEN) | | | |
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| Philippine Government International Bond (PHP) | | | |
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| Republic of Poland Government Bond (PLN) | | | |
| Republic of Poland Government Bond (PLN) | | | |
| Republic of Poland Government Bond (PLN) | | | |
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| Romania Government Bond (RON) | | | |
| Romania Government Bond (RON) | | | |
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| Republic of South Africa Government Bond, Series R186 (ZAR) | | | |
| Republic of South Africa Government Bond (ZAR) | | | |
| Republic of South Africa Government Bond (ZAR) | | | |
| Republic of South Africa Government Bond (ZAR) | | | |
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| African Development Bank (ZAR) | | | |
| Asian Development Bank (INR) | | | |
| European Bank for Reconstruction & Development (INR) | | | |
| Inter-American Development Bank (INR) | | | |
| International Bank for Reconstruction & Development (INR) | | | |
| International Finance Corp. (INR) | | | |
| International Finance Corp. (MXN) | | | |
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| Thailand Government Bond (THB) | | | |
| Thailand Government Bond (THB) | | | |
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| Turkiye Government Bond (TRY) | | | |
| Turkiye Government Bond (TRY) | | | |
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| Total Investments — 90.3% | |
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| Net Other Assets and Liabilities — 9.7% | |
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See Notes to Financial Statements
First Trust Emerging Markets Local Currency Bond ETF (FEMB)Portfolio of Investments (Continued)October 31, 2024 Forward Foreign Currency Contracts at October 31, 2024 (See Note 2C - Forward Foreign Currency Contracts in the Notes to Financial Statements):
| | | | Purchase Value
as of
10/31/2024 | Sale Value
as of
10/31/2024 | Unrealized
Appreciation
(Depreciation) |
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Net Unrealized Appreciation (Depreciation) | |
| Principal Value is in local currency in the security description. |
| This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”), and may be resold in transactions exempt from registration, normally to qualified institutional buyers. Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be liquid by First Trust Advisors L.P., the Fund’s advisor. Although market instability can result in periods of increased overall market illiquidity, liquidity for each security is determined based on security specific factors and assumptions, which require subjective judgment. At October 31, 2024, securities noted as such amounted to $2,979,862 or 1.5% of net assets. |
| This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the 1933 Act. |
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See Notes to Financial Statements
First Trust Emerging Markets Local Currency Bond ETF (FEMB)Portfolio of Investments (Continued)October 31, 2024 Abbreviations throughout the Portfolio of Investments: |
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Currency Exposure Diversification | % of Total
Investments
(including
cash)‡ |
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| The weightings include the impact of currency forwards. |
| Amount is less than 0.1%. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
Foreign Sovereign Bonds and Notes* | | | | |
Forward Foreign Currency Contracts | | | | |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
Forward Foreign Currency Contracts | | | | |
| See Portfolio of Investments for country breakout. |
See Notes to Financial Statements
First Trust Emerging Markets Local Currency Bond ETF (FEMB)Statement of Assets and Liabilities
October 31, 2024
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Foreign currency, at value | |
Cash segregated as collateral | |
Unrealized appreciation on forward foreign currency contracts | |
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Investment securities sold | |
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Unrealized depreciation on forward foreign currency contracts | |
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Deferred foreign capital gains tax | |
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Accumulated distributable earnings (loss) | |
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NET ASSET VALUE, per share | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | |
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Foreign currency, at cost (proceeds) | |
See Notes to Financial Statements
First Trust Emerging Markets Local Currency Bond ETF (FEMB)Statement of Operations
For the Year Ended October 31, 2024
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NET INVESTMENT INCOME (LOSS) | |
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NET REALIZED AND UNREALIZED GAIN (LOSS): | |
Net realized gain (loss) on: | |
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Forward foreign currency contracts | |
Foreign currency transactions | |
Foreign capital gains tax | |
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Net change in unrealized appreciation (depreciation) on: | |
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Forward foreign currency contracts | |
Foreign currency translation | |
Deferred foreign capital gains tax | |
Net change in unrealized appreciation (depreciation) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
See Notes to Financial Statements
First Trust Emerging Markets Local Currency Bond ETF (FEMB)Statements of Changes in Net Assets
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Net investment income (loss) | | |
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Net change in unrealized appreciation (depreciation) | | |
Net increase (decrease) in net assets resulting from operations | | |
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DISTRIBUTIONS TO SHAREHOLDERS FROM: | | |
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Total distributions to shareholders | | |
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SHAREHOLDER TRANSACTIONS: | | |
Proceeds from shares sold | | |
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Net increase (decrease) in net assets resulting from shareholder transactions | | |
Total increase (decrease) in net assets | | |
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CHANGES IN SHARES OUTSTANDING: | | |
Shares outstanding, beginning of period | | |
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Shares outstanding, end of period | | |
See Notes to Financial Statements
First Trust Emerging Markets Local Currency Bond ETF (FEMB)Financial Highlights
For a share outstanding throughout each period
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Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
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Net asset value, end of period | | | | | |
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Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | |
Portfolio turnover rate (d) | | | | | |
| Based on average shares outstanding. |
| The per share amount does not correlate with the aggregate realized and unrealized gain (loss) due to the timing of the Fund share sales and repurchases in relation to market value fluctuation of the underlying investments. |
| Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Emerging Markets Local Currency Bond ETF (FEMB)October 31, 2024
1. Organization
First Trust Exchange-Traded Fund III (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on January 9, 2008, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the First Trust Emerging Markets Local Currency Bond ETF (the “Fund”), a non-diversified series of the Trust, which trades under the ticker “FEMB” on Nasdaq, Inc. (“Nasdaq”). The Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, the Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
The Fund is an actively managed exchange-traded fund. The investment objective of the Fund is to seek maximum total return and current income. Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in bonds, notes and bills issued or guaranteed by entities incorporated or domiciled in emerging market countries that are denominated in the local currency of the issuer. There can be no assurance the Fund will achieve its investment objective. The Fund may not be appropriate for all investors.
2. Significant Accounting Policies
The Fund is considered an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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.
The Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Domestic debt securities and foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. The Fund’s NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
The Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Fund’s investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. The Fund’s investments are valued as follows:
Corporate bonds, corporate notes and other debt securities are fair valued on the basis of valuations provided by a third-party pricing service approved by the Advisor’s Pricing Committee, which may use the following valuation inputs when available:
7)
reference data including market research publications.
Fixed income and other debt securities having a remaining maturity of sixty days or less when purchased are fair valued at cost adjusted for amortization of premiums and accretion of discounts (amortized cost), provided the Advisor’s Pricing Committee has determined that the use of amortized cost is an appropriate reflection of fair value given market and issuer-specific
Notes to Financial Statements (Continued)
First Trust Emerging Markets Local Currency Bond ETF (FEMB)October 31, 2024 conditions existing at the time of the determination. Factors that may be considered in determining the appropriateness of the use of amortized cost include, but are not limited to, the following:
1)
the credit conditions in the relevant market and changes thereto;
2)
the liquidity conditions in the relevant market and changes thereto;
3)
the interest rate conditions in the relevant market and changes thereto (such as significant changes in interest rates);
4)
issuer-specific conditions (such as significant credit deterioration); and
5)
any other market-based data the Advisor’s Pricing Committee considers relevant. In this regard, the Advisor’s Pricing Committee may use last-obtained market-based data to assist it when valuing portfolio securities using amortized cost.
Forward foreign currency contracts are valued at the current day’s interpolated foreign exchange rate, as calculated using the current day’s spot rate, and the thirty, sixty, ninety, and one-hundred eighty day forward rates provided by a third-party pricing service.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value 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 the Fund’s NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the third-party 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. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the most recent price provided by a pricing service;
2)
available market prices for the fixed-income security, or economic data relating to the country of issue;
3)
the fundamental business data relating to the borrower/issuer;
4)
an evaluation of the forces which influence the market in which these securities are purchased and sold;
5)
the type, size and cost of a security;
6)
the financial statements of the borrower/issuer or the financial condition of the country of issue;
7)
the credit quality and cash flow of the borrower/issuer, or country of issue, based on the Pricing Committee’s, sub-advisor’s or portfolio manager’s analysis, as applicable, or external analysis;
8)
the information as to any transactions in or offers for the security;
9)
the price and extent of public trading in similar securities of the borrower/issuer, or comparable companies;
11)
the quality, value and salability of collateral, if any, securing the security;
12)
the business prospects of the borrower/issuer, including any ability to obtain money or resources from a parent or affiliate and an assessment of the borrower’s/issuer’s management (for corporate debt only);
13)
the economic, political and social prospects/developments of the country of issue and the assessment of the country’s government leaders/officials (for sovereign debt only);
14)
the prospects for the borrower’s/issuer’s industry, and multiples (of earnings and/or cash flows) being paid for similar businesses in that industry (for corporate debt only); and
15)
other relevant factors.
The Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
Notes to Financial Statements (Continued)
First Trust Emerging Markets Local Currency Bond ETF (FEMB)October 31, 2024 • Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value the Fund’s investments as of October 31, 2024, is included with the Fund’s Portfolio of Investments.
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 is recorded daily on the accrual basis. Amortization of premiums and accretion of discounts are recorded using the effective interest method.
C. Forward Foreign Currency Contracts
The Fund is subject to foreign currency risk in the normal course of pursuing its investment objective. Forward foreign currency contracts are agreements between two parties (“Counterparties”) to exchange one currency for another at a future date and at a specified price. The Fund uses forward foreign currency contracts to facilitate transactions in foreign securities and to manage the Fund’s foreign currency exposure. These contracts are valued daily, and the Fund’s net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in “Unrealized appreciation on forward foreign currency contracts” and “Unrealized depreciation on forward foreign currency contracts” on the Statement of Assets and Liabilities. The change in unrealized appreciation/(depreciation) is included in “Net change in unrealized appreciation (depreciation) on forward foreign currency contracts” on the Statements of Operations. When the forward contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or the cost of) the closing transaction and the Fund’s basis in the contract. This realized gain or loss is included in “Net realized gain (loss) on forward foreign currency contracts” on the Statements of Operations. Risks arise from the possible inability of Counterparties to meet the terms of their contracts and from movement in currency and securities values and interest rates. Due to the risks, the Fund could incur losses in excess of the net unrealized value shown on the Forward Foreign Currency Contracts table in the Fund’s Portfolio of Investments. In the event of default by the Counterparty, the Fund will provide notice to the Counterparty of the Fund’s intent to convert the currency held by the Fund into the currency that the Counterparty agreed to exchange with the Fund. If a Counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances.
The books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of investments and items of income and expense are translated on the respective dates of such transactions. Unrealized gains and losses on assets and liabilities, other than investments in securities, which result from changes in foreign currency exchange rates have been included in “Net change in unrealized appreciation (depreciation) on foreign currency translation” on the Statement of Operations. Unrealized gains and losses on investments in securities which result from changes in foreign exchange rates are included with fluctuations arising from changes in market price and are shown in “Net change in unrealized appreciation (depreciation) on investments” on the Statement of Operations. Net realized foreign currency gains and losses include the effect of changes in exchange rates between trade date and settlement date on investment security transactions, foreign currency transactions and interest and dividends received and are included
Notes to Financial Statements (Continued)
First Trust Emerging Markets Local Currency Bond ETF (FEMB)October 31, 2024 in “Net realized gain (loss) on foreign currency transactions” on the Statement of Operations. The portion of foreign currency gains and losses related to fluctuations in exchange rates between the initial purchase settlement date and subsequent sale trade date is included in “Net realized gain (loss) on investments” on the Statement of Operations.
E. Dividends and Distributions to Shareholders
Dividends from net investment income of the Fund, if any, are declared and paid monthly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by the Fund, if any, are distributed at least annually. The Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid during the fiscal years ended October 31, 2024 and 2023 was as follows:
As of October 31, 2024, the components of distributable earnings on a tax basis for the Fund were as follows:
Undistributed ordinary income | |
Accumulated capital and other gain (loss) | |
Net unrealized appreciation (depreciation) | |
The Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes 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. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
The Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Fund and has determined that no provision for income tax is required in the Fund’s financial statements for uncertain tax positions.
The Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. The Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, the Fund had $39,001,271 of non-expiring capital loss carryforwards available, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to the Fund’s shareholders.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the
Notes to Financial Statements (Continued)
First Trust Emerging Markets Local Currency Bond ETF (FEMB)October 31, 2024 Fund. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for the Fund were as follows:
Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
| | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
| | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for the selection and ongoing monitoring of the securities in the Fund’s portfolio, managing the Fund’s business affairs and providing certain administrative services necessary for the management of the Fund.
First Trust is responsible for the expenses of the Fund including the cost of transfer agency, custody, fund administration, legal, audit and other services, but excluding fee payments under the Investment Management Agreement, Rule 12b-1 distribution and service fees, if any, brokerage expenses, taxes, interest, acquired fund fees and expenses, and extraordinary expenses. The annual unitary management fee payable by the Fund to First Trust for these services will be reduced at certain levels of the Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Prior to November 6, 2023, First Trust also provided fund reporting services to the Fund for a flat annual fee in the amount of $9,250, which is covered under the annual unitary management fee.
The Trust, on behalf of the Fund, and First Trust have retained First Trust Global Portfolios Limited (“FTGP” or the “Sub-Advisor”), an affiliate of First Trust, to serve as investment sub-advisor. In this capacity, FTGP is responsible for the selection and ongoing monitoring of the securities in the Fund’s investment portfolio. FTGP receives a sub-advisory fee equal to 40% of any remaining monthly unitary fee paid to the Advisor after the Fund’s average expenses accrued during the most recent twelve months are subtracted from the unitary fee for that month.
Effective November 6, 2023, the Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BNY is responsible for custody of the Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for the Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Notes to Financial Statements (Continued)
First Trust Emerging Markets Local Currency Bond ETF (FEMB)October 31, 2024 Prior to November 6, 2023, the Trust had multiple service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performed custodial, fund accounting, certain administrative services, and transfer agency services for the Fund. As custodian, BBH was responsible for custody of the Fund’s assets. As fund accountant and administrator, BBH was responsible for maintaining the books and records of the Fund’s securities and cash. As transfer agent, BBH was responsible for maintaining shareholder records for the Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments, excluding short-term investments, derivatives, and in-kind transactions, were $133,991,399 and $73,129,090, respectively.
For the fiscal year ended October 31, 2024, the Fund had no in-kind transactions.
Effective February 28, 2024, the Trust, on behalf of the Fund, along with First Trust Exchange-Traded Fund IV, First Trust Series Fund and First Trust Variable Insurance Trust, entered into a new Credit Agreement with BNY as administrative agent for a group of lenders. The borrowing rate is the higher of the federal funds effective rate and the adjusted daily simple SOFR rate plus 1.00%. The commitment amount under the credit agreement is $620 million and such commitment amount may be increased up to $700 million with the consent of one or more lenders. BNY charges on behalf of the lenders a commitment fee of 0.20% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans, and an agency fee. Prior to February 28, 2024, the Trust, on behalf of the Fund, along with First Trust Exchange-Traded Fund IV and First Trust Series Fund, had a $550 million Credit Agreement with The Bank of Nova Scotia (“Scotia”) as administrative agent for a group of lenders. Scotia charged a commitment fee of 0.25% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans, and an agency fee. First Trust allocates the commitment fee and agency fee amongst the funds that have access to the credit line. To the extent that the Fund accesses the credit line, there would also be an interest fee charged. The Fund did not have any borrowings outstanding during the fiscal year ended October 31, 2024.
6. Derivative Transactions
The following table presents the types of derivatives held by the Fund at October 31, 2024, the primary underlying risk exposure and the location of these instruments as presented on the Statement of Assets and Liabilities.
| | | |
| | Statement of Assets and
Liabilities Location | | Statement of Assets and
Liabilities Location | |
Forward foreign currency contracts | | Unrealized appreciation on forward foreign currency contracts | | Unrealized depreciation on forward foreign currency contracts | |
Notes to Financial Statements (Continued)
First Trust Emerging Markets Local Currency Bond ETF (FEMB)October 31, 2024 The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the fiscal year ended October 31, 2024, on derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
Statement of Operations Location | |
| |
Net realized gain (loss) on forward foreign currency contracts | |
Net change in unrealized appreciation (depreciation) on forward foreign currency contracts | |
The average notional value of forward foreign currency contracts during the fiscal year ended October 31, 2024, which is indicative of the volume of this derivative type, was $45,523,626.
7. Offsetting on the Statement of Assets and Liabilities
Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset on the Statement of Assets and Liabilities and disclose instruments and transactions subject to master netting or similar agreements. These disclosure requirements are intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on a fund’s financial position. The transactions subject to offsetting disclosures are derivative instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions.
For financial reporting purposes, the Fund does not offset financial assets and financial liabilities that are subject to master netting arrangements (“MNAs”) or similar agreements on the Statement of Assets and Liabilities. MNAs provide the right, in the event of default (including bankruptcy and insolvency), for the non-defaulting counterparty to liquidate the collateral and calculate the net exposure to the defaulting party or request additional collateral.
At October 31, 2024, derivative assets and liabilities (by type) on a gross basis are as follows:
| Gross
Amount of
Recognized
Assets | Gross Amount
Offset in the
Statement of
Assets and
Liabilities | Net Amount
of Assets
Presented in the
Statement of
Assets and
Liabilities | Gross Amount Not Offset
in the Statement of
Assets and Liabilities | |
| | |
Forward Foreign Currency Contracts* | | | | | | |
|
| Gross
Amount of
Recognized
Liabilities | Gross Amount
Offset in the
Statement of
Assets and
Liabilities | Net Amount
of Liabilities
Presented in the
Statement of
Assets and
Liabilities | Gross Amount Not Offset
in the Statement of
Assets and Liabilities | |
| | |
Forward Foreign Currency Contracts* | | | | | | |
| The respective Counterparties for each contract are disclosed in the Forward Foreign Currency Contracts table in the Portfolio of Investments. |
8. Creations, Redemptions and Transaction Fees
The Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with the Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, the Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized
Notes to Financial Statements (Continued)
First Trust Emerging Markets Local Currency Bond ETF (FEMB)October 31, 2024 Participant that wishes to effectuate a creation of the Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of the Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in the Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of the Fund’s shares at or close to the NAV per share of the Fund.
The Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of the Fund 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, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the securities comprising the creation basket.
The Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of the Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any 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 the securities comprising the redemption basket. 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 may also be assessed an amount to cover the cost of such services. The redemption fee charged by the Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Fund is authorized to pay an amount up to 0.25% of its average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Fund, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Fund, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before February 28, 2026.
The Trust, on behalf of the Fund, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund III:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of First Trust Emerging Markets Local Currency Bond ETF (the “Fund”), one of the funds constituting the First Trust Exchange-Traded Fund III, as of October 31, 2024, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2024, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 23, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Emerging Markets Local Currency Bond ETF (FEMB)October 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Fund’s accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of the Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of the Fund are compensated through the unitary management fee paid by the Fund to the advisor and not directly by the Fund. The investment advisory fee paid is included in the Statement of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund III (the “Trust”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the “Advisory Agreement”) with First Trust Advisors L.P. (the “Advisor”) on behalf of the First Trust Emerging Markets Local Currency Bond ETF (the “Fund”) and the Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement” and together with the Advisory Agreement, the “Agreements”) among the Trust, on behalf of the Fund, the Advisor and First Trust Global Portfolios Ltd. (the “Sub-Advisor”). The Board approved the continuation of the Agreements for a one-year period ending June 30, 2025 at a meeting held on June 2–3, 2024. The Board determined that the continuation of the Agreements is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor and the Sub-Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor and the Sub-Advisor to the Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by the Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the sub-advisory fee as compared to fees charged to other clients of the Sub-Advisor; the expense ratio of the Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for the Fund, including comparisons of the Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to the Fund and the potential for the Advisor and the Sub-Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; financial data for the Sub-Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”), and the Sub-Advisor (also an affiliate of the Advisor); and information on the Advisor’s and the Sub-Advisor’s compliance programs. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024, prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor and the Sub-Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangements between the Trust and the Advisor and among the Trust, the Advisor and the Sub-Advisor continue to be reasonable business arrangements from the Fund’s perspective. The Board determined that, given the totality of the information provided with respect to the Agreements, the Board had received sufficient information to renew the Agreements. The Board considered that shareholders chose to invest or remain invested in the Fund knowing that the Advisor and the Sub-Advisor manage the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreements, the Board considered the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor under the Agreements. With respect to the Advisory Agreement, the Board considered that the Advisor is responsible for the overall management and administration of the Trust and the Fund and reviewed all of the services provided by the Advisor to the
Other Information (Continued)
First Trust Emerging Markets Local Currency Bond ETF (FEMB)October 31, 2024 (Unaudited) Fund, including the oversight of the Sub-Advisor, as well as the background and experience of the persons responsible for such services. The Board noted that the Advisor oversees the Sub-Advisor’s day-to-day management of the Fund’s investments, including portfolio risk monitoring and performance review. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s, the Sub-Advisor’s and the Fund’s compliance with the 1940 Act, as well as the Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Fund. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Fund and the other funds in the First Trust Fund Complex. With respect to the Sub-Advisory Agreement, the Board noted that the Fund is an actively-managed ETF and the Sub-Advisor actively manages the Fund’s investments. In addition to the written materials provided by the Sub-Advisor, at the April 25, 2024 meeting, the Board also received a presentation from representatives of the Sub-Advisor, who discussed the services that the Sub-Advisor provides to the Fund, including the Sub-Advisor’s day-to-day management of the Fund’s investments. In considering the Sub-Advisor’s management of the Fund, the Board noted the background and experience of the Sub-Advisor’s portfolio management team. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and the Fund by the Advisor and the Sub-Advisor under the Agreements have been and are expected to remain satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has managed the Fund consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate schedule payable by the Fund under the Advisory Agreement for the services provided. The Board noted that the sub-advisory fee is paid by the Advisor from the unitary fee. The Board considered that as part of the unitary fee the Advisor is responsible for the Fund’s expenses, including the cost of sub-advisory, transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Advisory Agreement and interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Group, as well as advisory and unitary fee rates charged by the Advisor and the Sub-Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because the Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for the Fund was above the median total (net) expense ratio of the peer funds in the Expense Group. With respect to the Expense Group, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, including that the Expense Group contained both actively-managed ETFs and open-end mutual funds, and different business models that may affect the pricing of services among ETF sponsors. The Board also noted that not all peer funds employ an advisor/sub-advisor management structure. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Fund and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedule overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to the Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for the Fund. The Board noted the process it has established for monitoring the Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor and the Sub-Advisor for the Fund. The Board determined that this process continues to be effective for reviewing the Fund’s performance. The Board received and reviewed information comparing the Fund’s performance for periods ended December 31, 2023 to the performance of the funds in the Performance Universe and to that of a benchmark index. Based on the information provided, the Board noted that the Fund outperformed the Performance Universe median and the benchmark index for the one-year period ended December 31, 2023, underperformed the Performance Universe median and outperformed the benchmark index for the three-year period ended December 31, 2023 and underperformed the Performance Universe median and the benchmark index for the five-year period ended December 31, 2023.
On the basis of all the information provided on the unitary fee and performance of the Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for the Fund (out of which the Sub-Advisor is compensated) continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor to the Fund under the Agreements.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Fund at current asset levels and whether the Fund may benefit from any economies of scale. The
Other Information (Continued)
First Trust Emerging Markets Local Currency Bond ETF (FEMB)October 31, 2024 (Unaudited) Board noted that the unitary fee rate schedule for the Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Fund will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Fund would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Fund. The Board concluded that the unitary fee rate schedule for the Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to the Fund for the twelve months ended December 31, 2023 and the estimated profitability level for the Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for the Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Fund. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Fund, may have had no dealings with the Advisor or FTP. In addition, the Board considered information on the affiliations between the Advisor and the Sub-Advisor and noted the services provided by the Sub-Advisor to certain First Trust products in Europe. The Board concluded that the character and amount of potential indirect benefits to the Advisor were not unreasonable.
The Board considered the Sub-Advisor’s statements that expenses incurred in providing services to the Fund are of a fixed nature and that no economies of scale have been identified from the provision of services to the Fund. The Board noted that the Advisor pays the Sub-Advisor from the unitary fee and that the sub-advisory fee will be reduced consistent with the breakpoints in the unitary fee rate schedule. The Board did not review the profitability of the Sub-Advisor with respect to the Fund. The Board concluded that the profitability analysis for the Advisor was more relevant. The Board considered the potential indirect benefits to the Sub-Advisor from being associated with the Advisor and the Fund. The Board noted that the Sub-Advisor does not have any soft dollar arrangements. The Board concluded that the character and amount of potential indirect benefits to the Sub-Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreements continue to be fair and reasonable and that the continuation of the Agreements is in the best interests of the Fund. No single factor was determinative in the Board’s analysis.
Remuneration Disclosure Under the Alternative Investment Fund Managers Directive
First Trust Advisors L.P. (“First Trust”) is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of certain funds it manages, including First Trust Emerging Markets Local Currency Bond ETF (the “Fund”), in certain member states in the European Economic Area in accordance with the cooperation arrangements in Article 42 of the Alternative Investment Fund Managers Directive (the “Directive”). First Trust is required under the Directive to make disclosures in respect of remuneration. The following disclosures are made in line with First Trust’s interpretation of currently available regulatory guidance on remuneration disclosures.
During the year ended December 31, 2023, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Fund is $65,017. This figure is comprised of $2,860 paid (or to be paid) in fixed compensation and $62,157 paid (or to be paid) in variable compensation. There were a total of 26 beneficiaries of the remuneration described above. Those amounts include $32,479 paid (or to be paid) to senior management of First Trust Advisors L.P. and $32,538 paid (or to be paid) to other employees whose professional activities have a material impact on the risk profiles of First Trust Advisors L.P. or the Fund (collectively, “Code Staff”).
Code Staff included in the aggregated figures disclosed above are rewarded in line with First Trust’s remuneration policy (the “Remuneration Policy”) which is determined and implemented by First Trust’s senior management. The Remuneration Policy reflects First Trust’s ethos of good governance and encapsulates the following principal objectives:
i.
to provide a clear link between remuneration and performance of First Trust and to avoid rewarding for failure;
ii.
to promote sound and effective risk management consistent with the risk profiles of the funds managed by First Trust; and
iii.
to remunerate staff in line with the business strategy, objectives, values and interests of First Trust and the funds managed by First Trust in a manner that avoids conflicts of interest.
Other Information (Continued)
First Trust Emerging Markets Local Currency Bond ETF (FEMB)October 31, 2024 (Unaudited) First Trust assesses various risk factors which it is exposed to when considering and implementing remuneration for Code Staff and considers whether any potential award to such person(s) would give rise to a conflict of interest. First Trust does not reward failure, or consider the taking of risk or failure to take risk in its remuneration of Code Staff.
First Trust assesses performance for the purposes of determining payments in respect of performance-related remuneration of Code Staff by reference to a broad range of measures including (i) individual performance (using financial and non-financial criteria), and (ii) the overall performance of First Trust. Remuneration is not based upon the performance of the Fund.
The elements of remuneration are balanced between fixed and variable and the senior management sets fixed salaries at a level sufficient to ensure that variable remuneration incentivises and rewards strong individual performance but does not encourage excessive risk taking.
No individual is involved in setting his or her own remuneration.
Annual Financial
Statements and
Other Information |
For the Year Ended
October 31, 2024 |
First Trust Exchange-Traded Fund III
First Trust RiverFront Dynamic Developed International ETF (RFDI) |
First Trust RiverFront Dynamic Europe ETF (RFEU) |
First Trust RiverFront Dynamic Emerging Markets ETF (RFEM) |
First Trust Exchange-Traded Fund III
Annual Financial Statements and Other Information
October 31, 2024
Performance and Risk Disclosure
There is no assurance that any series of First Trust Exchange-Traded Fund III (the “Trust”) described in this report (each such series is referred to as a “Fund” and collectively, as the “Funds”) will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund’s shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in a Fund.
Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost.
First Trust Advisors L.P., the Funds’ advisor, may also periodically provide additional information on Fund performance on each Fund’s webpage at www.ftportfolios.com.
This report contains information that may help you evaluate your investment. It includes details about each Fund and presents data that provides insight into each Fund’s performance and investment approach.
The material risks of investing in each Fund are spelled out in its prospectus, statement of additional information, and other Fund regulatory filings.
First Trust RiverFront Dynamic Developed International ETF (RFDI)Portfolio of InvestmentsOctober 31, 2024
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COMMON STOCKS (a) (b) — 97.3% |
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| Coles Group Ltd. (AUD) (c) | |
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| Harvey Norman Holdings Ltd. (AUD) (c) | |
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| Medibank Pvt Ltd. (AUD) (c) | |
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| Super Retail Group Ltd. (AUD) (c) | |
| Ventia Services Group Pty Ltd. (AUD) (c) | |
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| Wesfarmers Ltd. (AUD) (c) | |
| Woodside Energy Group Ltd. (AUD) (c) | |
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| Wienerberger AG (EUR) (c) | |
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| Orient Overseas International Ltd. (HKD) (c) | |
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| Canadian Natural Resources Ltd. (CAD) | |
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| Pembina Pipeline Corp. (CAD) | |
| Suncor Energy, Inc. (CAD) | |
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| CK Hutchison Holdings Ltd. (HKD) (c) | |
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| AP Moller - Maersk A/S, Class A (DKK) (c) | |
| AP Moller - Maersk A/S, Class B (DKK) (c) | |
| Novo Nordisk A/S, Class B (DKK) (c) | |
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| Nordea Bank Abp (EUR) (c) | |
| Orion Oyj, Class B (EUR) (c) | |
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| BNP Paribas S.A. (EUR) (c) | |
| Christian Dior SE (EUR) (c) | |
| Credit Agricole S.A. (EUR) (c) | |
| Hermes International S.C.A. (EUR) (c) | |
| La Francaise des Jeux SAEM (EUR) (c) (d) (e) | |
| LVMH Moet Hennessy Louis Vuitton SE (EUR) (c) | |
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| TotalEnergies SE (EUR) (c) | |
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| Bayerische Motoren Werke AG (EUR) (c) | |
| Deutsche Bank AG (EUR) (c) | |
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| Fresenius SE & Co. KGaA (EUR) (c) (f) | |
| Hapag-Lloyd AG (EUR) (c) (d) (e) | |
| Mercedes-Benz Group AG (EUR) (c) | |
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| Eurobank Ergasias Services and Holdings S.A. (EUR) (c) | |
| Hellenic Telecommunications Organization S.A. (EUR) (c) | |
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| First International Bank Of Israel (The) Ltd. (ILS) (c) | |
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| Azimut Holding S.p.A. (EUR) (c) | |
| Banca Mediolanum S.p.A (EUR) (c) | |
See Notes to Financial Statements
First Trust RiverFront Dynamic Developed International ETF (RFDI)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (a) (b) (Continued) |
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| Banca Popolare di Sondrio S.p.A. (EUR) (c) | |
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| Pirelli & C S.p.A. (EUR) (c) (d) (e) | |
| Poste Italiane S.p.A. (EUR) (c) (d) (e) | |
| Unipol Gruppo S.p.A. (EUR) (c) | |
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| Advantest Corp. (JPY) (c) | |
| Bandai Namco Holdings, Inc. (JPY) (c) | |
| Chugai Pharmaceutical Co., Ltd. (JPY) (c) | |
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| Fast Retailing Co., Ltd. (JPY) (c) | |
| Honda Motor Co., Ltd. (JPY) (c) | |
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| Japan Metropolitan Fund Invest (JPY) (c) | |
| Japan Tobacco, Inc. (JPY) (c) | |
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| Mitsui OSK Lines Ltd. (JPY) (c) | |
| Mizuho Financial Group, Inc. (JPY) (c) | |
| MS&AD Insurance Group Holdings, Inc. (JPY) (c) | |
| Nintendo Co., Ltd. (JPY) (c) | |
| Nippon Telegraph & Telephone Corp. (JPY) (c) | |
| Nippon Yusen KK (JPY) (c) | |
| Niterra Co., Ltd. (JPY) (c) | |
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| Oracle Corp Japan (JPY) (c) | |
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| Recruit Holdings Co., Ltd. (JPY) (c) | |
| SCREEN Holdings Co., Ltd. (JPY) (c) | |
| Sega Sammy Holdings, Inc. (JPY) (c) | |
| Sekisui House Ltd. (JPY) (c) | |
| Shinko Electric Industries Co., Ltd. (JPY) (c) (f) | |
| Shionogi & Co., Ltd. (JPY) (c) | |
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| Takeda Pharmaceutical Co., Ltd. (JPY) (c) | |
| Tokyo Gas Co., Ltd. (JPY) (c) | |
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| B&M European Value Retail S.A. (GBP) (c) | |
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| ASML Holding N.V. (EUR) (c) | |
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| Koninklijke KPN N.V. (EUR) (c) | |
| Stellantis N.V. (EUR) (c) | |
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| Spark New Zealand Ltd. (NZD) (c) | |
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| Navigator (The) Co., S.A. (EUR) (c) | |
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| Singapore Airlines Ltd. (SGD) (c) | |
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| Banco Bilbao Vizcaya Argentaria S.A. (EUR) (c) | |
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| Logista Integral S.A. (EUR) (c) | |
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| EFG International AG (CHF) (c) | |
| Kuehne + Nagel International AG (CHF) (c) | |
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| Roche Holding AG (CHF) (c) | |
| Roche Holding AG (CHF) (c) | |
| Sandoz Group AG (CHF) (c) | |
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See Notes to Financial Statements
First Trust RiverFront Dynamic Developed International ETF (RFDI)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (a) (b) (Continued) |
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| AstraZeneca PLC (GBP) (c) | |
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| Barratt Redrow PLC (GBP) (c) | |
| Big Yellow Group PLC (GBP) (c) | |
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| British American Tobacco PLC (GBP) (c) | |
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| Evraz PLC (GBP) (c) (f) (g) (h) | |
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| Hargreaves Lansdown PLC (GBP) (c) | |
| HSBC Holdings PLC (GBP) (c) | |
| IG Group Holdings PLC (GBP) (c) | |
| Imperial Brands PLC (GBP) (c) | |
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| J Sainsbury PLC (GBP) (c) | |
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| National Grid PLC (GBP) (c) | |
| NatWest Group PLC (GBP) (c) | |
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| Reckitt Benckiser Group PLC (GBP) (c) | |
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| Safestore Holdings PLC (GBP) (c) | |
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| Taylor Wimpey PLC (GBP) (c) | |
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MONEY MARKET FUNDS — 2.0% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 4.76% (i) | |
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| Total Investments — 99.3% | |
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| Net Other Assets and Liabilities — 0.7% | |
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| Portfolio securities are categorized based upon their country of incorporation. |
| Securities are issued in U.S. dollars unless otherwise indicated in the security description. |
| This security is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At October 31, 2024, securities noted as such are valued at $112,017,456 or 93.3% of net assets. Certain of these securities are fair valued using a factor provided by a third-party pricing service due to the change in value between the foreign markets’ close and the New York Stock Exchange close exceeding a certain threshold. On days when this threshold is not exceeded, these securities are typically valued at the last sale price on the exchange on which they are principally traded. |
| This security is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”) and may be resold in transactions exempt from registration, normally to qualified institutional buyers. This security is not restricted on the foreign exchange where it trades freely without any additional registration. |
| This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the 1933 Act. |
| Non-income producing security. |
| Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be illiquid by First Trust Advisors L.P., the Fund’s advisor. |
| This security’s value was determined using significant unobservable inputs (see Note 2A - Portfolio Valuation in the Notes to Financial Statements). |
| Rate shown reflects yield as of October 31, 2024. |
Abbreviations throughout the Portfolio of Investments: |
| – American Depositary Receipt |
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See Notes to Financial Statements
First Trust RiverFront Dynamic Developed International ETF (RFDI)Portfolio of Investments (Continued)October 31, 2024 Currency Exposure Diversification | |
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Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
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| See Portfolio of Investments for country breakout. |
| Investment is valued at $0. |
Level 3 investments are fair valued by the Advisor’s Pricing Committee and are footnoted in the Portfolio of Investments. All Level 3 values are based on unobservable inputs.
See Notes to Financial Statements
First Trust RiverFront Dynamic Europe ETF (RFEU)Portfolio of InvestmentsOctober 31, 2024
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COMMON STOCKS (a) (b) — 99.8% |
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| Raiffeisen Bank International AG (EUR) (c) | |
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| AP Moller - Maersk A/S, Class A (DKK) (c) | |
| AP Moller - Maersk A/S, Class B (DKK) (c) | |
| Novo Nordisk A/S, Class B (DKK) (c) | |
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| Orion Oyj, Class B (EUR) (c) | |
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| Amundi S.A. (EUR) (c) (d) (e) | |
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| Christian Dior SE (EUR) (c) | |
| Cie de Saint-Gobain S.A. (EUR) (c) | |
| La Francaise des Jeux SAEM (EUR) (c) (d) (e) | |
| LVMH Moet Hennessy Louis Vuitton SE (EUR) (c) | |
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| TotalEnergies SE (EUR) (c) | |
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| Fresenius SE & Co. KGaA (EUR) (c) (f) | |
| Mercedes-Benz Group AG (EUR) (c) | |
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| Hellenic Telecommunications Organization S.A. (EUR) (c) | |
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| National Bank of Greece S.A. (EUR) (c) | |
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| First International Bank Of Israel (The) Ltd. (ILS) (c) | |
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| Azimut Holding S.p.A. (EUR) (c) | |
| BPER Banca S.p.A. (EUR) (c) | |
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| B&M European Value Retail S.A. (GBP) (c) | |
| | |
| | |
| | |
| ASML Holding N.V. (EUR) (c) | |
| | |
| Stellantis N.V. (EUR) (c) | |
| Wolters Kluwer N.V. (EUR) (c) | |
| | |
| | |
| | |
| | |
| Galp Energia SGPS S.A. (EUR) (c) | |
| Navigator (The) Co., S.A. (EUR) (c) | |
| | |
| | |
| | |
| | |
| | |
| Amadeus IT Group S.A. (EUR) (c) | |
| Banco Bilbao Vizcaya Argentaria S.A. (EUR) (c) | |
| Logista Integral S.A. (EUR) (c) | |
| | |
See Notes to Financial Statements
First Trust RiverFront Dynamic Europe ETF (RFEU)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (a) (b) (Continued) |
| | |
| Evolution AB (SEK) (c) (d) (e) | |
| Investor AB, Class A (SEK) (c) | |
| Telefonaktiebolaget LM Ericsson, Class B (SEK) (c) | |
| | |
| | |
| Kuehne + Nagel International AG (CHF) (c) | |
| | |
| | |
| Partners Group Holding AG (CHF) (c) | |
| Roche Holding AG (CHF) (c) | |
| Roche Holding AG (CHF) (c) | |
| | |
| | |
| | |
| | |
| | |
| AstraZeneca PLC (GBP) (c) | |
| Auto Trader Group PLC (GBP) (c) (d) (e) | |
| | |
| | |
| British American Tobacco PLC (GBP) (c) | |
| | |
| | |
| | |
| Dunelm Group PLC (GBP) (c) | |
| Evraz PLC (GBP) (c) (f) (g) (h) | |
| | |
| Hargreaves Lansdown PLC (GBP) (c) | |
| HSBC Holdings PLC (GBP) (c) | |
| | |
| Intermediate Capital Group PLC (GBP) (c) | |
| Intertek Group PLC (GBP) (c) | |
| National Grid PLC (GBP) (c) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
MONEY MARKET FUNDS — 1.0% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 4.76% (i) | |
| | |
|
|
| Total Investments — 100.8% | |
| | |
| Net Other Assets and Liabilities — (0.8)% | |
| | |
| Portfolio securities are categorized based upon their country of incorporation. |
| Securities are issued in U.S. dollars unless otherwise indicated in the security description. |
| This security is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At October 31, 2024, securities noted as such are valued at $6,132,099 or 96.5% of net assets. Certain of these securities are fair valued using a factor provided by a third-party pricing service due to the change in value between the foreign markets’ close and the New York Stock Exchange close exceeding a certain threshold. On days when this threshold is not exceeded, these securities are typically valued at the last sale price on the exchange on which they are principally traded. |
| This security is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”) and may be resold in transactions exempt from registration, normally to qualified institutional buyers. This security is not restricted on the foreign exchange where it trades freely without any additional registration. |
| This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the 1933 Act. |
| Non-income producing security. |
| Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be illiquid by First Trust Advisors L.P., the Fund’s advisor. |
| This security’s value was determined using significant unobservable inputs (see Note 2A - Portfolio Valuation in the Notes to Financial Statements). |
| Rate shown reflects yield as of October 31, 2024. |
See Notes to Financial Statements
First Trust RiverFront Dynamic Europe ETF (RFEU)Portfolio of Investments (Continued)October 31, 2024 Abbreviations throughout the Portfolio of Investments: |
| |
| |
| |
| |
| |
| |
| |
| |
Currency Exposure Diversification | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| See Portfolio of Investments for country breakout. |
| Investment is valued at $0. |
Level 3 investments are fair valued by the Advisor’s Pricing Committee and are footnoted in the Portfolio of Investments. All Level 3 values are based on unobservable inputs.
See Notes to Financial Statements
First Trust RiverFront Dynamic Emerging Markets ETF (RFEM)Portfolio of InvestmentsOctober 31, 2024
| | |
COMMON STOCKS (a) (b) — 94.4% |
| | |
| COSCO SHIPPING Ports Ltd. (HKD) (c) | |
| Orient Overseas International Ltd. (HKD) (c) | |
| | |
| | |
| Banco do Brasil S.A. (BRL) | |
| BB Seguridade Participacoes S.A. (BRL) | |
| | |
| | |
| Petroleo Brasileiro S.A. (BRL) | |
| | |
| | |
| | |
| | |
| Alibaba Group Holding Ltd. (HKD) (c) | |
| ANTA Sports Products Ltd. (HKD) (c) | |
| China Medical System Holdings Ltd. (HKD) (c) | |
| Fufeng Group Ltd. (HKD) (c) | |
| Haidilao International Holding Ltd. (HKD) (c) (d) (e) | |
| Meituan, Class B (HKD) (c) (d) (e) (f) | |
| Tencent Holdings Ltd. (HKD) (c) | |
| Topsports International Holdings Ltd. (HKD) (c) (d) (e) | |
| Wisdom Marine Lines Co., Ltd. (TWD) (c) | |
| | |
| | |
| | |
| | |
| | |
| | |
| Industrial & Commercial Bank of China Ltd., Class H (HKD) (c) | |
| | |
| Eurobank Ergasias Services and Holdings S.A. (EUR) (c) | |
| Motor Oil Hellas Corinth Refineries S.A. (EUR) (c) | |
| | |
| | |
| | |
|
| | |
| China Merchants Port Holdings Co., Ltd. (HKD) (c) | |
| China Resources Pharmaceutical Group Ltd. (HKD) (c) (d) (e) | |
| Lenovo Group Ltd. (HKD) (c) | |
| | |
| | |
| Bajaj Finance Ltd. (INR) (c) | |
| | |
| Bharat Petroleum Corp., Ltd. (INR) (c) | |
| Britannia Industries Ltd. (INR) (c) | |
| CG Power & Industrial Solutions Ltd. (INR) (c) | |
| Eicher Motors Ltd. (INR) (c) | |
| HCL Technologies Ltd. (INR) (c) | |
| Hindustan Unilever Ltd. (INR) (c) | |
| ICICI Bank Ltd. (INR) (c) | |
| Indian Railway Catering & Tourism Corp., Ltd. (INR) (c) | |
| | |
| InterGlobe Aviation Ltd. (INR) (c) (d) (e) (f) | |
| | |
| LIC Housing Finance Ltd. (INR) (c) | |
| LTIMindtree Ltd. (INR) (c) (d) (e) | |
| | |
| Reliance Industries Ltd. (INR) (c) | |
| Shriram Finance Ltd. (INR) (c) | |
| State Bank of India (INR) (c) | |
| Sun Pharmaceutical Industries Ltd. (INR) (c) | |
| Tata Consultancy Services Ltd. (INR) (c) | |
| Titan Co., Ltd. (INR) (c) | |
| | |
| | |
| | |
| Adaro Energy Indonesia Tbk PT (IDR) (c) | |
| Indofood Sukses Makmur Tbk PT (IDR) (c) | |
| | |
See Notes to Financial Statements
First Trust RiverFront Dynamic Emerging Markets ETF (RFEM)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (a) (b) (Continued) |
| | |
| Bank Hapoalim BM (ILS) (c) | |
| | |
| | |
| | |
| Alliance Bank Malaysia Bhd (MYR) (c) | |
| | |
| | |
| Sunway Real Estate Investment Trust (MYR) (c) | |
| TIME dotCom Bhd (MYR) (c) | |
| | |
| | |
| | |
| Banco del Bajio S.A. (MXN) (d) (e) | |
| | |
| | |
| International Container Terminal Services, Inc. (PHP) (c) | |
| | |
| Asseco Poland S.A. (PLN) (c) | |
| Bank Handlowy w Warszawie S.A. (PLN) (c) | |
| | |
| | |
| | |
| Rosneft Oil Co. PJSC (RUB) (c) (f) (g) (h) | |
| Severstal PAO (RUB) (c) (f) (g) (h) | |
| | |
| | |
| SABIC Agri-Nutrients Co. (SAR) (c) | |
| | |
| Sembcorp Industries Ltd. (SGD) (c) | |
| Singapore Airlines Ltd. (SGD) (c) | |
| | |
| | |
| Absa Group Ltd. (ZAR) (c) | |
| Exxaro Resources Ltd. (ZAR) (c) | |
| Kumba Iron Ore Ltd. (ZAR) | |
| | |
| | |
| Hyundai Motor Co. (KRW) (c) | |
| | |
| | |
|
| | |
| | |
| Meritz Financial Group, Inc. (KRW) (c) | |
| Samsung Biologics Co., Ltd. (KRW) (c) (d) (e) (f) | |
| Samsung SDS Co., Ltd. (KRW) (c) | |
| | |
| | |
| Bora Pharmaceuticals Co., Ltd. (TWD) (c) | |
| Chicony Electronics Co., Ltd. (TWD) (c) | |
| Evergreen Marine Corp. Taiwan Ltd. (TWD) (c) | |
| Global Unichip Corp. (TWD) (c) | |
| International Games System Co., Ltd. (TWD) (c) | |
| Jentech Precision Industrial Co., Ltd. (TWD) (c) | |
| | |
| Nan Ya Printed Circuit Board Corp. (TWD) (c) | |
| Realtek Semiconductor Corp. (TWD) (c) | |
| Sino-American Silicon Products, Inc. (TWD) (c) | |
| Taiwan Semiconductor Manufacturing Co., Ltd. (TWD) (c) | |
| Tripod Technology Corp. (TWD) (c) | |
| Unimicron Technology Corp. (TWD) (c) | |
| | |
| | |
| | |
| Kasikornbank PCL, NVDR (THB) (c) | |
| Kasikornbank PCL (THB) (c) | |
| | |
| | |
| | |
| Aksa Enerji Uretim A/S (TRY) | |
| Torunlar Gayrimenkul Yatirim Ortakligi A/S (TRY) (c) | |
See Notes to Financial Statements
First Trust RiverFront Dynamic Emerging Markets ETF (RFEM)Portfolio of Investments (Continued)October 31, 2024 | | |
COMMON STOCKS (a) (b) (Continued) |
| | |
| Turkiye Petrol Rafinerileri A/S (TRY) (c) | |
| Yapi ve Kredi Bankasi A/S (TRY) (c) | |
| | |
| | |
| | |
EXCHANGE-TRADED FUNDS (a) (b) — 6.0% |
| | |
| iShares Core MSCI Emerging Markets ETF | |
| | |
| | |
| Total Exchange-Traded Funds | |
| | |
| | |
MONEY MARKET FUNDS — 0.3% |
| Dreyfus Government Cash Management Fund, Institutional Shares - 4.76% (i) | |
| | |
|
|
| Total Investments — 100.7% | |
| | |
| Net Other Assets and Liabilities — (0.7)% | |
| | |
Forward Foreign Currency Contracts at October 31, 2024 (See Note 2C - Forward Foreign Currency Contracts in the Notes to Financial Statements):
| | | | Purchase Value
as of
10/31/2024 | Sale Value
as of
10/31/2024 | Unrealized
Appreciation
(Depreciation) |
| | | | | | | | |
| Portfolio securities are categorized based upon their country of incorporation. |
| Securities are issued in U.S. dollars unless otherwise indicated in the security description. |
| This security is fair valued by the Advisor’s Pricing Committee in accordance with procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the Investment Company Act of 1940 and rules thereunder, as amended. At October 31, 2024, securities noted as such are valued at $24,990,270 or 85.8% of net assets. Certain of these securities are fair valued using a factor provided by a third-party pricing service due to the change in value between the foreign markets’ close and the New York Stock Exchange close exceeding a certain threshold. On days when this threshold is not exceeded, these securities are typically valued at the last sale price on the exchange on which they are principally traded. |
| This security is exempt from registration upon resale under Rule 144A of the Securities Act of 1933, as amended (the “1933 Act”) and may be resold in transactions exempt from registration, normally to qualified institutional buyers. This security is not restricted on the foreign exchange where it trades freely without any additional registration. |
| This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the 1933 Act. |
| Non-income producing security. |
| Pursuant to procedures adopted by the Trust’s Board of Trustees, this security has been determined to be illiquid by First Trust Advisors L.P., the Fund’s advisor. |
| This security’s value was determined using significant unobservable inputs (see Note 2A - Portfolio Valuation in the Notes to Financial Statements). |
| Rate shown reflects yield as of October 31, 2024. |
See Notes to Financial Statements
First Trust RiverFront Dynamic Emerging Markets ETF (RFEM)Portfolio of Investments (Continued)October 31, 2024 Abbreviations throughout the Portfolio of Investments: |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| – Non-Voting Depositary Receipt |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Currency Exposure Diversification | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| The weightings include the impact of currency forwards. |
| Investments are valued at $0. |
Valuation InputsA summary of the inputs used to value the Fund’s investments as of October 31, 2024 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | Level 2
Significant
Observable
Inputs | Level 3
Significant
Unobservable
Inputs |
Forward Foreign Currency Contracts | | | | |
| See Portfolio of Investments for country breakout. |
| Investments are valued at $0. |
Level 3 investments are fair valued by the Advisor’s Pricing Committee and are footnoted in the Portfolio of Investments. All Level 3 values are based on unobservable inputs.
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Assets and Liabilities
October 31, 2024
| First Trust RiverFront Dynamic Developed International ETF
(RFDI) | First Trust RiverFront Dynamic Europe ETF
(RFEU) | First Trust RiverFront Dynamic Emerging Markets ETF
(RFEM) |
| | | |
| | | |
| | | |
Foreign currency, at value | | | |
| | | |
| | | |
| | | |
Investment securities sold | | | |
| | | |
|
| | | |
Unrealized depreciation on forward foreign currency contracts | | | |
| | | |
| | | |
| | | |
Deferred foreign capital gains tax | | | |
| | | |
| | | |
|
| | | |
| | | |
| | | |
Accumulated distributable earnings (loss) | | | |
| | | |
NET ASSET VALUE, per share | | | |
Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share) | | | |
| | | |
Foreign currency, at cost (proceeds) | | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Operations
For the Year Ended October 31, 2024
| First Trust RiverFront Dynamic Developed International ETF
(RFDI) | First Trust RiverFront Dynamic Europe ETF
(RFEU) | First Trust RiverFront Dynamic Emerging Markets ETF
(RFEM) |
| | | |
| | | |
| | | |
| | | |
|
| | | |
| | | |
| | | |
| | | |
NET INVESTMENT INCOME (LOSS) | | | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS): | | | |
Net realized gain (loss) on: | | | |
| | | |
| | | |
Forward foreign currency contracts | | | |
Foreign currency transactions | | | |
Foreign capital gains tax | | | |
| | | |
Net change in unrealized appreciation (depreciation) on: | | | |
| | | |
Forward foreign currency contracts | | | |
Foreign currency translation | | | |
Deferred foreign capital gains tax | | | |
Net change in unrealized appreciation (depreciation) | | | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | | | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | | | |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIStatements of Changes in Net Assets
| First Trust RiverFront Dynamic Developed International ETF (RFDI) | First Trust RiverFront Dynamic Europe ETF (RFEU) |
| | | | |
| | | | |
Net investment income (loss) | | | | |
| | | | |
Net change in unrealized appreciation (depreciation) | | | | |
Net increase (decrease) in net assets resulting from operations | | | | |
|
DISTRIBUTIONS TO SHAREHOLDERS FROM: | | | | |
| | | | |
|
SHAREHOLDER TRANSACTIONS: | | | | |
Proceeds from shares sold | | | | |
| | | | |
Net increase (decrease) in net assets resulting from shareholder transactions | | | | |
Total increase (decrease) in net assets | | | | |
|
| | | | |
| | | | |
| | | | |
|
CHANGES IN SHARES OUTSTANDING: | | | | |
Shares outstanding, beginning of period | | | | |
| | | | |
| | | | |
Shares outstanding, end of period | | | | |
See Notes to Financial Statements
First Trust RiverFront Dynamic Emerging Markets ETF (RFEM) |
| |
| |
| |
| |
| |
| |
|
| |
| |
|
| |
| |
| |
| |
| |
|
| |
| |
| |
|
| |
| |
| |
| |
| |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIFinancial Highlights
For a share outstanding throughout each period First Trust RiverFront Dynamic Developed International ETF (RFDI)
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | |
Portfolio turnover rate (c) | | | | | |
| 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 distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIFinancial Highlights (Continued)
For a share outstanding throughout each period First Trust RiverFront Dynamic Europe ETF (RFEU)
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | |
Portfolio turnover rate (d) | | | | | |
| 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 distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| Includes tax expense. If the tax expense was not included, the expense ratio would have been 0.83%. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
First Trust Exchange-Traded Fund IIIFinancial Highlights (Continued)
For a share outstanding throughout each period First Trust RiverFront Dynamic Emerging Markets ETF (RFEM)
| |
| | | | | |
Net asset value, beginning of period | | | | | |
Income from investment operations: | | | | | |
Net investment income (loss) | | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total from investment operations | | | | | |
Distributions paid to shareholders from: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Net asset value, end of period | | | | | |
| | | | | |
|
Ratios to average net assets/supplemental data: | | | | | |
Net assets, end of period (in 000’s) | | | | | |
Ratio of total expenses to average net assets | | | | | |
Ratio of net investment income (loss) to average net assets | | | | | |
Portfolio turnover rate (c) | | | | | |
| 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 distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return is calculated for the time period presented and is not annualized for periods of less than a year. |
| Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. |
See Notes to Financial Statements
Notes to Financial Statements
First Trust Exchange-Traded Fund IIIOctober 31, 2024
1. Organization
First Trust Exchange-Traded Fund III (the “Trust”) is an open-end management investment company organized as a Massachusetts business trust on January 9, 2008, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the “1940 Act”).
This report covers the three funds (each a “Fund” and collectively, the “Funds”) listed below, each a diversified series of the Trust. The shares of each Fund are listed and traded on Nasdaq, Inc. (“Nasdaq”).
First Trust RiverFront Dynamic Developed International ETF – (ticker “RFDI”) |
First Trust RiverFront Dynamic Europe ETF – (ticker “RFEU”) |
First Trust RiverFront Dynamic Emerging Markets ETF – (ticker “RFEM”) |
Each Fund represents a separate series of shares of beneficial interest in the Trust. Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares known as “Creation Units.”
Each Fund is an actively-managed exchange-traded fund. The investment objective of each Fund is to provide capital appreciation.
Under normal market conditions, RFDI seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in a portfolio of equity securities of developed market companies, including through investments in common stocks, depositary receipts, common and preferred shares of real estate investment trusts (“REITs”), and forward foreign currency exchange contracts and currency spot transactions used to hedge the Fund’s exposure to the currencies in which the equity securities of such developed market companies are denominated.
Under normal market conditions, RFEU seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in a portfolio of equity securities of European companies, including through investments in common stocks, depositary receipts, common and preferred shares of REITs, and forward foreign currency exchange contracts and currency spot transactions used to hedge the Fund’s exposure to the currencies in which the equity securities of such European companies are denominated.
Under normal market conditions, RFEM seeks to achieve its investment objective by investing at least 80% of its net assets (including investment borrowings) in a portfolio of equity securities of emerging market companies, including through investments in common stocks, depositary receipts, common and preferred shares of REITs, and forward foreign currency exchange contracts and currency spot transactions used to hedge the Fund’s exposure to the currencies in which the equity securities of such emerging market companies are denominated.
There can be no assurance that a Fund will achieve its investment objective. The Funds may not be appropriate for all investors.
2. Significant Accounting Policies
The Funds are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board Accounting Standards Codification Topic 946, “Financial Services-Investment Companies.” The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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.
Each Fund’s NAV is determined daily as of the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. If the NYSE closes early on a valuation day, the NAV is determined as of that time. Foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. Each Fund’s NAV is calculated by dividing the value of all assets of each Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding.
Each Fund’s investments are valued daily at market value or, in the absence of market value with respect to any portfolio securities, at fair value. Market value prices represent readily available market quotations such as last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Funds’ investment advisor, First Trust Advisors L.P. (“First Trust” or the “Advisor”), in accordance with valuation procedures approved by the Trust’s Board of Trustees, and in accordance with provisions of the 1940 Act and rules thereunder. Investments valued by the Advisor’s Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund’s investments are valued as follows:
Common stocks, exchange-traded funds and other equity securities listed on any national or foreign exchange (excluding Nasdaq and the London Stock Exchange Alternative Investment Market (“AIM”)) are valued at the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the primary exchange for such securities.
Securities trading on foreign exchanges or over-the-counter markets that close prior to the NYSE close may be valued using a systematic fair valuation model provided by a third-party pricing service. If these foreign securities meet certain criteria in relation to the valuation model, their valuation is systematically adjusted to reflect the impact of movement in the U.S. market after the close of the foreign markets.
Shares of open-end funds are valued based on NAV per share.
Forward foreign currency contracts are valued at the current day’s interpolated foreign exchange rate, as calculated using the current day’s spot rate, and the thirty, sixty, ninety, and one-hundred eighty day forward rates provided by a third-party pricing service.
Equity securities traded in an over-the-counter market are valued at the close price or the last trade price.
Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Advisor’s Pricing Committee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value 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 third-party 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. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following:
1)
the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price;
3)
the size of the holding;
4)
the initial cost of the security;
5)
transactions in comparable securities;
6)
price quotes from dealers and/or third-party pricing services;
7)
relationships among various securities;
8)
information obtained by contacting the issuer, analysts, or the appropriate stock exchange;
9)
an analysis of the issuer’s financial statements;
10)
the existence of merger proposals or tender offers that might affect the value of the security; and
11)
other relevant factors.
If the securities in question are foreign securities, the following additional information may be considered:
1)
the last sale price on the exchange on which they are principally traded;
2)
the value of similar foreign securities traded on other foreign markets;
3)
ADR trading of similar securities;
4)
closed-end fund or exchange-traded fund trading of similar securities;
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 5)
foreign currency exchange activity;
6)
the trading prices of financial products that are tied to baskets of foreign securities;
7)
factors relating to the event that precipitated the pricing problem;
8)
whether the event is likely to recur;
9)
whether the effects of the event are isolated or whether they affect entire markets, countries or regions; and
10)
other relevant factors.
Because foreign markets may be open on different days than the days during which investors may transact in the shares of a Fund, the value of the Fund’s securities may change on the days when investors are not able to transact in the shares of the Fund. The value of the securities denominated in foreign currencies is converted into U.S. dollars using exchange rates determined daily as of the close of regular trading on the NYSE.
The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
• Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.
o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates).
o Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment.
The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund’s investments as of October 31, 2024, is included with each Fund’s Portfolio of Investments.
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 except that certain dividends from foreign securities are recorded as soon as the information becomes available after the ex-dividend date. Interest income, if any, is recorded on the accrual basis.
Withholding taxes and tax reclaims on foreign dividends have been provided for in accordance with each Fund’s understanding of the applicable country’s tax rules and rates.
Distributions received from a Fund’s investments in REITs may be comprised of return of capital, capital gains, and income. The actual character of the amounts received during the year are not known until after the REITs’ fiscal year end. A Fund records the character of distributions received from the REITs during the year based on estimates available. The characterization of distributions received by a Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude.
C. Forward Foreign Currency Contracts
Each Fund is subject to foreign currency risk in the normal course of pursuing its investment objective. Forward foreign currency contracts are agreements between two parties (“Counterparties”) to exchange one currency for another at a future date and at a specified price. Each Fund uses forward foreign currency contracts to facilitate transactions in foreign securities and to manage the Fund’s foreign currency exposure. These contracts are valued daily, and a Fund’s net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 and the forward rates at the reporting date, is included in “Unrealized appreciation on forward foreign currency contracts” and “Unrealized depreciation on forward foreign currency contracts” on the Statements of Assets and Liabilities. The change in unrealized appreciation/(depreciation) is included in “Net change in unrealized appreciation (depreciation) on forward foreign currency contracts” on the Statements of Operations. When the forward contract is closed, a Fund records a realized gain or loss equal to the difference between the proceeds from (or the cost of) the closing transaction and the Fund’s basis in the contract. This realized gain or loss is included in “Net realized gain (loss) on forward foreign currency contracts” on the Statements of Operations. Risks arise from the possible inability of Counterparties to meet the terms of their contracts and from movement in currency and securities values and interest rates. Due to the risks, a Fund could incur losses in excess of the net unrealized value shown on the Forward Foreign Currency Contracts table in the Fund’s Portfolio of Investments. In the event of default by the Counterparty, a Fund will provide notice to the Counterparty of the Fund’s intent to convert the currency held by the Fund into the currency that the Counterparty agreed to exchange with the Fund. If a Counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, a Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances.
The books and records of the Funds are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of investments and items of income and expense are translated on the respective dates of such transactions. Unrealized gains and losses on assets and liabilities, other than investments in securities, which result from changes in foreign currency exchange rates have been included in “Net change in unrealized appreciation (depreciation) on foreign currency translation” on the Statements of Operations. Unrealized gains and losses on investments in securities which result from changes in foreign exchange rates are included with fluctuations arising from changes in market price and are shown in “Net change in unrealized appreciation (depreciation) on investments” on the Statements of Operations. Net realized foreign currency gains and losses include the effect of changes in exchange rates between trade date and settlement date on investment security transactions, foreign currency transactions and interest and dividends received and are included in “Net realized gain (loss) on foreign currency transactions” on the Statements of Operations. The portion of foreign currency gains and losses related to fluctuations in exchange rates between the initial purchase settlement date and subsequent sale trade date is included in “Net realized gain (loss) on investments” on the Statements of Operations.
E. Dividends and Distributions to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid quarterly, or as the Board of Trustees may determine from time to time. Distributions of net realized capital gains earned by each Fund, if any, are distributed at least annually. Each Fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Distributions from net investment income and realized capital gains are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Funds and have no impact on net assets or NAV per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the fiscal year ended October 31, 2024 were as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Return of
Capital |
First Trust RiverFront Dynamic Developed International ETF | | | |
First Trust RiverFront Dynamic Europe ETF | | | |
First Trust RiverFront Dynamic Emerging Markets ETF | | | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 The tax character of distributions paid by each Fund during the fiscal year ended October 31, 2023 were as follows:
| Distributions
paid from
Ordinary
Income | Distributions
paid from
Capital
Gains | Distributions
paid from
Return of
Capital |
First Trust RiverFront Dynamic Developed International ETF | | | |
First Trust RiverFront Dynamic Europe ETF | | | |
First Trust RiverFront Dynamic Emerging Markets ETF | | | |
As of October 31, 2024, the components of distributable earnings on a tax basis for each Fund were as follows:
| Undistributed
Ordinary
Income | Accumulated
Capital and
Other
Gain (Loss) | Net
Unrealized
Appreciation
(Depreciation) |
First Trust RiverFront Dynamic Developed International ETF | | | |
First Trust RiverFront Dynamic Europe ETF | | | |
First Trust RiverFront Dynamic Emerging Markets ETF | | | |
F. Income and Other Taxes
Each Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes 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. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of each Fund’s taxable income exceeds the distributions from such taxable income for the calendar year.
Certain countries assess a capital gains tax on securities sold in their local markets. This tax is accrued as the securities in these foreign markets appreciate in value and is paid at the time of sale to the extent a capital gain is realized. Taxes accrued on securities in an unrealized appreciation position are included in “Net change in unrealized appreciation (depreciation) on deferred foreign capital gains tax” on the Statements of Operations. The capital gains tax paid on securities sold, if any, is included in “Net realized gain (loss) on foreign capital gains tax” on the Statements of Operations.
Capital Gains. India’s Finance Act, 2024 (“Finance Act, 2024”) was enacted into law on July 23, 2024, and amongst the other provisions, it increased long-term and short-term capital gain rates on sales of Indian securities, effective that date. As per the amended provisions, the long-term capital gains on the sale of listed shares (sold on a recognized stock exchange and where Securities Transaction Tax (“STT”) is paid) in excess of INR 0.125 million are taxed at the rate of 12.5% (plus applicable surcharge and cess), increased from 10% (plus applicable surcharge and cess), subject to satisfaction of certain conditions. As a grandfathering measure, the cost of acquisition for the purpose of calculation of long-term capital asset acquired before February 1, 2018 shall be deemed to be the higher of the following: (a) the actual cost of acquisition of such asset; and (b) lower of (i) the fair market value of such asset as on January 31, 2018 and (ii) full value of consideration as received on its transfer/disposal of the equity shares. The highest effective tax rate on long-term capital gains earned by a Fund could be 14.95% in the case of a non-corporate entity and 13.65% in the case of a corporate entity.
In the case of the sale of listed shares (sold on a recognized stock exchange and where STT is paid) held by a Fund for one year or less, the income is classified as short-term capital gains and is taxable at 20% (plus applicable surcharge and cess), increased from 15% (plus applicable surcharge and cess), provided the shares are sold on the stock exchange and subjected to STT. The highest effective tax rate on short-term capital gains earned by a Fund could be 23.92% in the case of a non-corporate entity and 21.84% in the case of a corporate entity.
Short-term capital loss can be set-off against both short-term capital gains and long-term capital gains. However, long-term capital loss can be set-off only against long-term capital gains. The unabsorbed (remaining loss after setting off loss during the year against income of the year) short-term and long-term capital loss can be carried forward for immediately succeeding 8 (eight) assessment years.
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 Buy back. Finance Act, 2024 has amended the provisions for taxation of buyback of shares and provided that the gains arising on buyback of shares will be considered as deemed dividend in the hands of the shareholder and taxed accordingly. (Prior to enactment of Finance Act, 2024, the shareholders were exempt from tax on any income arising on buyback and distribution tax at the rate of 20% plus applicable surcharge and cess was payable by the Indian Company on buyback of shares). Further, the cost of acquisition in relation to buyback of shares shall be considered as capital loss in the hands of shareholder and the capital loss can be set off against the capital gain income.
Where the sale of shares is outside the stock exchange and not subject to STT, the long-term capital gains continue to be taxed at 10% (plus applicable surcharge and cess) and short-term capital gains are taxed at 30% (plus applicable surcharge and cess).
Dividend income. The dividend income earned by a Fund from Indian Companies shall be chargeable to tax at the rate of 20% (plus applicable surcharge and cess). The highest effective tax rate on dividend income arising to a Fund could be 23.92% in the case of a non-corporate entity and 21.84% in the case of a corporate entity. Note that a Fund will not obtain relief under the US-India tax treaty as the treaty rate of 25% is higher than the domestic rate. Any excess taxes withheld can be offset against capital gains tax liability during the year or claimed as a refund in the annual tax return.
Interest income. Interest Income received from the Indian Investee Company shall be continued to be chargeable to tax at the rate of 20% (plus applicable surcharge and cess).
Other income. Any other income (other than capital gain, dividend, interest) earned by a Fund shall be chargeable to tax at the rate of 35% (earlier taxable at the rate of 40%) (plus applicable surcharge and cess).
Please note that the above description is based on current provisions of Indian law, and any change or modification made by subsequent legislation, regulation, or administrative or judicial decision could increase the Indian tax liability of a Fund and thus reduce the return to a Fund’s shareholders. There can be no assurance that the Indian tax authorities and/or regulators will not take a position contrary to the views expressed herein. If the Indian tax authorities and/or regulators take a position contrary to the views expressed herein, adverse unpredictable consequences may follow.
The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. The taxable years ended 2021, 2022, 2023, and 2024 remain open to federal and state audit. As of October 31, 2024, management has evaluated the application of these standards to the Funds and has determined that no provision for income tax is required in the Funds’ financial statements for uncertain tax positions.
During the taxable year ending 2024, RFEU incurred tax expense in the amount of $111,330 shown as “Tax expense” on the Statements of Operations. This tax expense resulted from entering into an IRS closing agreement pursuant to IRS Notice 2016-10 for a European Union discriminatory refund received during the fiscal year ended October 31, 2023.
Each Fund intends to utilize provisions of the federal income tax laws, which allow it to carry a realized capital loss forward indefinitely following the year of the loss and offset such loss against any future realized capital gains. Each Fund is subject to certain limitations under U.S. tax rules on the use of capital loss carryforwards and net unrealized built-in losses. These limitations apply when there has been a 50% change in ownership. At October 31, 2024, for federal income tax purposes, each applicable Fund had a capital loss carryforward available that is shown in the following table, to the extent provided by regulations, to offset future capital gains. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to each applicable Fund’s shareholders.
| Non-Expiring
Capital Loss
Carryforwards |
First Trust RiverFront Dynamic Developed International ETF | |
First Trust RiverFront Dynamic Europe ETF | |
First Trust RiverFront Dynamic Emerging Markets ETF | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 During the taxable year ended October 31, 2024, the following Funds utilized capital loss carryforwards in the following amounts:
| |
First Trust RiverFront Dynamic Developed International ETF | |
First Trust RiverFront Dynamic Europe ETF | |
First Trust RiverFront Dynamic Emerging Markets ETF | |
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended October 31, 2024, the Funds had no net late year ordinary or capital losses.
In order to present paid-in capital and accumulated distributable earnings (loss) (which consists of accumulated net investment income (loss), accumulated net realized gain (loss) on investments and net unrealized appreciation (depreciation) on investments) on the Statements of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Funds and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the fiscal year ended October 31, 2024, the adjustments for each Fund were as follows:
| Accumulated
Net Investment
Income (Loss) | Accumulated
Net Realized
Gain (Loss)
on Investments | |
First Trust RiverFront Dynamic Developed International ETF | | | |
First Trust RiverFront Dynamic Europe ETF | | | |
First Trust RiverFront Dynamic Emerging Markets ETF | | | |
As of October 31, 2024, the aggregate cost, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation/(depreciation) on investments (including short positions and derivatives, if any) for federal income tax purposes were as follows:
| | Gross Unrealized
Appreciation | Gross Unrealized
(Depreciation) | Net Unrealized
Appreciation
(Depreciation) |
First Trust RiverFront Dynamic Developed International ETF | | | | |
First Trust RiverFront Dynamic Europe ETF | | | | |
First Trust RiverFront Dynamic Emerging Markets ETF | | | | |
Expenses, other than the investment advisory fee and other excluded expenses, are paid by the Advisor (see Note 3).
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. First Trust is responsible for supervising the selection and ongoing monitoring of the securities in each Fund’s portfolio, managing the Funds’ business affairs and providing certain administrative services necessary for the management of the Funds.
Pursuant to the Investment Management Agreement between First Trust and the Trust, First Trust supervises the investment of the Funds’ assets and is responsible for the expenses of each Fund including the cost of transfer agency, sub-advisory, custody, fund administration, legal, audit and other services, but excluding fee payments under the Investment Management Agreement, interest, taxes, brokerage commissions, acquired fund fees and expenses, if any, distribution and service fees payable pursuant to a Rule 12b-1 plan, if any, expenses associated with the execution of portfolio transactions, and extraordinary expenses, which are paid by each
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 respective Fund. Prior to November 6, 2023, First Trust also provided fund reporting services to the Funds for a flat annual fee in the amount of $9,250 per Fund, which was covered under the annual unitary management fee. The annual unitary management fee payable by each Fund to First Trust for these services will be reduced at certain levels of each Fund’s net assets (“breakpoints”) and calculated pursuant to the following schedules:
| | | |
Fund net assets up to and including $2.5 billion | | | |
Fund net assets greater than $2.5 billion up to and including $5 billion | | | |
Fund net assets greater than $5 billion up to and including $7.5 billion | | | |
Fund net assets greater than $7.5 billion up to and including $10 billion | | | |
Fund net assets greater than $10 billion | | | |
RiverFront Investment Group, LLC (“RIG” or the “Sub-Advisor”) serves as the Funds’ sub-advisor and manages each Fund’s portfolio subject to First Trust’s supervision. The sub-advisory fee payable to the Sub-Advisor by First Trust out of its annual unitary management fee is reduced at certain breakpoints and calculated pursuant to the following schedule:
| |
Fund net assets up to and including $2.5 billion | |
Fund net assets greater than $2.5 billion up to and including $5 billion | |
Fund net assets greater than $5 billion up to and including $7.5 billion | |
Fund net assets greater than $7.5 billion up to and including $10 billion | |
Fund net assets greater than $10 billion | |
Effective November 6, 2023, the Trust has multiple service agreements with The Bank of New York Mellon (“BNY”). Under the service agreements, BNY performs custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BNY is responsible for custody of each Fund’s assets. As fund accountant and administrator, BNY is responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BNY is responsible for maintaining shareholder records for each Fund. BNY is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company.
Prior to November 6, 2023, the Trust had multiple service agreements with Brown Brothers Harriman & Co. (“BBH”). Under the service agreements, BBH performed custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BBH was responsible for custody of each Fund’s assets. As fund accountant and administrator, BBH was responsible for maintaining the books and records of each Fund’s securities and cash. As transfer agent, BBH was responsible for maintaining shareholder records for each Fund.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates (“Independent Trustees”) is paid a fixed annual retainer that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, a target outcome fund or an index fund.
Additionally, the Chairs of the Audit Committee, Nominating and Governance Committee and Valuation Committee, the Vice Chair of the Audit Committee, the Lead Independent Trustee and the Vice Lead Independent Trustee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Committee Chairs, the Audit Committee Vice Chair, the Lead Independent Trustee and the Vice Lead Independent Trustee rotate periodically in serving in such capacities. The officers and “Interested” Trustee receive no compensation from the Trust for acting in such capacities.
4. Purchases and Sales of Securities
For the fiscal year ended October 31, 2024, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
| | |
First Trust RiverFront Dynamic Developed International ETF | | |
First Trust RiverFront Dynamic Europe ETF | | |
First Trust RiverFront Dynamic Emerging Markets ETF | | |
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 For the fiscal year ended October 31, 2024, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows:
| | |
First Trust RiverFront Dynamic Developed International ETF | | |
First Trust RiverFront Dynamic Europe ETF | | |
First Trust RiverFront Dynamic Emerging Markets ETF | | |
5. Derivative Transactions
The following table presents the types of derivatives held by the following fund at October 31, 2024, the primary underlying risk exposure and the location of these instruments as presented on the Statements of Assets and Liabilities.
| | | |
| | Statements of Assets and
Liabilities Location | | Statements of Assets and
Liabilities Location | |
| | | | | |
Forward foreign currency contracts | | Unrealized appreciation on forward foreign currency contracts | | Unrealized depreciation on forward foreign currency contracts | |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized for the fiscal year ended October 31, 2024, on RFEM’s derivative instruments, as well as the primary underlying risk exposure associated with the instruments.
|
Statements of Operations Location | |
| |
Net realized gain (loss) on forward foreign currency contracts | |
Net change in unrealized appreciation (depreciation) on forward foreign currency contracts | |
For RFEM, the average notional value of forward foreign currency contracts outstanding during the fiscal year ended October 31, 2024, which is indicative of the volume of this derivative type, was $3,099,871.
The Funds do not have the right to offset financial assets and financial liabilities related to forward foreign currency contracts on the Statements of Assets and Liabilities.
6. Creations, Redemptions and Transaction Fees
Each Fund generally issues and redeems its shares in primary market transactions through a creation and redemption mechanism and does not sell or redeem individual shares. Instead, financial entities known as “Authorized Participants” have contractual arrangements with a Fund or one of the Fund’s service providers to purchase and redeem Fund shares directly with the Fund in Creation Units. Prior to the start of trading on every business day, a Fund publishes through the National Securities Clearing Corporation the “basket” of securities, cash or other assets that it will accept in exchange for a Creation Unit of the Fund’s shares. An Authorized Participant that wishes to effectuate a creation of a Fund’s shares deposits with the Fund the “basket” of securities, cash or other assets identified by the Fund that day, and then receives the Creation Unit of the Fund’s shares in return for those assets. After purchasing a Creation Unit, the Authorized Participant may continue to hold the Fund’s shares or sell them in the secondary market. The redemption process is the reverse of the purchase process: the Authorized Participant redeems a Creation Unit of a Fund’s shares for a basket of securities, cash or other assets. The combination of the creation and redemption process with secondary market trading in a Fund’s shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of a Fund’s shares at or close to the NAV per share of the Fund.
Each Fund imposes fees in connection with the purchase of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares
Notes to Financial Statements (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 in a Creation Unit, plus the fees described above and, if applicable, any 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 the securities comprising the creation basket.
Each Fund also imposes fees in connection with the redemption of Creation Units. These fees may vary based upon various fact-based circumstances, including, but not limited to, the composition of the securities included in the Creation Unit or the countries in which the transactions are settled. The price received for each Creation Unit will equal the daily NAV per share of a Fund times the number of shares in a Creation Unit, minus the fees described above and, if applicable, any 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 the securities comprising the redemption basket. 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 may also be assessed an amount to cover the cost of such services. The redemption fee charged by a Fund will comply with Rule 22c-2 of the 1940 Act which limits redemption fees to no more than 2% of the value of the shares redeemed.
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. (“FTP”), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, no 12b-1 fees will be paid any time before February 28, 2026.
The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust’s maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of First Trust Exchange-Traded Fund III:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities of First Trust RiverFront Dynamic Developed International ETF, First Trust RiverFront Dynamic Europe ETF, and First Trust RiverFront Dynamic Emerging Markets ETF (the “Funds”), each a series of the First Trust Exchange-Traded Fund III, including the portfolios of investments, as of October 31, 2024, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of each of the Funds as of October 31, 2024, and the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2024, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
December 19, 2024
We have served as the auditor of one or more First Trust investment companies since 2001.
First Trust Exchange-Traded Fund IIIOctober 31, 2024 (Unaudited)
Changes in and Disagreements with Accountants (Item 8 of Form N-CSR)
There were no changes in or disagreements with the Funds’ accountants during the fiscal year ended October 31, 2024.
Proxy Disclosures (Item 9 of Form N-CSR)
There were no matters submitted for vote by shareholders of any Fund during the fiscal year ended October 31, 2024.
Remuneration Paid to Directors, Officers, and Others (Item 10 of Form N-CSR)
Independent Trustees and any member of any advisory board of each Fund are compensated through the unitary management fee paid by each Fund to the advisor and not directly by each Fund. The investment advisory fee paid is included in the Statements of Operations.
Statement Regarding the Basis for the Board’s Approval of Investment Advisory Contract (Item 11 of Form N-CSR)
The Board of Trustees of First Trust Exchange-Traded Fund III (the “Trust”), including the Independent Trustees, unanimously approved the continuation of the Investment Management Agreement (the “Advisory Agreement”) with First Trust Advisors L.P. (the “Advisor”) and the Investment Sub-Advisory Agreement (the “Sub-Advisory Agreement” and together with the Advisory Agreement, the “Agreements”) among the Trust, the Advisor and RiverFront Investment Group, LLC (the “Sub-Advisor”) on behalf of the following series of the Trust (each a “Fund” and collectively, the “Funds”):
First Trust RiverFront Dynamic Developed International ETF (RFDI)
First Trust RiverFront Dynamic Emerging Markets ETF (RFEM)
First Trust RiverFront Dynamic Europe ETF (RFEU)
The Board approved the continuation of the Agreements for each Fund for a one-year period ending June 30, 2025 at a meeting held on June 2–3, 2024. The Board determined for each Fund that the continuation of the Agreements is in the best interests of the Fund in light of the nature, extent and quality of the services provided and such other matters as the Board considered to be relevant in the exercise of its business judgment.
To reach this determination for each Fund, the Board considered its duties under the Investment Company Act of 1940, as amended (the “1940 Act”), as well as under the general principles of state law, in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. At meetings held on April 16, 2024, April 25, 2024 and June 2–3, 2024, the Board, including the Independent Trustees, reviewed materials provided by the Advisor and the Sub-Advisor responding to requests for information from counsel to the Independent Trustees, submitted on behalf of the Independent Trustees, that, among other things, outlined: the services provided by the Advisor and the Sub-Advisor to each Fund (including the relevant personnel responsible for these services and their experience); the unitary fee rate schedule payable by each Fund as compared to fees charged to a peer group of funds (the “Expense Group”) and a broad peer universe of funds (the “Expense Universe”), each assembled by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent source, and as compared to fees charged to other clients of the Advisor, including other exchange-traded funds (“ETFs”) managed by the Advisor; the sub-advisory fee as compared to fees charged to other clients of the Sub-Advisor; the expense ratio of each Fund as compared to expense ratios of the funds in the Fund’s Expense Group and Expense Universe; performance information for each Fund, including comparisons of each Fund’s performance to that of one or more relevant benchmark indexes and to that of a performance group of funds and a broad performance universe of funds (the “Performance Universe”), each assembled by Broadridge; the nature of expenses incurred in providing services to each Fund and the potential for the Advisor and the Sub-Advisor to realize economies of scale, if any; profitability and other financial data for the Advisor; financial data for the Sub-Advisor; any indirect benefits to the Advisor and its affiliate, First Trust Portfolios L.P. (“FTP”), and the Sub-Advisor; and information on the Advisor’s and the Sub-Advisor’s compliance programs. The Board reviewed initial materials with the Advisor at the meeting held on April 25, 2024 prior to which the Independent Trustees and their counsel met separately to discuss the information provided by the Advisor and the Sub-Advisor. Following the April 25, 2024 meeting, counsel to the Independent Trustees, on behalf of the Independent Trustees, requested certain clarifications and supplements to the materials provided, and the information provided in response to those requests was considered at an executive session of the Independent Trustees and their counsel held prior to the June 2–3, 2024 meeting, as well as at the June meeting. The Board applied its business judgment to determine whether the arrangements between the Trust and the Advisor and among the Trust, the Advisor and the Sub-Advisor continue to be reasonable business arrangements from each Fund’s perspective. The Board determined that, given the totality of the information provided with
Other Information (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 (Unaudited) respect to the Agreements, the Board had received sufficient information to renew the Agreements. The Board considered that shareholders chose to invest or remain invested in a Fund knowing that the Advisor and the Sub-Advisor manage the Fund and knowing the Fund’s unitary fee.
In reviewing the Agreements for each Fund, the Board considered the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor under the Agreements. With respect to the Advisory Agreement, the Board considered that the Advisor is responsible for the overall management and administration of the Trust and each Fund and reviewed all of the services provided by the Advisor to the Funds, including the oversight of the Sub-Advisor, as well as the background and experience of the persons responsible for such services. The Board noted that the Advisor oversees the Sub-Advisor’s day-to-day management of each Fund’s investments, including portfolio risk monitoring and performance review. The Board considered that the Sub-Advisor is responsible for the selection and ongoing monitoring of the securities in the Funds’ investment portfolios, but that the Advisor executes each Fund’s portfolio trades. In reviewing the services provided, the Board noted the compliance program that had been developed by the Advisor and considered that it includes a robust program for monitoring the Advisor’s, the Sub-Advisor’s and each Fund’s compliance with the 1940 Act, as well as each Fund’s compliance with its investment objective, policies and restrictions. The Board also considered a report from the Advisor with respect to its risk management functions related to the operation of the Funds. Finally, as part of the Board’s consideration of the Advisor’s services, the Advisor, in its written materials and at the April 25, 2024 meeting, described to the Board the scope of its ongoing investment in additional personnel and infrastructure to maintain and improve the quality of services provided to the Funds and the other funds in the First Trust Fund Complex. With respect to the Sub-Advisory Agreement, the Board noted that each Fund is an actively-managed ETF and the Sub-Advisor actively manages the Fund’s investments. In addition to the written materials provided by the Sub-Advisor, at the June 2–3, 2024 meeting, the Board also received a presentation from the representatives of the Sub-Advisor, who discussed the services that the Sub-Advisor provides to each Fund, including the Sub-Advisor’s day-to-day management of the Funds’ investments. In considering the Sub-Advisor’s management of the Funds, the Board noted the background and experience of the Sub-Advisor’s portfolio management team. In light of the information presented and the considerations made, the Board concluded that the nature, extent and quality of the services provided to the Trust and each Fund by the Advisor and the Sub-Advisor under the Agreements have been and are expected to remain satisfactory and that the Sub-Advisor, under the oversight of the Advisor, has managed each Fund consistent with its investment objective, policies and restrictions.
The Board considered the unitary fee rate schedule payable by each Fund under the Advisory Agreement for the services provided. The Board noted that the sub-advisory fee for each Fund is paid by the Advisor from the Fund’s unitary fee. The Board considered that as part of the unitary fee the Advisor is responsible for each Fund’s expenses, including the cost of sub-advisory, transfer agency, custody, fund administration, legal, audit and other services and license fees, if any, but excluding the fee payment under the Advisory Agreement and interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, distribution and service fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses, if any. The Board received and reviewed information showing the fee rates and expense ratios of the peer funds in the Expense Groups, as well as advisory and unitary fee rates charged by the Advisor and the Sub-Advisor to other fund (including ETFs) and non-fund clients, as applicable. Because each Fund pays a unitary fee, the Board determined that expense ratios were the most relevant comparative data point. Based on the information provided, the Board noted that the total (net) expense ratio for each Fund was above the median total (net) expense ratio of the peer funds in its respective Expense Group. With respect to the Expense Groups, the Board discussed with Broadridge its methodology for assembling peer groups and discussed with the Advisor limitations in creating peer groups for actively-managed ETFs, and different business models that may affect the pricing of services among ETF sponsors. The Board also noted that, for each Fund, not all peer funds employ an advisor/sub-advisor management structure. The Board took these limitations and differences into account in considering the peer data. With respect to fees charged to other non-ETF clients, the Board considered differences between the Funds and other non-ETF clients that limited their comparability. In considering the unitary fee rate schedules overall, the Board also considered the Advisor’s statement that it seeks to meet investor needs through innovative and value-added investment solutions and the Advisor’s demonstrated long-term commitment to each Fund and the other funds in the First Trust Fund Complex.
The Board considered performance information for each Fund. The Board noted the process it has established for monitoring each Fund’s performance and portfolio risk on an ongoing basis, which includes quarterly performance reporting from the Advisor and the Sub-Advisor for the Funds. The Board determined that this process continues to be effective for reviewing each Fund’s performance. The Board received and reviewed information comparing each Fund’s performance for periods ended December 31, 2023 to the performance of the funds in its Performance Universe and to that of a benchmark index. Based on the information provided, the Board noted that RFDI outperformed its Performance Universe median for the one- and three-year periods ended December 31, 2023, underperformed its Performance Universe median for the five-year period ended December 31, 2023 and underperformed its benchmark index for the one-, three- and five-year periods ended December 31, 2023. The Board noted that RFEM outperformed its
Other Information (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 (Unaudited) Performance Universe median and benchmark index for the one-, three- and five-year periods ended December 31, 2023. The Board noted that RFEU underperformed its Performance Universe median and benchmark index for the one-, three- and five-year periods ended December 31, 2023. The Board noted the Sub-Advisor’s discussion of each Fund’s performance at the June 2-3, 2024 meeting.
On the basis of all the information provided on the unitary fee and performance of each Fund and the ongoing oversight by the Board, the Board concluded that the unitary fee for each Fund (out of which the Sub-Advisor is compensated) continues to be reasonable and appropriate in light of the nature, extent and quality of the services provided by the Advisor and the Sub-Advisor to each Fund under the Agreements.
The Board considered information and discussed with the Advisor whether there were any economies of scale in connection with providing advisory services to the Funds at current asset levels and whether the Funds may benefit from any economies of scale. The Board noted that the unitary fee rate schedule for each Fund includes breakpoints pursuant to which the unitary fee rate will be reduced as assets of the Fund meet certain thresholds. The Board considered the Advisor’s statement that it believes that its expenses relating to providing advisory services to the Funds will increase during the next twelve months as the Advisor continues to build infrastructure and add new staff. The Board also noted that under the unitary fee structure, any reduction in expenses associated with the management and operations of the Funds would benefit the Advisor, but that the unitary fee structure provides a level of certainty in expenses for shareholders of the Funds. The Board concluded that the unitary fee rate schedule for each Fund reflects an appropriate level of sharing of any economies of scale that may be realized in the management of the Fund at current asset levels. The Board considered the revenues and allocated costs (including the allocation methodology) of the Advisor in serving as investment advisor to each Fund for the twelve months ended December 31, 2023 and the estimated profitability level for each Fund calculated by the Advisor based on such data, as well as complex-wide and product-line profitability data, for the same period. The Board noted the inherent limitations in the profitability analysis and concluded that, based on the information provided, the Advisor’s profitability level for each Fund was not unreasonable. In addition, the Board considered indirect benefits described by the Advisor that may be realized from its relationship with the Funds. The Board considered that the Advisor had identified as an indirect benefit to the Advisor and FTP their exposure to investors and brokers who, absent their exposure to the Funds, may have had no dealings with the Advisor or FTP, and noted that the Advisor does not utilize soft dollars in connection with the Funds. The Board concluded that the character and amount of potential indirect benefits to the Advisor were not unreasonable.
The Board considered the Sub-Advisor’s statement to the effect that, although growth of the Funds will provide some economies of scale, the Sub-Advisor believes that expenses will remain the same for the next twelve months. The Board also noted the Sub-Advisor’s recent investments in personnel and infrastructure to improve services to the Funds. The Board noted that the Advisor pays the Sub-Advisor for each Fund from the unitary fee, that the sub-advisory fee will be reduced consistent with the breakpoints in the unitary fee rate schedule and its understanding that each Fund’s sub-advisory fee was the product of an arm’s length negotiation. The Board did not review the profitability of the Sub-Advisor with respect to each Fund. The Board concluded that the profitability analysis for the Advisor was more relevant. The Board considered the potential indirect benefits to the Sub-Advisor from being associated with the Advisor and the Funds, and noted the Sub-Advisor’s statements regarding such potential benefits. The Board concluded that the character and amount of potential indirect benefits to the Sub-Advisor were not unreasonable.
Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, unanimously determined that the terms of the Agreements continue to be fair and reasonable and that the continuation of the Agreements is in the best interests of each Fund. No single factor was determinative in the Board’s analysis.
For the taxable year ended October 31, 2024, the following percentages of income dividends paid by the Funds qualify for the dividends received deduction available to corporations:
| Dividends Received
Deduction |
First Trust RiverFront Dynamic Developed International ETF | |
First Trust RiverFront Dynamic Europe ETF | |
First Trust RiverFront Dynamic Emerging Markets ETF | |
Other Information (Continued)
First Trust Exchange-Traded Fund IIIOctober 31, 2024 (Unaudited) For the taxable year ended October 31, 2024, the following percentages of income dividends paid by the Funds are hereby designated as qualified dividend income:
| |
First Trust RiverFront Dynamic Developed International ETF | |
First Trust RiverFront Dynamic Europe ETF | |
First Trust RiverFront Dynamic Emerging Markets ETF | |
The following Funds meet the requirements of Section 853 of the Internal Revenue Code of 1986, as amended, and elect to pass through to their shareholders credit for foreign taxes paid. For the taxable year ended October 31, 2024, the total amounts of income received by the Funds from sources within foreign countries and possessions of the United States and of taxes paid to such countries are as follows:
| | |
| | | | |
First Trust RiverFront Dynamic Developed International ETF | | | | |
First Trust RiverFront Dynamic Europe ETF | | | | |
First Trust RiverFront Dynamic Emerging Markets ETF | | | | |
The foreign taxes paid will be reported to shareholders on Form 1099-DIV which will be sent to shareholders shortly after the calendar year end. Gross foreign income and foreign taxes paid will be posted on each Fund’s website and disclosed in the tax letter.
(b) The Financial Highlights is included in the Financial Statements and Other Information filed under Item 7(a) of this Form N-CSR.
Item 8. Changes in and Disagreements with Accountants for Open-End Management Investment Companies.
Not applicable to the Registrant.
Item 9. Proxy Disclosures for Open-End Management Investment Companies.
Not applicable to the Registrant.
Item 10. Remuneration Paid to Directors, Officers, and Others of Open-End Management Investment Companies
This information is included in the Financial Statements and Other Information filed under Item 7(a) of this Form N-CSR.
Item 11. Statement Regarding Basis for Approval of Investment Advisory Contract.
This statement is included in the Financial Statements and Other Information filed under Item 7(a) of this Form N-CSR.
Item 12. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to the Registrant.
Item 13. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to the Registrant.
Item 14. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable to the Registrant.
Item 15. 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 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 16. 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 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 17. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
| (a) | Not applicable to the Registrant. |
| (b) | Not applicable to the Registrant. |
Item 18. Recovery of Erroneously Awarded Compensation.
| (a) | Not applicable to the Registrant. |
| (b) | Not applicable to the Registrant. |
Item 19. Exhibits.
| (a)(2) | Not applicable to the Registrant. |
| (a)(4) | Not applicable to the Registrant. |
| (a)(5) | Not applicable to the Registrant. |
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 III |
| By (Signature and Title)* | | /s/ James M. Dykas |
| | | James M. Dykas, President and Chief Executive Officer
(principal executive officer) |
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 M. Dykas |
| | | James M. Dykas, President and Chief Executive Officer
(principal executive officer) |
| By (Signature and Title)* | | /s/ Derek D. Maltbie |
| | | Derek D. Maltbie, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer) |
* Print the name and title of each signing officer under his or her signature.
